Keynote Speech By Ms Indranee Rajah, Senior Minister Of State for Law and Finance, at the Asia Pacific Energy & Infrastructure Finance Forum 2017 Thursday, 9 March 2017, 9am Singapore Marriott Tang Plaza Hotel09 Mar 2017
SINGAPORE – GEARING UP TO BE ASIA’S INFRASTRUCTURE EXCHANGE
Mr Jason Coles, General Manager - Asia, Euromoney Seminars & IJGlobal
Mr Jon Whiteaker, Editor, IJGlobal
Ladies and Gentlemen
1. I am very pleased to join you at this Asia Pacific Energy and Infrastructure Finance Forum 2017. This forum is timely.
A. Infrastructure Demand in Asia
2. This year, global growth is projected to pick up slightly. However, uncertainties and downside risks in the global economy remain. There is a rise in inward-looking sentiments and should this translate to protectionist approaches, it will slow global trade. In this uncertain environment, the world is looking for growth.
3. Asia is where growth in the next decade will be, and one of the areas with greatest growth potential is infrastructure. Asia's rapid urbanisation, development and population growth has given rise to an urgent need for infrastructure. From now till 2030, Asia is expected to require US$20 trillion of additional infrastructure investments to meet this growing demand. This is the equivalent of developing infrastructure needed to support the population of one Singapore every week! That’s the magnitude of the infrastructure demand in Asia.
B. The infrastructure gap
4. There is no shortage of money looking to invest in infrastructure. Yet, notwithstanding the massive demand and the availability of funds, the infrastructure needs of Asia are still largely unmet. Why is this so and what's the gap?
5. If you ask people in the infrastructure space, they all identify the same cause: bankability, or rather the lack of it. Projects cannot get off the ground because they are not bankable.
6. What do we mean by project bankability? To put it simply, bankability refers to the ability to get project finance. If a project is deemed as neither bankable nor investible, it means that banks will not lend and investors will not put in the money, as they cannot get back sufficient returns within a reasonable time frame or the risks are just too high. Take for example a Public-Private Partnership (PPP) project for a power plant. The project will not be bankable if the concession period is too short, or the tariffs are set too low such that the private company is unable to recover their capex cost and make a decent return on investment.
C. Bridging the Bankability Gap
7. To make projects bankable, several things need to happen in tandem. These include getting infrastructure players connected, so that clients have access to high quality project advisory work to properly structure projects to make them bankable. This would also enable access to the right kind of financing at the right time, with supporting professional services at the different stages of the project.
8. Recognising the critical demand for infrastructure in the region and understanding where the gaps are, Singapore is launching itself as the Infrastructure Hub for Asia - the go-to place where infrastructure demand and supply can connect, where infrastructure expertise and financing can be obtained and infrastructure needs are met – Asia's Infrastructure Exchange, if you will.
D. Infrastructure expertise
9. In our 50-year journey of urbanisation Singapore has accumulated expertise in planning, executing and operating infrastructure over a wide range of sectors. This includes energy, water, waste management, transport, housing and ports.
10. We are continuing to invest heavily in major infrastructure. For example, we have the Changi Airport T5, the new Tuas Terminal, the development of our Southern Waterfront and of course the High Speed Rail project with Malaysia. This 350km high-speed rail line will transform the way both countries interact. When completed, it will boost connectivity, strengthen economic ties and enhance people-to-people linkages.
11. These projects are going to increase our technical knowledge and deepen our expertise, which we intend to package into solutions for export. These may be in the form of project structuring work, financing, ownership of assets and, operations and management of these assets.
E. Infrastructure Financing
12. Infrastructure financing is key to getting projects off the ground. As a financial centre, Singapore is well positioned to facilitate infrastructure financing for the region.
13. World Bank expanded its office in Singapore to establish its first Infrastructure and Urban Development Hub, co-locating infrastructure-related Global Practices of the World Bank, the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), as well as IFC’s Asia Treasury Hub – they are all located here. Its current staff strength is around 170 and is expected to reach 200 in time to come.
14. Having the World Bank Group here facilitates countries in the region to tap on synergies of the World Bank-Singapore Hub for infrastructure project structuring and financing.
15. Singapore’s strategic location in the region and its strong position in world capital markets make Singapore an ideal place to develop bankable projects to mobilise private sector and institutional investments.
16. Moreover, Singapore-based banks have a deep understanding of Asia’s infrastructure needs and have extensive track records of working with regional governments and State Owned Enterprises on projects ranging from power to water and in the transportation sectors.
· It has been estimated that about 60% of ASEAN infrastructure projects financed via the project finance method benefitted from loans or financial advisory services of Singapore-based banks.
· In addition, Singapore is also Asia’s asset management hub, with over S$2.7 trillion asset under management. The fund managers based here have deep expertise in the diverse investment strategies including active management and advisory of infrastructure funds.
17. Nonetheless, more can be done. Last year, Singapore set up our Committee for the Future Economy (CFE) led by our Finance Minister, Mr Heng Swee Keat and Minister for Trade and Industry, Mr Iswaran, and it was set up to identify strategies for future growth. The Committee released its report last month.
18. Infrastructure was identified as an important growth area and one of the CFE recommendations was to strengthen access to cross-border project financing for Singapore-based enterprises that are expanding overseas. To that end, we will enhance the existing Internationalisation Finance Scheme (IFS) administered by IE Singapore, to provide insurance against default of payments by off-taking sovereigns in selected emerging markets. This is an important initial step in the Government’s efforts to unlock private financing for Singapore-based infrastructure companies and secure projects which leverage their capabilities.
19. Currently, small-and-medium sized enterprises (SME) participation in infrastructure projects is low, partially due to a financing gap where commercial lenders do not have the familiarity and appetite in non-recourse financing for smaller projects. The CFE has also recommended facilitating SME access to financing by catalysing non-recourse project financing, and the Government has accepted this recommendation. To do so, we will extend IFS to cover this space. Under this IFS extension, we will co-share banks’ risk in providing non-recourse loans on small projects in the post-construction phase. These measures were announced in our recent Budget Statement.
F. Project Structuring
20. Structuring a project correctly is another key factor to making projects bankable and to accessing capital. We have been building up project structuring expertise in Singapore and partnering institutions to develop a pipeline of infrastructure projects and attract private sector participation.
a. Singapore is a contributor to the Asian Infrastructure Centre of Excellence (AICOE), a project preparation platform set up with the Asian Development Bank (ADB) and the Government of Canada, to develop infrastructure PPP projects within ASEAN.
b. Singapore is also a founding funding partner of the Global Infrastructure Facility (GIF), together with the World Bank Group and 4 other countries. The GIF is an open platform which facilitates the preparation and structuring of complex infrastructure public-private partnerships. To date, it has supported projects across the energy, transport, water and sanitation sectors.
G. Professional Services
21. Singapore is also home to high quality professional services, in particular project advisory and legal services, which are necessary to bring infrastructure projects into being.
22. Our big 4 accounting firms – PwC, Deloittes, Ernst & Young and KPMG provide project advisory services to the region, which includes financial structuring and optimisation, as well as model development and stress testing. Last year, KPMG was awarded the Project Finance International (PFI) Best Asia Infrastructure Project award for their government advisory work with the National Environment Agency to develop Singapore’s first Waste-to-Energy PPP Project.
23. Our position as a hub for legal services and dispute resolution also puts us in a uniquely advantageous position to provide legal support for infrastructure work. Our top five Singapore law firms, Allen & Gledhill, Rajah & Tann, Wong Partnership, Drew & Napier and Dentons Rodyk & Davidson, are the largest in Southeast Asia with strong regional practices. We are also home to over 40 of the top 100 international law firms, including firms with active infrastructure practices such as Latham & Watkins and Allen & Overy.
24. The nature of infrastructure projects is such that delays and variations are common. This often gives rise to disputes which then need resolution. Singapore as a jurisdiction has a brand name for trust, neutrality and adherence to the rule of law which makes it a natural venue for dispute resolution.
25. We have a plethora of institutions that are well placed to hear infrastructure disputes, including investment and infrastructure-related disputes.
· Arbitrations by top international institutions, including the Permanent Court of Arbitration (PCA), International Centre for Settlement of Investment Disputes (ICSID) and the International Chamber of Commerce International Court of Arbitration (ICC-ICA), these are conducted in Singapore at Maxwell Chambers, our purpose-built arbitration premises.
· Our Ministry of Law has just announced plans to expand Maxwell Chambers by taking over the adjoining conserved building, which will triple its current size with state of the art facilities.
· The Singapore International Arbitration Centre (SIAC) is consistently ranked among the top 5 most preferred commercial arbitral institutions in the world.
· The Singapore International Commercial Court (SICC) and the Singapore International Mediation Centre (SIMC) also respectively offer international litigation and international mediation as alternatives to arbitration.
· Taken together, all these provide a complete suite of international dispute resolution options for infrastructure clients.
H. Capability Building
26. Another aspect which is essential to meet infrastructure needs, is developing capabilities in individuals involved. We are working to develop people with deep expertise and skills in the infrastructure sector. We have instituted programmes from undergraduate, post graduate to executive level to enable our people to acquire relevant knowledge. For example, we have the:
a. Asia Leaders Programme in Infrastructure Excellence (ALPINE) – this is a specially designed business course developed jointly by the Singapore Management University (SMU) and the Economic Development Board (EDB) for executives, professionals and corporate leaders who want to deepen their knowledge of the infrastructure space. And this programme is open to participants from other countries and it will help build capability for the region.
b. Infrastructure Development Internship Programme – This is a programme between our universities and infrastructure players, which gives university students first-hand experience of infrastructure work, while simultaneously providing participating companies with a fresh pipeline of talent. If you’re looking to recruit, or build a pipeline of talent, speak to our universities and see if we can offer internships. They will be more than happy to liaise with you on this.
I. Infrastructure Ecosystem
27. As you can see, we are developing an ecosystem that integrates infrastructure players along the whole value chain. Engineering companies, multilateral banks, private financiers, professional services – they are all here and we are working to attract more.
28. Singapore is host to conferences such as this, which allows industry players to keep abreast of important developments in infrastructure, as well as advancing thought leadership. The Asia-Singapore Infrastructure Roundtable held annually is yet another important platform for this purpose.
29. The value of bringing everyone together lies in connectability and we are building a procurement network to serve Asia. Proximity and connectability generate energy and synergy. It brings forth new ideas, facilitates deals and transactions and provides an environment for ideas and creative solutions - rather like a petri-dish for infrastructure abiogenesis!
30. These are still early days and what I have outlined are our initial steps. In the months and years to come, we will be heavily engaged in the work of transforming Singapore into Asia's Infrastructure Exchange.
We hope that all of you here will partner us in this exciting endeavour.
Thank you very much.
Annex: Note on Infrastructure