Interview with ADB on infrastructure
In 2009, the Asian Development Bank (ADB) received a request from the finance ministers of ASEAN to support the establishment of the ASEAN Infrastructure Fund (AIF), the largest initiative in the association’s history. The AIF is set to lend some $300 to $400 million a year for ASEAN’s key infrastructure projects. Inside Investor asked Principal Economist Jin Cyhn of the ADB, a specialist on the fund, how the ADB protects against souring PPP contracts and what projects the AIF will prioritise.
Q: How is the ASEAN Infrastructure Fund (AIF) being financed and led by the ADB?
A: The AIF was established with equity investment from sovereigns of ASEAN, minus Myanmar. ADB is also a shareholder, with the AIF’s equity capital reaching about $485.2 million, a figure that will be augmented with hybrid long-term bonds, an instrument with equity characteristics. This will make the total equity amount $650 million. Furthermore, we will issue bonds with a target of 1.5 leverage rates, with the AIF lending $300 to $400 million per year. The AIF’s total lending commitment through 2020 is expected to be approximately $4 billion. What is the breakdown of the largest projects this budget will support? Every single project that the AIF will undertake will be co-financed and administered by ADB. Our exposure is $75 million per project, but if needed, we can ask the board of directors heading the AIF to waive that. The pipeline of projects is currently under consideration by the board members.
Q: The AIF will be established with an initial equity contribution expected to be $485 million, of which $335 million is being provided by nine ASEAN members. This is woefully short of the $60 billion ASEAN needs annually over the next decade. What developmental issues are being left at the sidelines?
A: I think that with the AIF – as well as other initiatives run by other development partners – these issues are being considered as a clear policy priority. The AIF is a monumental and innovative financing tool that will address inadequate infrastructure along with continued investment from the ASEAN governments. It is also not something that ADB or the AIF can do alone; the private sector must play its part.
Q: The AIF is expected to help mitigate the perceived risks involved with PPPs. What contribution is the ADB targeting for PPPs and what policies will be taken to reverse the chilling affect sour tenors have had?
A: Investment by definition does carry risk, so investors should not be expecting zero-risk projects. ADB like other multinational organisations offers political risk guarantees, which do have a positive impact on private investors. If the contract sours because of a government’s change in policy, then this modality could come into effect. Additionally, we are working with governments to improve regulatory reforms and enhance polices. ADB also works with relevant agencies for project structuring support, as well as sound management and environmental safeguards.
Q: The AIF is the largest ASEAN-led initiative in the association’s history. What are the conditions for projects to be eligible for financial support by the AIF?
A: Before we agree to finance the projects, we seek the recipient government’s support, and then ADB’s due diligence is undertaken to make sure the project is viable and sound. The AIF also applies ADB polices and safe guards. Ideally, the goal of the AIF is to promote projects involved with regional connectivity.
Q: Many capital cities in ASEAN are being beleaguered by crippling traffic. How will the AIF address traffic congestion in Jakarta, for example, which will experience complete gridlock by 2015?
A: In reality, the AIF can lend around $300 to $400 million per year – no small amount. However, we can’t finance every project that is out there. At the same time, those that do not have access to basic infrastructure services are the ones that should benefit from these projects the most because infrastructure has a significant impact on poverty reduction. Millions of people in ASEAN don’t have access to clean water, roads, electricity and sanitation services, mostly outside of urban areas.
Q: How many of the projects outlined in the Master Plan on ASEAN Connectivity in 2010 have already been realised?
A Infrastructure projects take a long time to finalise. But it is important to note that the list of developments prioritised in the Master Plan on ASEAN Connectivity is a significant achievement for ASEAN members.
Q: Sukuk is a popular financing option for long-term infrastructure projects: Are there any such Islamic instruments included in or planned for the Fund’s projects?
A: We realise that Islamic financing is growing in the region, especially for countries like Malaysia. However, at least for now, the AIF is not involved in Islamic financing.
[caption id="attachment_7455" align="alignleft" width="300"] Jin Cyhn, Principal Economist at the Asian Development Bank[/caption] In 2009, the Asian Development Bank (ADB) received a request from the finance ministers of ASEAN to support the establishment of the ASEAN Infrastructure Fund (AIF), the largest initiative in the association’s history. The AIF is set to lend some $300 to $400 million a year for ASEAN’s key infrastructure projects. Inside Investor asked Principal Economist Jin Cyhn of the ADB, a specialist on the fund, how the ADB protects against souring PPP contracts and what projects the AIF will prioritise. Q: How is the ASEAN Infrastructure...
In 2009, the Asian Development Bank (ADB) received a request from the finance ministers of ASEAN to support the establishment of the ASEAN Infrastructure Fund (AIF), the largest initiative in the association’s history. The AIF is set to lend some $300 to $400 million a year for ASEAN’s key infrastructure projects. Inside Investor asked Principal Economist Jin Cyhn of the ADB, a specialist on the fund, how the ADB protects against souring PPP contracts and what projects the AIF will prioritise.
Q: How is the ASEAN Infrastructure Fund (AIF) being financed and led by the ADB?
A: The AIF was established with equity investment from sovereigns of ASEAN, minus Myanmar. ADB is also a shareholder, with the AIF’s equity capital reaching about $485.2 million, a figure that will be augmented with hybrid long-term bonds, an instrument with equity characteristics. This will make the total equity amount $650 million. Furthermore, we will issue bonds with a target of 1.5 leverage rates, with the AIF lending $300 to $400 million per year. The AIF’s total lending commitment through 2020 is expected to be approximately $4 billion. What is the breakdown of the largest projects this budget will support? Every single project that the AIF will undertake will be co-financed and administered by ADB. Our exposure is $75 million per project, but if needed, we can ask the board of directors heading the AIF to waive that. The pipeline of projects is currently under consideration by the board members.
Q: The AIF will be established with an initial equity contribution expected to be $485 million, of which $335 million is being provided by nine ASEAN members. This is woefully short of the $60 billion ASEAN needs annually over the next decade. What developmental issues are being left at the sidelines?
A: I think that with the AIF – as well as other initiatives run by other development partners – these issues are being considered as a clear policy priority. The AIF is a monumental and innovative financing tool that will address inadequate infrastructure along with continued investment from the ASEAN governments. It is also not something that ADB or the AIF can do alone; the private sector must play its part.
Q: The AIF is expected to help mitigate the perceived risks involved with PPPs. What contribution is the ADB targeting for PPPs and what policies will be taken to reverse the chilling affect sour tenors have had?
A: Investment by definition does carry risk, so investors should not be expecting zero-risk projects. ADB like other multinational organisations offers political risk guarantees, which do have a positive impact on private investors. If the contract sours because of a government’s change in policy, then this modality could come into effect. Additionally, we are working with governments to improve regulatory reforms and enhance polices. ADB also works with relevant agencies for project structuring support, as well as sound management and environmental safeguards.
Q: The AIF is the largest ASEAN-led initiative in the association’s history. What are the conditions for projects to be eligible for financial support by the AIF?
A: Before we agree to finance the projects, we seek the recipient government’s support, and then ADB’s due diligence is undertaken to make sure the project is viable and sound. The AIF also applies ADB polices and safe guards. Ideally, the goal of the AIF is to promote projects involved with regional connectivity.
Q: Many capital cities in ASEAN are being beleaguered by crippling traffic. How will the AIF address traffic congestion in Jakarta, for example, which will experience complete gridlock by 2015?
A: In reality, the AIF can lend around $300 to $400 million per year – no small amount. However, we can’t finance every project that is out there. At the same time, those that do not have access to basic infrastructure services are the ones that should benefit from these projects the most because infrastructure has a significant impact on poverty reduction. Millions of people in ASEAN don’t have access to clean water, roads, electricity and sanitation services, mostly outside of urban areas.
Q: How many of the projects outlined in the Master Plan on ASEAN Connectivity in 2010 have already been realised?
A Infrastructure projects take a long time to finalise. But it is important to note that the list of developments prioritised in the Master Plan on ASEAN Connectivity is a significant achievement for ASEAN members.
Q: Sukuk is a popular financing option for long-term infrastructure projects: Are there any such Islamic instruments included in or planned for the Fund’s projects?
A: We realise that Islamic financing is growing in the region, especially for countries like Malaysia. However, at least for now, the AIF is not involved in Islamic financing.
