News Archive
Bank urges private capital for Asian development
Released on 19/05/2008
Infrastructure spending in South Asia should be close to US$100 billion a year, more than twice what it is now, the Asian Development Bank has told the region’s finance ministers.
A lack of infrastructure is blocking growth in Bangladesh, Bhutan, India, the Maldives, Nepal and Sri Lanka, and the region should embrace public private partnerships (PPPs) as the way to speed up development, the ADB said in its annual general meeting in Madrid.
The bank promised support through capacity building, project structuring and financing.
The bank said the general condition of infrastructure in the region was one of limited availability, poor quality, unreliable supply and high cost of unit output. Countries also need to consider cross-border projects such as some have already done for power transmission and road construction.
Finance ministers say private sector financing often comes at higher cost but the ADB claimed this can be offset by efficiency gains from private sector innovation. Other objections were that PPPs don’t always give value for money, and often fail where governments bear the most risk.
The ADB said governments need to give the private sector a level playing field and balance risk with reward.
Current examples of PPP projects in the region include the 30-year concession under consideration in Bhutan for a joint venture between the government and private companies to develop the Dagachhu hydro-electric power source, mainly for export, at a base cost of some $150 million.
India is setting up a massive 4,000 MW power plant at Mundra in Gujarat, estimated to need some $4 billion financing. The deal requires an equity contribution of $1 billion, the remainder to be raised by borrowing through the government’s recently formed India Infrastructure Finance Company.
The Asian Development Bank is supporting IIFC with a $500 million 25-year credit facility. Financing for the project has now been secured following award of the Mundra plant concession to the Tata Power Group’s subsidiary SPV.
Using the build, operate, transfer procedure, the Snowy Mountains Engineering Corporation is developing the 750 MW storage type West Seti hydro-electric generation facility for the government of Nepal. This is on the basis of a 30-year concession as in India to which the bulk of the power generated at West Seti will be exported. Base cost of this facility is currently estimated at some $1.5 billion.
Sri Lanka is moving forward with the Colombo Port expansion project as a PPP at around $780 million. In this case, 77 per cent of the financing is split between ADB and the private sector. Contractors have been appointed for construction of the new breakwater. Projected growth of container capacity to an ultimate 10.5 million has produced bids from five major port operators for container terminal concessions.
