The Association of Southeast Asian Nations (ASEAN) is creating a new fund to finance major infrastructure projects across the region.
The ASEAN Infrastructure Fund is being set up with an initial equity contribution of $485.2 million, of which $335.2 million will come from nine ASEAN members. The remaining $150 million is being provided by the Asian Development Bank (ADB).
The Fund’s total lending commitment through to 2020 will be about $4 billion. With projected 70% co-financing by ADB, it is expected to leverage more than $13 billion in infrastructure financing by 2020.
“ASEAN nations possess substantial foreign reserves but these funds have largely been invested outside of ASEAN, and outside Asia,” says ADB President Haruhiko Kuroda. “By establishing the ASEAN Infrastructure Fund, ASEAN is taking a major step towards investing more of its resources in its own development needs.”
“With ASEAN countries holding over $700 billion in reserves, the Fund offers an avenue for mobilizing the region’s resources for its growing infrastructure requirements,” says ASEAN Secretary-General Surin Pitsuwan. “The establishment of the Fund is also timely and appropriate as the region explores various financing mechanisms to support the ASEAN Economic Community by 2015.”
Over the next decade ASEAN economies will require approximately $60 billion a year to fully address the region’s infrastructure needs. On a per capita basis, they have only a fraction of the roads and railways found in Organisation for Economic Co-operation and Development countries, and dramatically lower electricity and clean water coverage.
“The ASEAN Infrastructure Fund will help ensure the 600 million people who call our region home will have greater access to energy, clean water and sanitation, and better forms of transportation,” says Agus D.W. Martowardojo, acting ASEAN Chair and Indonesia’s Finance Minister.
Malaysia, which has chaired a series of High-Level Task Force Meetings since July 2010 to establish the Fund, is the largest ASEAN contributor with a $150 million equity investment, followed by Indonesia with $120 million.
The Fund will be based in Malaysia as a limited liability company.
“This is the largest ASEAN-led initiative in the Association’s history,” says Dato’ Seri Ahmad Husni Mohamad Hanadzlah, Malaysia’s Minister of Finance II. “The Infrastructure Fund will help forge the road, rail and energy links the region needs to create a greater degree of well-being for its people, and make the Master Plan on ASEAN Connectivity a reality.”
The Master Plan on ASEAN Connectivity was issued in 2010. It identifies a series of strategies and ctions to nhance physical, institutional, and people-to-people connectivity between member nations.
Private sector funding is essential for large scale infrastructure financing in ASEAN, yet the high egree of prceived risk on long-tenor infrastructure transactions has a deterrent effect on private investment. The Fund will help mitigate these risks, providing financing for a portion of public-private partnerships.
The Fund will finance approximately six infrastructure projects each year. These will be selected based on sound economic and financial rates of return, and the potential impact on poverty reduction.
A unique feature of the Fund is that it will eventually issue debt eligible for investments from central bank reserves.
ADB will administer the ASEAN Infrastructure Fund, and will ensure that safeguards and due diligence are an integral part of financed projects.
MORE ARTICLES ON FINANCE AND BANKING