King & Wood Mallesons’ Energy & Infrastructure wine dinner - In conversation with Infrastructure Asia
Infrastructure Asia’s Executive Director Seth Tan was invited to speak at King & Wood Mallesons’ annual client event, at Flutes in National Museum of Singapore. Seth spoke of the key building blocks for successful Public-Private Partnership (PPP) projects, which includes: Good fitting solutions; Quality and resilient infrastructure; Responding to changing demand and supply.
Infrastructure Asia’s Executive Director Seth Tan was invited to speak at King & Wood Mallesons’ annual client event, at Flutes in National Museum of Singapore. Seth spoke of the key building blocks for successful Public-Private Partnership (PPP) projects, which includes:
- Good fitting solutions;
- Quality and resilient infrastructure;
- Responding to changing demand and supply.
5 main areas of demand
Seth also shared some of Infrastructure Asia’s observations on regional demand for infrastructure. The 5 main areas of demand he spoke at length on includes climate adaptation infrastructure, renewable energy, transportation, urban solutions and capital recycling.
For climate adaptation, several countries are looking for better infrastructure to improve stormwater and flood management. Good flood management to us is a combination of policy, long term planning and engineering, and the source-pathway-receptor approach adopted in well planned cities could be interesting for regional governments.
For renewable energy, China is one of the largest onshore wind and solar markets in the world, and Taiwan is rapidly becoming the favourite as an offshore wind market, but India and other Asian countries continue to require more renewable deployment, which presents Singapore-based investors, financiers and solution providers with a huge business runway. Some countries are also experimenting with newer paradigms like batteries+solar to extend the hours of electricity access. Some are considering a portion in floating solar given the difficulties of land acquisition.
For transportation, transit-oriented developments are gaining popularity to create vibrant living spaces around transport nodes and to generate long term sustainable revenue flow. Such an approach of maximising commercial real estate elements with urban transport can help to keep transport fares reasonable for the population. IA is also working on selected port opportunities, where bringing together the port development journey experience, enabling policies and international solutions (including technology) could be very relevant to these port cases.
For urban solutions, as urbanization increase, there is stronger demand for newer forms of waste management like waste-to-energy. Smart city (or smarter city) infrastructure is another strong area of interest. There is currently no global smart city standard and what is deployed depends on the needs of each city. As these are newer areas to the regional demand markets, enabling the right technical and financial solution through bankable structures could facilitate adoption.
Finally, there is also strong interest in some countries for capital recycling. These countries have strong state-owned enterprises that built infrastructure projects like toll roads, gas pipelines etc. Now that the projects are completed and are operating, the SOEs hope to attract investors to these brownfield assets, so capital can be released for the SOEs to invest in other pressing needs.
The ability to help at the policy level, project structures and also help frame project conditions so the project works well on a standalone basis as well as within the overall system are elements that could further help make projects more internationally bankable.
Question and answer
Over wine and appetisers, Managing Partner (Sydney, Australia) Evie Bruce had a Question & Answer session with Seth. We’ve included an excerpt of this Q&A session during the dinner:Evie:
Looming in the background of any discussion on Asia’s infrastructure boom is China’s Belt and Road Initiative, where the current narrative is dominated by uncertainty and risk. For example, in a survey conducted by the ISEAS-Yusof Ishak Institute, 70% of respondents from all 10 ASEAN nations said their governments “should be cautious in negotiating Belt and Road Initiative projects, to avoid getting into unsustainable financial debts with China.” Do you agree with this sentiment? Do you think this makes Infrastructure Asia more cautious when considering projects related to the Belt and Road Initiative?Seth:
- Classic BRI projects are typically Government-to-Government initiatives, which IA is typically not involved in any of these collaborations. However, there are best-in-class Chinese companies or institutions looking at infrastructure opportunities in some of Infrastructure Asia’s focused countries. Given the familiarity of the Singapore infrastructure ecosystem with Southeast Asia and South Asia, IA can help bringing together new partnerships and new combinations of solutions to tackle evolving infrastructure demand or problem statements.
- Two areas where we think the Singapore infrastructure ecosystem can be relevant to best-in-class Chinese players are in the area of project preparation (particularly in the area of technical and legal feasibility study) and also in financial collaboration (particularly in the area of structuring and also forming the most appropriate financial consortium)
- The US$500 million Silk Fund Road (SRF) - Surbana Jurong (SJ) co-investment platform is an example of financial collaboration. It brings together SRF’s capital strength and connectivity with the best-in-class in the China ecosystem and SJ’s familiarity with Southeast Asia. The position of this fund is also very good as it can invest in minority equity or mezzanine debt, which is needed by both demand and supply side.
- Properly due diligence and structured cases will perform in the base case and be more resilient in downside scenarios hence would be financially more sustainable.
KPMG has forecasted that 2019 will be a year of data-driven enlightenment for the infrastructure sector, where digital and technological disruptions are driving change for futuristic infrastructure. How might we use capabilities (like artificial intelligence, network automation or edge computing) to support the rapid growth across Asia? Is there room for developers to establish financially viable partnerships with startups? If so, how?Seth:
- Technology on infrastructure is one of the topics IA is currently gathering some views from some our partners, and we hope to share that collation of thought leadership in an article in the coming months, so please look out for it on our website.
- One particular area of interest for IA is how does technology help in a practical manner in developing Asia infrastructure. Good fitting solutions to address the hinterland conditions is important. For example, the “price point” and non-price criteria where technology is adopted in developed markets could be very different from emerging markets, hence solutions cannot be just ported across to emerging markets but may need to be adjusted to ensure they are good fitting. Selected experiences from the Singapore infrastructure ecosystem could present some examples that may be adopted in regional emerging markets. Examples include:
- Improving Asset Performance Through Preventive Maintenance by Singapore’s bus transport operators,
- Leveraging data to reduce losses and improve service delivery by PUB’s smart meters for water,
- Savings costs through Using Building Technologies like Building Information Modelling (BIM) by Singapore-based developers etc.
- As deploying technology is not just about the solutions but also about the enabling environment, Singapore’s efforts to have regulatory sandboxes and test bed could also be interesting for regional demand markets looking to employ similar solutions. One example is in microgrid on Semakau island for various renewable energy sources like solar, wind, tidal alongside energy storage solutions.