Dr. Bokhwan Yu Deputy Dean of Asian Development Bank Institute
Green Infrastructure Funding in Developing Asia
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Outline of the presentation
1. Overview
2. Case studies on green infrastructure funding:
lessons and challenges
3. Overcoming challenges and moving forward
4. Conclusion
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1.1 The dilemma: infrastructure vs eco-preservation
Asia and the Pacific needs $750bn of financing every year to 2020 to help meet the region’s infrastructure needs
Infrastructure can be a key driver for growth – it was a significant factor in East Asia’s economic rise (World Bank)
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However, building infrastructure can have serious negative environmental effects: o Power plants creating CO2 emissions
and nuclear waste o Roads, railways and bridges causing
deforestation and displacement o Urbanization upsetting the
ecosystem, causing water problems and issues on waste management
1.1 The dilemma: infrastructure vs eco-preservation
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1.2 Why green infrastructure is important
Green infrastructure can achieve 2 key objectives
Green infrastructure can include:
o Green energy (solar, wind, hydro etc.)
o Green transport (eco-friendly railways, roads and pavements)
o Eco-system management (parks, wastewater, rivers etc.)
Green infrastructure supports sustainable economic
growth
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1.3 COP 21 and the evolving environmental policy space
Summit agreed to keep
temperature increases from
global warming below 2°C
To achieve this objective, green
infrastructure will have to play a
much bigger role in the market
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1.4 What are the options available to finance green infrastructure?
Green infrastructure
project
Public financing
Development loan and aid
Private financing (e.g. PPPs)
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MDBs have been breaking funding records in recent years o In 2015, ADB extended over $7bn in
loans for environmentally sustainable growth, with $2.5bn committed to clean energy
o The World Bank issued $3.2bn in loans for projects on the environment and national resources management
2.1.1 MDB activities in green infrastructure
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2.1.2 Two tales of fundraising for energy infrastructure in Bangladesh Bangladesh provides a great
example of green infrastructure funding
Large parts of the population lack access to electricity
Projects to resolve this through coal power plants financed by MDBs have often been rejected due to environmental concerns
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Solar is the solution for a lack of infrastructure
Solar power does not rely on a well developed electricity grid
The government, with the help of IOs, has made a success of solar
16 million people have gained access to power
2.1.2 Two tales of fundraising for energy infrastructure in Bangladesh
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2.1.3 Green transport projects: railway regeneration in Uzbekistan ADB provided funding for the rehabilitation and
modernization of railways in Uzbekistan
The project can be considered green infrastructure, as one of the key objectives was to move passengers and cargo from road to rail; trains are better for the environment than cars
The project covered the 320km route from Tashkent to Samarkand, connecting Uzbekistan’s 2 largest cities
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The project was delivered over 1
year later than scheduled
Delays related to public
procurement procedures, which
allowed for renegotiation on the
pricing of contracts – this is not
allowed under ADB loan rules
2.1.3 Green transport projects: railway regeneration in Uzbekistan
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2.1.4 Specific issues for projects with MDBs
The current political climate is very sensitive to environmentally damaging projects – MDBs are wary of getting involved with any projects which may be considered harmful to the environment
MDB rules are often incompatible with bureaucracy in recipient countries – there may be procedural clashes on procurement, land acquisition and the resettlement of residents
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Together with the help of MDBs, there is an increased drive to involve the private sector in green infrastructure projects
The private sector can contribute, both in terms of finance, but also through industry expertise
Infrastructure project
Private sector
Public sector
2.2.1 Working with the private sector to deliver green projects
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Financial market development over the last 10 years has
made it easier to fund green infrastructure projects
Nowadays, ETFs allow anyone to provide funding
o The green ETF market includes hundreds of different potential
investment strategies, with over $3bn in current assets
Pension and investment funds are also becoming
increasingly environmentally focused
2.2.1 Working with the private sector to deliver green projects
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2.2.2 Regular suspensions to monorail project in Jakarta
In 2004, work started on a monorail PPP in Jakarta
Funding withdrawals and design changes caused numerous suspensions during the 2000s
In 2013, a new agreement was signed by the governor of Jakarta to restart the project
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In 2014, the project was
suspended due to issues on
design and land acquisition
In 2015, a new governor came to
power and soon cancelled the
project as the city decided the
route was not feasible
2.2.2 Regular suspensions to monorail project in Jakarta
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Insufficient guidance from
governments on regulations and
legal feasibility can cause
enforced changes to the plan
after the initial contract is signed
Political change often
exacerbates these problems
2.2.3 Specific issues for projects with the private sector
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Providing solutions
1. Enhancing government capacity to smoothly
deliver on projects
2. Building trust with MDBs and the private
sector
3. Responding to urgent needs
through national and regional cooperation
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3.1 Enhancing government capacity to smoothly deliver on projects
Case studies highlight the many ways government procedures can slow projects down
The volume and complexity of procedures must not harm the ease of doing business
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3.1 Enhancing government capacity to smoothly deliver on projects
Higher levels of human capital can ensure successful projects
Capacity building and training through domestic initiatives and cooperation with IOs is key
Governments should look to hire industry experts to work alongside existing staff
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3.2 Building trust with MDBs and the private sector
It is important to deliver on initial contracts – delays jeopardize profitability and therefore trust
For example, with PPPs the payoff to the private partner may be agreed in the initial contract – delays therefore cause a direct reduction in project profitability
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3.2 Building trust with MDBs and the private sector
Our case studies highlight that successful collaboration with partners can encourage further cooperation, whilst failed projects may damage a country’s reputation and dry up funding
The public sector must make sure to consider external partners’ interests
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Demand for energy, connectivity,
and water, the creation of waste,
and urbanization are all
increasingly rapidly
Facilitating greater infrastructure
for green projects is therefore a
pressing issue
3.3 Responding to urgent needs through national and regional cooperation
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Countries and regions must work together to deliver quickly o By developing cross-border networks
through ASEAN, CAREC etc. countries can attract investors looking to get involved in megaprojects
o Asia has a lot of untapped potential, and realizing this involves sharing information on green infrastructure
3.3 Responding to urgent needs through national and regional cooperation
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Conclusion
Improved government capacity implies better planning and smoother projects
Governments building trust with external partners can create long-term relationships and reduce the burden on public financing
Countries and regional organizations must work together to achieve success