Opening Address by Mr Heng Swee Keat, Minister for Finance, at the Asia Singapore Infrastructure Roundtable 2018, on 23 October 2018, at Marina Bay Sands Expo & Convention Centre23 Oct 2018
Your Excellency Dato Seri Setia Awang Haji Suhaimi bin Haji Gafar, Minister of Development, Negara Brunei Durassalam,
Your Excellency Rini Mariani Soemarno, Minister of State-Owned Enterprises, Republic of Indonesia,
Your Excellency Dr. Uttama Savanayana, Minister of Industry, Kingdom of Thailand,
Ladies and gentlemen,
1. A very warm welcome to all of you, especially to our friends from overseas, who flew in to Singapore for the 8th Asia Singapore Infrastructure Roundtable today.
2. We are privileged to have with us Ministers and senior officials from Brunei, Indonesia and Thailand, as well as senior representatives from our ASEAN neighbours, the Asian Development Bank and The World Bank Group, as well as leaders across the private sector. Thank you for making this special effort to be here.
Infrastructure development is critical for economic and social development
3. Infrastructure development is critical for economic and social development. Indeed, in every country, there is a wide range of infrastructure, providing key functions:
i. Utilities, such as gas and electricity, water supply, telecommunications and data exchanges, enable us to run a range of essential services;
ii. Public works – such as housing, schools and hospitals, and irrigation and drainage, sewerage and waste disposal enable us to build liveable spaces for our people.
iii. Transport facilities such as roads, railways, waterways, canals, seaports and airports, and data facilities such as the internet and data exchange, enable the flow of people, goods, services, data, ideas and capital. These connect us to others in our community, and around the world. The more connected we are, the greater the opportunities for us to cooperate and create value together.
4. Infrastructure demands are large. In fact, very large. The Asian Development Bank (ADB) estimates that from 2016 to 2030, infrastructure needs for Developing Asia will reach $26 trillion US dollars (or US$1.7 trillion per year). Many countries are already implementing their action plans. For example,
a. Indonesia has a plan to increase their power capacity by 35GW, of which almost 50% is already under construction . This will make power more accessible and affordable for Indonesians, and at the same time improve its reliability and efficiency.
b. In Brunei, as part of the Brunei Vision 2035, infrastructure development is seen as integral to the nation’s goals of developing a dynamic and sustainable economy. The development projects at Pulau Muara Besar, for instance, seek to support the economic growth of Brunei .
c. The Thai government has put in place the Public-Private Partnership (or PPP) Fast Track Process, that can shorten the approval of PPP projects from more than 20 months to 9 months. In 2017, three rail and monorail projects have been successfully awarded through this process . I am delighted that our three Ministers are with us today, and that they will be telling you more. In fact, we had a chat earlier on while we were coming in, and there are very exciting things that they are doing in each of our ASEAN countries and you will hear more from them later.
5. Infrastructure projects are intended to provide a stream of services for many years. This presents many challenges - our society’s needs will change, new technologies will emerge, and the long-term costs of maintaining infrastructures will form a large part of the costs in the years ahead. We should seek to make infrastructure as ready for the future as possible, so as to maximise its benefits over costs in the long run. Allow me to suggest three characteristics that will help us to achieve this.
a. The first characteristic is smart and secure. We should aim for infrastructure to be smart and secure, by using the latest technology including the Internet of things and ICT.
i. I’m glad that the ASEAN Smart Cities Network has identified projects encompassing various smart cities technologies across all of ASEAN.
b. The second characteristic is green. To combat the threats of climate change and reduce carbon footprint, infrastructure should be green and resilient.
i. According to NASA, 16 of the 17 warmest years on record have occurred since 2001 .
ii. Green buildings, for instance, can leverage smart technologies to reduce water and energy consumption, thereby reducing greenhouse gas emissions. This will also reduce the running costs.
c. The third characteristic is sustainable. We need to plan infrastructure holistically, to maximise economic and social returns over its entire life-cycle. In this regard, good design and engineering at the outset are necessary.
d. In Singapore, under the Research, Innovation, Enterprise 2020 framework, urban solutions and sustainability is a key focus area. And I happen to also be the Chairman of our National Research Foundation, and we are discussing about what more we can do in this area in our research work. We are exploring initiatives such as enhancing energy efficiency and the use of alternative energy to make infrastructure green and sustainable.
e. Equally, infrastructure has to be well-maintained, in order to provide high standards of reliability and service over its lifespan.
i. Interestingly, the Economist published an article just this week entitled “Repair is as important as innovation”, and highlighted that while maintenance work may appear mundane and unexciting, such work actually yield high economic returns.
ii. Indeed, it is important for us to take into account life-cycle costs, including maintenance costs, so that we can set aside sufficient resources to upkeep these, and maximise its useful life.To address the growing infrastructure demand in the region, we need to harness expertise across the value chain to make projects bankable and investible, and visible
6. Given the high costs of infrastructure projects, which tend to be lumpy, and the huge overall infrastructure needs in each country, few Governments alone can have enough resources to meet these needs. We need to crowd in private capital. To achieve that, we need to:
a. First, make our infrastructure projects bankable and investible; and
b. Second, make the projects visible.
7. First, on bankability. Right from the start, projects need to be properly structured for its entire lifecycle – not just at the initial launch, but also the planning, execution, construction, and operation stages. The risks need to be allocated throughout the project cycle, and assumed by the appropriate parties - private, public or shared, to ensure its viability. How can we achieve these?
8. First, by having standardised and proper documentation of project details.
a. Where terms can be standardised, we should aim to do so, as this will reduce the costs at the planning stage, and promote a common understanding among all players, to enable smooth execution, and to minimise disputes.
b. Having “plug-and-play” contracts and template documents could save a lot of time and money.
9. Second, we can have proper planning and structuring of projects, to ensure that infrastructure projects meet schedules and timelines, and the budget.
a. On average, it is estimated that overruns in schedules and budget have caused large infrastructure, mining, and oil and gas projects to run 20 months late and cost 80% more than budget .
b. Proper planning, including good designs and engineering, to meet the complex needs of infrastructure, and to make these smart, green and sustainable, the use of standardised contracts, and achieving a common understanding of project management can enable us to execute projects more smoothly.
c. This is complex, and require good training of officials and all key players. In this regard, multilateral development agencies like the World Bank can provide capacity building, to train our officials on managing these complexities well.
10. Third, we need to structure projects to secure finance at the various stages.
a. During the construction phase of the project, banks specialising in project financing will be keen to take part. At this stage, the risks are higher, but so would the returns.
b. Once a project is completed and move into the operational phase, the infrastructure assets can begin to yield a stream of services. The expected payments for this stream can be securitised, and sold as a long-term asset, yielding more steady but lower returns. This can be useful to investors such as pension funds and insurance companies, and investors seeking safer investments, with lower yields.
c. So, by structuring projects at the different stages properly, we can bring in different investors with different risk/return appetites, and recycle the initial investments.
d. In addition, each government, together with multi-lateral development banks, such as the World Bank, ADB, Asian Infrastructure Investment Bank (AIIB) can provide seed funding to crowd in private capital, while others such as Multilateral Investment Guarantee Agency (MIGA) can provide risk insurance for such lumpy projects.
11. I have just touched on some suggestions to make projects bankable and investible. Let me now touch on how we can enhance the visibility of projects. To better attract private and institutional investors, we need to promote awareness of the pipeline of infrastructure projects.
a. There are some existing platforms, such as the Global Infrastructure Hub initiated by G20, and the Australia and New Zealand Infrastructure Pipeline, that connects projects with industry players.
b. We are organising this Asia Singapore Infrastructure Roundtable to expand the knowledge of infrastructure needs in the region, and to connect stakeholders from the demand and supply sides to exchange ideas and facilitate deals.
c. With good project visibility, investors and players can then make better assessment on the opportunities and seek to mitigate risks earlier before investing.
d. Our hope is to expand on this, to have a steady flow of information about the needs in each of the countries in Asia, and to bring in a range of infrastructure providers and investors to meet these needs, on an on-going basis.
12. Addressing the bankability and visibility of infrastructure projects requires confidence in the public sector. Governments play a fundamental role in ensuring a conducive regulatory environment that is attractive to the private sector.
Private capital is needed to complement on-going efforts in infrastructure development
13. On the financing front, Multilateral Development Banks (MDBs), and private sector institutions play an important role. They can partner Governments, through public-private partnerships, to finance infrastructure, and to crowd in private capital.
14. MDBs, such as World Bank and AIIB, as well as other funding bodies such as the Silk Road Fund, are also driving initiatives to help realise infrastructure projects.
a. For example, the Global Infrastructure Facility (GIF) is a $100 million US dollars open platform that facilitates the preparation and structuring of complex infrastructure projects to enable mobilisation of private sector and institutional investor capital.
b. Singapore and the World Bank are two of six funding partners. As of August 2018, the GIF has 11 active projects across Asia. These projects will mobilise up to $8 billion US dollars in private financing upon reaching financial close.
15. To complement the MDBs, private sector financing and institutional investor can also be mobilised through new arrangements.
a. For example, Clifford Capital has designed and structured an Infrastructure Take-out Facility in July this year to enable institutional investors such as provident funds and insurance companies access to quality infrastructure debt in Asia, enhancing the sustainability of infrastructure financing.
16. To pull such initiatives successfully together, governments need to maintain a consistent and conducive regulatory environment that is attractive to the private sector, covering aspects of legal and lending support or criteria.
a. For example, to further encourage green bond issuances by financial institutions in Asia, the Monetary Authority of Singapore has entered into an MOU with the International Finance Corporation.
b. The MOUs seeks to first, support capacity building programmes that enhances the awareness and knowledge of professionals working in FIs on green finance or green bonds. Second, to promote the use of internationally recognised green bond standards to provide consistency and clarity in standards.
17. When the right partners come together, and with strong political will to push projects through, complex infrastructure projects can be better executed, creating value for all parties involved.
Singapore hopes to contribute to the global infrastructure effort, focusing on the needs in Asia
18. Singapore hopes to contribute to the global infrastructure effort, especially here in Asia, by leveraging the numerous players across the infrastructure value chain that are present here.
19. A recent effort was the US$300 million Sembcorp Myingyan (“min-zhan”) 225MW power project. The project was driven by a Singapore integrated energy company, Sembcorp, and financed by MDBs ADB, the International Finance Corporation, and the AIIB, as well as private sector financiers including Clifford Capital, DBS Bank, DZ Bank and the Oversea-Chinese Banking Corporation.
20. The project was also supported by advisory services firms including Allen & Gledhill (legal), Mayer Brown (legal), KPMG (lenders model auditor and tax/accounting), Environ Singapore (Lenders ESIA Consultant), ERM Singapore (Environmental and Social Impact Assessment Report) and Worley Parsons (technical).
21. As the first internationally and competitively tendered power project in Myanmar, this project helped to set an important benchmark for private sector financing of similar projects in the future. In recognition of this, the project was awarded PFI’s Asia Pacific Power Deal of the Year in 2017 and the International Financial Law Reform Asia Awards 2018 Project Finance Deal of the Year.
22. Tapping into a robust infrastructure ecosystem here, we hope to continuously refine the way we approach infrastructure development, to find new ways to mitigate risks, and to increase the bankability of projects.
23. To this end, I am pleased to announce that Singapore has developed a new Singapore Infrastructure Dispute-Management Protocol, or SIDP, for large infrastructure projects.
24. In large infrastructure projects, parties may encounter cash-flow issues due to disputes that escalate to a litigation with uncertain rules and processes. The SIDP takes a more preventive approach by pro-actively managing differences and disputes using an array of dispute resolution options throughout the project, and prevents them from snowballing. It is a ground-up effort by experts in the infrastructure and dispute resolution field, including the Singapore International Mediation Centre (SIMC), and Singapore Mediation Centre.
25. The SIDP leverages Singapore’s trusted legal system and expertise in dispute resolution. In the area of arbitration, we have a record four hundred and fifty-two cases worth $4 billion US dollars filed with Singapore International Arbitration Centre in 2017. Out of these cases, over 80% were international in nature. Parties can also choose to resolve their disputes through litigation at the Singapore International Commercial Court, or mediation at the SIMC.
26. Further, to continue supporting the development of infrastructure in Asia, I am pleased to announce the official launch of Infrastructure Asia today. This initiative has been almost a year in the making, and is led by Enterprise Singapore and the Monetary Authority of Singapore.
27. Infrastructure Asia will serve as a bridge for different industry players across the infrastructure ecosystem, MDBs and the public sector. I hope that all of you will plug into this network to better tap into the regional opportunities.
28. Over the next year, Infrastructure Asia will implement the MOUs. First, working with the World Bank to strengthen the capacities of Asian countries to handle large, complex infrastructure projects, and second, to harness the collective networks and expertise of Infrastructure Asia’s partners like the Singapore Business Federation to gain better knowledge and access to regional infrastructure opportunities.
Call to cooperate within ASEAN, Asia and with MDBs as well as private sector players
29. In closing, the challenges in bankability of infrastructure projects can be overcome if the ecosystem comes together to collaborate and build upon each other’s expertise and experiences.
30. Regional governments play a role by identifying relevant infrastructure projects, and removing potential barriers in implementing them.
31. We need to find new ways to facilitate the successful implementation of infrastructure projects. Through platforms such as Infrastructure Asia, partners such as MDBs and private capital institutions can find more efficient ways to participate in the regional infrastructure development to enable further growth in ASEAN and Asia.
32. There is much to be done, and I hope what we are doing can contribute to our region’s development. I encourage all participants to make the full use of the facilities, and to contribute to exchanging ideas on how can continue working together even better to build a better life for all, in ASEAN, Asia and the world. Thank you.