MANILA, PHILIPPINES - The ASEAN Infrastructure Fund Ltd. (AIF) has commenced lending operations with a $25 million loan to fund power links in Indonesia, becoming a new source of funding for the development of priority infrastructure projects in the region.
“The commencement of AIF’s lending operations is a critical step towards mobilizing regional resources for infrastructure development in the region,” said Bambang Brodjonegoro, Vice-Minister at the Ministry of Finance of Indonesia and Chair of the AIF Board of Directors. “We are proud to note that the first project of the AIF is in Indonesia.”
Infrastructure needs in ASEAN countries are projected to be $60 billion a year until 2020. Limited public finances cannot hope to meet the demand and while Southeast Asia has substantial levels of private savings and foreign exchange reserves, these have been largely invested outside of Asia.
“The commencement of lending by the AIF opens a new era in ASEAN-led investments, allowing ASEAN nations the means to direct and leverage resources for their own development needs,” said Ramesh Subramaniam, Deputy Director General of ADB’s Southeast Asia Department and AIF Board member. “This is only the first project for the AIF – we look forward to expanding the project pipeline into 2014.”
The AIF is expected to finance up to $300 million a year for various projects for the development of road, rail, power, water and other critical infrastructure. Projects are selected based on sound economic and financial rates of return, and their potential impact on poverty reduction.
The AIF loan will help finance the expansion of transmission networks from Java to Bali and address system deficiencies that have resulted in widespread power outages and blackouts on the tourism-reliant island. The $410 million project will also be financed by a loan from ADB and investments from the Government of Indonesia.
The Shareholders Agreement for the establishment of the AIF was signed in September 2011 among ASEAN member countries and ADB, outlining the contributions and equity participations of each member. The AIF was incorporated in Malaysia in April 2012, and became fully operational in 2013. Shareholders include Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, the Philippines, Singapore, Thailand, Viet Nam, and ADB.
ADB is the administrator and provides technical support to the AIF. ADB also acts as the lender of record for the AIF loans.