Trends in Private Sector Investment in Crossborder

3.1 Infrastructure Projects in Asia

An essential requirement for regional cooperation and sustainable development is the provision of efficient, reliable, and affordable crossborder infrastructure services, such as power, transport, and telecommunications. Private participation in infrastructure is no longer a business dominated by investors from the developed world. Firms from developing countries mobilized 44% of private funds for projects reaching financial closure in 1998–2006 (Shurm et al 2008).¹¹ At the same time, a large number of developing countries have introduced some private participation into their crossborder infrastructure services, especially telecommunications, and, to a lesser degree, electricity and transportation.

Given the rapid growth of regional economic activities, trade, and investment in Asia, crossborder infrastructure has become an important building block of regional integration in the era of globalization (Kuroda et al. 2007). In Asia, development of crossborder infrastructure, especially transportation networks and energy pipelines, is underway, and is expected to contribute significantly to regional integration by reducing transportation costs and facilitating intra-regional trade and services.

There are many causes behind the recent surge in private investment in infrastructure. Among the most important are the inefficiencies of public service provision, the need for economic pricing and cost recovery, technological advances enabling greater private participation, advances in regulatory frameworks, the need for private resources, and the potential investment gap that countries face. Therefore, the role of the private sector in financing and supporting crossborder infrastructure facilities is paramount. However, given the growing demand for national and international infrastructure in Asia, the private sector, whether via PSI or PPP, is expected to play a much greater role in bridging the infrastructure gap and for sustaining economic growth in the region. Here, we discuss the trends in private sector investment in both national¹² and crossborder infrastructure projects, which offer direct and indirect implications for the Asian integration process.

3.2 Private Investors in International Airports and Seaports in Asia

Ideally, international airports and seaports offer crossborder services. About 33% of total private sector investment in transportation infrastructure from 1991 to 2006, amounting to US$25.37 billion, went into seaports and airports in Asia. There is a positive correlation between the size of an economy and the private sector investment it has attracted for national infrastructure that has crossborder implications. Larger economies such as the People's Republic of China (PRC) and India attracted higher PSI for airports and seaports from 1991 to 2006 than did smaller economies (Figure 4 [ PDF 20.2KB | 1 page ]). The PRC has attracted US$12.41 billion of private investment in airports and seaports, accounting for 34.44% of total PSI in transport infrastructure in the last decade and a half in that country. India and Malaysia trail the PRC with investments of US$6.02 billion and US$2.82 billion in airports and seaports, respectively (Table 5). Unlike the PRC and India, Malaysia's share of PSI in seaports and airports, as a percentage of total PSI in transport infrastructure, has been relatively low (17.72%). Private sector investment in airports and seaports in other Asian countries, such as Viet Nam, Pakistan, Sri Lanka, and Myanmar, has been very low. Whatever PSI went into the transportation infrastructure in these countries is driven by international airports or seaports only.

There has been some replacement of developed country investors by local investors in Asia. The US$25.37 billion PSI in airports and seaports in Asia from 1991 to 2006 drew from several private sector investors that were concentrated in Asia (Figure 5 [ PDF 20KB | 1 page ](a, b)).¹³ If we exclude downstream investors, Malaysia ranked first with 15 private sector investors in airports and seaports. A few airports and seaports in Asia have also been funded by investors from the rest of the world. However, their presence is much smaller compared to Asian investors.

3.3 Private Investors in Energy Crossborder Infrastructure in Asia

According to the World Bank Private Participation in Infrastructure (PPI) database, Asia attracted about US$121.3 billion PSI in energy from 1991 to 2006. This was essentially driven by larger economies like the PRC (US$34.85 billion), India (US$17.99 billion), and Malaysia (US$14.31 billion). As shown in Table 5 [ PDF 17.2KB | 1 page ], about 1% of total energy PSI (US$1.26 billion) in Asia went into crossborder infrastructure. Regarding CBIPs in Asia, Bhutan and the Laotian People's Democratic Republic (Lao PDR) have attracted private investors in hydropower, while Myanmar, Indonesia, Malaysia, Thailand, and Singapore have attracted private investors (and also public sector investors and government) in natural gas transmission. Table 6 [ PDF 17KB | 1 page ] provides a list of private sector investors in a few completed CBIPs in the Greater Mekong Subregion (GMS). The two prominent hydropower projects, namely, Houay Ho Hydro Power and Theun Hinboun Hydro Power, were developed in Lao PDR in the last decade as greenfield build, own, operate, and transfer (BOOT) projects, where almost 95% of generated power is exported to neighboring Thailand. The two Myanmar–Thailand natural gas transmission projects, namely, Yadana Gas and Yetagun Gas, were set up in Myanmar in the last decade for exporting natural gas to Thailand. All four projects have been operating successfully. The number of private investors in these four projects in GMS has so far been limited to 10, where these investments were also accompanied by five public sector investors as minor shareholders (Table 6). These GMS crossborder infrastructure projects have attracted investments from Nippon Oil of Japan, PETRONAS of Malaysia, Total SA and SUEZ of France, and Unocal of USA, among others.

One should also remember that while investors from developed countries (mostly non-Asian in origin) are the main sponsors of an increasing percentage of projects, they have still been declining over recent years in terms of the absolute number and value of projects in which they have participated. In contrast, decline in investment by developed country investors has been replaced to a marginal extent by Asian investors. Thus, investors from Asian countries are now more willing to play a larger role in infrastructure projects.

3.4 Asian Crossborder Infrastructure Projects by all Modes of Financing

The analysis above considered only private sector investments in national and crossborder infrastructure. However, figures for investment in crossborder infrastructure increase if other forms of investment, such as government, PPP and mixed, are also considered.

Crossborder infrastructure financing (all modes) has seen an upward trend in the last decade and a half in Asia. As shown in Table 7 [ PDF 22.2KB | 1 page ], there are six crossborder hydropower projects, of which five are already commissioned and one is under construction; eight crossborder natural gas transmission projects, all in Association of Southeast Asian Nations (ASEAN); three crossborder overland transportation projects, all in GMS (under construction); and one sea bridge connecting Malaysia with Singapore. All these projects have attracted about US$13 billion over time, mostly financed through PPP.

Investment in crossborder infrastructure shows a wide variation across subregions in Asia. For example, while transport crossborder infrastructure and gas pipelines are concentrated in GMS and ASEAN respectively, the rest of Asia has yet to witness any major development in crossborder infrastructure, save for a few energy projects between India and Bhutan. The US$13 billion investment in crossborder infrastructure in Asia also indicates three interesting features. First, government investment in crossborder infrastructure is higher than PPP investments (Figure 6 [ PDF 17.6KB | 1 page ]). Second, to a lesser extent, it may be said that both public and private investment in crossborder infrastructure in Asia picked up after the 1997 Asian financial crisis. For example, cumulative investment increased from less than US$500 million till 1997 to US$12.52 billion from 1997 to 2007. Third, the growth in investment in crossborder infrastructure is mainly driven by the energy sector projects.

In view of all the foregoing, it may be concluded that crossborder infrastructure financing has witnessed an upward trend in the last decade and a half in Asia. Barring hydropower projects in Bhutan, crossborder infrastructure in Asia is normally pursued through PPP, where energy sector projects are relatively higher in numbers. Interestingly, these few crossborder projects in Asia have limited presence of private sector investors, compared to other regions. Nonetheless, Asian countries have attracted higher private sector investments for development of national infrastructure projects like seaports and airports, compared to crossborder infrastructure projects in the past.

This accumulated anecdotal evidence also suggests that Asian investors have improved their position and are taking on a larger share of infrastructure investments that promote regional connectivity. There are three possible reasons for this: first, the broadening and deepening of capital markets in Asian countries has enabled their investors to mobilize more resources; second, the growing experience of investors with infrastructure investments, often as minority partners with developed country investors, has given them more expertise; and, third, Asian investors might well be in a better position to understand and therefore deal with the political economy issues that stem from privately supported Asian infrastructure projects.

Given the huge infrastructure investment needs of the Asian region and insufficient government resources, the role of the PSI and PPPs in enhancing Asian infrastructure facilities, particularly crossborder infrastructure, is thus very important. At the same time, Asia has very many active local investors, some of whom have been engaged in CBIPs. We look at the trends of these investors in some selected CBIPs next.

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