Financing Asian Development
As one of the world’s premier multilaterals, the Asian Development Bank (ADB) is a critical force for development in the vast continent of Asia. Whether it’s district heating networks in Uzbekistan or helping Indonesia form a new five-year investment plan, the influence and guidance of the ADB cannot be overstated.
Covid-19 continues to shine a harsh light on the world’s infrastructure deficits, and the calls on multilaterals, as well as the private sector, to help stimulate economies are growing ever louder as a result. As part of the ADB’s response, its new vice-president for private sector operations and PPPs, Ashok Lavasa, is at the epicentre of Asia’s economic and social recovery.
Having held numerous positions in the highest echelons of the Indian Civil Service, including roles such Election Commissioner and leading the Indian delegation for climate change negotiation for the Paris Agreement at COP21, Lavasa brings a wealth of experience to Asia’s fight for a bright future – and shared some of his experience and vision with Partnerships Bulletin.
In your new role, what will be the key priorities under your leadership?
My priority is to see that the bank’s strategy is implemented in a manner that [allows] the bank to continue to play its role as a development partner of its member countries.
The Asian Development Bank has very clear objectives and strategies for its private sector and PPP operations. These include, among others, catalysing and mobilising financial resources for private sector and PPP operations.
Our objectives include achieving $2.50 of long-term co-financing for every $1 of the ADB’s private sector financing by 2030; strategic use of PPPs to achieve specific infrastructure objectives; and improving the business environment at our developing member countries (DMCs).
While pursuing these objectives, we are committed to significantly enhancing our gender focus, achieving increased climate finance targets and expanding our private sector and PPP operations in more frontier economies, including DMCs belonging to the small island developing states and fragile and conflict affected situations.
The ADB is set to play a crucial role in the economic recovery of the region, how do you see PPPs fitting into this?
Even before the Covid-19 crisis, the annual infrastructure gap in the Asia-Pacific region was a staggering $1.7trn. As we know, many governments are already struggling under significantly higher expenses for social care and health services due to Covid-19, so the funding gap for key infrastructure could increase further.
In response to the crisis, we see governments increasing their focus on PPP policies and laws and regulations. We also see governments reaching out to the ADB to go beyond projects and provide them with more comprehensive portfolio and programmatic solutions.
In the post-Covid-19 ‘new normal’ world (once the crisis phase is over), PPPs will become even more relevant and useful. Governments that are unable to spend upfront capital expenditure on building infrastructure and services may consider structuring PPPs using an availability payment model.
From a wider perspective, what do you see for the next five years for the Asian PPP market?
Institutionally, we will soon be working on a PPP Directional Paper for the ADB to cover the period up to 2030, which will update our current operational plan prepared in 2012. That will set out our strategic directions for PPP in line with Strategy 2030.
In the near-term, we see that investments in healthcare and services will increase. Over the medium- to long-term, the need for ‘hard’ infrastructure would remain.
In some cases, demand for technology solutions supporting distance education has also been growing.
In areas with significant migrant worker populations, we have already started preparing projects that would attract private sector investment and operations and maintenance in housing estates for industrial workers and other vulnerable people.
We also need to be cognisant that PPPs are still a nascent product in many parts of Asia. The next two or three years of recovery will provide the private sector with an increased understanding of the risks of infrastructure.
The private sector also will need to revisit infrastructure PPPs to make sure their bids are not guided by irrational exuberance.
In the longer term, with some fine-tuning both from the public sector and private sector, we can expect PPPs to continue to play a bigger role in closing the infrastructure gap.
As someone who has a deep understanding of the public sector, how can governments and authorities best leverage the support of the ADB and private capital?
I am extending our active support to client governments across the region in developing sector masterplans, identifying innovative delivery methods and financing structures, and identifying essential infrastructure projects for private sector participation, and these would be supported through our existing project preparation facilities.
To better leverage private capital, governments in our DMCs will need to substantially improve their project identification, selection, and structuring process to make sure that the projects they bring to tender offer value for money for the government, and are bankable for the private sector.
We see an increasing demand for PPPs in various urban sectors, but the capacity of cities to prepare and leverage PPPs needs strengthening.
The ADB has started an initiative for cities to increase their capacity, improve their resilience and “build back better” following Covid-19. The initiative is providing early-stage assistance to cities to improve the quality of the pipeline of municipal PPPs, and pair this with increased resource mobilisation to enhance cities’ resilience to such shocks in the future.