Currently, Asia has a population of 4.6 billion and a GDP of US$31.58 billion. Its annual infrastructure spending amounts to about 3% of GDP (US$0.95 trillion) and, if Asia is to limit the adverse effects of climate change and rising sea levels, it will need to invest 4.5% of GDP (US$1.42 trillion). These are approximate estimates, given that infrastructure spending varies between 2.5% to 8% of GDP for most countries globally.
Singapore, with its strong record of accomplishment and excellent infrastructure, is positioning itself to be Asia’s leading infrastructure hub. In 2018, it established a small infrastructure office, called Infrastructure Asia (IA), to act as catalyst to develop bankable projects in different sectors in the region. These projects are long-term, ranging from 10 – 35 years, and usually structured on public-private partnership (PPP) basis to overcome the fiscal deficit in many Asian countries. IA reports to the Monetary Authority of Singapore (MAS) and Enterprise Singapore, a statutory board under the Ministry of Trade and Industry. Its main task is to connect a large network of industry stakeholders with project initiators, such as regional and local governments. IA does not evaluate or fund infrastructure projects.
The theoretical basis of IA goes back to the traditional industrial policy of developmental states like Japan, Singapore, South Korea and Taiwan to overcome market failure, which is essentially caused by opportunism and poor coordination among market participants. Opportunism manifests itself in misrepresentation, shirking, free riding or under-declaration to avoid paying for public goods, monopolistic overcharging, the generation of negative externalities, and taking excessive risks that destabilize the financial system. It is the second aspect of market failure, the need for coordination to implement large infrastructure investments, which underpins transformative and active industrial policy.
However, unlike traditional targeting to pick winners, trade protection, exchange rate policy, technology acquisition, tax breaks, and subsidies to promote exports, the new industrial policy is different in four aspects, namely,
- the focus on structuring opportunities,
- networking,
- information sharing, and
- capacity building.
IA do not evaluate projects but brings together development finance institutions, private sector companies, and public agencies to produce sustainable and bankable urban solutions in the region. It also facilitates capacity building to strengthen the ability of Asia’s public agencies to regulate, sell, design, and implement complex projects.
Currently, IA has a network of over 300 companies and institutions with expertise in developing infrastructure projects across the entire value chain, including urban planning, financing, insurance, procurement, engineering design, construction, dispute management, operations and maintenance, and asset management. IA is composed by a small office (1 CEO, a deputy, and 2 directors) set up by Monetary Authority of Singapore (MAS) and Enterprise Singapore (a statutory board). It leverages on Singapore’s reputation as a financial center with strong legal and professional services, a vibrant asset management ecosystem, an effective regulatory framework, and a neutral international dispute resolution center.
Case study of Ninh Thuan solar project
To identify suitable projects for feasibility studies, IA works with regional governments and third country champions to bring them to the market. For example, in April 2018, the Ninh Thuan US$150m 168 MWp solar project was one of the deals at the Vietnam-Singapore Business Dialogue headed by the prime ministers of both countries. The main sponsor is Sunseap, with CMX Renewable Energy of Canada and InfraCo Asia as minority shareholders. Sunseap is a Singapore-based clean energy provider with regional experience in solar projects, and InfraCo Asia is an infrastructure investment company headquartered in Singapore. This is Sunseap’s first project in Vietnam, and IA played a role in building Sunseap’s capacity and connecting it to industry stakeholders and financiers. Bangkok Bank provided a US$120m loan facility.
The project company signed a 20-year power purchase agreement (PPA) with Electric Power Trading Company (EPTC), a subsidiary of state-owned Electricity Vietnam (EVN), the largest power company in the country. The mandated feed-in tariff is 9.35 US cents per kWh. Construction of the solar farm started in June 2018 and the project was completed in June 2019, slightly ahead of schedule despite the usual issues such as securing permits and land, capacity of local contractors, and limited capacity and quality of the grid. As for off-taker risk, EVN has never defaulted on a PPA where the investor is a foreign entity.
In summary, the infrastructure market does not rise spontaneously. It has to be created and coordinated among stakeholders, and IA was set up to fulfil this task. The risks are then shaped, reshaped, and fairly shared so that projects are bankable.
