This writing is a proposal
for a financing solution that will increase private and/or public finance for
development in Myanmar that uses the IDA Private Sector Window (PSW). Myanmar
is listed as a fragile state which has a harmonized average CPIA (Country
Policy and Institutional Assessment) country rating of 3.10.
·
What
is the problem or issue that you are trying to solve?
My experience in Myanmar is
that the country experiences power shortage. Even Yangon as a major city would
have frequent power cutoffs especially during summer dry season when the
hydropower dams are with low water level in their reservoir. Access to
electricity remains a top priority for productivity and competitiveness in the Myanmar
economy. One of the main challenges in attracting investments is the financial
viability of the power sector, which critically depends on tariff policies both
for gas supply to the power sector and for electricity distribution. Thus, it
is important for the government and power industry to explore various financing
resources that suit different appetites of risks, returns and terms in the
infrastructure project such as power plants.
· What are the reasons
that the government, official aid provider or private sector would want to
participate?
The government and the
official aid provider would be the lead stakeholders for promoting “financing
for development” where the act of providing funds for development purposes and
the whole range of management activities would guide the allocation and use of
those funds which would catalyze private funding interest if managed
efficiently. IDA was replenished at a record level of $75 billion for FY18 and
it would be good to have available fund to seed the growing interest and demand
for infrastructure projects such as power plant in Myanmar.
Private
sector would want to participate in the infrastructure building in Myanmar so
that they would ride the development waves in fulfilling their demand for
proper risk and returns objectives be it long term or short term. When the
market is reinforced by both Public and Private Financing and investment more
and more market participant will be drawn to join the market and the projects
and investment market will be commercially sustainable. Co-investment platforms
that are structured at the national and multilateral levels will pool and help
catalyze private capital, reducing individual investor costs for project
preparation and execution. The credit enhancement and shared risks would also
be draw the investors to participate in public loans and equity portfolios, or
infrastructure funds and platforms.
· What are the main
obstacles currently standing in the way of unlocking financial opportunities?
How would your solution overcome them? Consider the country context, if your
proposal involves a specific country.
There are large
amount of investible resources but not channeled to the fragile states. The main
obstacles would be due to political risk, macroeconomic risks, local currency
risk, commercial risk, transparency risk, market risk, project risk and etc.
Institutional investors need to step in
to increase the capital needed for infrastructure project to kick-start
financing pooling. The existing and emerging pools of capital such as sovereign
wealth funds, insurance company resources and pension funds could be important
financing sources for a fragile state such as Myanmar, particularly for large infrastructure
and energy investments. In order to tap these sources, Myanmar government need to
provide well prepared, bankable projects with suitable risk/return profiles.
Improvement on certainty with infrequent
policy changes and reforms are needed to sustain private investments. This is especially
pertinent to the long lived infrastructure sector. The lack of capacity among
institutional investors to evaluate and monitor individual project risk in
Myanmar need to be addressed with comprehensive official research information improvement
as well.
Through policy advice, technical
assistance and capacity building, MDBs and the IMF can support the Myanmar government
efforts to increase available resources and spend them effectively. Through MDB
policy support loans and IMF-supported programs, the institutions would be able
to help Myanmar meet budgetary and balance of payments needs, supporting
macroeconomic stability and growth. This includes domestic public resource
mobilization, deepening of local financial and capital markets, and creating a
conducive climate for private investment, both local and international.
For example, in
order to unlock the hinterland potential of Myanmar, the Myanmar government should
also seek help from sovereign wealth funds and pension funds, as newer sources
of finance. This is because these public funds are with private sector return
objectives and have long-term investment horizons that would be crucial to
sustainable and long term stable development of Myanmar. With the available
fund, the citizens living in the hinterland of Myanmar would be able to enjoy
the development of power infrastructure as well as the economic improvement.
Case Study:
Kyaukphyu
Special Economic Zone (abbreviated Kyaukphyu SEZ) is a 1,600 hectares (4,000 acres) Burmese special economic zone being developed on Kyaukphyu, Ramree Island, Rakhine State. Kyaukphyu SEZ was first announced in September
2013. The project initially began as a joint venture between the Chinese and
Burmese governments, but has since transitioned to private developers. The
Myanmar press reported on the signing of an agreement between the consortium 26
May 2014 in Naypyitaw, led by CPG Consultants and PM Link, and the Kyauk Phyu
Special Economic Zone Management Committee for the development of the master
plan and management of the tender process for the Kyauk Phyu Economic Zone
(SEZ). (Visit http://kpsez.org/about-kp-sez/
for more information)
The Myanmar
government could have seek IDA assistance & grant, conditional loans &
low-interest loans, and catalyze long term funding from foreign institutions, mobilize
local resources as well as foreign loans, mezzanine loans, bonds, and equities
to ensure a successful financing solution for the mega development which
include a deep sea port, industrial zone and residential zone. The power industry
needed to supply to the Kyauk Phyu SEZ especially the industrial zone would be
another critical factor to ensure the success of the SEZ.
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