[Kabar-indonesia] Analysis: Is Asia on cusp of new infrastructure boom?

[Joyo at aol.com]

Analysis: Is Asia on cusp of new infrastructure boom?

By Dominic Whiting and Umesh Desai

BANGKOK/HONG KONG, November 10 (Reuters) - Investors are
again scouting for infrastructure deals in Asia, which
craves roads, ports and power plants to keep its economies
in the fast lane, but failed projects from the late 1990s
meltdown and political risk still haunt many countries.

Over the next five years East Asia will require $1 trillion
in infrastructure funding while Southeast Asia will need up
to $60 billion, law firm Clifford Chance Wong Pte Ltd
estimates.

Indonesia is offering risk-sharing to try to make long-term
private funding palatable and Singapore has floated public-
private partnerships (PPPs). India eased rules on inward
investment in construction last year as it dawned that it
needed $320 billion to overhaul roads, ports and power
systems.

But a tour of Bangkok is a stark reminder of the dangers.

Unfinished water treatment works are a monument to how
Britain's Northwest Water, now a unit of United Utilities
Plc. , was burnt when Thailand's economic bubble burst in
1997, the baht currency was devalued, and successive
governments fell.

An elevated high-speed Bangkok rail line by Hong Kong's
Hopewell Holdings is nicknamed the "hopeless project", and
its abandoned concrete structures "stonehenge", as plans to
raise funds selling station-side homes died in a property
crash.

"There's a rhetoric and reality gap," said Paul Reddel, head
of the World Bank's public-private infrastructure advisory
unit.

"There are a lot of headlines about strong growth, but where
are the projects? There's also a mismatch between returns
and risk. Returns are being beaten down to single digits."

ABP, Europe's biggest pension fund, plans to pour 4 billion
euros (US$5.14 billion) into global infrastructure over
three years because it makes a good fit for its long-term
liabilities.

The Dutch fund is setting up an office in Hong Kong, but a
lack of financial tools in Asia worries Robbert Coomans,
ABP's head of alternative investment at ABP.

"In Europe you can hedge, but here, can you really get a 30-
year hedge on a currency?" Coomans said. "The problem is
that it's so expensive that in the end there's no return
left.?"

VERGE OF BOOM

The Asian Development Bank (ADB), which provides soft loans
for infrastructure, has started offering currency hedging.

It will swap hard currency for local currency with
developing Asian countries for tenors stretching to 15 or 20
years. The local currency will in turn be lent to
infrastructure project developers, sponsors, and financial
intermediaries.

"We are on the verge of an investment boom in
infrastructure," said ADB Vice-President Lawrence Greenwood.

"It's triggered by having pro-reform governments come in and
undertake both sound macro policy and structural reforms
that have been politically difficult in the past."

He cited Indonesia's government, which has set aside about
$440 million to provide financial guarantees and land for
projects. But some analysts say that is too little to draw
the $20 billion of investment the country wants.

Investors are also sniffing around China, where booming
trade and manufacturing have put strains on ports, railways
and power grids; tThe Philippines wants to spend $7.2
billion; and Thailand has hatched a plan for a $45 billion
binge -- although political turbulence in both countries,
including Thailand's military coup in September -- threaten
to derail the plans.

Patience is most definitely a virtue.

Thailand just opened a new $4 billion airport after 40 years
in the works and Manila airport's third terminal is set to
open over four years late after the government settled a
compensation case with a building group led by Germany's
Fraport AG .

Union and public pressure put paid to ideas of privatising
Thai power generation, although Malaysia's identical plan to
let private producers plug into a power pool is being
revived.

Sensing an opportunity, fund managers are creating
infrastructure packages for investors, with Australia's
Macquarie Bank at the forefront with private and listed
South Korean funds and a fund of global assets listed in
Singapore.

Fund manager IL&FS is planning an India infrastructure fund,
with investors expected to stump up around 80 percent of the
$750 million for buying roads, ports and power assets as
well as some new projects. It promises internal rates of
return of 20 percent.

But Asian politics are a big gamble for investors. Pet
projects are often abandoned when governments fall, partly
because new deals can become personal money spinning
schemes.

The $2.9 billion Dabhol power plant in India built by Enron
Corp., was mothballed for nearly five years after a billing
dispute, complicated by a change of state government.

"Politicians are short term, so your project has to fit into
their timeframes," said IL&FS Managing Director Shahzaad
Dalal.

------------------------------------------
Joyo Indonesia News Service
------------------------------------------