Infrastructure financing challenges of CambodiaGaps, Modalities and Recommendations

Shuvojit BanerjeeUNESCAP

The Importance of Infrastructure

SDG 7Affordable and Clean

Energy

SDG 8Decent Work

and Economic

Growth

SDG 9Industry

Innovation and

Infrastructure

SDG11

Sustainable cities and

communities

Improving Infrastructure is vital for achieving multiple sustainable

development goals

Infrastructure sectors

ICT

Energy

Transport

Water & Urban Infrastructure

Social Infrastructure (e.g. schools, hospital)

Infrastructure as a special asset class

Special Asset Class

Particularly high up-

front capital costs **

Late Cash Flows

generation*

Highly susceptible

to coordination failures****

Low financial

returns and high social returns***

Infrastructure in Cambodia

Source: World Bank

Country Name Access to electricity (% of population)

People using at least basic sanitation services (% of population)

People using at least basic drinking water services (% of population)

Brunei Darussalam 100,0% 96,3% 99,5%Cambodia 49,8% 48,8% 75,0%Indonesia 97,6% 67,9% 89,5%Lao PDR 87,1% 72,6% 80,4%Malaysia 100,0% 99,6% 96,4%Myanmar 57,0% 64,7% 67,5%Philippines 91,0% 75,0% 90,5%Thailand 100,0% 95,0% 98,2%Vietnam 100,0% 78,2% 91,2%East Asia & Pacific (excluding high income) 96,6% 74,6% 93,5%

Least developed countries: UN classification 44,8% 32,2% 61,8%

Low income 38,8% 29,1% 56,1%Lower middle income 83,4% 52,9% 85,3%

Infrastructure in Cambodia

Brunei  Cambodia Indonesia Lao PDR Malaysia Philippines Thailand Viet Nam

Overall 60 106 52 102 22 97 43 79

Quality of air transport infrastructure

63 106 51 101 21 124 39 103

Quality of electricity supply 53 106 86 75 36 92 57 90

Quality of overall infrastructure 51 99 68 83 21 113 67 89

Quality of port infrastructure 74 81 72 127 20 114 63 82

Quality of railroad infrastructure 0 94 30 0 14 91 72 59

Quality of roads, 33 99 64 94 23 104 59 92

Available airline seat km/week 99 79 14 113 23 27 15 28

Fixed telephone lines 62 115 104 60 71 105 91 96

Mobile telephone subscriptions 61 52 18 131 28 88 5 44

Trade Infrastructure 89 130 54 91 40 67 41 47

Source: World Economic Forum, World Bank

Closing the Infrastructure Gap

Investment Needs (% of GDP) Current Investment in Cambodia Gross Fixed Capital Formation ~

0,01% with no increasing trends

Total government expenditures: 22% of GDP

Budget deficit around 3.1 %

4.3% 3.6% 2.9%

5.7%

5.2%

3.6%3.9%

6.3%

1.8%

1.8% 1.9%

2.3%1.4%

1.2% 1.4%

1.4%

Cambodia Lao Pdr Myanmar Timor Leste

Transport Energy ICT WSS

Source: Branchoux, Fang & Tateno (2017) Source: IMF, ADB and ESCAP calculations

Source of Infrastructure Finance

Infrastructure Finance

Public

Government budget

Public borrowing

Development Partners

Private

Corporate Finance

Project Finance

Government Provision

Revenue for Infrastructure

Tax Incomes

Capital Recycling

Public Borrowings

and Budget Deficits

Government Business

Enterprises

Public Finance flows in Cambodia

0

2

4

6

8

10

12

14

16

18

0

100

200

300

400

500

600

700

800

900

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

ODA (current USD millions) Tax revenue (% of GDP)

Linear (ODA (current USD millions)) Linear (Tax revenue (% of GDP))

Leveraging International Support

Green energy

Using the project preparationfacilities

Increase of the number of partners (e.g. AIIB, NDB)

A gap between public and private sector financing

Infrastructure investments have traditionally been financed with public funds, given the inherent public good

nature of infrastructure

Currently, the public sector funds 70% of

infrastructure development in Asia

The private sector accounts for 20% of

Infrastructure financing

The remaining 10% are provided by multilateral

agencies

Public deficits and increased public debt to GDP ratios have led to reduction in the level of public

funds for infrastructure

As countries develop, official development assistance has less impact

Private sector needs to step upTo address infrastructure gaps, it is estimated that private investments should increase from around $63 billion a year to as high as $250

billion over 2016-2020Source: ADB Institute

Reasons for low private funding

Despite ample available capital...

Global institutional investors currently manage more than US$50 trillion

Investments in infrastructure assets, with theoretically stable cash yields over time, can often be attractive even to investors with

long-term liabilities

…Infrastructure is not attractive in both developed and developing countries

Infrastructure projects rarely rank as the most attractive option to deploy capital on a risk adjusted basis –

Too much risk and uncertainty over investment returns. Investors have global alternatives which present higher return in other

asset classes for the same level of risk

55% to 65% of infrastructure projects in emerging markets are fundamentally not bankable without government or multilateral

development bank support*

Banking Sector: Declining Involvement in Infrastructure Finance

Double mismatch

Banks are challenged by the inherent asset-liability mismatch infrastructure

finance generates. Banks typically have substantial short-term liabilities, but infrastructure financing

often involves long-term assets

Currency mismatch—the differences between

project revenues generated in local currency for debt

payments made in a foreign currency

New regulations and Trends Large international commercial

banks, which had previously provided a significant portion of infrastructure financing have been deleveraging since the global financial crisis.

Provisions in Basel III are limiting the role of Banks in Infrastructure financing. Regulation of banking activities, such as capital requirements or liquidity coverage ratios, significantly affects banking industry’s position on project finance

Capital Markets and Institutional Investors

Capital markets would reduce the pressure on the banking system while also making available fresh equity to finance / refinance 

infrastructure projects.

Asia is home to diverse financial systems that vary in depth and

sophistication, ranging from developed countries with sophisticated financial

markets to emerging markets and low-income economies where markets are

still its infancy.

Much attention is being focused on the institutional investor, 

given the long‐term nature of the liabilities. 

The long-term nature of infrastructure projects matches the long-term liabilities of institutional investors.

Most institutional investors, even those with long-term liabilities such as pension

funds, life insurance companies continue to invest in liquid assets, often with a short-term investment horizon.

There is a high correlation between the size of the

institutional investor base and the size of capital

markets.*

Underdeveloped equity and bond markets prevent institutional investors to

finance infrastructure investment.

Sovereign Credit Rating- 2018

Source: PPP Reference Guide 2.0

PPP definition"A long-term contract between a private

party and a government agency, for providing public services and/or developing

public infrastructure, in which the private party bears significant risk and management

responsibility, and remuneration is linked to performance "

"A long-term contract between a private party and a government agency, for

providing public services and/or developing public infrastructure, in which the private

party bears significant risk and management responsibility, and remuneration is linked to 

performance "

Long termrelationship beyond construction phase

Long termrelationship beyond construction phase

Contract BasedContract Based

Different from privatization

Different from privatization

Mobilize resources

Achieving a long term solutions

Transferring risks to the private sector

Why use PPP ?

Access new source of financing for infrastructure

Access new source of financing for infrastructure

Equity and Debt financing provided by private partners

Utilize private sector and

international expertise

Utilize private sector and

international expertise

Private partners bring sophisticated

technics to the projects. Often

times partners are international firms

Forces better project planning

Forces better project planning

Closing a PPP deal requires meticulous Project planning, increasing the 

probability of success

Requires strength in risk accounting

Requires strength in risk accounting

Risk must be carefully allocated

between public and private

partners

Enables faster infrastructure build 

out

Enables faster infrastructure build 

out

By removing national By removing national constraints from

infrastructure funding and construction, PPPs enable more

projects to be undertaken

Build out the national private 

sector

Build out the national private 

sector

PPP projects result in private firms with

relatively secure revenues

PPP Limitations

Usage fees 

Must be payed by either tax payers or users to generate

revenue

Public guaranteesFiscal risk has to be 

properly assessed and monitored

Complex arrangementHigh transaction costs / 

internal capacity constraints / not suitable for all projects 

(limited flexibility)

Limited local private sector capacity and competition  Possible public resistance 

Indonesia / the Philippines share the largest share of PPP investment   

World Bank PPI Database

02468

1012141618

Billi

on

2002-2006 2007-2011 2012-2016

Cambodia 0.0%

Indonesia 1.8%

Lao PDR 59.6%

Malaysia 1.2%

Myanmar 2.9%

Philippines 4.6%

Thailand 2.2%

Vietnam 1.4%

Private Investment (2012‐16) as % of GDP

PPP Track record in South-East AsiaCountry Breakdown

World Bank‐ PPI Database

50%

32%

1%2%

2%4%

6%

4%

Electricity

ICT

Natural gas

Airport

Ports

Roads

Railways

Water & Sewerage Mainly in electricity sectorFollowed by ICT

PPP Track record in South-East AsiaSectoral breakdown

Private investment in infrastructure, 2000‐2017

PPP track record in South East AsiaPrivate Investment Infrastructure

2000-2017

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Indonesia Philippines Malaysia Thailand Lao PDR Vietnam Cambodia Myanmar

US$

mill

ions

Electricity ICT

Natural gas Airport

Ports Roads

Railways Water & Sewerage

World Bank PPI Database

Recent Projects in Cambodia

Siem Reap New International Airport

Part of the 2012-2020 Tourism Development Strategic Plan

Started in 2010, reattributed to Yunnan Investment Holdings Ltd in 2016

Construction in 5 years (end 31/12/2022)

Budget: 1 Billion USD

Capacity: 10 Million passengers

Svay Rieng PV Solar Farm Partnership between Sunseap

Group and Electrité Du Cambodge

Support by ADB (loan from ADB and CFPS)

First competitive bid renewableenergy IPP project

Construction

Budget: 12.5 Million USD

Capacity: 10 MW (25% of the provine need)

World Bank – Procuring Infrastructure Public Private Partnerships, 2018 

PPP Legal Framework in South East AsiaCountries Preparation score Procurement Contract

ManagementCambodia 14 13 64Indonesia 63 74 58Lao PDR 24 37 26Malaysia 50 42 33Myanmar 11 37 27The Philippines 85 76 88Singapore 60 76 62Thailand 27 45 58Vietnam 77 77 62Timor-Leste 33 64 45

Infrastructure Financing and Public Private Partnership Network

ExperiencedPPP Units

•China PPP Center

•Philippines PPP Center

•Kazakhstan PPP Center

DevelopmentInstitutions

•World Bank•Asian

DevelopmentBank Institute

United Nations

•ESCAP•UN Capital

DevelopmentFund

Missions & Activities of the Network

Capacity Building

Organization of meetings

Creation of a knowledge sharing platform

Support and link the countries and development partners

Development of knowledge products