The Asian infrastructure investment bank – its role and achievements

Image courtesy of AIIB

By Charles F Moreira, Editor

The Asian Infrastructure Investment Bank (AIIB) headquartered in Beijing, is a multilateral financial institution whose aim is to bring countries together to address the daunting infrastructure needs across Asia and thereby help advance other productive sectors and in turn help stimulate growth and improve access to basic services across the region.

Its six focus areas are in Rural Infrastructure and Agriculture Development, Energy and Power, Environmental Protection, Transportation and Telecommunications, Water Supply and Sanitation and Urban Logistics.

On 4 September 2017, the AIIB approved 11 projects related to the Egypt Round II Solar PV Feed-in Tariffs Programme. These projects entail the development, financing, construction, testing, commissioning, operation and maintenance of a 50MW solar photo-voltaic (PV) power plant in the Benban Solar Park with the aim to increase Egypt’s generation capacity by exploiting its vast renewable energy potential and help the country to meet its power demand. These projects also aim to reduce Egypt’s dependence on gas and fuel for electricity generation and move to a more balanced and environmentally sustainable energy mix.

Other energy sector projects approved earlier include the Andhra Pradesh 24×7 – Power For All in India to be co-financed with the World Bank, the Trans Anatolian Natural Gas Pipeline Project (TANAP) in Azerbaijan to be co-financed with the World Bank, the Myingyan Power Plant Project in Myanmar, the Tarbela 5 Hydropower Extension Project in Pakistan and the Distribution System Upgrade and Expansion Project in Bangladesh.

Approved transport sector projects include the Gujarat Rural Roads (MMGSY) Project in India, the Batumi Bypass Road Project in Georgia, the Duqm Port Commercial Terminal and Operational Zone Development Project in Oman, the Railway System Preparation Project in Oman, the National Motorway M-4 Project in Pakistan, the Dushanbe-Uzbekistan Border Road Improvement Project in Tajikistan and others.

Currently there are two approved urban projects in Indonesia – i.e. the Regional Infrastructure Development Fund Project and the National Slum Upgrading Project. The Regional Infrastructure Development Fund project will finance investments and provide technical assistance in areas including, but not limited to:

1) Urban transport;

2) Urban water supply and sanitation;

3) Drainage, flood and hazard risk;

4) Solid waste management; and

5) Slum upgrading and affordable housing.

AIIB approved a loan of US$216.5 million, for the National Slum Upgrading Project on June 24, 2016. This Project is cofinanced by the World Bank which is contributing US$216.5 million.

The Project will improve access to urban infrastructure and services in targeted slums in Indonesia. It will support the Indonesian Government’s programme of urban slum infrastructure investments for 154 cities in the central and eastern parts of Indonesia. The Project consists of the following five components:

1) Institutional and Policy Development;

2) Integrated Planning Support and Capacity Building for Local Governments and Communities;

3) Urban Infrastructure and Services in Selected Cities;

4) Implementation Support and Technical Assistance;

5) Contingency for Disaster Response. The project executing agency is the Ministry of Public Works and Housing (MPWH). The Project implementation period is from September 2016 to June 2021.

Indonesia’s Ministry of Public Works and Housing is in charge of the project’s implementation from September 2016 to June 2021. Direct and indirect beneficiaries of this project include the 9.7 million inhabitants of the 154 cities who are expected to experience significant betterment of living conditions due to improvements in access to and quality of urban infrastructure.

Currently approved multi-sector projects include the India Infrastructure Fund in India and the Dam Operational Improvement and Safety Project Phase II in Indonesia.

The India Infrastructure Fund’s investment strategy is to invest in infrastructure platforms and infrastructure services companies with high growth potential that derive their revenues principally from India. The targeted investments cover a number of sectors, including the following examples and related sectors:

Energy and utilities (e.g. renewable energy, electric transmission and distribution networks, water and wastewater systems, smart cities, etc.);

Transportation and logistics (e.g. roads, airports, bridges, tunnels, ports, railways, waterways, intermodal systems linking various transport modes, urban transport, logistics and logistics related infrastructure, etc.);

Other sectors including telecommunications, broadband, urban PPP projects, healthcare and education.

The Fund will seek to invest in portfolio companies that support and benefit from overall growth in India’s infrastructure development and will target a market rate of return reflecting the risks of the investment, principally through long-term capital appreciation. All investments by the Fund will be guided by an assessment of government policies and prospects for private sector infrastructure investment. The Fund seeks to identify and partner with capable, trustworthy sponsors and management teams.

Phase II of Indonesia’s Dam Operational Improvement and Safety Project is a continuation of Phase I which was implemented from 2009 till 2016, most of which period was before the AIIB was established. It’s overall objective was to develop a portfolio management approach across Indonesia’s dams and reservoirs.

The overall aims of the programme are:

1) To increase the safety and the functionality of the 63 short-listed prioritised large dams and reservoirs,

2) Develop and mainstream the regulatory and administrative arrangements for dam and reservoir management and safety that are more sustainable from a technical, environmental and financial perspective. The Project will consist of the following components:

(a) Institutional Capacity for Dam Safety;

(b) Dam Rehabilitation and Safety;

(c) Dam Operation and Safety Management.

AIIB was founded on 16 January 2016, 15-month after its founding members had collaboratively worked out its core philosophy, principles, policies, value system, and operating platform, based upon the lessons of experience of successful private sector companies and existing multilateral development banks such as the World Bank and the Asian Development Bank. Tha AIIB’s core principles are openness, transparency, independence and accountability, whilst its operational philosophy is based upon being lean, clean and green.

The idea for the AIIB was mooted by China in 2013 and the initiative was launched in Beijing in October 2014. It gained the support of 37 regional and 20 non-regional Prospective Founding Members (PFM), all of which have signed the Articles of Agreement that formed the legal basis for the AIIB which began operation after the agreement went into force on 25 December 2015, after ratifications were received from 10 member states holding a total number of 50% of the initial subscriptions of the Authorised Capital Stock.

As for 17 June 2017, the AIIB had a total of 56 members plus 24 prospective members countries both within Asia and on other continents. Its Regional or Asia members include Australia, Azerbaijan, Bangladesh, Brunei, Cambodia, China Georgia, Hong Kong SAR, India, Indonesia, Iran, Israel, Jordan, Khazakstan, South Korea, Kyrgyz Republic, Lao People’s Democratic Republic, Malaysia, Maldives, Mongolia, Myanmar, Nepal, New Zealand, Oman, Pakistan, Philippines, Qatar, Russia, Saudi Arabia, Singapore, Sri Lanka, Tajikistan, Thailand, Turkey, United Arab Emirates, Uzbekistan and Vietnam. Malaysia joined on 27 March 2017. All these Asia member countries are within the geographic continent of Asia, including those parts of the Middle East which are on the Asian continent.

It’s Non-Regional members from outside continental Asia are Austria, Denmark, Egypt, Etiopia, Finland, France, Germany, Hungary, Iceland, Italy, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Sweden, Switzerland and the United Kingdom.

Each member country subscribes to its Authorised Capital Stock and receives a corresponding number of votes. Since different countries have paid different amounts in subscriptions, they each have a different number of votes. Malaysia paid US$109.5 million in subscription and has 4,037 votes.

Its Regional Prospective Members currently are Afghanistan, Armenia, Bahrain, Cyprus, Fiji, Kuwait, Samoa, Timor-Leste and Tonga, whilst Non-Regional Propsective Members are Argentina, Belgium, Bolivia, Brazil, Canada, China, Greece, Ireland, Madagascar, Peru, Romania, South Africa, Spain, Sudan and Venezuela. These members have not yet paid subscriptions nor have voting rights.

The AIIB is governed by a Board of Governors from amongst its member countries, each of which has an Alternate Governor; a Board of Directors including alternates and constituency members from different member countries; a Senior Management Team headed by the President, Mr. Jin Liqun from China, several Vice-Presidents, a General Counsel, Mr. Gerard Sanders from New Zealand; and a Chief Risk Officer, Mr. Martin Kimmig from Germany; and an International Advisory Panel comprised of former prime ministers, former finance ministers, former ambassadors, academics, NGO heads and others.

Dato’ Sri Mohd Najib Tun Abdul Razak is an AIIB Governor with Tan Sri Dr. Mohd Irwan Serigar Abdullah, Secretary General of Treasury as Alternate Governor, whilst former Bank Negara Malaysia (Malaysia’s Central Bank) Governor, Dr. Zeti Akhtar Aziz is on the International Advisory Panel.