2008.11.cpp.session.2.smith.infrastructure.financing.sources.trends

8/3/2019 2008.11.Cpp.session.2.Smith.infrastructure.financing.sources.trends

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Opportunities for Private Sector Investment and Partnerships inOpportunities for Private Sector Investment and Partnerships in thetheSoutheast Asia RegionSoutheast Asia Region

Infrastructure FinancingInfrastructure FinancingSources & TrendsSources & Trends

Arthur SmithArthur SmithChairmanChairman

National Council for PublicNational Council for Public--Private PartnershipsPrivate Partnerships

Based on Presentations prepared by Bob Finlayson,Based on Presentations prepared by Bob Finlayson,

Senior Evaluations Specialist (Private Sector) ADB, and PPIAFSenior Evaluations Specialist (Private Sector) ADB, and PPIAF

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of theAsian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments theyrepresent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for anyconsequences of their use. Terminology used may not necessari ly be consistent with ADB offic ial terms.


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Global Infrastructure Challenges

Developing countries invested 4% of nationaloutput in infrastructure

BUT:1.1 billion lack adequate access to clean water

2.4 billion lack adequate sanitation4 bill ion lack sound wastewater disposal2 bill ion lack electric power

Investment and Operations & Maintenance needsare considerable between 5.5 % of GDP for lowermiddle income countries to 7.5% of GDP for lowincome countries


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Infrastructure Investment Gap Asia

ADB. 2007. Survey of Market for Sub-national Finance in Asia and the Pacific

Lower-middle income Low Income

Perce

ntto

GDP

Actual Needed

5.5%

7.5%

2.9%

1

1

4.0%

Annual Expenditu res on Infrastructure as Share of 2003 GDP(Actual versus Needed 2003)

There is a large difference between demand and actual investment


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Southeast Asia Infrastructure Investment Needsare Large

0.1

0.6

1.1

1.6

2.1

2.6

3.1

3.6

4.1

4.6

5.1

5.66.1

Cambodia Lao PDR Thailand Viet Nam

$(billion)

Source: ADB. 2007. Survey of Market for Subnational Finance in Asia and the Pacific

Annual Infrastructure Demand, Southeast Asia

in US$ billion


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Access to Improved Water supply (% ) Electricity access (kWh/ capita)

Landline phone access (subscribers / 100 inhabitants) Access to Improved Sanitation (% )

There are Significant Variations in Service Access

Source: World Development Indicators, 2008

0

4

8

12

16

20


20

35

50

65

80

95

110


200

700

1200

1700

2200


10

25

4055

70

85

100

115



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Roads

0 1 2 3 4 5 6 7

Cambodia

Thailand

Viet Nam

Note: Vertical line is the average for all 131 surveyed countries, both within and outside of East Asia.

Rating Scale: (1= underdeveloped, 7 = extensive and efficient as the worlds best)

World Competitiveness Report Ranking, 2007-2008

Railroads

0 1 2 3 4 5 6 7

Cambodia

Thailand

Viet Nam

Quality of Roads and Railroads is Low


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Ports

0 1 2 3 4 5 6 7

Cambodia

Thailand

Viet Nam

Note: Vertical line is the average for all 131 surveyed countries, both within and outside of East Asia.

Rating Scale: (1= underdeveloped, 7 = extensive and efficient as the worlds best)


Air Transport

0 1 2 3 4 5 6 7

Cambodia

Thailand

Viet Nam

Quality of ports and air transport is slightly better,but stil l low by international standards


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Telephones

0 1 2 3 4 5 6 7

Cambodia

Thailand

Viet Nam

Note: Vertical line is the average for all 131 surveyed countries, both within and outside of East Asia.Rating Scale: (1= underdeveloped, 7 = extensive and efficient as the worlds best)


Electricity Supply

0 1 2 3 4 5 6 7

Cambodia

Thailand

Viet Nam

Quality of telephones is reasonable, but further

investment required in Electricity Supply


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Overall Infrastructure Quality

0 1 2 3 4 5 6 7

Cambodia

Thailand

Viet Nam

Note: Vertical line is the average for all 131 surveyed countries, both within and outside of East Asia.Rating Scale: (1= underdeveloped, 7 = extensive and efficient as the worlds best)


Combined effect of poor quality infrastructure isconstraining economic competitiveness and grow th


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Urbanization is creating new demands on

infrastructure & competitiveness

Urban population (% total population) Growth in number of cities over one mill ion inhabitants

0

20

40

60

80

100

120

140

160

180

2000 2005 2010 2015

in 20 years, urbanization and associated infrastructure financingneeds in Southeast Asia can be expected to increase significantly

Source: World Development Indicators, 2006; United Nations World Urbanization

Prospects, 2003

Source: United Nations World Urbanization Prospects, 2003

>40% gro

wth

>40% gro

wth

2000

20

00--2

0152015

0

15

30

45

60

75

90

SSA SA MENA LAC OECD ECA

EAP = East Asia and the Pacific; LAC = Latin America and the Caribbean; MENA =Middle East and North Africa; OECD = Organization for Economic Cooperation andDevelopment; SA = South Asia; SSA = Sub Saharan Africa


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The greatest demand for infrastructure in East Asia

and the Pacific is power, followed by roads,telecoms, and water

0

20

40

60

80

100

120

140

160

180

by economic classification by country by sector

US$billion

Maintenance

Investment

All except

PRC

PRC

Rail

Water and

sanitation

Telecoms

Roads

Electricity

Source: Connecting East Asia, ADB, World Bank, JBIC


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Southeast Asia Region requires infrastructure

financing of about $42 billion per annum Actual investment is likely to be less than half

this amount, with funding being mobilized fromPublic sector

International donorsPrivate sector

Southeast Asia infrastructure deficit is arising

due to problems mobilizing finance


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Increasingly, governments in Asia are

cutting back on the use of public sector debt

0

20

40

60

80

100

120

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

%

GDP

Cambodia

India

Indonesia

Malaysia

Pakistan

Philippines

PRC

Thailand

Viet Nam

Source: Key Indicators, ADB


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Donor assistance is a finite resource and similar to otherparts of the developing w orld, development assistance in

South East Asia can only help catalyze broader sources offunding for investment in infrastructure

Southeast Asia Development Assistance% of Gross National Income and % of Gross Capital Formation, 2006

Source: World Development Indicators, 2007-2008

-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

Cambodia

Lao PDR

Thailand

Viet Nam

% of GNI % of GCF


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Globally, private infrastructure investment is recoveringfollow ing events such as the Asian crisis, particularly in

SA and LAC countries

Source: World Bank, PPI database

By Region, in US$ billion

0

20

40

60

80

100

120

1990 1992 1994 1996 1998 2000 2002 2004 2006

EAP ECA LAC MENA SA SSA

EAP = East Asia and the Pacific; LAC = Latin America and the Caribbean; MENA = Middle East andNorth Africa; SA = South Asia; SSA = Sub Saharan Africa


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On a global level, private infrastructure investmenthas primarily been directed to the telecom sector,

followed by transport and energy

By sector in US$ billion

0

20

40

60

80

100

120

140

1

9

9

0

1

9

9

1

1

9

9

2

1

9

9

3

1

9

9

4

1

9

9

5

1

9

9

6

1

9

9

7

1

9

9

8

1

9

9

9

2

0

0

0

2

0

0

1

2

0

0

2

2

0

0

3

2

0

0

4

2

0

0

5

2

0

0

6

Energy Telecom Transport Water and sewerage

Source: World Bank, PPI database


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Private infrastructure investment in East Asia and thePacific has mainly been directed towards the energy and

telecom sectors, although transport has been grow ing postthe Asian crisis

Source: World Bank, PPI Database 2006

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Energy Telecom Transport Water and Sew erage

$million


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In Southeast Asia private infrastructure investmenthas been relatively low , focused on telecoms and

power in Thailand, and highly volatile

Source: World Bank, PPI Database 2006

0

500

1000

1500

2000

2500

3000

3500

40004500

5000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


$million

P i t I f t t I t t C it t


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GLOBAL: By Contract Type

2005-2006

0

10

20

30

40

50

60

7080

90

100

# of Projects Investments

Percent

Management and lease contract

Greenfield

Divestiture

Concession

Private Infrastructure Investment Commitments:2005-2006

EAP: By Contract Type2005-2006

-

10

20

30

40

50

60

70

80

90

100

# Projects Investments

Percent

Management and lease contract

Greenfield project

Divestiture

Concession

Greenfield is the dominant type of investment and privatization (divestiture)is only playing a minor role facilitating private investment in infrastructure

Whil PPPI h t t d t ti l l i I di


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While PPPI has started to recover, particularly in Indiaand Latin America, the composition of the top 10

sponsors has changed significantly over the last decade

Sponsor Investment (US$ billions)No. Projects

Reliance ADA Group(INDIA)

8.1 (3)

Saudi Oger Ltd 7.5 (2)

RWE (GER) 5.1 (9)

America Movil (MEX) 4.9 (5)Telecom Italia 4.0 (1)

Electricit de France 3.8 (10)

Malakoff Bhd (MALAYSIA) 3.9 (4)

E.ON (GER) 3.7 (6)

Akfen Construction (TKY) 3.7 (4)

Orascom (EGYPT) 3.4 (2)

* Includes investment in projects that reached financial closure in 2001-2005, investmentdata in 2005 US$

2001-2005*

Sponsor Investment (2001 US$billions) No. Projects

Telefonica (ESP) 35.2 (12)

Carso Global Telecom(MEX)

34.8 (5)

SUEZ (FRA) 32.6 (79)

Telecom Italia (ITA) 30.7 (16)France Telecom (FRA) 26.6 (26)

AES Corporation (USA) 21.6 (58)

Deutsche Telekom(GER)

18.4 (18)

Enron Corporation 16.9 (48)

Electricit de France 15.5 (28)

Andrade Gutierrez 14.7 (9)

1990-2001


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PPPI Global Trends - Summary

Global markets recovering but PPPI investments stillfar below infrastructure demand

Investment flows increasing rapidly in certain regionssuch as India and Latin America

Activity in telecom, energy & transport sectorscontinues to expand

In the water sector, focus is on a few countries, withsmaller projects, targeted at bulk facilities

PPPI activity in South East Asia still very limited


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PPPI Global Trends - Summary

Different types of risk-sharing arrangements areevolving

Greater regional diversification of private sponsors withnew non-traditional players

Retreat by foreign investors creating opportunities forregional/local sources

Increase in number of Greenfield projects rather than

privatization of existing assets Average project size has increased, with a few large

deals accounting for a large share of total investment


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All This in the Context of

Impact of PPI performance largely positive butdid not meet expectations

Negative public opinion high expectations,perceptions of corruption, inter-distributional transfers

A few high profile failures over 1990-2006SA: 5 projects cancelled/under distress, 3% of investment

EAP: 65 projects cancelled/under distress, 11% of investment

LAC: 110 projects cancelled/under distress, 11% ofinvestment

SSA: 29 projects cancelled/under distress, 4% ofinvestment


24/27

with these challenges

recognized PPP advantagescontinue to drive new growth in

PPPI


25/27

Key Lessons for Success

& SustainabilityPolitical economyPolitical economydimensions are critical

Need to ensure Regulatory independence and stable & credible

contractual and regulatory frameworks

Capital market development and local currencyfunding needed for large-scale infrastructure Improved risk solutions and mitigation products to

address financing and exchange rate risks Government commitment to cost-recovery tariffs

or targeted subsidies

Key Lessons for Success


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Key Lessons for Success& Sustainability

Financial engineering neversubstitutes for sound projectdesign

In the end, it is always thetaxpayers and users who pay

Getting the InfrastructureBasics and Service

Priorities Right

Source: Connecting East Asia: A New Framework for Infrastructure, The World B


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Thank You

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