Andrew joined TXF’s inaugural conference on Infrastructure and Energy Finance in ASEAN, held at the Suntec convention centre in Singapore on 27 February 2018.
He moderated the session on Project Financing Mix: Blending Sustainable Financing Solutions where he was joined by the IFC’s Nonito Bernardo and Standard & Poor’s Abhishek Dangra. They focussed on what needs to be done if enormous supply ($110 trillion has been allocated to infrastructure worldwide per the IFC) is to meet enormous demand ($1.7 trillion p.a. is needed in Asia per the ADB – see earlier opinion pieces).
First, investors and lenders are taking more political risk: these days political violence and currency blockage rarely disrupt projects for long and expropriation is less of a concern outside the natural resources sector so the chief concern is the host government not adhering to its commercial obligations.
Second, Projects still need to be Properly Prepared (the other PPP). Encouragingly, more funds are being made available for this by the Asia Infrastructure Centre of Excellence, promoted by IE Singapore and the ADB; by InfraCo; and by the AIIB’s Project Preparation Special Fund.
Third, institutional investors could sensibly take more risk (by comparison, banks have been prepared to take construction risk for many years) and host governments could offer safer risks (for example, by providing revenue collars as South Korea has done in the past). Thus, both sides can go some way to closing the similarly enormous gap between demand and supply.
In fact, some institutional investors are already taking more risk: witness last year’s $2 billion PT Paiton Energy bond which featured 12 and 20 year tranches to refinance a coal fired power plant in Indonesia which is already twenty years old, appetite which contrasts with the withdrawal from coal fired plant by multilaterals such as the World Bank and ADB and investors such as Engie.
Andrew also joined the session on China’s (Silk Road Economic) Belt & (21st Century Maritime) Road Initiative alongside HSBC’s Jim Cameron and XL Catlin’s Mark Houghton with TXF’s Jonathan Bell as moderator.
Andrew’s view was that the BRI is at an inflexion point with the emphasis changing from doing deals to doing good deals. As he has previously written, even China cannot carry on investing quite so recklessly as all of the NDRC, Chinese SOEs and the AIIB are now confirming. On the other side of the table, host governments in Myanmar, Nepal, Sri Lanka and elsewhere are pushing back on both the proposed costs of projects (how to reassure that these are reasonable if there is no competition?) and lending terms (so as to avoid “debt trap diplomacy”). Ironically, the success of BRI will be determined not by Beijing but by those host governments which sign up to BRI; and much of its impact will come in the form of other investor countries’ reaction to it – Japan, for example, has promised $110 billion for its Partnership for Quality Infrastructure (note the emphasis on Quality!).
BRI was not invented by Xi Jinping: Jiang Zemin had Great Western Development and Hu Jintao had March West but Xi has injected the steroids. Term limits on the President are to be abolished at the upcoming session of China’s parliament so Xi can now remain there for life. He was already able to do so as General Secretary of the Communist Party of China and as Chairman of the Central Military Commission. BRI was elevated to a “core interest” (much like Tibet, Taiwan and the South China Sea) at the 18th Party Congress in October 2017 and the country’s constitution now commits to “pursuing BRI” (no further details) alongside Xi’s Thought on Socialism with Chinese Characteristics. Let’s hope he uses this untramelled power for the good of all.
