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. Overview

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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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2. Case studies of green infrastructure financing: lessons and challenges

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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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3. Overcoming challenges and moving forward

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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

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THANK YOU!