The Southeast Asian (SEA) region is continuously focusing on upgrading infrastructure to sustain its economic growth. As per media reports, SEA is set to become the fourth-largest economy in the world by 2030. Many SEA countries, such as the Philippines, Vietnam and Indonesia, intend to increase their investment levels rapidly. The investments are focused on infrastructure projects like airports, highway systems and railways. Moreover, foreign investors are also becoming more interested in SEA’s infrastructure requirements.

Southeast Asia Infrastructure takes a look at the innovative financing initiatives to bridge the infrastructure and financing gap and the future initiatives across sectors…

Innovative financing routes to bridge the gap

Southeast Asia faces a huge infrastructure financing gap that requires immediate attention to maintain sustainable economic growth. In a world of intense competition, it is essential to national prosperity. Therefore, it stands to reason that underinvestment in infrastructure may impede economic development and growth while also raising the risk of fiscal deficit.

Due to rapid economic growth, urbanisation and population expansion, there is a growing disparity between actual spending and the amount of money required to meet the sub-region’s growing infrastructure demand. Furthermore, the COVID-19 pandemic, weather-related disasters, unfavourable effects of climate change and current inflationary conditions have increased the demand for and the costs associated with developing sustainable infrastructure. To fulfil the commitments to the sustainable development goals, boost competitiveness and resolve environmental issues, the gap in infrastructure needs to be reduced.

According to estimates by the Asian Development Bank (ADB), ASEAN’s total infrastructure investment needs are $2.8 trillion (baseline estimate) and $3.1 trillion (climate-adjusted estimate), placing the annual investment need at $184 billion and $210 billion respectively. These estimates do not include the additional expenditure related to natural disasters and extreme weather events that have become more frequent.

Sustained large-scale investments are impeded by the extremely high financing requirements for infrastructure and the scarcity of public funds. Establishing new benchmarks for capital resource funding and mobilisation is imperative. Even though foreign direct investments (FDIs) have recovered to pre-pandemic levels, ASEAN member nations have not been able to fully utilise them because the subregion only receives 11 per cent of all FDI inflows worldwide. Another impediment is the perception that infrastructure funding is a public responsibility, and this has kept private investors at bay as few participation opportunities are made available to them. In addition, political instability, weak governance, inadequate regulatory capacity and the absence of a solid pipeline of viable investment-ready projects also contribute to underinvestment in infrastructure.

Although there are many obstacles in the way of infrastructure development, it is possible to close the funding gap. New methods offered by innovative finance have the potential to attract greater capital investment to bridge the infrastructure gap.To ensure the success of these innovative financing mechanisms, countries across SEA need to ensure an enabling environment that promotes innovative financing solutions and is sustained by the right technology that can mobilise funding to help bridge the infrastructure gap.

Future development plans across sectors

Infrastructure in developing countries in the SEA region has improved rapidly but remains far from adequate. Projects in sectors like energy, road, rail, water and others will drive the demand in the construction sector and growth in the SEA region.

For the future, countries in SEA will continue to focus on developing their infrastructure to ensure sustainability. As SEA countries move towards green infrastructure, it is important to practise low carbon, and climate resistance and meet the local demand.

As discussed below, many new projects are being undertaken in the region across various sectors.

Transportation

  • The Development Bank of the Philippines (DBP) has approved a loan of PhP 2 billion to the provincial government of Palawan to finance key public infrastructure projects, including the upgradation of the local road network. The loan was extended under DBP’s Assistance for Economic and Social Development for the LGUs Financing Program. Of the total, around PhP 1.4 billion will be allocated to upgrade 76 km of gravel roads into two-lane concrete roads. The remaining PhP 0.6 billion will be used for the construction and rehabilitation of various flood control projects.
  • The Government of Indonesia will conduct operational trials for Nusantara Capital City (IKN) Airport starting July 2024. Construction works and operational preparation will be finished before trials begin. The IKN Airport will support governmental services and connectivity in the new capital city.Further, the government also plans to inspect the location for automated rail transit (ART). ART will be developed in two phases for one set of trains with two cars with a capacity to accommodate 324 passengers. The operational speed will be 40 km per hour and the maximum speed will be 70 km per hour.
  • PT Blue Bird Adrianto Djokosoetono (Bluebird) is set to provide green public transportation services in Nusantara Capital City (IKN) in Indonesia. The company has invested IDR 250 billion for the project. The fleet will comprise electric rapid transit buses, electric taxis, electric rental cars and electric public buses to connect Balikpapan and IKN. Additionally, the investment will also be used to develop supporting transportation facilities and infrastructure in the city. The management will be integrated with smart technology and the infrastructure will include bus stops, park and ride, transfer points and depots.
  • The Department of Transport and the Public-Private Partnership Center Philippines have commissioned Systra and PwC Philippines/Isla Lipana & Company to undertake studies for the North Long Haul interregional railway project in the Philippines. The 800 km long rail will connect the National Capital Region with Luzon and Lal-lo Airport. The scope of the works includes financing, design, construction, operation and maintenance of interregional passenger and freight rail. The nine-monthlong study will be completed in 2024 and will be conducted in three phases, covering the project launch and pre-feasibility assessments, feasibility and project structuring, and assistance for obtaining government authorisations.
  • The State Government of Pahang will start construction works on a new permanent bridge in Kuantan, Malaysia. The new structure will replace the existing Bailey bridge at the Kuantan-Segamat highway. The tendering process is expected to commence by the end of 2024. Work on the project is set to start in 2025 and will last for two years. In line with this, a funding application of RM 17 million has been submitted to the Ministry of Economy and the Ministry of Finance.

Urban infrastructure

  • Mass Rapid Transit Corp Sdn Bhd (MRT Corp) aims to complete the land acquisition process for the Mass Rapid Transit 3 (MRT-3) Circle Line project in Malaysia by 2026. The process involves over 1,012 lots of land, the majority of which are private lots, and will be executed in stages. At the end of 2023, the Government of Malaysia approved a three-month-long extension to MRT Corp to finalise tenders for the project’s work package. Earlier scheduled to be announced in December 2023, tenders will now be announced at the end of March 2024. MRT-3, also known as the Circle Line, will be a key part of the Klang Valley MRT network, linking various MRT and light rail transit lines in the city through 10 interchange stations.
  • The National Environment Agency has awarded Keppel Infrastructure Trust a three-year extension of its concession agreement to operate and refurbish the Senoko waste-to-energy (WtE) plant in Singapore, with an option for a one-year extension. Valued at SGD 300 million, the extension includes SGD 80 million earmarked for the refurbishment of the facility. The original contract was set to expire in August 2024. Keppel Seghers has been appointed to refurbish the key components of the plant and ensure safe and reliable operations. The Senoko WtE Plant, Singapore’s third WtE plant, can process 2,310 tonnes of waste daily. It features six incinerator-boiler units and two condensing turbine generators, providing a total maximum power generation capacity of 56 MW.
  • PT KIS Biofuel Indonesia has commenced commercial operations on the bio-CNG/biomethane plant in North Sumatra province of Indonesia. The plant is a part of the plan to build 25 bio-CNG plants with a capacity of 15,500 m3 bio-CNG per day each, which is expected to reduce 3.7 million tonnes of CO2 annually and generate 3.7 million carbon credits annually. The Government of Indonesia has also prepared a Grand National Energy Strategy to reduce dependence on fossil energy consumption. Additionally, the Ministry of Energy and Mineral Resources is also collaborating with partners to develop the bio-CNG project through plant construction projects, pre-feasibility studies, economic studies, trade policy and industrial studies and raw materials.
  • Foster+ Partners has started construction of the new Techo International Airport in Phnom Penh, Cambodia. The scope of work includes the construction of a terminal building as well as improving the interiors of the airport for hassle-free and safe travel. The terminal location is suitable for further expansions in the future. With the completion of Phase 1, airport capacity will increase up to 13 million passengers annually. The next phases will add the second airfoil wind, increasing the number of passengers to 30 million annually.

Energy

  • The FDC Green Energy Corporation (FDCGEC), a subsidiary of the Filinvest Development Corporation (FDC), has announced plans to increase the capacity of its solar project from 11.5 MW to 19.78 MW in the Philippine Veterans Investment Development Corporation [Phividec] Industrial Estate in Misamis Oriental. The announcement was made following feasibility studies. FDCGEC has secured a 25-year solar energy operating contract from the Department of Energy. The project was installed with over 34,000 monocrystalline solar panels that can supply 30,450 MWh of energy annually to the National Grid Corporation. Further, FDCGEC has expanded its land lease agreement with the Phividec Industrial Estate by 7.2 hectares.
  • Upgrade Energy Philippines (UGEP) will install up to 700 MW of solar projects by 2028. These include both utility-scale and commercial and industrial solar rooftop and ground-mounted projects. The company recently completed a 13.811 MW roof-mounted solar power project for JG Summit’s Merbau facility in Batangas City. Additionally, UGEP is also developing multiple utility-scale solar projects, including a 50 MW utility-scale solar project in Luzon. UGEP’s solar projects align with the Government of the Philippines’ goal of achieving a 35 per cent renewable energy share by 2035.
  • China-based Beijing Mingyang Hydrogen Technology Company Limited has signed an agreement with IBCLNG Company Limited to jointly develop a 25 MW electrolysis project in Thailand. As per the agreement, the IBCLNG will source the electrolyser from Mingyang Hydrogen. Mingyang Hydrogen will also provide technical expertise and personnel support to construct green hydrogen infrastructure in the country. The green hydrogen will be produced through water electrolysis using renewable energy sources like wind, hydropower and solar.
  • Jadestone Energy has signed an initial gas sales and purchase agreement with PetroVietnam Gas to develop the Nam Du and U Minh (NDUM) gas fields offshore in Vietnam. The agreement contains a daily contract quantity of 80 mn ft³ per day under a take-or-pay arrangement over a targeted minimum period of 55 months.The final investment decision (FID), which will include the capital expenditure (capex), is expected by mid-2025. Production is expected to commence in late 2026.
  • Copenhagen Infrastructure Partners (CIP) will invest PhP 108 billion in a 650 MW offshore wind energy park in Northern Samar province in the Philippines. Construction works are expected to commence in Q1 2024 with commercial operations scheduled to start by the end of 2025. The new wind farm will be located in six towns in the province – Bobon, Catarman, Mondragón, San Roque, Pambujan and Laoang. The project received support from national agencies including the Department of Energy .
  • China-based Eve Energy has signed a memorandum of understanding (MoU) with Invest Kedah to set up an energy storage company and acquire new land to commence construction of an energy storage plant in Malaysia. The project is in line with the Government of Malaysia’s National Energy Transformation Roadmap (NETR), which aims to increase the proportion of installed renewable energy capacity from 25 per cent to 70 per cent by 2050. Moreover, in October 2022, Eve Energy announced that it planned to invest up to $422.3 million to build a cylindrical lithium battery manufacturing project in Malaysia. Work on the project, which is located in Kulim district, Kedah state, began in August 2023. The project focuses on the production of power tools and 21,700 cylindrical batteries for electric two-wheelers.
  • The Philippines’ Department of Energy will complete 10 offshore wind projects with a combined capacity of 6.72 GW by 2028. The agency is collaborating with the Philippine Ports Authority (PPA) and the Department of Transportation to identify opportunities and potential investors to rehabilitate existing ports in the country to accommodate large offshore wind projects. In 2023, the Department of Energy was awarded 82 offshore wind energy service contracts with a combined capacity of 63.36 GW in north Luzon, west of Metro Manila, and various areas in Panay, Mindoro and the Guimaras Strait.

Telecom

KDDI Philippines, a subsidiary of Japan-based KDDI, has secured a contract from Thales to develop a fare collection system and telecommunication infrastructure for the Metro Manila Subway project in the Philippines. The scope of work will include the installation of ticket gates, ticket vending machines (TVMs), and the delivery and installation of communication equipment, servers and other necessary components. The telecom infrastructure construction involves the delivery and installation of piping components, and cabling work. Once operational in 2029, the 33 km underground line in Metro Manila is expected to transport around 519,000 passengers per day between the northern city of Valenzuela and the southern city of Parañaque.

Outlook for ASEAN region

The ASEAN region’s prospects for growth are extremely promising, supported by strong government infrastructure spending. ASEAN is also expected to become an increasingly important destination for FDI inflows, as multinationals diversify their supply chains to benefit from increasing competitive advantage in the ASEAN region.

One of the key drivers of linear infrastructure investment in Asia is the Belt and Road Initiative (BRI), which involves the development of overland trading routes to assist mainland China and participating countries to hedge against the inherent geopolitical risks of single trade routes. Since 2013, nearly half of the investment from the People’s Republic of China (PRC) in the BRI has been directed to ASEAN member states. The value of investment by PRC companies in ASEAN member states has increased by 85 per cent since the BRI began. This also suggests that in the coming years, SEA will continue to play an important role in the BRI’s evolution. However, as per media reports, BRI’s record in SEA has been mixed.

Some governments have found engaging with the BRI directly useful to power their economic ambitions, for instance, the Jakarta-Bandung high speed rail project – SEA’s first high speed railway – or the China-Laos railway. Others, like Malaysia, have seen progress in fits and starts, with suspensions and renegotiations taking place amid changes of government. Still others, like Vietnam, have been largely wary of engaging with the BRI itself too closely, even as they pursue other forms of economic cooperation with Beijing.