One of the fast growing regions in the world, Southeast Asia has just begun to realise its potential. With a wide variation among the member nations in terms of development and scope for infrastructure creation, the region presents a wide range of opportunities. Collectively forming the seventh largest economy in the world, the region witnessed an eventful spell over the past 10-12 months. A snapshot….

Changing policy landscape 

The policy and regulatory framework for infrastructure development in the Southeast Asia region needs to be strengthened. Overall, countries such as the Philippines, Malaysia, Vietnam, Singapore and Myanmar have been at the forefront of implementing new policies/reforms to augment infrastructure sector growth.

For instance, Singapore’s Energy Market Authority (EMA) has issued guidelines to expand the ambit of the open electricity market. Southeast Asian countries have or are exploring ways to make the laws related to railway sector more favourable for private participation. A new manifesto has been formulated for encouraging efficient utilisation of Philippine ports. Meanwhile, under  Vietnam’s revised Law on Railway 2017, the railway industry has been made a prioritised investment field.

Meanwhile, key member nations such as Thailand, the Philippines and Indonesia held general elections in the year 2019, paving the way for a fresh political discourse for future infrastructure creation and associated strategies.

Infrastructure funding gap

As in many countries, infrastructure financing in the region has been largely funded through government budgets thus far. The high financial risks, long gestation period, huge capital requirements and low returns deter private investors from participating in big-ticket infrastructure projects.

However, with a significant pipeline of infrastructure projects to implement, many ASEAN governments intend to leverage public-private partnerships (PPPs) to

complement their fiscal resources as well as leverage private sector expertise and efficiencies.

Countries with the most number of active PPP projects in the region are Thailand, Indonesia, the Philippines and Vietnam. In fact, the Philippines is actively exploring a hybrid PPP model where the initial upfront construction will be delivered through a government-to-government arrangement, while the operations and maintenance of the project will be managed by the private sector through a PPP contract. Meanwhile,  ASEAN countries with the least PPP experience are Brunei, Cambodia, Laos and Myanmar. Besides, the idea of tapping green finance is picking up.

Meanwhile, economic heavyweights in the region, such as Japan and China, are looking to meet the growing infrastructure financing requirements in ASEAN member countries. Thus far, China and Japan have competed aggressively to grab bigger portions of the growing pie. Chinese and Japanese firms have a dominant presence in the region’s construction space in segments such as equipment and material supplies, solution providers, engineering, procurement and construction works, subcontractors, owners or sponsors, and project financiers.

While Japan started investing in the region much before China, the former is increasingly growing its presence to book economic and strategic gains. According to Fitch Solutions, Japanese involvement in the region is to the tune of $320 billion while that of China is $255 billion (excluding operational, cancelled and suspended projects)

Sector-wise progress

Electricity: ASEAN’s installed power capacity increased at a compound annual growth rate (CAGR) of 6.92 per cent during 2014-2018. The highest growth in capacity additions was witnessed in 2017. In contrast, 2018 saw a 30 per cent decline in the growth of new capacity additions. Growth has been phenomenal in countries such as Cambodia and Timor Leste.

The region is predominantly dependent on coal-fired power plants for meeting its power requirements. Thus, coal-fired power plants are witnessing many technology innovations so as to reduce environmental pollution and increase efficiencies. Simultaneous technology advancements are also being carried out in gas, renewables and hydropower plants for increasing their energy yield and for greater synergies. Top upcoming projects include PLTU Jewa Tengah, Jimah East Power Sdn Bhd, and Edra Energy Sdn Bhd. With regard to renewables, offshore wind power technology is gaining importance in countries with large coastlines (especially in Vietnam).

The region’s total transmission infrastructure  comprises of 240,366 km of transmission lines and 513,776 MVA of transformer capacity. The number of substations on this network currently stands at 3,379. Smart metering and grid initiatives have also been witnessed in countries such as Indonesia, Malaysia, the Philippines, Vietnam, Singapore and Thailand.

Oil and gas: Over half of the energy needs of ASEAN are met by oil and gas. At present, more than two-thirds of the region’s oil and gas production comes from mature and midlife fields. New discoveries have become a rarity of late, with curtailment in exploration expenditure on the back of reduced oil prices.

Crude oil production from the region has been falling since 2016. In 2018, the total crude output of ASEAN nations was 2,362 thousand barrels per day (tbpd), the lowest recorded in the five years (2014-18). The annual reduction in 2017 and 2018 was ~4 per cent and ~2 cent respectively. Mirroring the trend in crude oil production, natural gas production from the region has been falling since 2015. In 2018, the natural gas output of the ASEAN region was 223.4 billion cubic meters (bcm), the lowest recorded in the past five years (2014-18).

Meanwhile, ASEAN’s hydrocarbon sector is attracting significant interest from overseas investors. The region’s upstream (or the E&P) segment has been witnessing change of hands over the past few years. A handful of US-based entities such as Hess, Newfield, and Murphy Oil have pared their asset holding in the maturing region, in order to focus on other promising markets of the world that are offering quicker returns, have less bureaucratic hurdles, and are not so complex projects. Murphy has been the latest one to offload interest in the region. With regard to key projects, crude oil refineries in Bontang and Tuban (both in Indonesia), and the Block B-O Mon gas complex in Vietnam comprise the top projects at present.

Roads: As per ASEAN Statistics 2019, the total road network in Southeast Asia stands at 1.9 million km. In recent years, the Southeast Asian countries have laid increased emphasis on the construction of expressways as these are designed to cater to high speed traffic. There is also a significant pickup in bridge construction in recent years as they provide a means of connecting lands which are otherwise separated by rivers and seas. Works in this regard have been taken up in countries such as Brunei, Philippines, Myanmar, Indonesia, Vietnam, etc. Interest from the private sector and multilateral agencies has been consistently on the rise.

Some technology advancements are also being witnessed. These include Singapore’s adoption of electronic road pricing, Malaysia’s “Touch ‘n Go” radio frequency identification system, Vietnam’s nation-wide adoption of electronic toll collection, etc. In terms of upcoming works, traction is in the offing in countries such as Thailand, Malaysia, and Vietnam.

Railways: As per the latest estimates available for Southeast Asia, the railway route  network stood at 21,872.5 km for eight countries combined. Indonesia, Malaysia, Myanmar and Vietnam witnessed an increase in route length in the 10-year period 2008-17, but the increase was minimal, with CAGR being in the range of 1-2 per cent. For other countries, the figure has remained almost the same. Since the Southeast Asian region uses a mix of rail gauges, the region’s rail network is witnessing restricted speeds and the cross border compatibility.

Meanwhile, increasing number of high speed rail (HSR) projects are being planned in the region. Extensive capacity addition plans are afoot in Thailand, Myanmar, Indonesia and Vietnam.

Urban transport: In Southeast Asia, about 339 km of mass rapid transit (MRT) network, ~237 km of light rail transit (LRT) (including monorail) and ~266 km of bus rapid transit (BRT) has been developed in seven countries, namely, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and Myanmar. A lot of focus has been given to the development of urban transport systems on a PPP basis. Cities in countries such as Indonesia, the Philippines, Thailand and Vietnam have already planned projects under the model. Transit-oriented development has also taken centre stage to generate non-fare revenue.

A clean bus market is an emerging segment in the urban transport sector. Countries such as Thailand, Singapore, the Philippines, Vietnam and Malaysia are exhibiting notable activity in this regard. Through strong government push for increasing the share of public transport, massive expansion is currently under-way in the region. Projects involving urban rail network addition of about 1,598 km are at various stages of development in the region.

Ports: Maritime transport is crucial for the economic growth of ASEAN. For a region which includes 24,000 islands, spread across 5,200 km east to west and 3,400 km from north to south, a modern and well-managed maritime sector is crucial to economic progress. As per ASEAN Statistics 2018, the total domestic and international cargo throughput at Southeast Asia’s seaports stands at 1,309 million tonnes (mt) and 3,035 mt respectively. Like in urban transport, in seaport development too there is an increasing uptake of PPP projects. Besides, there is a growing focus on containerisation and technology adoption (shift towards “smart ports”).

According to Southeast Asia Infrastructure Research, a total of 77 projects worth around $50 billion have been envisaged for the development of the maritime sector in the region. These projects offer ample opportunities for the concerned companies to exploit and reap benefits.

Airports: Over the past decade or so, airport infrastructure development in Southeast Asia has been booming. The region continues to post some of the highest traffic growth rates in the global aviation sector, backed by its strategic geographical location, growing trade, increasing middle-class population, major expansion of low-cost carriers, and the emergent tourism industry.

As per CAPA, air travel across Southeast Asia is growing by around 10 per cent per annum, with Cambodia, Lao PDR, Myanmar, Thailand and the Philippines all experiencing double-digit expansion rates. Private investments are increasing in airport development in the region. Countries such as Indonesia and the Philippines are moving towards private investment to develop airport projects. The five regional airport projects in the Philippines which have been proposed on PPP basis are operation and maintenance of Davao, Iloilo, Bacolod, Laguindingan and New Bohol (Panglao) airport. Clark airport has already been privatised.

Information and communication technology: Southeast Asia’s total subscriber base increased to 901.19 million users until 2017, post which it started to decline. Between 2017 and 2018, the total subscriber base declined by 199.93 million, reaching 701.26 million in 2018. In terms of SIM penetration, Vietnam has the highest penetration at 148 per cent. The region witnessed a surge in the uptake of wireless services until 2017, post which it started to decline. Further, the growth has been highly varied across different countries. A major reason for the decline has been stringent government norms around deactivating inactive SIMs.

Meanwhile, consumption of data in the region has accelerated, fuelled by affordable data prices, emergence of over-the-top video and music services and growing smartphone adoption. During 2018, Indonesia recorded the highest growth in data consumption, driven by the proliferation of low-cost Chinese handset and growing network expansions of operators. Thailand and Malaysia also witnessed steep improvements, backed by the emergence of unlimited data plans and growing popularity of OTT services. Besides, the past year was instrumental for the emergence of 5G technology in the region.

Water and waste: A dichotomy exists within the region where  countries like Brunei, Singapore, Malaysia and Thailand, Philippines have achieved or are close to achieving universal coverage of water and waste services but countries like Cambodia, Lao PDR, Myanmar and Timor-Leste lag behind. Notable improvements have been made in the sanitation sector. Many countries in the region have made improvements in the provision of at least basic sanitation services. These countries include Cambodia, Lao PDR, Myanmar and Timor-Leste. However, these countries are still far from achieving universal coverage and will have to make further improvements.

Municipal solid waste (MSW) generation has become a major concern for the Southeast Asian countries. The amount of waste has increased tremendously due to rapid urbanisation, industrialisation and population growth. The region generates around 143.27 mt of waste each year. Within the region, Indonesia generates the highest quantity of MSW. The country contributes to 45 per cent of the total waste generated in the region.  This is followed by Thailand and Philippines with 18 per cent and 10 per cent shares respectively. Brunei and Lao PDR generate the lowest quantities of MSW in the region.

Meanwhile, reforms with regard to water tariffs and reduction of non-revenue water are being taken. The need for wastewater reuse and desalination is also being felt. Increase in private sector participation and high share of foreign aid are other key characteristics of the sector.

Bright outlook

Growth in ASEAN countries is expected to pick up pace over the medium term owing to a strong rebound in trade, robust domestic demand and infrastructure development initiatives undertaken by various governments. The region’s growth is expected to remain strong at 5.2 per cent between 2019 and 2023.

Some of the urgent priorities for the ASEAN member countries include improving infrastructure for maritime connectivity, especially for Indonesia and increased development of information and communications technology, which is particularly important in supporting growth.

Infrastructure spending in Southeast Asia is expected to grow at about 7-8 per cent for the next five to six years. Governments in the region have been undertaking reforms and measures to create an enabling environment for various stakeholders and promote smart infrastructure.

Improvements in the overall business environment have brightened Southeast Asia’s prospect of attracting investments and becoming a more favourable investor destination in the world. Private financing is also picking up pace. The PPP mode of project implementation is also being explored to establish businesses and channel funds in the region’s infrastructure space.

Based on the projects tracked by Southeast Asia Infrastructure Research, the Southeast Asian region offers a lucrative pipeline of over 1,000 projects (ongoing, recently awarded and preliminary/planning stages) entailing a combined investment of at least $755 billion. By sector, railways, roads and urban transport account for the maximum value of these projects. Country-wise, Indonesia, Thailand and Vietnam offer the maximum opportunity in terms of investment.

Net, net, investment prospects in the region are promising, with improvements in the investment environment, strong economic growth, a growing middle class and advancing regional integration.