Bringing New Technology to the Infrastructure Sector via Private Investment

Speech | 18 May 2011

Speech by Lakshmi Venkatachalam, ADB Vice President, at the 24th Plenary Session of the Foreing Investors' Council on Bringing New Technology to the Infrastructure Sector via Private Investment, Astana, Kazakhstan.

Your Excellency, President Nazarbaev,
Members of the Foreign Investors Council,
Ladies and Gentlemen:

Good morning to all of you. I am very thankful for this opportunity to share the views of the Asian Development Bank with this distinguished gathering on a subject that is of immense salience not only to the economic landscape of Kazakhstan but also to all of Asia.

The infrastructure sector, and more specifically, the modernization and renovation of enterprises has increasingly become a focal area for several reasons. While not elaborating on these, let me just say that specialized private investors are increasingly looking at this as an investment opportunity, in particular under the Public-Private Partnership space. It is apparent also that non-oil sector industrial multinational companies, particularly the medium sized companies, may be unable to move forward with new or expansion investment plans without basic assurances of reliable around-the-clock infrastructure services they have become used to in many other countries of their existing operations.

In Kazakhstan, investment in industrial development is mostly concentrated in urban or peri-urban population centers where the aging soviet-era infrastructure is often not capable of providing adequate service levels even to meet the current needs. Investors in rapidly growing enterprises are no longer satisfied with long and gradual processes for upgrading of infrastructure services. Instead, they are "leapfrogging" such long transition periods through the quick implementation of new technologies, so as to faster achieve competitive positions in the world market.

Questions therefore arise as to how Kazakhstan can best attract such infrastructure-related new technologies. Traditionally, government procurement of such technology has been carried out through direct negotiations with contractors and technology providers. In today's markets, however, governments are increasingly giving preference to a model in which infrastructure investors are themselves the ones that assume the full long term performance and efficiency risks. This new model contrasts sharply with the earlier one of the government simply "procuring" the technology against short-term equipment warranties.

All over the world, governments are turning to private infrastructure investors as a key means to upgrade technology, particularly in sectors which are experiencing major research advances in efficiency and cost reduction. Competing for the attention of the world's leading infrastructure investors requires that Kazakhstan better evidences its capacity to implement time-bound tendering processes along with short and efficient negotiation periods which are in line with the best international standards. In addition, the legal framework for dealing with the complexities of contractual arrangements that such projects entail must be strengthened, where appropriate. Experience from other Asian countries indicates that this transformation can only be achieved with strong direction and coordination from the very top levels of the government.

We do believe that long term private infrastructure investment is an excellent way to attract new technology into very basic infrastructure services. Our key messages to the Kazakhstan government at this forum would therefore be the following:

  • As the Kazakhstan economy returns to pre-crisis levels of strong growth, it must address a growing electricity deficit, particularly in certain parts of the country. Significant demand side reductions (the only short term means available to reduce deficit) can be achieved through energy efficiency technology, power sector smart meters and loss management.
  • Kazakhstan's already overstretched electricity supply system is highly dependent on soviet era coal fired generating stations, many of which are at close proximity to major population centers. High levels of NOx and SOx emissions from these power stations need to be reduced by modernizations of existing plants to introduce "clean coal" technology. Over time, natural gas and renewable energy needs to play a greater role in this sector. Policies on wind power and eventually solar power also need to be developed, so as to attract world class investors who will introduce and develop high-end technologies in the country.
  • Water treatment and sanitation technology continues to experience major advances around the world, bringing about cost reductions and expansion of services. Some of the Asia-based companies are amongst the leading new technology providers and have emerged as an important set of new investors in a sector that was previously dominated by European companies.
  • Freight and logistics management is a vital sector not only due to Kazakhstan's location and challenging size but also because foreign trade has accounted in recent years for most of the country's GDP. Shipment and logistics technology is also advancing worldwide and Kazakhstan has a great opportunity to benefit from the introduction of such technology to the country.

ADB has taken a leading role in catalyzing, through innovative financial and technical support, high technology infrastructure investment in Asia. A good example of this is recently approved ADB financings for privately developed solar power projects in some of our member countries. Friends, at this stage I would like to recall what the President of the ADB, Mr. Haruhiko Kuroda recently said while inaugurating the 44th Annual Meeting of the ADB at Ha Noi. He said, and I quote, "The sustained growth of Asia must be anchored with investment in innovation and technology, and promotion of entrepreneurship". He also said "Asia must continue to deepen cooperation and integration to improve its economic resilience and to respond effectively to global challenges". I have no doubt that Kazakhstan, with its forward looking policies and programs, is poised to play a leading role towards addressing the aforesaid challenges in the Central Asian region. Let me reiterate ADB's commitment to support Kazakhstan in its endeavors.

Thank you