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UnderstandinginfrastructureopportunitiesinASEANInfrastructureSeriesReport1www.
pwc.
com/sgContentsForeword3Methodology4Chapter1:StateofplayinASEAN5CurrentinfrastructurespendinginASEAN5Futureinfrastructurespendingoutlook7Whatisaninfrastructuregap16Chapter2:Challengesinaddressingtheinfrastructuregap18Understandingtheinfrastructureprojectlifecycle18Keychallengesacrosstheinfrastructureprojectlifecycle20Strategy20Designandexecution21Recyclingcapital24Chapter3:Measurestoaddresstheinfrastructuregap25Presenceofanentireecosystem25Governments26Financialinstitutionsandinvestors36Advisors37Infrastructurecompanies40Multilateraldevelopmentbanks41Chapter4:Aninfrastructurehub:aone-stopshop43Conclusion46Sources47ForewordWeallknowthereisahugeneedforinfrastructurespendinginASEANandotheremergingmarkets,whilespendingremainsconstrainedandlagsbehindthedemandfornewinfrastructurestock.
Emergingmarketstendtofocusoncoreinfrastructureliketransportnetworksandutilityinfrastructure,butotheraspectslikehealthcare,educationandhousing,whichtendtobesignificantlyunderprovided,arebecomingincreasinglyimportant.
Thisfailureresultsinawideninginfrastructuregapwhichhasanegativeeffectonthegrowthofeconomiesintheregion.
Itlimitstheaccessofcitizenstoworkandprosperityandincreasesthevulnerabilityofcitiestoclimatechange,naturaldisastersandchangingdemographics.
Thisreportisthefirstinathree-partInfrastructureSeries.
Forstarters,wefocusonthecurrentstateofplayofinfrastructurespendinginASEANandwhatisneededinthefuture.
TheshortfallbetweentheactualandrequiredinfrastructurespendingpointstowardsaninfrastructuregapthatneedstobefilledifgrowthinASEANistobemaintainedoraccelerated.
Thisreportalsodelvesintothekeyfactorsthatareresponsiblefortheinfrastructureinvestmentgap,includingexternalfactorssuchastheroleofgovernmentinformulatingplans,availabilityoffinanceandfacilitatingaconducivebusinessenvironment,aswellasproject-relatedfactorssuchasdesignandimplementation.
GovernmentsinASEANhavebeenundertakingreformandmeasurestoaddresstheexternalfactorsinordertoattractdomesticprivateandforeigninvestmentintotheireconomiesbutproject-relatedfactorsstillneedmoreattention.
Tounderstandthesebetter,thisreportexploresthelifecycleofinfrastructureprojectsandthechallengesateachstageofanyproject.
Inordertoaddressthesechallenges,projectsrequirethepresenceofanentiresupportsystemcomprisingkeystakeholders–thegovernment,financialinstitutions,infrastructurecompanies,financial,legal,taxandtechnicaladvisors,aswellasmultilateralinstitutions.
Wecallthissupportsystemaninfrastructureecosystem.
ThisreportnotesthatnoteverycountryinASEANhousesacompleteecosystemandcountriesrelyoneachotherforsupport,beitintermsoffunding,expertiseorothers.
Thiscrossharmonygivesrisetotheconceptofaninfrastructurehub–ageographiclocationwithinaregionthatcomprisesallingredientsnecessaryforprojectsuccess,includingbutnotlimitedtotheentireecosystem,atalentedpoolofexperts,strategiclocation,languageadvantage,andarobustfinancialsystem.
ThesubsequentreportswithinthisInfrastructureSeries,willcoverthefutureprojectpipeline,investmentoutlookforinfrastructureintheregionandhowandwhyinfrastructureneedstobeconsideredasaseparateassetclasstoattractprivatesectorinvestmentandalternativefinancingsourcessuchaspensionfundsandinstitutionalinvestors.
WehopethatyoufindthisInfrastructureSeriesausefulresourcethataddressessomeofthekeyissuesthatweasinfrastructurepractitionersgrapplewith.
Ifyouwouldliketodiscussanyoftheissuesraisedhere,pleasegetintouchwithus.
MarkRathboneAsiaPacificCapitalProjects&InfrastructureLeader,PartnerPwCSingaporemark.
rathbone@sg.
pwc.
comDevinChanDirectorCapitalProjects&InfrastructurePwCSingaporedevin.
pl.
chan@sg.
pwc.
comOliverRedrupDirectorCapitalProjects&InfrastructurePwCSingaporeoliver.
jw.
redrup@sg.
pwc.
comMethodologyOurcommentsandanalysesarebasedondataobtainedfromindustryrecognisedsources.
WealsobuiltonPwC'ssignificantresearchandfindingsdrawnfrompreviouspublications,whichincludeRepavingtheancientSilkRoutes(2017),ASummaryofSouthEastAsianInfrastructureSpending:Outlookto2025(2014),CapitalProjectandInfrastructureSpending:Outlookto2025(2014).
Wesupplementedthesefindingswithindependentresearchtoprovideaholisticviewofthetopic.
Furthermore,wehavealsoincludedcasestudiesandexamples,whererelevant,toillustratethetrendsobserved.
4|InfrastructureSeriesReport1|PwCChapter1:StateofplayinASEANInthisfirstchapter,weprovideanoverviewofthecurrentstatusandfutureneedsofinfrastructurespendinginASEAN,andtheinfrastructuregapthatexistsbasedonthemismatchbetweentherequiredandactualexpenditure.
CurrentinfrastructurespendinginASEANTheAssociationofSoutheastAsianNations(ASEAN)wasfoundedin1967byIndonesia,Malaysia,Philippines,SingaporeandThailand.
Today,ASEANconsistsof10memberstates:thefivefoundingmemberstatesandBruneiDarussalam,Cambodia,LaoPeople'sDemocraticRepublic(PDR),Myanmar,andVietnam.
TheASEANregionisdevelopingatarapidrate.
ItscombinedGrossDomesticProduct(GDP)ofUS$2.
4trilliongrewby4.
7%in20151,andannualaverageprojectedgrowthfrom2016to2020is5.
2%2.
Theblociscurrentlytheseventh-largesteconomyintheworld,andisprojectedtobecomethefourth-largestby20503.
Figure1:InfrastructurespendingandGDPgrowthAveragegrowthratesfrom2012-2016Source:OxfordEconomics;WorldBankdataInfrastructurespendinggrowth(%)GDPgrowth(%)PhilippinesVietnamThailandMalaysiaIndonesiaSingapore14%12%10%8%6%4%2%0%12.
6%11.
5%10.
3%3.
4%8.
7%8.
6%5.
1%5.
3%4.
3%3.
3%5.
9%6.
6%1ASEANEconomicCommunityChartbook2016,ASEANStatistics,20162Outlook2017:ASEANstillbeckons,IESingapore,201737surprisingthingsyouprobablydon'tknowaboutASEAN,WorldEconomicForum,2016PwC|InfrastructureSeriesReport1|5AlargepartoftheeconomicgrowthinASEANisattributabletotheriseofthemanufacturingindustry,amongotherfactors.
ManufacturersareshiftingoperationsfromChinatoSoutheastAsiaduetoloweroverallcosts,increasesindomesticconsumptionandimprovingphysicalinfrastructure.
Thishascalledforafurtherriseindemandforinfrastructuredevelopment.
Recently,foreigninvestorshavecapitalisedonthisgrowingdemand.
ForeignDirectInvestment(FDI)ininfrastructureaccountedforabout12-15%oftotalFDIinflowsintotheASEANregionbetween2012and20144.
AccordingtotheWorldBank,themajorityofprivatesectorparticipationininfrastructureprojectsinASEANhasbeeninthetransport,energy,informationandcommunicationstechnology(ICT)andrealestatesectors.
Infrastructurespendingisbroadlyacknowledgedasakeydriverofeconomicgrowth.
Inouranalysis,wehaveuseddatasetsfromourpreviousreport,CapitalProjectandInfrastructureSpending:Outlookto2025,whichwassupportedbyresearchfromOxfordEconomics.
WehavealsousedpubliclyavailabledatasourcesfromtheAsianDevelopmentBank(ADB)andtheWorldBank.
Inthedatasets,OxfordEconomicsdefinesinfrastructureassocial,transport,communications,manufacturing,utility,powerandextractionindustries.
ADBdefinesinfrastructureastransport,telecommunication,power,watersupplyandsanitation.
Inthelastfiveyears,therehasbeenalargedisparitybetweenthegrowthratesofinfrastructurespendinginthesixlargesteconomiesofASEAN,whichhasrangedfrom4%to13%.
Thecountrywiththelargestinfrastructurespendinggrowth,Philippines,recordedthehighestGDPgrowthofthesixcountries.
Ontheotherhand,infrastructurespendinginSingaporeincreasedtheleast.
Thesetrendshighlightthefollowing:DevelopedeconomiessuchasSingaporethatarereachingorhavereachedasteadystateobservelowerratesofgrowthofGDPandinfrastructurespending.
Incontrast,developingeconomiessuchasPhilippinesandVietnamneedtogrowfastertocatchupwiththeirdevelopedcounterpartsandhenceneedhigherinfrastructurespending.
InfrastructurespendinggrowthhasadirectpositivecorrelationwithGDPgrowth.
Ahigherinvestmentininfrastructureenablesacountrytoincreaseitsoutput,whichthenleadstoahigherGDPgrowthrate.
Forallofthesesixselectedcountries,infrastructurespendingisgrowingfasterthantheoveralleconomy.
However,anexceptiontotheobservedtrendisThailand.
Thecountryhasaninfrastructurespendinggrowthof10.
3%,whereasitsGDPgrowthonlystandsat3.
4%.
Thelargegrowthininfrastructurespendinghasbeenprimarilyaresultofitsgovernment'sincreasedfocusoninfrastructurespendingtoenableanddrivegrowthinothersectorsoftheeconomy.
Thailandhasimplementedanumberofgovernmentinitiativestorealisethisobjective,includingthedevelopmentoftheEasternEconomicCorridor,Thailand4.
0(itsDigitalEconomyStrategy)andanewfast-trackschemeforhighpriorityPublicPrivatePartnerships.
Theseareallhugeinitiatives.
Forexample,withinthenextfiveyears,anexpectedUS$43billionwillbeinvestedintheEasternEconomicCorridoralone5.
However,asthesearerecentpolicies,thebenefitsofthehighgrowthrateofinfrastructurespendingonthewidereconomywillonlybefeltinthemedium-tolong-termfuture.
4ASEANInvestmentReport2015,ASEAN,November20155Thailand'sEasternEconomicCorridor–WhatYouNeedtoKnow,ASEANBriefing,April20176|InfrastructureSeriesReport1|PwCTheroleofinfrastructureiscriticaltopromotingsustainablegrowthandimprovingconnectivityamongtheASEANeconomies.
Increasedconnectivityandqualityofinfrastructurewillfacilitatebusinessandtradegrowth.
Countrieswithhigherinfrastructurespendingpercapitatendtohavebetterqualityinfrastructureandaremorecompetitive.
Thisreinforcesourpointthatinfrastructurespendingisessentialforoveralleconomicdevelopment.
SelectedASEANCountryInfrastructurespendingpercapita(US$)InfrastructureScore(1to7)GlobalCompetitivenessIndex(1to7)Singapore2,0496.
55.
7Malaysia7055.
45.
2Thailand5224.
44.
6Indonesia3144.
24.
5Vietnam2843.
94.
3Philippines1153.
44.
4Table1:Infrastructurespending,qualityandglobalcompetitivenessSource:OxfordEconomics;TheGlobalCompetitivenessReport2016-2017,WorldEconomicForum,2016FutureinfrastructurespendingoutlookADBestimatesthatDevelopingAsia6willneedtoinvestUS$26trillionoverthe15-yearperiodfrom2016to2030,orUS$1.
7trillionperyear,oninfrastructuretomaintaincurrentgrowthrates,includingthecostofclimatemitigationandadaptation7.
ThetotalinfrastructureinvestmentneedsinASEANfrom2016to2030,accordingtothesamereport,willbeUS$2.
8trillion(baselineestimate)andUS$3.
1trillion(climate-adjustedestimate8).
ThisworksouttoanannualinvestmentneedofUS$184billionandUS$210billionrespectively.
DriversofinfrastructurespendingThereisahugedemandforinfrastructurespendinggoingforwardandinASEAN.
Thisdemandwillbedrivenby:PopulationchangeUrbanisationDemographicandsocialchange(includinganageingpopulation)Increaseinmobility,increaseddemandfortransportationGeopoliticalandenvironmentalfactorsTradecompetitivenessClimatechangeandresourcescarcity:TheneedforsustainableinfrastructureShiftsinglobaleconomicpowerDisruptionTechnologicalbreakthroughsCommunicationneeds6DevelopingAsiareferstothe45DevelopingMemberCountries(DMCs)inthe2017reportbyADB,MeetingAsia'sInfrastructureNeeds7MeetingAsia'sInfrastructureNeeds,ADB,February20178TheseestimatesincludeclimatemitigationandadaptationcostsPwC|InfrastructureSeriesReport1|7Estimatedinfrastructureinvestmentneedsbyregion,45DMCs,2016–2030(US$billionin2015prices)BaselineestimatesClimate-adjustedestimatesInvestmentneedsAnnualaverageInvestmentneedsas%ofGDPInvestmentneedsAnnualaverageInvestmentneedsas%ofGDPSoutheastAsia2,7591845.
03,1472105.
7EastAsia13,7819194.
516,0621,0715.
2SouthAsia5,4773657.
66,3474238.
8CentralAsia492336.
8565387.
8ThePacific4238.
24639.
1Total22,5511,5045.
126,1661,7455.
9Table2:ADBestimatesonfutureinfrastructureinvestmentneedsSource:MeetingAsia'sInfrastructureNeeds,ADB,2017Urbanisation—ThereisaveryhighrateofurbanisationinASEAN'semergingeconomies.
Overthecourseofthelastdecade,wehaveseenhugegrowthinurbancentresaspeoplemovefromthecountrysideintocitiestoliveandwork.
Thistrendisforecasttocontinueand,inmanycases,accelerate.
Countriesintheregionaregrowingfast,withtheUnitedNations(UN)estimatingurbanratesforSoutheastAsiatoreach64%in2050,from47%in20149.
ThisgrowthisprimarilydrivenbycountriessuchasIndonesiaandMyanmar.
Inthesamereport,UNestimatedIndonesia'sandMyanmar's2050urbanratestoreach71%and55%respectively,upfrom53%and34%in201410.
Withurbanisationandincreasedpopulationdensitywithincitycentres,andascongestionandpollutionbecomeproblematic,thedemandforefficienttransportnetworks,utilitiesandwastemanagementwillincreasesubstantiallywhiletheneedforhousing,healthcareandeducationwillgrowintandem.
Cityplanners,mayorsandtheirteamsneedsolutionstoencourageeffectiveurbanplanningthatprovidesforthefuture.
Ascitiesgrow,moreinvestmentneedstobemadeintransportnetworkstoreducerelianceonprivatevehicles;increasedhousingstockneedstobebuilttoaccommodategrowingpopulations,andutilitiesandpublicservicesneedinvestmenttosatisfythegrowingnumberofurbanresidents.
Demographicandsocialchange(includinganageingpopulation)—RisingwealthanddemographictrendsinASEANwillfueldemandformorespendingonsocialinfrastructure.
Capitalwillneedtobeallocatedtoeducationandhealthcaretoensurepopulationsareabletocontributetotheirgrowingeconomiesonasustainablebasis.
InemergingAsia,socialinvestmentcontributestoamuchlowershareoftotalinfrastructurespendingasgovernmentsprioritisespendingoneconomicinfrastructurethatwillboosteconomicgrowth.
Thereisroomforincreasedinvestmentinthissectorandthiswillbecomemoreacuteaswealthincreases.
9WorldUrbanizationProspects:The2014Revision,UN,201410Ibid8|InfrastructureSeriesReport1|PwCIncreaseinmobility,increaseddemandfortransportation—Spendingontransportinfrastructureisexpectedtocontinuetoseeanincrease,particularlyinemergingASEANeconomies.
Increasedprosperityleadsto,amongotherthings,ademandincarownership.
IthasbeenfoundthateachUS$1,000increaseinGDPpercapitaresultsin15morecarsper1,000residents11.
Clearly,thisleadstocongestionandeconomicinefficienciesifroadnetworksarenotupgradedorimproved.
Coupledwithincreasedspendonroadinfrastructure,economiesalsoneedtoinvestheavilyinotherformsoftransportinfrastructure—heavyrail,highspeedrail,andurbanrailarenecessarytoallowfortheeffectivemovementofgoods,rawmaterials,andpeople.
Portsandairportsremainakeypartoftransportnetworksinageographicallyfracturedregion.
ThefigurebelowshowstheexpectedincreaseinspendingontransportinfrastructureinselectedASEANcountries.
11SizingtheGlobalInfrastructureMarket,OxfordEconomics,November2013Figure2:Spendingontransportinfrastructure(road,rail,seaandairports)Source:OxfordEconomicsInUS$billion(2015prices)2015202020259080706050403020100IndonesiaPhilippinesThailandVietnamMalaysiaSingapore24434661117566740454631PwC|InfrastructureSeriesReport1|9CasestudyJakarta,IndonesiaThisisacitywhereahugeandgrowingpopulationisservedbyalimitedpublictransportnetwork,whichresultsinheavycongestionandlonganddelayedjourneys.
ThiscoststheeconomyanestimatedUS$2.
62billion12ayearinwastedfuel,productivitylossesandnegativehealthimpactonitsresidents.
Inadditiontoalackingpublictransportnetwork,Jakartaisspreadoveralargegeographicalareaandsitsclosetothewatertable.
Asaresult,wheneverthereissustainedrainfallandhightide,partsofthecitywillflood,causingsubstantiallosstobusinessanddamagetoinfrastructure.
Jakartaisintheprocessofaddressingsomefundamentalproblemsthataffectitsabilitytobecomeafirst-worldcapitalcity.
Anewmassrapidtransit(MRT)systemisunderconstruction;alightrailsystemisindevelopment;newtollroadsarebeingplannedtoalleviatetrafficcongestion;theportisbeingpartiallyrelocated,whileeffortsarebeingmadetoclearwaterdrainage,reclaimlandandcreatefloodbarriersinthebaynorthofthecity.
ThesearesubstantialandverycostlyprojectsbutnecessaryforJakartatoreachitsfulleconomicpotential.
Manyoftheseprojectsarenotnecessarilyeconomicallyviable.
Therefore,itwillbeimportantforthegovernmenttojudiciouslyplanforinvestmentandpossiblyseekfundingfrommultilateralinstitutionsorthroughOfficialDevelopmentAssistance(ODA)support.
Commerciallyviableprojectsshouldbeprocuredthroughcommercialorprivatesectorsourcestofreeuplimitedcapitalwithingovernment.
12ChroniccongestioncostsbigcitiesRp35tayear,TheJakartaPost,March201610|InfrastructureSeriesReport1|PwCTradecompetitiveness—Ascountriesbecomemoreengagedinglobalproductionnetworks,investingininfrastructureupgradestofacilitatetradebearsgreatersignificance.
Thequalityofinfrastructurewithinacountryplaysamajorroleinthetradecostsincurredwhenengagingintrade,thusaffectingthetradecompetitivenessofcountries.
ASEANeconomiesalsoshareimportanttradelinkswithoneanother.
Forinstance,inASEANbetween2010and2015,theincreaseinexportsandimportsamountedtoUS$111billionandUS$113billionrespectively13.
WithincreaseddemandforgoodsfromconsumersbothwithinandoutsideofASEAN,therewouldbeacorrespondingdevelopmentofregionalsupplychains,leadingtoaneedfor13Intra-andextra-ASEANtrade,ASEANSecretariat,2010and2015infrastructuretoimproveconnectivitywithinandbetweencountriesintheregion.
Inadditiontotransportnetworks,infrastructuresupportingaccessto,andtransmissionof,powerwouldalsobecriticalinfacilitatingtrade.
China'sBeltandRoad(B&R)Initiative(BRI)isoneexampleofinfrastructuredevelopmentarisingfromaneedtoimproveconnectivityandtheoverallecosystemtofostertradeandothertiesamongcountries.
Aslower-valuemanufacturingshiftsoutofChinaduetoincreasesinwagesandcostbase,ASEANhasanexceptionalopportunitytotakeonthiscapacity.
Withalowercostbaseandimprovedconnectivity,competitivenessoftheregionwillincrease.
PwC|InfrastructureSeriesReport1|11TheBRIwasfirstproposedbyChinesePresidentXiJinpingin2013,withtheaimofcreatingatransportnetworkthatconnectsAsia,EuropeandAfrica—recreatingtheancientSilkRoutes.
Thenetworkconsistsof65countries,equatingto65%oftheworldpopulation,contributingtoone-thirdoftheworld'sGDPand40%ofglobaltrade.
TheBRIservesasablueprintforhowChinawantstofurtherconnectitselfwiththeglobaleconomyandstrengthenitsinfluenceintheregion.
Figure3:B&RcoversthreekeylandroutesandtwomainoceanroutesSource:Mapfrom'VisionandactionsonjointlybuildingtheSilkRoadEconomicBeltand21stCenturyMaritimeSilkRoad'document(March28,2015).
Actualroutesmaydifferandmayalsoextendtoencompassotherterritoriesastheprojectdevelops;RepavingtheancientSilkRoutes,PwC,2017MediterraneanSeaEuropeIndianOceanSouthAsiaChinaSoutheastAsiaChina–CentralAsia–Russia–EuropeChina–CentralAsia–MiddleEastChina–SouthChinaSea–IndianOcean–EuropeChina–SoutheastAsia–SouthAsia–IndianOceanChinaCoastalPorts–SouthChinaSea–SouthPacificOceanChina–Mongolia–RussiaCorridorNewEurasianLandBridgeChina–CentralAsia–WestAsiaCorridorBangladesh–China–India–MyanmarCorridorChina–IndochinaPeninsulaCorridorChina–PakistanCorridorCentralandWesternAsiaChina'sBeltandRoadInitiative12|InfrastructureSeriesReport1|PwCTheChinesegovernmentisincreasingitsemphasisonglobalconnectivityinanefforttobolstertrade,asprovedbytheimplementationofBRI.
GiventhegrowingimportanceofSoutheastAsiaintheglobalarenaanditscloseproximitytoChina,muchofChineseinvestmentfundshavebeenfocusedonthisregion.
ChinahasbegunaUS$23billion14investmentinanetworkofrailwaysincludingtheSingapore-KunmingRailLink(SKRL).
TheinitialinvestmentextendstheexistingHighSpeedRailnetworkwithinChinathroughLaoPDRtoVientiane.
ThiswouldthenlinkupwiththeBangkok-NongKhailine,whichisseparatelybeingprogressedatagovernment-to-governmentlevelbetweenThailandandChina.
InNovember2016,theMalaysiangovernmentsignedanagreementwithChinaCommunicationsConstructionCompany(CCCC)forthedeliveryoftheEastCoastRailLink(ECRL).
Underthisagreement,CCCCwouldfundandconstructtherailprojectatacostofUS$13.
1billion15.
Malaysia'sLandPublicTransportCommission(SPAD)approvedPhaseOneoftheECRLrailway,whichcovers688kmofthetrackandcomprises22stations16,inJune2017.
Inparallel,theSingaporeandMalaysiangovernmentshavecommencedtheprocurementprocessfortheKualaLumpur-SingaporeHighSpeedRail.
ThismegaprojectwillnotonlyenhanceconnectivitybetweenASEANandChina,itwillalsofueleconomicgrowth,trainskilledworkersandcreatejobs.
WithinterestintheSoutheastAsianregiongrowing,newopportunitieswillariseforASEAN.
CountriesinASEANhavealsoannouncedinitiativestoleveragepotentialopportunitiespresentedthroughtheBRI.
OnesuchexampleistheBRIConnectPlatformlaunchedbytheSingaporeBusinessFederation(SBF)andChineseEnterprisesAssociationinAugust2017.
ThisplatformaimstofacilitateconnectivitybetweencompaniesinSingaporelookingtoprovideexpertiseandprofessionalservices,andcompaniestakingonB&Rprojects.
CHINAMYANMARKunmingHueDaweiKawkareikYangonNaypyitawMandalayRili/MuseCentralCorridorEast–WestCorridorEasternCorridorNorth–SouthCorridorNortheasternCorridorNorthernCorridorSouthernCoastalCorridorSouthernCorridorWesternCorridorBangkokTHAILANDCAMBODIAVIETNAMLAOSHanoiHoChiMinhCityPhnomPenhMaeSotVientianeSavannaknet/MukdahankookoLnSource:HongKongTradeDevelopmentCouncil(HKTDC);RepavingtheancientSilkRoutes,PwC,2017Figure4:IndochinaPeninsularCorridor14RepavingtheancientSilkRoutes,PwC,201715Chinasettobuild,financeMalaysia'sEastCoastRailLineproject,ChannelNewsAsia,October201616EastCoastRailLink:MalaysiatoutsrailtraderouteasrivaltoSingapore,TheStraitsTimes,August2017PwC|InfrastructureSeriesReport1|13Shiftsinglobaleconomicpower—Itiswidelyacknowledgedthatglobaleconomicpowerisshiftingfast.
Onepartofthisistheshiftoftheworld'sbiggeste-commercemarkettoAsia(andtoChinainparticular),leadingtopotentialgrowthinthereachofmobileandbroadbandconnectivity.
Thee-commerceboomisdrivingexpectationsforfasterandcheaperaccesstobroadbandnetworksforshoppersandbusinesses.
Atthesametime,itisputtingpressureonpolicymakerstoagreetosharedataacrossbordersaswellastosafeguardtransactions,privacyandintellectualproperty.
Thesearethetypesof'soft'infrastructurethathelpexpandbusinessandtradeandthatarebecomingmoreprominentasconnectivityevolvesinthisregionandaroundtheglobe.
Technologicalbreakthroughs—Technologybreakthroughsimpacteveryindustry.
Intheinfrastructuresector,ittransformsthewayinfrastructureisprocured,builtandoperated,andhasmajorimplicationsonenablersthroughoutthelifecycleofinfrastructureprojects.
OneofthemajortrendsidentifiedbyPwCthatwillimpactinfrastructureinASEANistheriseofsmartcitiesandgrids.
17SustainableDevelopmentGoals,UN,January201618Sun,PartnershipsPowerThailandSolarProject,ADB,June201619ReportandrecommendationofthePresidenttotheBoardofDirectors,ADB,July201420AboutSmartNation|Enablers,SmartNationSingapore,201721Opportunities,SmartNationSingapore,2017SmartNation,SingaporeSingapore'sSmartNationdriveaimstoutilisenetworks,dataandICTtoimprovelivingandcreateeconomicopportunitiesinfivemainareas20:TransportHomeandenvironmentBusinessproductivityHealthandenabledageingPublicsectorservicesOneexampleofanopportunitycreatedintheinfrastructuresectorwouldbetherecenttenderissuedforthedevelopmentofenergy-efficientSmartLightingsystemsfordeploymentonpublicroadnetworksinSingapore21.
Aspotentialgrants,tendersandrequestsforproposalsarealsoannouncedontheSmartNationwebsite,italsoservesasaplatformforcompaniestoidentifyopportunitiesrelatingtothisinitiative.
ADBsupportingthedevelopmentofcleanenergyprojectsLopburisolarplant,ThailandNamNgiephydropowerproject,LaoPDRA55-megawattsolarplantwasbuiltinLopburiProvince,Thailandbyajointventurecompany,NaturalEnergyDevelopment,withsupportfromADBthroughitsAsiaSolarEnergyInitiative(ASEI).
ThiswasthefirstprojectofASEI.
Thesolarplantisabletogeneratecleanelectricitytopowerupto70,000householdsandavoidthereleaseofover1.
3milliontonsofgreenhousegasesoverthenext25years18.
A290-megawatthydropowergenerationfacilitywasconstructedattheNamNgiepRiverintheBolikhamxayandXaysombounProvinces,LaoPDR,withsupportfromADB.
TheelectricitygeneratedwillbesoldtoThailandandsuppliedtoLaoPDRandthereductioningreenhousegasemissionsisexpectedtoreach500,000tons19perannum.
Climatechangeandresourcescarcity:Theneedforsustainableinfrastructure—Withrapideconomicgrowthanditsoverarchingimpactonclimate,therehasbeenacorrespondingglobalemphasisonsustainabledevelopmentandthishascontributedtothedemandforsustainableinfrastructureintheregion.
Forinstance,ofthe17SustainableDevelopmentGoals(SDGs)adoptedbyworldleadersduringtheSeptember2015UNSustainableDevelopmentSummit,Goal7speaksofensuring"accesstoaffordable,reliable,sustainableandmodernenergyforall"17.
Thishasinturncreatedademandforthegenerationofcleanenergythroughsolarfarms,windfarmsandhydropowerplants.
SomeexamplesofsuchprojectsincludetheLopburisolarplantinThailandandtheNamNgiephydropowerprojectinLaoPDR.
14|InfrastructureSeriesReport1|PwCAutonomousvehicles,3Dprinting,augmentedreality,theInternetofThings(IoT)anddronesareallchangingthewaythatpeopleplanforthefuture;howweanalysedataandimproveefficiency;howweredefineourapproachtoprojectdefinitionanddelivery;andhowweimprovetheefficiencyofbusinessesthroughtheuseoftechnologyandartificialintelligence.
Communicationneeds—Telecommunicationcapabilityisbecomingincreasinglyimportantasbusinessesrelyontheiremployees'abilitytotalktocolleagues,customersandsuppliersbothgloballyandinatimelymanner.
Anincreasingamountofcommunicationismadethroughemail,whilebusinesseslooktotheInternetasavaluablesaleschannel.
CitiesandcountriesthatcanimplementfastandreliablewiredandwirelesscommunicationnetworkscangainFigure5:SpendingontelecommunicationinfrastructureSource:OxfordEconomicsInUS$billion(2015prices)2015202020252520151050IndonesiaPhilippinesThailandVietnamMalaysiaSingapore1.
43.
71.
30.
72.
41.
72.
22.
710.
13.
51.
23.
22.
62.
90.
92.
26.
62.
0acompetitiveadvantageovertheirgeographicalneighbours.
Thishasthedualbenefitofincreasingworkforceproductivityandattractingnewcompaniestoestablishoperationsinacityorcountry.
ThefigurebelowshowstheexpectedspendingontelecommunicationsinselectedASEANcountries.
Intheearliersections,wehaveseenthat,inASEAN,infrastructureneedisgrowingatafasterpacethaninfrastructurespending.
IftheASEANcountrieswishtomaintaintheirgrowthtrajectoryand/orgrowfaster,theyneedtoensurethattherateofgrowthofinfrastructurespendingmeetstheexpectedincreaseindemand.
However,givencurrentgrowthlevelsandtrends,thisisnotthecaseinmostASEANeconomies.
PwC|InfrastructureSeriesReport1|15Infrastructureinvestmentneeds,2016to2030:AccordingtoADBestimates,thetotalinvestmentneedinSoutheastAsia(includingSingapore,BruneiDarussalamandLaoPDR)isUS$2.
8trillion(baselineestimate)andUS$3.
1trillion(climate-adjustedestimate),placingtheannualinvestmentneedatUS$184billionandUS$210billionrespectively24.
Expectedinfrastructurespendinggrowthupto2025:Inourreport,ASummaryofSouthEastAsianInfrastructureSpending:Outlookto2025,PwCestimatedtheincreaseinexpectedannualspendingoninfrastructureinASEANcountriesuntil2025,assetoutinTable3below.
CountryExpectedinfrastructurespendinggrowthperyeartill2025Philippines10%Malaysia9%Vietnam9%Indonesia7%Thailand7%Singapore5%Table3:Expectedgrowthininfrastructurespendingperyeartill2025Source:ASummaryofSouthEastAsianInfrastructureSpending:Outlookto2025,PwC,2014;OxfordEconomics22MeetingAsia'sInfrastructureNeeds,ADB,201723Ibid24IbidFigure6:AnnualinvestmentsinSoutheastAsia(currentandprojectedneed),excludingSingapore,BruneiDarussalamandLaoPDRSource:MeetingAsia'sInfrastructureNeeds,ADB,20172015EstimatedInvestment552016-2020AnnualNeeds(Baseline)2016-2020AnnualNeeds(Climate-adjusted)180160140120100806040200147157WhatisaninfrastructuregapAninfrastructuregapisthedifferencebetweentherequiredinfrastructureinvestmentandactualinfrastructurespending.
Infrastructurespendingin2015andneedsfrom2016to2020:AccordingtoADB'srecentestimates,thetotalinfrastructurespendingin2015inSoutheastAsia(excludingSingapore,BruneiDarussalamandLaoPDR)wasUS$55billion22.
ThesamereportestimatedtherequiredannualspendingneedforSoutheastAsia(excludingSingapore,BruneiDarussalamandLaoPDR)tobeUS$147billion(baseline)andUS$157billion(climate-adjusted),soanannualgapofUS$92billion(baseline)andUS$102billion(climate-adjusted)isexpected23.
ThisisillustratedinFigure6below.
16|InfrastructureSeriesReport1|PwCInfrastructuregap:Comparingtheexpectedinfrastructurespendinggrowth(Table3)withthe2015estimatedactualspending(Figure6),therewilllikelybealargedisparitywithADB's2016-2020estimates.
Thishighlightstheproblem:ifmeasuresarenottakentoincreaseinfrastructurespendingfurther,theexpecteddemandforinfrastructurewillnotbemet,theinfrastructuregapwillremain,andeconomicgrowthwillsloworstagnate.
Further,thefigurebelowshowsthatinfrastructurespendingasapercentageofGDPinASEANcountiesisrelativelylowwhencomparedtootherdevelopingcountries(suchasChinaandIndia)anddevelopedcountries(suchasCanadaandAustralia).
ThesefactscombinedclearlyillustratethatahugeinfrastructuregapinASEANexistsanditneedstobeaddressed.
Mostcountriesworldwidedonothavesufficientavailablepublicsectorcapitaltoinvestinmuch-needednewinfrastructureorindeedforrefreshingormaintainingoldinfrastructure.
Emergingeconomieshaveevenlessavailablepublicbudgettospendoninfrastructure,andmustlearntoprioritiseprojectseffectivelyandclearlyidentifythosethatrequiregovernmentsupport,thosethatmayattractODAfunding,andthosethataresufficientlyeconomicallyviabletoattractprivatesectorfunding.
Governmentspendingwillnotbeenoughtomeetthedemandandtofillthegap.
Therefore,significantprivatesectorparticipationandfinancingisrequiredtosupplementit.
IndonesiaItisestimatedthatIndonesia'sannualinfrastructurespendwillincreasefromUS$82billionin2016toUS$165billionin202525.
TheIndonesiangovernmentistargetingspendofUS$465.
7billionbetween2015and201926.
Itisexpectedthatapproximatelyhalfofthiswillcomefromthegovernment,one-fifthfromState-OwnedEnterprises(SOEs)andtheremainderfromprivatesectorsources27.
Figure7:InfrastructurespendingasapercentageofGDPinselectedcountriesSource:OxfordEconomics2010201320162011201420172012201516%14%12%10%8%6%4%2%0%IndonesiaCanadaPhilippinesAustraliaVietnamIndiaMalaysiaUKUSChina25OxfordEconomics26IndonesianInfrastructure:Stablefoundationsforgrowth,PwC,201627IbidThailandSingaporeIndonesiaCanadaPhilippinesAustraliaVietnamSingaporeIndiaUSMalaysiaUKThailandChinaPwC|InfrastructureSeriesReport1|17Chapter2:ChallengesinaddressingtheinfrastructuregapInChapter1,weprovidedanoutlookoftheinfrastructurespendinginASEANandshedsomelightontheexistingandexpectedinfrastructuregapinASEAN.
TheinfrastructuredeficitacrossASEANisaverywellestablishedfact—theabilityofASEANcountriestocontinuegrowingattheircurrentrateswilldependlargelyonhowmuchinfrastructurecanbedeliveredinthecomingyears.
Powergeneration,cleanwater,effectiveutilitynetworksandmuch-neededimprovementsintransportationnetworksareessentialinensuringthatAsiaisabletofulfilitspotential.
Inthischapter,wediscussthechallengesthatneedtobeaddressedtotackletheinfrastructuregap.
AccordingtoTheEconomist,thereissufficientcapitalwithintheAsiaPacificregiontofundtheprojectsthatarecurrentlybeingprocuredacrosstheregion.
Globally,banksandinstitutionalinvestorsholdapproximatelyUS$120trillionofassetsundermanagement28andthisisanobvioussourceofcapitalforinfrastructureprojects29.
However,theprojectscurrentlybeingprocuredareasmallfractionoftheinfrastructurepipelinethatisactuallyrequiredoverthenext10to20years—thereisabottleneckthatismarkedlyslowingdowntherateatwhichwell-structuredandwell-conceivedprojectsarecomingtomarket.
Thesearethe"investmentbarriers"thatinhibitthebankabilityofprojectsandstopthesupplyofcapitalfrommeetingthedemandforinfrastructure.
Thelackofinfrastructureinvestmentisaresultofmanyfactors,suchasapolicydecisions,lackofbankableprojects,weakgovernanceandalackoftransparency.
Inthischapter,wediscusssomeofthesefactors.
UnderstandingtheinfrastructureprojectlifecycleThenextdiagramrepresentsthestagesofanyinfrastructureproject—theinfrastructureprojectlifecycle(Figure8)—aswellastheworkoractivitiesinvolvedineachstage(Table4).
28BridgingGlobalInfrastructureGaps,McKinsey&Company,June201629IbidWehavesegmentedtheinfrastructureprojectlifecycleintothreephases:(1)strategy,(2)designandexecution,and(3)recyclingofcapital.
18|InfrastructureSeriesReport1|PwCFigure8:InfrastructureprojectlifecycleScopeofwork1.
StrategyIdentifyinganeedforinfrastructureUnderstandinglocaland/orregionalrequirements(suchasregulations)PrioritisingprojectseffectivelytoensurecapacityisutilisedmosteffectivelyConductingstudiestoidentifymarketopportunitiesandassessthefinancial,commercialandtechnicalfeasibilityofaproject2a.
DevelopmentUnderstandingandmitigatingpotentialrisksFindingaviablecontract,financingandlegalprojectstructurethatbestbalancestheinterestsofallstakeholdersDesigningthetechnicalspecificationsoftheprojectObtainingfundingandunderstandingdeliverypartners(architects,advisors,constructioncompanies,operators)2b.
ProcurementPlanningofprocurementstrategiesPreparationoftendersandrunningthetenderprocessIdentifyingpotentialbiddersandfinalisingcommercialandfinancialtermsObtainingfinancing2c.
DeliveryPhysicalconstructionofassetsManagingtheprojectoveritsconstructionphase2d.
OperationsOperatingandmaintainingtheassetoveritslifetime3.
RecyclingcapitalDivestingtheassetpartiallyorfullyRe-investingcapitalintonewprojectsTable4:ScopeofworkineachstageoftheinfrastructureprojectlifecycleInfrastructureprojectlifecyclea.
Developmentd.
Operationsc.
Delivery3.
Recyclingcapital1.
Strategy2.
Designandexecutionb.
ProcurementPwC|InfrastructureSeriesReport1|19KeychallengesacrosstheinfrastructureprojectlifecycleWenowdiscusssomeofthekeychallengesthatmaybefacedacrosstheprojectlifecycle.
StrategyThisstageinvolvesidentifyinganeedfortheproject,understandinglocaland/orregionalrequirements(suchasregulations)andconductingstudiestoidentifymarketopportunitieswhileassessingthefinancial,commercialandtechnicalfeasibilityofaproject.
Thekeychallengestobeaddressedatthisstageareweaklegalandregulatoryframeworksandpoorprojectplanningandpreparation.
Batangpowerplant,IndonesiaA2,000-megawattcoal-poweredpowerplantinBatang,CentralJava,Indonesiawasreadytocommenceconstructionin2011byPTBhimasenaPowerIndonesia,ajointventureofPTAdaroEnergyTbk,ItochuCorpandJ-PowerElectricPowerDevelopmentCo.
Ltd.
Butastheplannedplantwassitedinanagriculturalarea,localresidentsopposedtheprojectonthebasisofthepotentialimpacttotheenvironmentandtheirlivelihoods.
Thisresultedindelaysintheacquisitionofland30.
AlthoughIndonesiapassedtheLandAcquisitionLawin2012withtheintentionofspeedinguplandacquisitionsforinfrastructureprojects,thereweredelaysintheimplementationofthelawtofacilitatelandprocurement.
Itwasonlyin2016,whentheSupremeCourtruledagainstthelocallandowners31,thatthegovernmentwasabletoacquirethelandonthebasisofpublicinterestandtargetthecommencementofconstruction.
30Indonesia'sControversialBatangPowerPlant:HumanRights&Environment,IndonesiaInvestments,June201631SupremeCourtrulingpaveswayforBatangmegaproject,TheJakartaPost,March2016WeaklegalandregulatoryframeworksItisimportanttounderstandthelegalandregulatoryframeworkthatexistswithinacountryearlyinanyinfrastructureplanningcycle.
Thisisacriticalfactordeterminingthesuccessofanyinfrastructuremarket.
Aweaklegalorregulatoryframeworkwillblockprivatesectorcapitalandexpertisefromparticipationininfrastructureprojectsthatareinherentlygovernmental(power,water,transport)aslegalcertaintyisakeyingredienttoprovidingcomforttoinvestorsthattheircapitalissecureandthattheywillbetreatedfairly.
Onecommonchallengeinemergingmarketsiswhentherearedifficultiesintheacquisitionoflandforaninfrastructureproject.
Thismayarisefromalackofregulationthatsupportsacquisitionsordelaysintheimplementationofregulations,slowingdowntheabilityofemergingmarketsindevelopinginfrastructurestock.
Anadditionalfactortoconsideristhenatureoftheprocurementprocesswithinanyjurisdiction.
Atransparent,clearlydefinedprocessthattreatsbiddersfairlyandallowsfortheawardofcontractsbasedonclearlydefinedcriteriaiscriticallyimportant.
Weakprocurementprocessesleadtoalackoftransparencyandcorruption,whichinturncreatesadeeplackofconfidenceinthemarket.
Thisreducestheinvestmentcapitalavailabletothemarket,andwillpushinvestors,contractorsandoperatorstoothermarkets–onesthatadministerprocurementfairlyandtransparently.
PoorprojectplanningandpreparationSufficienttimeandmoneyisneededtoprepareaprojectformarkettoensureitisbankableanddeliverable.
Feasibilitystudiesarerequiredtoestablishtheeconomicandtechnicalviabilityofalargeinfrastructuretransaction;theprojectownersneedtoidentifythemostappropriatecommercialstructurethatcanbeachievedwithinagoverningregulatoryframework;risksneedtobeidentifiedandallocatedthroughcontractualdocumentationinawaythatmakestheprojectbankable;andatenderprocessthatisfair,transparentandunderstoodbythemarketneedstobeadheredto.
20|InfrastructureSeriesReport1|PwCDesignandexecutionThisstageincludesdevelopment(understandingandmitigatingpotentialrisks,findingaviablecontract,determiningafinancingandlegalprojectstructurethatbestbalancestheinterestsofallstakeholders,anddesigningthetechnicalspecificationsoftheproject);procurement(planningofprocurementstrategies,preparationoftendersandrunningthetenderprocess,obtainingfinancing,identifyingpotentialbiddersandfinalisingcommercialandfinancialterms);delivery(physicalconstructionofassets,andmanagingtheprojectoveritsconstructionphase);andoperations(operatingandmaintainingtheassetoveritslifetime).
Inmostcases,theprimarycauseofprojectfailureisweakprojectpreparation—wellbeforeprojectscommenceconstruction.
Apoorlydesignedprojectcouldleadtoalterationsinprojectscopelateron;poorunderstandingofprojectriskandthesubsequentinabilitytomitigatetheserisks;poorlogisticalplanning;weakgovernanceandcontrol;poorprojectdeliveryduetoselectionofweakorunqualifiedcontractors;corruptionandmore.
Thesewillallcauseprojectdelaysandcostoverrunsandarelargelyaresultofpoorprojectpreparation.
Theresultsinthefigurebelowindicatethatcostoverrunsaremorecommonthannot.
Furthermore,delaystoprojectdelivery,costoverrunsandinefficienciesintheprocurementprocessoftenhavepoliticalconsequences–theyreflectpoorlyonagovernment'sabilitytomanageitseconomyeffectively.
Figure9:Percentageofprojectswithcostoverruns%OverBudgetSource:Correctingthecourseofcapitalprojects,PwC,2013;PwCanalysis,basedonindustryresearch6%18%24%24%12%15%30%25%20%15%10%5%0%InUS$million(2015prices)UnderBudget1-2526-5051-7576-100101+Thekeychallengesfacedduringthisphasemayincludethefollowing:PoorlystructuredprojectsandcomplicatedprocurementprocessesOnceaprojectisprepared,themarketneedstobemadeawareoftheopportunity–theprojectownersneedto'sell'theprojecttothemarkettoattractinterest.
Thisisoftendonethroughprocurementpublicationsandothermedia,marketawarenesspresentations(e.
g.
,'OpenDays'),orone-on-onemeetingswithpotentialinvestors.
Inemergingmarkets,suchcampaignsbecomeveryimportantastheprivatesectorevaluateswheretodeployitslimitedcapital.
Regionalgovernmentsmustrecognisethatinvestors,lendersandthoseoperatingwithinthemarket(advisors,constructorsandoperators)willplacetheirtimeandmoneyinjurisdictionsandprojectsofferingthebestreturnfortherisksassumed.
PwC|InfrastructureSeriesReport1|21Priortocommencingformalprocurement,tenderdocumentationthatclearlyarticulatestheprojectrequirements,thecommercialstructureandtheobligationsofallpartiesneedtobedraftedandapprovedbythegovernment.
Thesetenderdocumentsneedtobecomprehensive.
Poorlyconceivedtenderdocumentationwillresultinasub-optimalorfailedprocurementprocessaspotentialbiddersdonotwanttospendvaluabletimeandmoneybiddingonprojectswhereprocuringauthoritiesfailtodeliveradequatedocumentationtothemarket.
ImbalancebetweenrisksandrewardsthatmakesobtainingfinancingdifficultEquityanddebtfinancierswillinvesttheircapitalinmarketsthatofferfairandequitablereturnsfortheriskstaken.
Insimpleterms,mostforeigninvestorsandfinancierswillassessprojectsinjurisdictionsinwhichtheyhaveoperationsorarecontemplatingoperationstounderstandtheriskstheywillbeexposedtoandwhethertheywillbeabletocompetewiththelocalmarket(orbetreatedequitably).
Ifthereturnsofferedbyaspecificprojectdonotfairlycompensateadvisors,investorsandlenders,buildersoroperators,theywillinvesttheirmoneyincompetingprojectsandjurisdictionsthatdo.
Thisisfurtherexacerbatedbythevaryingpreferencesoffinanciersorinvestors(whichincludegovernments,banks,fundsandinsurancecompanies).
Forexample,investmentfundsmightpreferhigherreturnsinashorterterm,whereassovereignwealthfundsmighthaveopposingpreferences(lowerreturnsoveralongerperiod)32.
Evenwithinprivateequityfunds,theremaybedifferentriskprofilesandinvestmentstrategies.
Forinstance,inPwC's2017SurveyfortheAsia-PacificEconomicCooperationonInfrastructureInvestorRiskProfilesandAppetiteconductedwithvariousprivateequityfundsthathaveinfrastructureinvestmentsintheregion,theinvestmentholdingperiodcanrangefromthreeyearstomaturity.
Table5belowalsodetailsthetypicalreturnrequirementsandsomeinvestmentpreferencesofdifferenttypesofinvestors.
InvestorTypicalreturnrequirementDescriptionInfrastructure/PEfunds10-30%HighestreturnrequirementsamonginvestorsLooktoexitinvestmentswithinadesiredtimeframeStrategics11-15%Corporationswithindustryexpertiseandoperationalknow-howStableandlongtimehorizon–viewassetsasbusinessestheyholdSovereignWealthFunds(SWFs)7-15%Createdtomanagenational/statewealthTendtoacquireequitystakesalongsideprovenpartners,however,thereisatrendtowarddirectinvestmentsPensionfunds7-12%Long-termliabilitiesrequirelookingforlong-lifeassetsandcashflowstomatchTendtoco-investalongsideexperiencedpartnersalthoughplayerssuchasCanadianpensionfundsareleadingthewayindirectinvestmentandactiveinvolvementinprojectimplementationandoperationDevelopmentFinanceInstitutions(DFIs)Whileprojecthastobeeconomicallyviable,DFIsalsoevaluatedevelopmentandsocialimpactFillagapinthefinancialmarketbyinvestinginareaswherecommercialinvestorstypicallydonotIntendedtoactasacatalysttobringinprivatesectorinvestorsWhiledevelopmentfocused,canbeprofitableduetofirst-moveradvantageTable5:Returnrequirementsandinvestmentpreferencesofinvestors32Closingthefinancinggap:InfrastructureprojectbankabilityinAsia,Marsh&McLennanCompanies,201722|InfrastructureSeriesReport1|PwCItisimportanttounderstandtheriskappetitesofthepotentialfinanciersandstructurefeasibleprojectsthatareabletobalancetheinterestsofallstakeholdersinvolved.
TheSingapore-KunmingRailLink(SKRL)project,partofwhichrunsthroughThailand,isanexamplethatdemonstratesamismatchininterestsofthepotentialinvestor(China)andthegovernmentofThailand.
Singapore-KunmingRailLinkprojectTheSKRLisaUS$23billion33railnetworkthatwouldconnectSingaporetoKunminginChinathroughCambodia,LaoPDR,Malaysia,Myanmar,ThailandandVietnam.
Thiswasoneof15priorityprojectsintheMasterPlanonASEANConnectivity2010(MPAC2010)buthadnotprogressedaccordingtotheoriginaltimelineandwasreallocatedtooneofthestrategicareaslaidoutinMPAC202534.
Thailand-ChinaraillinkThereweredifficultiesinreachinganagreementonthefinancingstructureandtermsoftheThailand-Chinaraillink,whichisasectionoftheSKRLproject.
Initially,bothcountriesintendedtosplitthecostoftheprojectbutfailedtoreachanagreementonthisasThailanddidnotaccepttheinterestratesonloansofferedbyChina35.
Eventually,ThailandapprovedaUS$5.
2billion36infrastructurebudgettofinancetheconstructionoftheprojectonitsownbalancesheet.
InequitableriskallocationGovernmentscanviewprivatesectorinvolvementinprojectsasawaytotransferriskstoanotherparty.
However,governmentswillalwaysretainsomerisk:aprojectandresultantriskswilltransferbacktothegovernmentintheeventofaprojectfailure.
Thus,governmentsshouldnotseektotransferasmuchriskaspossiblebutinsteadseektoallocatetheriskstothepartiesthatarebestabletomanagethem.
Thismeansconsideringtheleversoverspecificrisks,whichpartycontrolsthoseleversandsobeabletomanagetherisks.
Further,governmentsshouldconsiderthepriceoftransferringrisk.
Riskshouldbetransferredsoastomaximisevalueformoneyforthegovernment.
LackofcapacityInfrastructureprojectsarelargeandcomplex,andsimilarly,procuringthemisnotaneasyprocess.
Thisisespeciallytruewhenthereisalackofexperienceinprocuringsuchprojects.
Publicsectorofficialsrequiretechnical,legalandfinancialskills,whichmustbesupportedbyrigorousprocurementprocessesthatallowfordecisionstobemadeandconclusionsaswellasrecommendationstobechallenged.
Governmentsandofficialsshouldcomplementtheirin-houseskillswithexternaladviceasandwhenrequired,tobenefitfromspecialistknowledgeandinsight.
Thisnaturallycomesatacost,butwhencomparedtotheoverallcostoftheproject,alittleinvestmentupfrontcanreaphugedividendsforpublicfinances.
33RepavingtheancientSilkRoutes,PwC,201734MasterPlanonASEANConnectivity2025,ASEAN,201635ThailandthrottlesbackonrailprojectwithChina,NikkeiAsianReview,March201636Thailand,Chinaagreeon$5billioncostforrailproject'sfirstphase,Reuters,September2016PwC|InfrastructureSeriesReport1|23NegativeInvestmentListof2016,IndonesiaTheNegativeInvestmentListofIndonesiarestrictsforeignownershipinanumberofbusinesslines,withthemostrecentrevisionmadein2016.
Whiletherehavebeennotableimprovementsinabidtoincreaseinvestments,therearestillrestrictionsonthelevelofforeignownershipallowedinvariousinfrastructuresectors.
Forexample,foreignownershipinthefixedandmobiletelecommunicationsnetworkssectoriscappedat67%,whereasinthepassengerlandtransportationsector,thisiscappedat49%37.
RecyclingcapitalThisphaseincludesdivestingtheassetpartiallyorfullyandre-investingcapitalintonewprojects.
Thekeychallengeinthisphasemaybetheavailabilityofexitoptions.
AvailabilityofexitoptionsTheavailabilityofexitoptionsisonefactorthatcaninfluencepotentialinvestorsofaninfrastructureproject.
Afterthecompletionofaninfrastructureproject,initialinvestors,whethertheyhailfromthepublicorprivatesectors,wouldlookintoexitstrategiestofreeupcapitalforreinvestmentintonewprojectsornewmarkets.
Foragovernment,thiswouldbethroughadivestmentoftheirintereststotheprivatesectororamonetisationoffuturecashflows.
Foraprivatesectorinvestor,thiswouldbethrougharefinancingorsaleoftheirintereststoaninvestorwithadifferentriskorreturnprofilethatbettermatchestheriskprofileoftheproject.
Theavailabilityofaregionalsecondarymarketforinfrastructureinvestmentsisessential.
Suchaplatformfacilitatestherecyclingofcapitalasitallowsvariousinvestorstofindtransactionsthatmatchtheirriskprofiles,andinvestmentandexitpreferences.
Awell-developedsecondarymarketinASEANisnecessarybuttheaccessibilityofthemarkettoabroadergroupofinvestors,bothlocalandforeign,canbeasignificantlimitingfactor.
Governments'foreigninvestmentpoliciesoftenactasthislimitingfactor,especiallyintheinfrastructuresectorasitisoftenseenasasectorofnationalinterestthatshouldnotpermittotalormajorityforeignownership.
Thereareclearlyahostoffactorsthatcancontributetolimitinginvestmentsininfrastructure.
Inthenextchapter,welookatmeasurestoaddressthesechallenges.
37Indonesia2016NegativeList24|InfrastructureSeriesReport1|PwCChapter3:MeasurestoaddresstheinfrastructuregapInChapter2,weexploredthekeyfactorsthatpreventcountriesfromaddressingtheinfrastructuregap.
Inthischapter,wediscussthekeymeasuresthatneedtobeundertakentoaddresstheinfrastructuregap.
Someofthekeymeasuresincludehavinganationalmodelforevaluatingandmakingdecisionsonthetypesofprojectstobeundertaken;stablelegalandregulatoryframeworks;accesstofinancing;riskmitigationinstruments;public-sectorcapacitytocreateandmanageprojects;socialresponsibilitypractices;andstrongenvironmentalregulations.
Inaddition,thereneedstobeastrongtalentpoolofenablersateachstageoftheprojectlifecycletoensurethateachstageoftheprojectiscarriedoutefficiently.
Theseenablersinclude:GovernmentsFinancialinstitutionsandinvestors(suchasbanks,fundsandinsurancecompanies)Advisors(includingfinancial,tax,legalandtechnicaladvisoryfirms)Infrastructurecompanies(suchasengineeringcompanies,constructioncompaniesanddesigncompanies)Multilateraldevelopmentbanks(MDBssuchastheWorldBank,ADBandAsianInfrastructureInvestmentBank(AIIB))Theseenablersserveasastrongsupportsystemwhichcanhelptoaddressthekeychallengesandprovidesupportacrosstheentireprojectlifecycle.
Wecallthisthe'ecosystem'(Figure10).
Itcomprisesfivecomponents:governments,financialinstitutionsandinvestors,advisors,infrastructurecompaniesandMDBs.
Thischapterdetailstheroleofeachcomponentintheecosystem,andhowtheycontributetosuccessfulinfrastructureframeworksandprojects.
Thesearekeytoaddressingtheinfrastructuregap.
Figure10:SupportingecosystemfortheinfrastructureprojectlifecyclePresenceofanentireecosystemSupportingecosystemAdvisorsGovernmentsMultilateraldevelopmentbanksFinancialinstitutionsandinvestorsInfrastructurecompaniesInfrastructureprojectlifecycle3.
Recyclingcapital1.
Strategy2.
Designandexecutiond.
Operationsc.
Deliveryb.
Procurementa.
DevelopmentPwC|InfrastructureSeriesReport1|25GovernmentsRoleofgovernmentsThefirstandthestrongestpillaroftheecosystemisthegovernment.
Thevisionandapproachofthegovernment,asreflectedbyitspoliciesandregulationsandthemasterplansforbusinessandinvestmentinthenation,hasastrongcorrelationwiththestateofinfrastructure,theinflowofdomesticandforeigninvestmentsandultimatelytheGDPpercapitaofthecountry.
InFigure11,wehavenotedtheroleofgovernments,wheretheinfrastructureplans,investmentenvironmentandmonitoringpoliciesareresultsoftheirgoalsandvision.
Figure11:RoleofgovernmentsintheinfrastructureplanningprocessVision(50+years)AssessinitialsituationIdentifystakeholdersIdentifyinfrastructureneedPreparevisionGoals(c.
10years)Makevisionpractical–whatwouldsuccesslooklikeIdentifypotentialprojectstodelivergoalsForeachpotentialprojectEstimatefinancialcostsandbenefitsEstimatenon-financialcostsandbenefitsPerformriskanalysisDecideonpublicorprivateprovisionEvaluatealldataPortfoliochoicePrioritisationretainingflexibility/scalabilityBudgetallocationMasterplanningEnablingenvironmentApproverelevantlaws,rulesandregulationsAmendtaxpoliciesStrengthenpublicsectorinstitutionalcapacityCommissioningofprojectsEnsureeffectiveprocurementframeworkCheckthatpolicyandlegalchangeshavebeenmadeDevelopstrongprojectmanagementandcostcontrolReviewandevaluateprogressListoffunctionalinfrastructureStrategicinfrastructureplanOpeninvestmentenvironmentFunctionalprojectsontimeandtocostReviewLoopDegreeandconstituencyofstakeholderengagementschanging,buteverpresent1.
Visionandgoals2.
Portfoliochoiceandmasterplan3.
Policychanges4.
Actions26|InfrastructureSeriesReport1|PwC1.
Visionandgoalsa.
PrepareaninfrastructureplanGovernmentsshouldprepareanationaleconomicinfrastructureplantooptimisethecountry'sportfolioofinfrastructureinvestments.
Thiswillclearlystatethevisionandgoalstostakeholders.
Agoodinfrastructureplanshouldhavethefollowingcharacteristics:Theplanshouldprovidegreatercertaintytostakeholders.
Thepipelineoffutureprojectsshouldbeclearlydisclosedinadvance.
Doingsoensuresthatthegovernmentiscommittedtoprovidingasteady,ratherthanfluctuating,flowofinfrastructureprojects.
Thisalsogivesstakeholdersampletimeforplanningapprovalandkeepsmaterialpricessteadywhileallowingtheprivatesectortoinvestinnewcapabilitiesandtechnologies.
Achangeinthepoliticalpartythatformsthegovernmentshouldnotcausemajordisruptionstotheplan.
Theplanshouldhaveclearprioritisationmethodologiestocreatemaximumbenefitswithregardtotheeconomy,societyandsustainability.
Theinfrastructureplanshouldfollowclearprinciplesforprocurement,whicharealignedwithinternationally-recognisedguidelinesandstandards.
Governmentsshouldlookatstrengtheningpublicinstitutionstofacilitateanenablingenvironmentforinfrastructureinvestments.
Theplanshouldsolveacurrentorpotentialproblemthatthecountryfaces.
Worstandbestcasescenarioscanbeusedtotesttheresilienceoftheproposedplans.
b.
ConsiderthestateofcurrentinfrastructureconditionsThegovernmentcanundertaketechnicalstudiesandsurveystakeholderstoobtainanunderstandingofthestateofcurrentinfrastructureconditions.
Asanexample,theStrategicInfrastructurePlannerToolbytheWorldEconomicForumcanbeusedtoprovideasummaryoftheinfrastructurequality,governmentreadiness,societalreadinessandmarketreadinesswithinaspecificmarket.
Anearlyoutreachtostakeholdersallowsthegovernmenttoidentifyandconsidercontentiousissuesduringtheplanningstage.
c.
EnvisagefutureinfrastructurevisionStakeholders'viewsofthefuturestateofinfrastructureshouldagainbeconsideredwhenthegovernmentplansitsfutureinfrastructurevision.
Thislong-termvisionshouldbealignedtothegovernment'slongtermeconomic,industrialandsocialvisionsforthecountry.
Withthedirectionoftheinfrastructurevisionfixed,subsetsofoutcome-based,medium-terminfrastructuregoalscanbeprepared,whichwillworktowardsachievingthelong-termvision.
2.
Portfoliochoiceandmasterplana.
Prioritisationmethodology:Cost-benefitanalysisCost-benefitanalysisisaneffectivemethodtofullyconsiderthelong-termeconomic,environmentalandsocialimplicationsofinfrastructureinvestments,andtheseimplicationsshouldbeweightedbasedonimportance.
Toensurethatthegovernmentisfullyaccountableforitsactions,theassumptionsandimplicationsofthecost-benefitanalysisshouldbedisclosedtorelevantstakeholders.
Thisgivescredibilitytothegovernmentandprovidesassurancetopotentialprojectsponsorsandinvestors.
Asmanygovernmentsfacetightfiscalconstraints,additionalgovernmentinvestmentisoftendifficult.
Itisthereforecrucialthatinvestmentsarestrategicinnaturetomaximisevalueformoneyforthetaxpayerandsocietyasawholewhilemaximisingeconomic,socialandenvironmentalbenefitsforthecountry.
b.
PublicorprivateprovisionGivenbudgetconstraints,theinitialpresumptionshouldbethatusersneedtobechargedforusage,withtargetedsubsidiesforthoseunabletoaffordessentialinfrastructureservices.
AdecisiontreethatillustratesthekeyconsiderationscontributingtothefundingdecisionisshowninFigure12.
PwC|InfrastructureSeriesReport1|27Step2Step1Step3CanusersbechargedforactualuseIsitcosteffectiveandpoliticallypossibletochargeusersIscompetitionbetweendifferentproviderspossible(i)OpenmarketcompetitionOptions(ii)regulatedprivateprovision,or(iii)statecompanyGovernmentprovisionGovernmentprovisionYesYesYesNoNoNoFigure12:Flowchartforfundingconsiderations3.
Policychangesa.
Existenceofrelevantlegalandregulatoryframeworks,andstrongpublicinstitutionsThereneedstobeafocusondevelopingastrongandstablelegalandregulatoryframeworktoprovidearobustfoundationonwhichtoattractinvestment.
ASEANeconomiesalsoneedtoidentifykeygapswithinexistingframeworksanddraftandapproveregulationsandlawsthataddressthesegaps.
Itisalsoimportanttoensurethattheserevisionslooktoglobalprecedentsinordertomakethisprocessmoreefficientandensurethatthemarketcaneasilyunderstandandrespondtothesenewlaws.
28|InfrastructureSeriesReport1|PwCIndonesiaInfrastructureGuaranteeFund(IIGF),IndonesiaIndonesiaInfrastructureFinance(IIF),IndonesiaIIGFisastate-ownedenterpriseestablishedin2009,wholly-ownedbythegovernmentofIndonesiaandsupportedbytheWorldBank.
Itisthesoleproviderofguaranteesforinfrastructureprojectsunderthepublic-privatepartnership(PPP)schemeinIndonesia,underasetofclear,consistentandstandardguidelineswhichhavebeendevelopedwithtechnicalassistancefromtheWorldBank.
IIGFguaranteesarebackedbyeither:IIGF'scapital;orWorldBankfinancing,throughfinancialsupportprovidedundertheIndonesiaInfrastructureGuaranteeFundProject(IGFP).
SomebenefitsofIIGFinclude:EnsuringtransparencyintheprovisionofguaranteesImprovingthebankabilityofprojectsReducingthecostoffinancingofprojectsAttractingprivatesectorinvestmentsIIFisaprivatenationalcompanyestablishedin2010bytheMinistryofFinanceofIndonesia,withthesupportoftheWorldBank,ADBandothermultilateralinstitutions.
IIFprovidesinfrastructurefinancingandadvisoryservicesforprojectsinIndonesia.
IIFprovidesfinancingthroughtwotypesofinvestmentproducts:Fundbased,suchaslong-termloansandequityinvestments;andNon-fundbased,suchasguarantees.
SomebenefitsofIIFinclude:Enforcinginternationalstandardsforcredit,riskmanagement,corporategovernance,andsocialandenvironmentalsafeguardsforitsportfolioofprojectsImprovingthestructureandbankabilityofprojectsthroughfinancialandtransactionadvisoryservicesAddressingfinancinggapsbyprovidingfinancingsolutionsspecifictoaproject'srequirementsFacilitatingprivatesectorinvestmentsInternationalEnterprise(IE)SingaporeIESingaporeisagovernmentagencythatpromotesinternationaltrade.
Itprovidesanetworkfor,andsupportservicesto,Singaporecompaniestoventureoverseasthroughtheircentresinover35locationsaroundtheworld.
OnerelevantinitiativeadministeredbyIESingaporeistheInternationalisationFinanceScheme(IFS),whichisabletohelpSingapore-basedcompaniesobtainfinancingbysharingtheriskofdefaultofpaymentsbetweenIESingaporeandParticipatingFinancialInstitutions(PFIs)inselectedemergingmarkets.
Initiativeslikethiscanhelpmitigatesomeoftherisksoffinancinginfrastructureprojects,allowingSingapore-basedcompaniestoexplorethedevelopmentofmoreinfrastructureprojectsinASEAN.
Thiscanbeachievedintwomainareas:(i)Presenceofdedicatedgovernmentdepartmentsorinstitutionsthatsupportinfrastructuredevelopmentandencourageprivatesectorparticipation;and(ii)Initiativesimplementedbygovernmentsorregulatorybodiesthatsupportcompaniesininfrastructuredevelopmentorinvestmentatvariousstagesoftheprojectlifecycle.
PwC|InfrastructureSeriesReport1|29b.
TaxpoliciesAnotheraspectofpolicychangesinvolvestaxpolicies.
Governmentscanimplementtargetedtaxincentivestopromoteandattractinfrastructureinvestmentstotheircountry.
TaxIncentiveSchemesforProjectandInfrastructureFinance,SingaporeEasternEconomicCorridor(EEC)Bill,ThailandTheTaxIncentiveSchemesforProjectandInfrastructureFinanceinSingapore38include:ExemptionofqualifyingincomefromqualifyingprojectdebtsecuritiesExemptionofqualifyingincomefromqualifyinginfrastructureprojects/assetsreceivedbyapprovedentitieslistedontheSingaporeExchange(SGX)Concessionarytaxrateof10%onqualifyingincomederivedbyanapprovedInfrastructureTrusteeManager/FundManagementCompanyfromqualifyingactivitiesTheseincentives,previouslyscheduledtoendafter31March2017,havebeenextendeduntil31December2022—afurtherindicationoftheSingaporegovernment'ssupportforinfrastructureinvestments.
UnderThailand'sEasternEconomicCorridor,maximumtaxincentivesimplementedinclude:CorporateIncomeTax(CIT)exemptionof15yearsplusgrantsforqualifyingstrategicprojectsintheEasternEconomicCorridor39InvestmentTaxAllowance(ITA)allowingadeductionofupto70%ofinvestmentcapitalonnetprofitforqualifyingprojects404.
Actionsa.
FinancingdecisionInordertodeliverinfrastructureprojectseffectivelyandefficiently,governmentsneedtoconsiderthechoiceoffinancingmethoddependingonthesourcesofavailablefinance,therelativebenefitsofthosesourcesaswellastheircosts(bothexplicitandimplicit).
Weanalysethisthroughadiscussionofthevariousprocurementanddeliverymodelsthatcanbeusedforinfrastructureprojects—"traditional"procurement,PPP,government-to-government(G2G)transactionsandthehybridPPPmodelwhichisincreasinginpopularityinsomeASEANcountries.
(i)TraditionalprocurementTraditionalinfrastructureprocurementisrepresentedbythegovernment'sacquisitionofinfrastructuresuchasroadsandbuildings(suchashospitalsandschools).
Usually,thegovernmentspecifiesthequantityandqualityoftheservice,whiletheinfrastructureisconstructedbyprivatecompaniestowhomtheconstructionistypicallyawardedthroughatender.
Thegovernmentagencyentersintodifferentcontractsforconstruction,operationandmaintenance,aswellasancillaryservices.
Oncetheconstructioniscompleted,theassetistransferredtoandoperatedbythegovernment.
Thismechanismincludeswhatistermed'buildanddeliver'contracts.
Inatraditionallyprocuredproject,thetransferofrisktotheprivatepartiesinvolvedisverylimitedandusuallydoesnotextendbeyondtheconstructionphase.
Mostoftheprojectrisksliewiththegovernmentagency.
(ii)PPPprojectsAPPPisapartnershipbetweenthepublicsectorandtheprivatesectorforthepurposeofdeliveringaprojectoraservicetraditionallyprovidedbythepublicsector.
APPPprojectcantypicallybesegmentedinto14stages.
38Budget2017-ExtendingtheTaxIncentiveSchemesforProjectandInfrastructureFinance,IRAS,201739EECGatewaytoAsia,ThailandBoardofInvestment,January201740OpportunityThailand,ThailandBoardofInvestment,April201730|InfrastructureSeriesReport1|PwCFigure13::The14-stageprocessofaPPPSTAGE1EstablishbusinessneedSTAGE2AppraisetheoptionsSTAGE3BusinesscaseandreferenceprojectSTAGE4DevelopingtheteamSTAGE5DecidingtacticsSTAGE6InviteexpressionofinterestSTAGE7Pre-qualificationofbiddersSTAGE8SelectionoftheshortlistSTAGE9RefinetheappraisalSTAGE10TheinvitationtotenderSTAGE11ReceiptandevaluationofbidsSTAGE12SelectionofpreferredbidderandthefinalevaluationSTAGE13ContractawardandfinancialcloseSTAGE14ContractmanagementPre-procurementTenderclarification&contractawardShortlistPwC|InfrastructureSeriesReport1|31TodeliverPPPprojects,governmentsneedaneffectivePPPprogramme.
ThefeaturesofasuccessfulPPPprogrammearesetoutinthefigurebelow.
Figure14:FeaturesofasuccessfulPPPprogrammeSustainablePPPprogrammesProcuringsuccessfullyLaythefoundationsAllowprocesstoevolveMaintainprogrammeofopportunitiesCollaborationbetweenpublicandprivatesectorsLeveragemulti-lateralsStakeholderconsultationInstitutionalCertaintyProgramdevelopmentandprioritisationFocusedregulatorychange–e.
g.
LandAcquisitionGlobalprecedentwithlocalapplicationBuildtransactionalcapacityStrongstakeholdersupportandconsistencyProjectdefinition,FeasibilityandFinancingoptionsBalancebetweenriskandreturnCapacity–publicandprivateSustainexistingsourcesofprivatefinanceProcessforapprovalsandclosureEncouragedevelopmentofcapitalmarketsExplorealternativefinancingsolutionsAddressprojectissuesearlyContinuedstakeholdersupportPPPsplayapivotalroleinfinancinginfrastructureprojects.
Comparedtotraditionalcapitalinvestmentsfromthegovernment,inPPPprojects,financialandoperationalriskscanbemoreefficientlyallocatedtotheprivatesector,whotendtobeabletomanagethesecostsmoreefficiently.
Additionally,PPPsalsoallowthestatetotapontheinnovativeabilityandmanagerialtalentintheprivatesectoraswellasfreeuppublicresources,whichallowsthegovernmenttoinvestavailableresourcesinotherinfrastructureprojectsorotherareasofthesocietyandeconomy.
However,therearedrawbacksofPPPprojects.
Theyareoftencomplexanddifficulttostructureandprocureandthiscanresultinlongerprocurementanddeliverytimeframesthantraditionalcapitalinvestment.
Clearguidelinesgiveinvestorsbetterknowledgeandassuranceonwhichtobasetheirinvestmentdecisionsandcanhelptoattractthetrillionsofassetsundermanagementbyinstitutionalinvestors,whoseprimaryobjectiveistoseeklong-term,lowvolatilityinvestments—aspectswhicharepertinenttoinfrastructureinvestments.
32|InfrastructureSeriesReport1|PwCASEANPrinciplesforPPPFrameworkTheframeworkwasissuedin2014anddevelopedbytheASEANSecretariatandtheOrganisationforEconomicCo-operationandDevelopment(OECD)toprovideASEANmemberstateswithguidanceonhowtoeffectivelyimplementPPPprojects.
Itisbasedonthefollowingguidance/frameworks41:ExistingPPPframeworksorpracticesinASEANmemberstatesOECD's"PrinciplesforPublicGovernanceofPPPs"and"PrinciplesforPrivateParticipationinInfrastructure"WorldBank's"DedicatedPublic-PrivatePartnershipUnits"EuropeanInvestmentBank's"GuidetoGuidance"ADB's"Public-PrivatePartnershipOperationalPlan2012-2020"UNEconomicandSocialCommissionforAsiaandthePacific's(UNESCAP)"GuidebookonPPPinInfrastructure"Severalmemberstateshavetakenthisframeworkintoconsiderationbylegislatingit.
Forinstance,inanefforttoattractFDItoinfrastructuredevelopment,theVietnamesegovernmentissuedadecreeonPPPinvestmentsin2015.
AlthoughthenewframeworkdoesnotfundamentallychangetheexistingPPPlaws,itclarifiesandimprovesthem.
(iii)G2GprojectsGovernments,suchasChinaandJapan,havetraditionallybeenmajorproponentsofG2Ginfrastructureprojectsintheregionduetothepotentialopportunitiesforagenciesorcompaniesfromtheircountriestoparticipateinsuchprojects.
G2Gtransactionscanalsoalignforeignpolicyobjectivesinareassuchassustainableeconomicgrowthandenvironmentaldevelopmentgoals.
41ASEANPrinciplesforPPPFrameworks,ASEAN,November201442Gov'ttoapply'hybrid'formulainimplementingPPPprojects,DepartmentofFinance,May2017(iv)HybridPPPtransactionsThegovernmentofPhilippinesisalsoexploringtheutilisationofahybridPPPmodelwheretheinitialupfrontconstructionwillbedeliveredthroughaG2GarrangementandtheoperationsandmaintenanceoftheprojectwillbemanagedbytheprivatesectorthroughaPPPcontract.
Throughthis,thegovernmentintendstoreducetheimplementationperiodofprojectsandthecostofborrowingastheycanborrowatlowerratesthroughgrantsandconcessionalloans42whilestillleveragingtheexpertiseandexperienceoftheinternationalinfrastructureoperatorsandmaintenancecompanies.
PwC|InfrastructureSeriesReport1|33Casestudy:G2GprojectJakartaMRT,IndonesiaDetailsofinfrastructureecosystemGovernmentsIndonesiaandJapanFinancialinstitution/investorJapanInternationalCooperationAgency(JICA)InfrastructurecompanyProvincialGovernmentofDKIJakartaMDBJICAProjectbackgroundThefirstphaseoftheprojectisa15.
7kmsectionthatlinksLebakBulusinSouthJakartatotheHotelIndonesiatrafficcircleinCentralJakarta.
TheconstructionofthefirstphaseoftheMRTprojectwasfundedbya125billion(US$1.
29billion)softloanfromJICA.
Repaymentisexpectedtocome49%fromthecentralgovernmentandtheremainingfromtheregionalauthority,DKIJakarta.
Theproject'stotalinvestmentvalueisexpectedtobearoundUS$1.
7billion.
ImpactontheregionThisproject,combinedwiththecurrentlightrailtransit(LRT)development,isexpectedtoeasethetrafficcongestionproblemsofoneofthelargestcitiesintheworld.
Thefirstphaseoftheprojectisanticipatedtocarryupto173,000passengersdailyandreducethetraveltimefromLebakBulustoHotelIndonesiabymorethan50%(tolessthan30minutes).
OpportunitiesTheJapanesegovernment,throughJICA,haspositionedJapanesecompaniestotakeonsubstantialrolesinthecontractprocessfromplanningthroughtoconstructionandmaintenance,aswellasprovidingopportunitiesforinternationalcompaniestoactassubcontractorsintheconstructionphase.
Thereareotheropportunitiesforinternationalcompaniestosupportonprojectmanagementandassurance,operations,andtrainingandcapacitybuildingofoperationalstaff,giventhatthereiscurrentlynoexistingMRTinIndonesia.
Sourceofcasestudy:MRTJakarta:Diggingthecity,TheJakartaPost,April201634|InfrastructureSeriesReport1|PwCCasestudy:HybridPPPmodelClarkInternationalAirport,PhilippinesDetailsofinfrastructureecosystemGovernmentPhilippinesAdvisorInternationalFinanceCorporation(IFC)Financialinstitution/investorGovernmentofPhilippinesInfrastructurecompanyBiddingprocessforacontractorwasrecentlylaunchedbythegovernmentMDBIFCProjectbackgroundThePHP12.
55billion(US$248million)43projectinvolvestheconstructionofanewairportterminalforClarkInternationalAirport,whichwillexpandcurrentairportcapacityfrom4.
2to8million44passengersannually.
TheprojectwillbejointlyrunbytheDepartmentofTransportation(DOTr)andtheBasesConversionandDevelopmentAuthority(BCDA).
IFCwillbeadvisingonthedesign,structureandimplementationofthePPPtransaction.
ImpactontheregionAlongwiththeexpectedeconomicgrowtharisingfromtheexpansionoftheairporttoaccommodate3.
8millionadditionalpassengersannually,lowerairportchargesareexpectedtoresultfromthehybridPPPmodeladoptedforthisproject.
Astheprojectwillbefundedanddevelopedbythegovernment,alowerrateofreturnwillbeexpectedwhenthenewterminalisoperationalandthiswillbetransferredtopassengersintheformoflowerairportcharges.
OpportunitiesAsthegovernmentwillbeusingPPPforthesubsequentoperationsandmaintenanceoftheairport,thisisanopportunitythattheprivatesectorcantarget.
Further,withtheexpansionoftheairportterminal,touristarrivalsareexpectedtoincrease,openingupdownstreamopportunitiesintheretailandhospitalityindustries,whichlocal,regionalandinternationalcompaniescanexplore.
43MegaProject982:Philippinesopensbiddingforfirst'hybrid'PPPproject,InfraPPPWorld,August201744Clarkairportdev'topeneduptobidders,BusinessWorldOnline,August2017PwC|InfrastructureSeriesReport1|35FinancialinstitutionsandinvestorsRoleoffinancialinstitutionsandinvestorsThenextimportantpillaristhefinancialinstitutionsandinvestorsthatprovidethenecessarycapitalforbuildinginfrastructureprojects.
Robustcapitalmarkets,astrongbankingsystem,thepresenceoflargeinstitutionalinvestors,privateequityfundsandlargescaleprivateinvestorsareallimportantingredientsforinfrastructuredevelopment.
Governmentfundshavebeenthemostcommonsourceofinfrastructureprojectfinancehistoricallywithprivatesectorfinancingcomingfromcommercialbanks.
However,withgovernmentbudgetsconstrained,regulatoryrestrictionsonbanklendingandtheneedforinfrastructurestillimmense,governmentsmustlooktoreleasealternativesourcesoffinancing.
Thesealternativesourcesoffinancingincludeinsurers,pensionfundsandendowmentfunds.
Theseinvestorshavelong-terminvestmenthorizonsandtrillionsofdollarsincashthatneedinvesting.
Infrastructureinvestmentsshouldbeattractivetothem.
Generally,pensionfunds,infrastructurefundsorsovereignwealthfundsdonotinvestingreenfieldprojectsoremergingmarketsastheytendtoshyawayfromexposuretoconstructionriskornon-OECDsovereignrisk.
However,duetoconstraintsongovernmentbudgetsandlowerlevelsofliquidityorhighercostoftraditionalprojectfinanceloans,tappingintothislong-termliquiditypoolisimportant.
Thiscanbedonebysellingoperationalaspectstotheseassetbuyersorcreatingamoreconduciveenvironmentforinvestingintogreenfieldprojects.
Institutionalinvestorsareanobviouslong-termsourceofcapitalforinfrastructureprojects.
Theycanmatchthelong-term,relativelylow-volatility,andinflation-protectednatureofthoseinvestmentswiththeirlong-termliabilities.
Here,welookatafewexamplesoffundsandothertypesofprivateinvestorsthathavebeeninvestinginandlendingtoinfrastructureprojectsinASEAN.
CliffordCapitalEquisFundsChinaConstructionBank(CCB)CliffordCapitalwasestablishedin2012bytheSingaporegovernmentasanindependent,commerciallymanagedcompany.
Itoffersinnovativeandcompetitivedebtfinancingsolutionsacrossallstagesoftheprojectlifecycle.
Itaimstoactasacatalysttofacilitatemorecross-borderbusinessopportunitiesforSingapore-basedcompanies,byaddressingconstraintsintheaccessibilityandavailabilityofcross-borderfinancingofinfrastructureprojects.
EquisisAsia'slargestindependentinfrastructureprivateequitymanager,raisingoverUS$2.
7billioninequityforAsiaPacificinfrastructureinitiativesinthelastfiveyears45.
Withitslocal-marketexpertiseandmanagementofallaspectsofdevelopment,constructionandoperations,ithasestablishedastrongpresencein10AsiaPacificcountriesandisheadquarteredinSingapore.
Unlikemanyotherfunds,Equistakesondevelopmentandconstructionrisk.
CCBisChina'ssecondlargestbankwitharound21trillionyuan(US$3.
1trillion)worthofassets46.
CCBhasexpandeditspresenceinSingaporetotakeadvantageofthecountry'sstrengthininfrastructurefinanceandwealthmanagement,andopenedaninfrastructurefinancingservicescentretomobiliseinvestmentsintheBRI.
45Corporateprofile,Equis,201646ChinaConstructionBankopensnewofficesinSingapore,TheStraitsTimes,April201736|InfrastructureSeriesReport1|PwCPrivateInfrastructureDevelopmentGroup(PIDG)PIDGwasestablishedin2002tohelpovercometheobstaclesinprivatesectorinfrastructureinvestmentsindevelopingcountries.
PIDGconsistsofthefollowinginternational/multilateralmembers47:DepartmentforInternationalDevelopmentAustralianGovernmentDepartmentofForeignAffairsandTradeSwissFederalDepartmentofEconomicAffairs,EducationandResearch(SECO)KfWNetherlandsMinistryofForeignAffairsNorwegianMinistryofForeignAffairsSwedishInternationalDevelopmentCooperationAgencyFinanceforDevelopmentIFCPIDGoperatesthroughthreemainarmswhichhaveheadquartersinAsiaandAfrica.
TheAsianheadquartersofthefollowingcompaniesareinSingapore:InfraCo:InfraCoaimstocreateviableinfrastructureinvestmentopportunitiesthatbalancetheinterestsofvariousprojectstakeholders.
Italsoreducesentrycostsforprivatesectorinvestmentsbyfundingearlystage,highriskprojects,andprovidingaccesstodevelopmentexpertiseandadvisoryservices.
DevCo:DevCo,whichismanagedbytheWorldBankGroup'sIFC,seekstoprovidefinancialsupportforprojectstructuringindevelopingcountriestofacilitatesustainableprivatesectorinfrastructureinvestments.
GuarantCo:GuarantCoprovidesguaranteestolenderstosupportdomesticinfrastructurefinancingandcapitalmarketdevelopmentinlow-incomecountries.
AdvisorsRoleofadvisorsInfrastructureprojectsofteninvolveprofessionalswhoadviseonthefinancial,transactional,legalandtechnicalstructuresrequiredacrosstheentireinfrastructureprojectlifecycleinordertomakeprojectsbankable.
Thepresenceofastrongtalentpoolofadvisorsisacontributingfactorforprojectsuccessastheseadvisorsensurearobustprojectplananddesign—animportantsteptowardsimprovingthebankabilityofinfrastructureprojects.
Effectiveplanningcanavoidcostandtimeoverrunsandleadstoefficientprojectimplementation.
Otherthanprojectplanning,designandimplementation,advisorssuchastaxexpertsandlawyersarealsoanimportantcomponentoftheecosystem,astheyprovideinvestorswiththenecessaryknow-howonthecountry'staxlawsandregulations.
Thismakesiteasierforinvestorstodecidewhethertoinvesttheirlimitedtime,capitalandcapacityinaninfrastructureprogramme.
Inaddition,theseadvisorscanalsoprovideexpertiseonexitstrategieswheninvestorswishtoselltheirinterestinoperationalaspectsandreinvesttheircapitalelsewhere.
47Members,PIDGPwC|InfrastructureSeriesReport1|37CasestudyMawlamyaingpowerplantproject,MyanmarDetailsofinfrastructureecosystemGovernmentMyanmarFinancialinstitution/investorUnitedOverseasBank(UOB)InfrastructurecompanyAsiatechEnergyProjectbackgroundSingapore-basedfirm,AsiatechEnergy,wascontractedbyMyanmarLightingIPPCoLtd(MLC)toconstructa230-megawattpowerplantinMawlamyaing,locatedinMonstate,Myanmar.
TheconstructionwasfinancedbySingapore'sUOB.
TheplantwillbeownedandoperatedbyMLCandMyanmarElectricalPowerEnterprise(MEPE)willdistributetheelectricitygenerated.
ImpactontheregionTheMawlamyaingplantisexpectedtoproduceasustainablesupplyofelectricityforfivemillionpeoplewhenitiscompleted,contributingtoMyanmar'sNationalElectrificationPlan(NEP)of100%electrificationby203048.
OpportunitiesAreliableandsustainablepowersupplyisneededtosupportbusinessesandfuturegrowth.
Itwould,inturn,drivethecreationofnewindustriesandjobsforMyanmar.
48ElectricitytoTransformRuralMyanmar,TheWorldBank,September201538|InfrastructureSeriesReport1|PwCCasestudyCocSanpowerproject,VietnamDetailsofinfrastructureecosystemGovernmentVietnamAdvisorInfraCoAsiaFinancialinstitution/investorInfraCoAsiaandSaigonHanoiCommercialBank(SHB)InfrastructurecompanyAsiaticGroupHoldings,SingaporeProjectbackgroundCocSanisa29.
7-megawatthydropowerprojectintheLaoCaiprovinceofVietnamthatbeganoperationsin2016.
NexifEnergyacquiredamajorityequityholdingfromInfraCoAsiaintheprojectinearly2016,whenitwasnearingthecompletionofconstruction.
ImpactontheregionCocSanisnowprovidingmoreaffordableandreliablepowersupplyto130,000,peoplereducingtheneedtoimportexpensiveandunreliablepowerfromothercountries.
ItisalsomakingapositivesocialandenvironmentalimpactasthepopulationintheareawasnotdisplacedbytheprojectandVietnam'scarbonemissionshavebeenreducedby76,000tonnesannually.
KeychallengesBeforetheinvolvementofInfraCoAsia,theprojectfaceddelaysintheearlystagesasthereweredifficultiesinobtaininglong-termdebtfinancing.
Thiswaspartlyduetolendersandinvestorsfeelinguncomfortablewiththeinsufficientlevelsofduediligencework,projectsafeguardsandrisksoftheproject.
From2012,InfraCoAsia'sinvolvementincluded:ProvidingdevelopmentexpertiseandadvisoryservicestorestructuretheCocSanproject,improvingthebankabilityoftheproject–US$23milliondebtfinancingwassubsequentlyobtainedfromSHBCommissioningenvironmentalandsocialimpactanalysistoWorldBankandIFCstandardsInvestingUS$7.
54millionintotheprojectProvidingotherdevelopmentexpertiseandadvisoryservicesthroughouttheprojectOpportunitiesTheCocSanprojectcreatedshort-andlong-termemploymentopportunitiesforthepeopleofLaoCaiprovince.
Inaddition,theavailabilityofareliableelectricitysupplyisexpectedtoattractandsupportindustrialdevelopments(suchastheiron,copperandminingsectors)andinvestmentsinthearea.
Sourcesofcasestudy:CocSanHydropowerProjectSheet,InfraCoAsia,2016;ProjectFocus—CocSanHydropower,Vietnam,PIDG,October2015PwC|InfrastructureSeriesReport1|39InfrastructurecompaniesRoleofinfrastructurecompaniesTheseformthebackboneoftheecosystem.
Infrastructurecompaniesplayacrucialroleintheinfrastructureprojectlifecycleastheyprovidearangeofservicesincludingtechnicaladvisory,construction,operationsandmaintenanceaswellasprojectmanagement.
Thesehelptoaddvaluetothevariousstagesoftheinfrastructureprojectlifecycleandensureeffectiveprojectdeliveryandoperations.
Inaddition,manyinfrastructurecompaniesaregloballyfocused,givingthemadiversetrackrecordacrossmanyterritories.
Further,thesecompaniesoftenutilisearegionalhubmodelwhereexpertiseandskillsarecentredinoneorafewlocations,andtheyareusedtosupportprojectdevelopmentandimplementationinneighbouringcountries.
SiemensHyfluxSiemensrecentlylaunchedthefirstSiemensDigitalisationHub49inSingaporetoprovidedigitalservicesandexpertiseinSoutheastAsiathrough:UrbanInfrastructureHubDigitalCentreforOilandGasIndustry4.
0HubHealthineersDigitalHubThroughthisDigitalisationHub,Siemensaimstosupplysolutionswhichinclude:Improvingefficiencies,mobilityandintegrationwithintheregionCreatingcost-efficienciesintheoilandgasindustryIncreasingproductivityandflexibilitytohelpcompaniesmeetend-userneedswithreducedresponsetimesFacilitatingeasyandseamlessinteractionofdataandknowledgeinthehealthcareindustryHyfluxisagloballeaderinsustainablesolutions,focusingontheareasofwaterandenergy.
ItisheadquarteredandlistedinSingapore,withoperationsandprojectsspanningAsiaPacific,theMiddleEast,AfricaandtheAmericas.
Hyfluxdifferentiatesitselfthroughitsabilitytoaddressthechallengesinthewaterandenergysectorswithinnovativesolutions.
Forinstance,theirmembranetechnologycanbeusedinwaterpre-treatment,waterrecycling,wastewaterrecyclingordisposal,andwaterdesalinationinindustriessuchasoilandgas,andpower50.
CH2MChinaMachineryEngineeringCorporation(CMEC)CH2Misaglobalengineeringfirmspecialisingingovernment,industrial,infrastructureandenergyprojects.
Ithasaninternationalpresenceinover50countries,withregionalheadquartersinSingaporeandofficesacrossASEAN.
In2015,CH2MlauncheditsnewAsia-PacificInfraHubinSingapore,whichaimstoaddressAsia'sgrowinginfrastructuregapbydevelopingsolutionsacrossvariousinfrastructuresectorsfortheregion.
CMEC,amajorsubsidiaryofSinomach,isoneofChina'stop10internationalengineering,procurementandconstruction(EPC)companiesservingthepowerandrenewableenergymarkets.
In2014,CMECestablishedSinlandDevelopmentPteLtdinSingaporeasitsfirstoverseasregionalheadquarterstoundertakeactivitiessuchasEPCcontracting,procurement,investmentandprojectfinancingfortheregion.
49SiemensDigitalizationHubFactsheet,Siemens,201750IndustriesandApplications,Hyflux40|InfrastructureSeriesReport1|PwCMultilateraldevelopmentbanksRoleofmultilateraldevelopmentbanksMDBsareexternalaidagencieswithamandatetosupportlessdevelopedanddevelopingcountriesintheirprocessofdevelopmentandpovertyalleviationthroughinfrastructuredevelopment.
Theirsupportcomesintheformof:(i)Loans,grants,technicalassistance,policyadvice,institutionalsupportandprojectmanagementsupport,amongothers(ii)Insuranceagainstpoliticalrisks(iii)Helpingcountriestofurtherimprovetheirexistingcapabilitiesandprocesses(suchasprocurementprocesses)toundertakefutureinfrastructureprojects.
WorldBankGroup(WBG)AsianInfrastructureInvestmentBankToprovidesupportacrossthelifecycleofinfrastructureprojectsglobally,WBGsetupthefirstInfrastructureandUrbanDevelopmentHub51inSingapore,whichconsistsofthefollowingagencies:InternationalBankforReconstructionandDevelopment(IBRD)IFCMultilateralInvestmentGuaranteeAgency(MIGA)ThiswouldallowgovernmentsortheprivatesectortoobtainadvisoryservicesandfinancingandleverageexistingexpertiseviaWBG'sglobalreachandthroughitspartners.
Forexample,alongwithAustralia,Canada,China,JapanandSingapore,WBGisoneofthefundingpartnersoftheGlobalInfrastructureFacility(GIF).
Togetherwithfinanciersaswellastechnicalandadvisorypartners,GIFsupportsgovernmentsduringtheplanning,designandexecutionphasesofinfrastructureprojects.
TheClarkInternationalAirportinPhilippinesisoneprojectthatwassupportedbyIFC,atechnicalpartneroftheGIF.
AIIBisamultilateralfinancialinstitutionfoundedin2016toprovidefinancingforinfrastructureprojects.
Ithasformedpartnershipswithprivatefinancialinstitutions,thepublicsectoraswellasinternationaldevelopmentbanksincluding52:WBGADBEuropeanBankforReconstructionandDevelopmentEuropeanInvestmentBankInter-AmericanDevelopmentBankInter-AmericanInvestmentCorporationNewDevelopmentBankThiswouldgiveinfrastructureprojectsgloballyaccesstoawiderpooloffinancingoptions,whileensuringthattheprojectsintheregionmeetdevelopmentgoalsof53:SustainableinfrastructureCross-countryconnectivityPrivatecapitalmobilisationMultilateralInvestmentGuaranteeAgencyMIGAisamemberofWBGthataimstopromoteforeigninvestmentsintodevelopingcountries.
Notably,MIGAprovidespoliticalrisk(non-commercialrisk)insuranceguaranteestotheprivatesector.
In2017alone,MIGAprovidedUS$4.
8billioninguarantees,whichhelpedtoattractUS$15.
9billioninforeigncapitalfromprivatesectorinvestorstodevelopingcountries54.
Suchguaranteesprotectinvestmentsagainstnon-commercialrisksandcanhelpinvestorsobtainaccesstofundingsourceswithbetterfinancialtermsandconditions55.
51Singapore,WorldBankGroupRespondtoGlobalDemandandEstablishMajorInfrastructureandUrbanDevelopmentHub,TheWorldBank,October201552Ourwork,AIIB53Strategies,AIIB54MIGAissuesrecord$4.
8binguaranteestoprivateinvestorsinFY17,MIGA,July201755Whoweare,MIGAPwC|InfrastructureSeriesReport1|41AsianDevelopmentBankADBisamultilateraldevelopmentfinancialinstitutionthatprovidesfinancing,technicalassistanceandgrantstomembergovernmentsaswellasfinancingtotheprivatesectorindevelopingmembercountries.
InfrastructuredevelopmentisoneofthecoreareasinwhichADBisinvolved.
ADB'soperationsarenotsolelyfocusedonassistingexistingorupcominginfrastructureprojects.
Italsoworkstohelpcountries,especiallydevelopingones,furtherstrengthentheircurrentcapabilitiestoundertakeandsupportfutureinfrastructuredevelopments.
Forinstance,PhilippineshasputinaproposalforaUS$100millionloanfromADBtodevelopanInfrastructurePreparationandInnovationFacilitytogainaccesstointernationalsourcesofinnovation,expertise,advice,andbestpractices56.
Theultimategoalistofurtherimprovetheexecutionandqualityoffutureinfrastructuredevelopmentsinthecountrybyincorporatingthisknowledgeintofutureprojects.
ADBalsoestablishedtheASEANInfrastructureFund(AIF)in2012,inpartnershipwithASEANmembercountriestoaddresstheregion'sinfrastructureinvestmentneeds.
TheobjectiveofAIFistofinanceprojectsthatpromoteinfrastructuredevelopmentwithintheterritoriesofASEAN'sdevelopingmembercountriesbymobilisingregionalsavings,includingforeignexchangereserves.
AllAIF-financedprojectsarealsoco-financedbyADB.
Itisimportanttonotethatinternationaldevelopmentorganisationshavewell-establishedprocurementprocessesandguidelinesforprojectsthatarewell-understoodandrespectedbytheinternationalinfrastructureandfinancingcommunity.
Thisgivescomforttoprojectstakeholdersastotherobustnessoftheprocessesandprojectinformationandsoactsasanimportantcatalystforinvestmentintoinfrastructureprojectsacrossemergingmarkets.
56Philippines:InfrastructurePreparationandInnovationFacility,ADB,201742|InfrastructureSeriesReport1|PwCChapter4:Aninfrastructurehub:aone-stopshopAsdiscussedinChapter3,thepresenceofanecosystemcanenableandleadtoinvestmentsininfrastructureprojectsasthechanceofprojectsuccessincreases.
However,mostdevelopingcountrieslackoneormoreofthepillarsofanecosystem.
InChapter1,wesharedthatASEANcountriesneedaboutUS$3.
1trillion57tomeetADB'sestimateforinfrastructurespending.
However,mostSoutheastAsiancountrieslackbankableprojects,orsufferduetolessfriendlybusinessregulationsortheabsenceofarobustfinancialsystem.
Thesenationsrelyoneachotherforfinancesandexpertisetofilltheirinfrastructuregap.
Singapore,forinstance,servesasaregionalhubforprojectfinancebanksandactstosupporttheinfrastructurefinancingrequirementsoffellowASEANcountries.
Onthedeliveryside,developerssuchasSembcorpinSingaporeareinvestingin,anddeployingprojectexpertiseandtechnologyto,neighbouringcountriessuchasMyanmarwheretheyaredevelopingpowerplants.
57MeetingAsia'sInfrastructureNeeds,ADB,2017PwC|InfrastructureSeriesReport1|43Suchcross-borderharmonyandexternalitiesgiverisetotheconceptofaninfrastructurehub.
Wedefineaninfrastructurehubasageographicregionwhichhousestheentireprojectecosystemandintegratesinfrastructureenablersalongtheentirevaluechain–beitarchitectureandengineering,multilateralbanks,privatefinanciersaswellasotherprofessionalservices–inonelocation,suchthatthewholeregioncantakeadvantageoftheecosystem.
Itisimportanttonotethattheconceptofaninfrastructurehubgoesbeyondjustthepresenceofanecosystem.
Thereareothercriticalfactorsneededforacountryorcitytoqualifyasaninfrastructurehub.
Theseinclude:a)Strategiclocation:Toserveasinfrastructurehubforaregion,thecountryorcityshouldbecentrallylocatedwithintheregionandhaveeasylocationalaccessfromanyplaceinthatregion.
Thatistosay,thereshouldberobustconnectivitybyair,roadorrailtoandfromthatplacetootherpartsoftheregion.
WithinASEAN,Singapore,KualaLumpurandBangkokarethreesuchplaces.
TheyhaveaffordabledirectflightstoandfromallmajorcitiesinSoutheastAsia.
b)Perceptionofenablersoutsidetheregion:Foreigninvestmentiscriticaltofilltheinfrastructuregap.
Hence,itisimportantfortheinfrastructurehubtobeperceivedbyforeigninvestorsasaplacethatprovidesaccesstotheregionandofferssufficientscopeforreturnsandinvestmentavenues.
AgreatexampleofthisisSingapore.
SeveralChinesebanksandconstructioncompanieshavesetupheadquartersinSingaporesothattheycanaccesstheentireSoutheastAsianregionforinvestmentsundertheBRI.
c)Languageadvantage:Notonlyshouldtheplacebestrategicallylocated,butthemajorityofitspopulationshouldalsospeakaglobalbusinesslanguagesuchasEnglish.
Thisallowsenablersfromoutsidetheregiontoeasilysetupbaseintheinfrastructurehubandaccessothermarketswithintheregion.
Withafullecosystemofparticipantsintheinfrastructuresupplychain,frombanksandadvisorstodevelopers,SingaporeiswellpositionedtocapitaliseontheBRI.
SingaporeistheinfrastructurehubofASEAN,withupto60%58ofASEANprojectfinancetransactionsarrangedbySingapore-basedbanks.
WithSingapore'sexpertiseinurbanplanningandfinancing,complementingtheexpandingmarketsofemergingeconomies,G2GcollaborativeopportunitieswillbeomnipresentwiththepotentialB&RactivitiesinASEAN.
58Singapore–GearinguptobeAsia'sInfrastructureExchange,MinistryofLaw,March201744|InfrastructureSeriesReport1|PwCCasestudyMyingyancombined-cyclegasturbinepowerplant,MyanmarDetailsofinfrastructureecosystemGovernmentMyanmarAdvisorAllen&Overy,SingaporeFinancialinstitution/investorADB,AIIB,IFC,SingaporebanksincludingCliffordCapital,DBSBank,DZBank,andOverseas-ChineseBankingCorporationInfrastructurecompanySembcorp(inpartnershipwithJurongEngineeringandGeneralElectric)MDBsADB,AIIB,IFCProjectbackgroundTheMyingyancombined-cyclegasturbinepowerplantiscurrentlyunderdevelopmentinTaungtha,atownshipofMyingyandistrictinMandalay,Myanmar.
The225-megawattprojectwillbecomeoneofthebiggestgas-firedpowerplantsinthecountryuponcommissioningin2018.
ImpactontheregionOnceoperational,theplantwouldplayakeyroleinmeetingthecountry'sgrowingdemandforelectricity.
TheprojectwillimprovethereliabilityandstabilityofMyanmar'spowersupplyatacompetitivetariff,whileaddressingpowershortagesandhelpingitavoidfuturebrownoutsthathindereconomicgrowth.
KeychallengesSecuringlong-termcommercialbankfinancingnecessaryforlarge-scaleinfrastructureinvestmentsremainsachallengeinMyanmarduetotheinabilityoflocalbankstolendtotheseprojects,alackoftrackrecordandtheperceptionofhighpoliticalrisk.
Thefundingagenciesplayedakeycatalyticroleinaddressingthischallengebothfrompublicsectorandprivatesectorsideswhileprovidingthenecessarysupporttoallowinternationalprojectfinancebankstoparticipateintheproject.
OpportunitiesSembcorpMyingyanPowerCompanywillbuildandoperatethepowerplantfor22years59,afterwhichthefacilitywillbetransferredtotheMyanmargovernment.
Asthefirstcompetitivetenderforagas-firedindependentpowerproducerprojectinMyanmar,thesuccessfulfinancialcloseandoperationofthisprojectisexpectedtomarkamajormilestoneinthepowersector.
59SembcorpMyingyanProjectPowersAhead,withSigningofBuild-Operate-TransferAgreementwithMyanmar'sMinistryofElectricity&Energy,Sembcorp,January2017PwC|InfrastructureSeriesReport1|45ConclusionInthisreport,wediscussedtheoutlookoftheinfrastructuresectorinASEAN,thepresenceofaninfrastructuregapintheregion,andthefactorsdrivingthisgap.
WehighlightedthatcurrentgrowthratesininfrastructureexpenditurearefarfromtheestimatedgrowthnecessarytomeetADB'sclimate-adjustedestimateofUS$3.
1trillion60ininfrastructureinvestmentsinASEANfrom2016to2030.
Thisresultsinawideninginfrastructuregap.
Wethenexploredthechallengesthatmaybefacedinaddressingtheinfrastructuregap,followedbysomemeasurestoaddressthesechallenges.
Wealsoidentifiedthatitwouldbebeneficialtoleverageawell-developedinfrastructurehub(toachieveeffectivespending),whereissuesfaced,orexpertiserequired,throughoutthelifecycleofinfrastructureprojectscanbeaddressedorsuppliedwiththehelpofasupportingecosystem.
ThenextreportwithinthisInfrastructureSerieswilldiscussthefuturedevelopmentsintheinfrastructuresector,delvingintomarkettrendsandissues,andprojectpipelineswithinASEANandthewiderregion.
Whenlookingatthefutureprojectpipelineanddevelopments,theavailabilityoffinancingisaninevitablequestionandthisiswhatthethirdandfinalreportofthisInfrastructureSerieswillfocuson.
Inaddition,infrastructureisbeingpromotedasanassetclasstoattractprivateinvestorslookingforlong-terminvestmentavenues.
Wewillconsiderinfrastructureasanassetclassandhowitcompareswithotherassetclasseswhilelookingattheinfrastructureinvestmentlandscapeandfundingdevelopmentsaswellasprivatesectorinvestmentsaswellasalternativefinancingsources.
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