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Infrastructure financing challenges of CambodiaGaps, Modalities and Recommendations
Shuvojit BanerjeeUNESCAP
The Importance of Infrastructure
SDG 7Affordable and Clean
Energy
SDG 8Decent Work
and Economic
Growth
SDG 9Industry
Innovation and
Infrastructure
SDG11
Sustainable cities and
communities
Improving Infrastructure is vital for achieving multiple sustainable
development goals
Infrastructure sectors
ICT
Energy
Transport
Water & Urban Infrastructure
Social Infrastructure (e.g. schools, hospital)
Infrastructure as a special asset class
Special Asset Class
Particularly high up-
front capital costs **
Late Cash Flows
generation*
Highly susceptible
to coordination failures****
Low financial
returns and high social returns***
Infrastructure in Cambodia
Source: World Bank
Country Name Access to electricity (% of population)
People using at least basic sanitation services (% of population)
People using at least basic drinking water services (% of population)
Brunei Darussalam 100,0% 96,3% 99,5%Cambodia 49,8% 48,8% 75,0%Indonesia 97,6% 67,9% 89,5%Lao PDR 87,1% 72,6% 80,4%Malaysia 100,0% 99,6% 96,4%Myanmar 57,0% 64,7% 67,5%Philippines 91,0% 75,0% 90,5%Thailand 100,0% 95,0% 98,2%Vietnam 100,0% 78,2% 91,2%East Asia & Pacific (excluding high income) 96,6% 74,6% 93,5%
Least developed countries: UN classification 44,8% 32,2% 61,8%
Low income 38,8% 29,1% 56,1%Lower middle income 83,4% 52,9% 85,3%
Infrastructure in Cambodia
Brunei Cambodia Indonesia Lao PDR Malaysia Philippines Thailand Viet Nam
Overall 60 106 52 102 22 97 43 79
Quality of air transport infrastructure
63 106 51 101 21 124 39 103
Quality of electricity supply 53 106 86 75 36 92 57 90
Quality of overall infrastructure 51 99 68 83 21 113 67 89
Quality of port infrastructure 74 81 72 127 20 114 63 82
Quality of railroad infrastructure 0 94 30 0 14 91 72 59
Quality of roads, 33 99 64 94 23 104 59 92
Available airline seat km/week 99 79 14 113 23 27 15 28
Fixed telephone lines 62 115 104 60 71 105 91 96
Mobile telephone subscriptions 61 52 18 131 28 88 5 44
Trade Infrastructure 89 130 54 91 40 67 41 47
Source: World Economic Forum, World Bank
Closing the Infrastructure Gap
Investment Needs (% of GDP) Current Investment in Cambodia Gross Fixed Capital Formation ~
0,01% with no increasing trends
Total government expenditures: 22% of GDP
Budget deficit around 3.1 %
4.3% 3.6% 2.9%
5.7%
5.2%
3.6%3.9%
6.3%
1.8%
1.8% 1.9%
2.3%1.4%
1.2% 1.4%
1.4%
Cambodia Lao Pdr Myanmar Timor Leste
Transport Energy ICT WSS
Source: Branchoux, Fang & Tateno (2017) Source: IMF, ADB and ESCAP calculations
Source of Infrastructure Finance
Infrastructure Finance
Public
Government budget
Public borrowing
Development Partners
Private
Corporate Finance
Project Finance
Government Provision
Revenue for Infrastructure
Tax Incomes
Capital Recycling
Public Borrowings
and Budget Deficits
Government Business
Enterprises
Public Finance flows in Cambodia
0
2
4
6
8
10
12
14
16
18
0
100
200
300
400
500
600
700
800
900
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
ODA (current USD millions) Tax revenue (% of GDP)
Linear (ODA (current USD millions)) Linear (Tax revenue (% of GDP))
Leveraging International Support
Green energy
Using the project preparationfacilities
Increase of the number of partners (e.g. AIIB, NDB)
A gap between public and private sector financing
Infrastructure investments have traditionally been financed with public funds, given the inherent public good
nature of infrastructure
Currently, the public sector funds 70% of
infrastructure development in Asia
The private sector accounts for 20% of
Infrastructure financing
The remaining 10% are provided by multilateral
agencies
Public deficits and increased public debt to GDP ratios have led to reduction in the level of public
funds for infrastructure
As countries develop, official development assistance has less impact
Private sector needs to step upTo address infrastructure gaps, it is estimated that private investments should increase from around $63 billion a year to as high as $250
billion over 2016-2020Source: ADB Institute
Reasons for low private funding
Despite ample available capital...
Global institutional investors currently manage more than US$50 trillion
Investments in infrastructure assets, with theoretically stable cash yields over time, can often be attractive even to investors with
long-term liabilities
…Infrastructure is not attractive in both developed and developing countries
Infrastructure projects rarely rank as the most attractive option to deploy capital on a risk adjusted basis –
Too much risk and uncertainty over investment returns. Investors have global alternatives which present higher return in other
asset classes for the same level of risk
55% to 65% of infrastructure projects in emerging markets are fundamentally not bankable without government or multilateral
development bank support*
Banking Sector: Declining Involvement in Infrastructure Finance
Double mismatch
Banks are challenged by the inherent asset-liability mismatch infrastructure
finance generates. Banks typically have substantial short-term liabilities, but infrastructure financing
often involves long-term assets
Currency mismatch—the differences between
project revenues generated in local currency for debt
payments made in a foreign currency
New regulations and Trends Large international commercial
banks, which had previously provided a significant portion of infrastructure financing have been deleveraging since the global financial crisis.
Provisions in Basel III are limiting the role of Banks in Infrastructure financing. Regulation of banking activities, such as capital requirements or liquidity coverage ratios, significantly affects banking industry’s position on project finance
Capital Markets and Institutional Investors
Capital markets would reduce the pressure on the banking system while also making available fresh equity to finance / refinance
infrastructure projects.
Asia is home to diverse financial systems that vary in depth and
sophistication, ranging from developed countries with sophisticated financial
markets to emerging markets and low-income economies where markets are
still its infancy.
Much attention is being focused on the institutional investor,
given the long‐term nature of the liabilities.
The long-term nature of infrastructure projects matches the long-term liabilities of institutional investors.
Most institutional investors, even those with long-term liabilities such as pension
funds, life insurance companies continue to invest in liquid assets, often with a short-term investment horizon.
There is a high correlation between the size of the
institutional investor base and the size of capital
markets.*
Underdeveloped equity and bond markets prevent institutional investors to
finance infrastructure investment.
Sovereign Credit Rating- 2018
Source: PPP Reference Guide 2.0
PPP definition"A long-term contract between a private
party and a government agency, for providing public services and/or developing
public infrastructure, in which the private party bears significant risk and management
responsibility, and remuneration is linked to performance "
"A long-term contract between a private party and a government agency, for
providing public services and/or developing public infrastructure, in which the private
party bears significant risk and management responsibility, and remuneration is linked to
performance "
Long termrelationship beyond construction phase
Long termrelationship beyond construction phase
Contract BasedContract Based
Different from privatization
Different from privatization
Mobilize resources
Achieving a long term solutions
Transferring risks to the private sector
Why use PPP ?
Access new source of financing for infrastructure
Access new source of financing for infrastructure
Equity and Debt financing provided by private partners
Utilize private sector and
international expertise
Utilize private sector and
international expertise
Private partners bring sophisticated
technics to the projects. Often
times partners are international firms
Forces better project planning
Forces better project planning
Closing a PPP deal requires meticulous Project planning, increasing the
probability of success
Requires strength in risk accounting
Requires strength in risk accounting
Risk must be carefully allocated
between public and private
partners
Enables faster infrastructure build
out
Enables faster infrastructure build
out
By removing national By removing national constraints from
infrastructure funding and construction, PPPs enable more
projects to be undertaken
Build out the national private
sector
Build out the national private
sector
PPP projects result in private firms with
relatively secure revenues
PPP Limitations
Usage fees
Must be payed by either tax payers or users to generate
revenue
Public guaranteesFiscal risk has to be
properly assessed and monitored
Complex arrangementHigh transaction costs /
internal capacity constraints / not suitable for all projects
(limited flexibility)
Limited local private sector capacity and competition Possible public resistance
Indonesia / the Philippines share the largest share of PPP investment
World Bank PPI Database
02468
1012141618
Billi
on
2002-2006 2007-2011 2012-2016
Cambodia 0.0%
Indonesia 1.8%
Lao PDR 59.6%
Malaysia 1.2%
Myanmar 2.9%
Philippines 4.6%
Thailand 2.2%
Vietnam 1.4%
Private Investment (2012‐16) as % of GDP
PPP Track record in South-East AsiaCountry Breakdown
World Bank‐ PPI Database
50%
32%
1%2%
2%4%
6%
4%
Electricity
ICT
Natural gas
Airport
Ports
Roads
Railways
Water & Sewerage Mainly in electricity sectorFollowed by ICT
PPP Track record in South-East AsiaSectoral breakdown
Private investment in infrastructure, 2000‐2017
PPP track record in South East AsiaPrivate Investment Infrastructure
2000-2017
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Indonesia Philippines Malaysia Thailand Lao PDR Vietnam Cambodia Myanmar
US$
mill
ions
Electricity ICT
Natural gas Airport
Ports Roads
Railways Water & Sewerage
World Bank PPI Database
Recent Projects in Cambodia
Siem Reap New International Airport
Part of the 2012-2020 Tourism Development Strategic Plan
Started in 2010, reattributed to Yunnan Investment Holdings Ltd in 2016
Construction in 5 years (end 31/12/2022)
Budget: 1 Billion USD
Capacity: 10 Million passengers
Svay Rieng PV Solar Farm Partnership between Sunseap
Group and Electrité Du Cambodge
Support by ADB (loan from ADB and CFPS)
First competitive bid renewableenergy IPP project
Construction
Budget: 12.5 Million USD
Capacity: 10 MW (25% of the provine need)
World Bank – Procuring Infrastructure Public Private Partnerships, 2018
PPP Legal Framework in South East AsiaCountries Preparation score Procurement Contract
ManagementCambodia 14 13 64Indonesia 63 74 58Lao PDR 24 37 26Malaysia 50 42 33Myanmar 11 37 27The Philippines 85 76 88Singapore 60 76 62Thailand 27 45 58Vietnam 77 77 62Timor-Leste 33 64 45
Infrastructure Financing and Public Private Partnership Network
ExperiencedPPP Units
•China PPP Center
•Philippines PPP Center
•Kazakhstan PPP Center
DevelopmentInstitutions
•World Bank•Asian
DevelopmentBank Institute
United Nations
•ESCAP•UN Capital
DevelopmentFund
Missions & Activities of the Network
Capacity Building
Organization of meetings
Creation of a knowledge sharing platform
Support and link the countries and development partners
Development of knowledge products