The member countries of the Association of Southeast Asian Nations (ASEAN) are at a crossroads when it comes to urban mobility and environmental sustainability. Rapid urbanisation in the ASEAN region has led to increased traffic congestion, air pollution, and greenhouse gas (GHG) emissions. In the Philippines, the transport sector is the largest source of air pollution, accounting for more than 34 per cent of energy-related GHG emissions.
In response to these challenges, ASEAN countries are increasingly attempting to transition to low-emission and no-emission buses as a more sustainable mode of public transportation. However, the upfront capex of these vehicles is higher than that of diesel buses, which can be a barrier to adoption in many cities due to the limited budget of local governments. Considering this, multilateral organisations will likely play an important role in supporting the shift towards cleaner and more efficient public transportation systems.
Need for cleaner public transport systems
Cities in the ASEAN region are experiencing a significant increase in travel demand for public transportation due to rapid urbanisation. However, the existing public transportation infrastructure in many of these cities cannot cater to the demand as the systems are either outdated, inefficient, or insufficient.
Procuring and deploying clean buses presents a sustainable solution to these problems. Not only are electric and hybrid buses cleaner than conventional diesel buses, but they are also cheaper in the long run, with lower operational costs and higher fuel savings. Since electric buses have fewer moving parts than conventional diesel buses, the cost of maintenance is considerably lower.
Moreover, these technologies can increase a country’s energy security by reducing dependence on imported fossil fuels.
Benefits of multilateral support
Multilateral funding for clean bus procurement can not only help reduce the significant upfront costs associated with the adoption but can also provide an opportunity for technology transfer, capacity building, and knowledge sharing.
Figure 1 outlines some of the key benefits of leveraging multilateral support for clean bus procurement in the ASEAN countries.
Figure 1: Benefits of multilateral financing for clean bus procurement in the ASEAN region
Multilateral agencies, such as the Asian Development Bank (ADB) and the World Bank, can offer low-interest loans, grants, and concessional financing to governments and public transportation authorities, which reduces the high upfront cost of electric bus procurement. This access to capital allows ASEAN countries to invest in cleaner technologies without straining their national budgets.
In addition to financial support, multilateral institutions offer technical expertise and capacity-building programmes. Stakeholders can make informed decisions about procurement and mitigate the financial risks associated with clean bus projects. Moreover, in some cases, these institutions can also encourage private sector investment and participation.
Finally, as financing from multilateral sources tends to be more reliable, it helps ensure that most clean bus projects are completed on time by avoiding delays in delivery resulting from inadequate funding. This multilateral funding will play a key role in ensuring that ASEAN governments can accomplish their public transport electrification and net-zero-emission goals.
Major support for deployment in the Philippines and Vietnam
While clean bus procurement in major cities and urban hubs like Singapore, Jakarta in Indonesia, and the Klang Valley in Malaysia is being financed by the relevant public transport operator or by the government, other cities lack the funding needed for the large-scale procurement of clean public transport buses. These cities will benefit the most from multilateral funding. For instance, in recent years, more than USD1.13 billion has been approved by the ADB for expediting development in the cities of the Philippines and Vietnam.
Case of Davao City
In July 2023, the ADB approved a USD1 billion loan to support the deployment of 1,100 clean buses in Davao City, Philippines. Additionally, the ASEAN Infrastructure Fund (AIF) has allocated USD10 million under the ASEAN Catalytic Green Finance Facility (ACGF). The Green Climate Fund (GCF) has provided a USD50 million loan under the Green Recovery Programme.
Around 380 articulated electric buses will be procured to serve routes in Metro Davao, a metropolitan area in Mindanao, Philippines. The remaining units will be small and regular-sized Euro-5 standard diesel buses and will serve other low-traffic bus routes in the city.
The fund will also be used to build new transport infrastructure, including 1,000 bus stops, five bus depots, and three bus terminals. Additionally, USD1 million has been earmarked for a social development programme to mitigate any adverse impacts and risks related to the restructuring of Davao City’s transport sector.
Around 800,000 daily passengers are set to benefit from the improved and more sustainable vehicles.
Case of VinFast
Singapore-based VinFast Auto Limited (VinFast) is leading the transition of Vietnam’s public buses to cleaner alternatives. The company plans on deploying around 3,000 electric buses which will be operated by VinBus. In October 2022, the ADB released USD135 million in financing to support the efforts of VinFast.
The package consists of seven-year tenor financing, including a USD20 million loan from the ADB, USD87 million worth of parallel loans that were facilitated by ADB as mandated lead arranger, and USD28 million in concessional financing. The package has also been certified by the Climate Bonds Initiative.
Parallel loans were provided by Export Finance Australia, the Finnish Fund for Industrial Cooperation Limited (Finnfund), Oesterreichische Entwicklungsbank AG (Development Bank of Austria), and responsAbility Investments AG.
Additionally, the electric mobility project also includes technical assistance (TA) of USD950,000 from the Australian Climate Finance Partnership (ACFP) and the Clean Technology Fund (CTF).
The e-buses manufactured by VinFast will have a battery capacity of 281 kWh and will be able to cover up to 260 km on a single charge. Charging will take around 2 hours using a 150kW fast-charging station system.
In addition to building a clean fleet, the focus is also on developing a local supply chain which will be key in lowering the per unit costs of the e-buses. The funds will also be used to fund the construction of a battery manufacturing plant in the central province of Ha Tinh. Once operational, the electric vehicle (EV) factory is expected to have the capacity to produce approximately 1,00,000 lithium battery packs per year, which will be used in future VinFast buses.
Challenges and opportunities
While multilateral financing is instrumental in increasing the deployment of clean buses in the ASEAN region, it poses challenges for achieving long-term project sustainability. These include the need for improved infrastructure, regulatory frameworks, and capacity building. Moreover, the electrification of public transportation requires ongoing maintenance and operational expertise.
Multilateral agencies tend to prioritise mass transit systems over public buses. For most ASEAN countries, while the share of multilateral funding in upcoming rail projects is substantial, it nevertheless falls short when it comes to clean bus procurements. Most local governments are left to fund the acquisition of clean buses on their own.
However, increased innovation and continued collaboration among ASEAN member states, local governments, and multilateral organisations are key factors in overcoming these challenges.
In the coming years, the ASEAN countries should focus on scaling up clean bus initiatives, exploring innovative financing mechanisms, and integrating the provision of clean transportation into broader urban planning strategies. Additionally, investing in research and development to improve the technology and cost-effectiveness of electric buses is essential to ensuring long-term sustainability.
Given their large energy-storage capabilities, there is also considerable scope for developing and implementing vehicle-to-grid applications in the future.
Support for clean bus procurement in the ASEAN region from multilateral organisations represents a significant step towards sustainable and environmentally responsible urban development. While currently the focus is largely on electric and hybrid buses, alternative technologies like hydrogen should also be considered. These technologies are in the early stages of development. However, support from and collaboration with multilateral agencies can foster innovation and spur advancement in this area.
To date, the ADB has been the largest financier of clean bus procurement in the ASEAN region. Increased interest and participation from other agencies will allow cities in the ASEAN countries to expand their adoption of clean buses, while also fulfilling their global commitments to combat climate change.