Infrastructure financing in Southeast Asia (SEA) is primarily done through budgetary support and multilateral aid. Countries, in order to support greater infrastructure development, have been boosting their infrastructure budgets. However, infrastructure development has still remained sluggish due to the financial incapacity of governments to fund projects consistently. To add to this, private participation is also not up to the mark, especially among the developing countries. While countries like Indonesia, the Philippines, Thailand, Vietnam and Malaysia have been active in the public-private partnership (PPP) space, their spending on PPP as a part of gross domestic product has been low. Besides, most private funds are tied up for energy projects while sectors like water supply and sanitation, and municipal solid waste lag behind. Further, countries like Cambodia, Laos and Myanmar do not have a strong regulatory framework for PPPs, impeding the uptake of PPP projects.
According to the World Bank’s Public-Private Investment database, a total of 171 projects (including concluded, active and distressed projects) have achieved financial closure in the period 2014-19 (till May 2019). Together, these projects entail an investment of about $74.99 billion. During this period, there have been peaks and troughs in private investment in ASEAN with the maximum investment of about $24.98 billion having been tied up in 2017 for the execution of about 39 projects. Thereafter in 2018, it declined significantly by about 46 per cent, attracting about $13.54 billion for 40 projects. Thereafter in 2019, funds worth $3.22 billion for executing 14 projects have been tied up till May 2019.
Energy generation has attracted the maximum attention in SEA countries with about 65 per cent of projects attracting the maximum private investments of $54.06 billion during 2014-19 (till May). Airport development has the lowest share of projects as only 2 per cent projects (of 171) (worth $2.14 billion) have achieved financial closure. This is followed by 11 per cent of projects in the waste disposal segment and 8 per cent in roads, with the rest of the sectors attracting the remaining investments.
Railway infrastructure attracted investments worth $8.17 billion, $0.77 billion was tied up for information and communication technology, $0.88 billion for ports, and the remaining $1.33 billion for treatment plants and water utilities.
Overall, Indonesia has taken the lead among other countries by securing the maximum private investment. Funds amounting to $28.41 billion were tied up for executing 38 projects during the period 2014-19 (till May). It is followed by the Philippines and Thailand, which have garnered funds to the tune of $16.26 billion (for 37 projects) and $13.18 billion (for 37 projects) respectively. Laos PDR and Malaysia also managed to tie up funds worth $3.26 billion and $2.6 billion respectively from the private sector. Other countries like Myanmar and Cambodia have the least amounts of investment sourced from private players.
Indonesia: PPP implementation in Indonesia, in the last five years, has been the highest. However, it has enjoyed varying degrees of success across sectors. While the electricity subsector grabbed the major share of investments ($21.27 billion), projects in water supply failed to generate significant interest as only about $82 million worth of funds have been tied up. There has been considerable interest in roads and railway projects. In contrast, infrastructure assets such as airports and deep-sea ports are still fully funded either by the government budget or state-owned enterprises (SOEs).
For implementation of PPP projects, fiscal support from the Ministry of Finance in the form of viability gap funding, project development facilities, governments guarantee and availability payment scheme is provided. The country continues to be an attractive destination for private investors; recently, in June 2019, the Overseas Private Investment Corporation sought to double its investment from $125 million to $250 million by 2024. To increase the appetite of private investors, it is necessary to bring in changes in regulations and increase the attractiveness of agreement terms.
The Philippines: The Philippines also attracted considerable private investments in the last five years with funds worth $16.26 billion being tied up for about 37 projects. It has positioned itself well to take advantage of opportunities available through PPPs by identifying projects for private participation under the Build, Build, Build infrastructure development programme for which the Asian Development Bank (ADB) in 2018 approved a $300 million loan.
To further set the momentum, government has shifted from the traditional PPP model to a hybrid PPP model. Further, measures such as urging local government units (LGUs) to identify community projects that can be carried out with the private sector participation, have been taken by the PPP centre.
Thailand: In the last five years, about 37 projects worth $13.18 billion achieved financial closure under the PPP model with the maximum number of projects being in the energy sector (30). Projects are mostly developed on build-own-transfer, build-transfer-operate and build-own-operate basis. To further bolster PPP participation, the government also announced the second strategic plan for 2017-21, under which THB 1.62 trillion worth of investment is envisaged via the PPP mode, mainly to improve infrastructure and lower logistics costs. Recently, on March 11, 2019, the PPP Act, 2019, came into force, revoking the earlier PISUA, 2013. The new act stipulates investment jointly by the public and private sectors in only basic infrastructure projects and public services.
Myanmar: Private investment in Myanmar has only been seen in eight large infrastructure projects worth $966 million during 2014-19 (till May). Significant institutional barriers still inhibit the effective use of PPP as the country lacks a multi-year infrastructure investment strategy dealing with financing plans, laws, regulations and policies towards PPPs.
In order to attract greater investments, Myanmar is developing a project bank which will serve as a digital “one-stop project information centre”, where key information relating to strategic projects planned for development is disseminated transparently.
In countries such as Vietnam, privsate investment has so far been limited as in the last five years only 25 projects sourced private funds worth $9.2 billion. Historically, significant investment by SOEs in infrastructure projects has been made, crowding out the private sector. Similarly, in Malaysia, traction in private projects has been almost negligible as only about 18 projects worth $2.6 billion achieved financial closure in the last five years.
Based on the trends in private investments in the region, it can be deduced that PPPs in Southeast Asia face challenges on numerous fronts, including inadequate regulatory frameworks and institutional arrangements for their implementation. The problems often stem from incomplete or unclear regulations, the lack of decision-making by the government to promote PPPs, and not enough or incompatible support. However, governments need to realise that private participation for infrastructure development is vital for overall economic growth and to generate employment. To this end, bankable projects which can be taken up through private players need to be identified. While countries like Indonesia, Thailand and Malaysia are already making significant progress in this regard, countries like Myanmar have to go the extra mile to promote private investments in infrastructure.