The market for rail in South East Asia is opening up, with many ambitious projects on the market and strong support for public private partnerships (PPPs) and private finance.
Indonesia, Philippines, Malaysia, Thailand, Vietnam and Myanmar, in particular, have some of the strongest rail pipelines in the region. The most active being Indonesia (13 rail projects proposed and in procurement), Philippines (five projects) and Malaysia (four projects), where rapid urbanisation has put pressure on existing infrastructure and the improvement of the transport sector is a priority. In the case of Indonesia, private and PPP-based finance is expected to finance up to 70 per cent of the cost of such improvements over the next five years.
The most common projects in the region – both in terms of PPPs and normal procurement – are freight railways and commuter rail systems such as light rail and high-speed lines. The most expensive projects are in Indonesia: the Jakarta to Bandung airport rail link (US$6.1 billion) and the Bukit Asam Transpacific Railway connecting various coal mines to Lampung port (US$4.8 billion) to name two. High-speed rail links are also planned between Thailand and China through Laos, and Malaysia and Singapore. The former could cost up to US$25 billion.
A short summary on each of the countries is below.
Indonesia: Infrastructure development is high on the government's agenda and a number of large PPP projects have come to market, but none so far have reached financial close. Intra-governmental disputes and land acquisition problems have also been known to delay or stall projects. There is a relatively strong legal framework for PPPs and a dedicated PPP unit (Bappenas) which selects and oversees projects. As of April 2012, there were 12 tendered projects, 26 potential priority projects and 29 potential projects overall – most of these are in the transport and utilities sectors. Notable rail projects include the Kalimantan coal railway project (US$2 billion), Soekarno Hatta Airport rail link (US$1.1 billion), Jakarta-Bandung railway (US$6.1 billion), PT MRT Jakarta and Jakarta Monorail.
Philippines: This is one of the most active countries for deals in the Asia Pacific region. The overall legal framework is good, as PPPs have been used in the water sector (in some form) since the late 1980s. Transport PPPs rank highly on the current government's strategy, as rapid urbanisation has put pressure on existing infrastructure. There is a pipeline of 31 deals across various sectors, with a few set to reach financial close by year end. The main rail projects are the Manila Light Rail Transport Line 1 (US$1.5 billion), Light Rail Transit Line 1 (US$46 million) and Metro Rail Transit Line 3 (US$146 million).
Malaysia: PPP has existed in one form or another since the 1980s, when the world economic recession prompted the government to seek assistance from the private sector. There are a few rail projects under construction currently, including the Mass Rapid Transit in Kuala Lumpur which is expected to be completed by 2017, and the Electrified Double Track Ipoh-Padang Besar project. New projects were also proposed in the 10th Malaysia Plan 2011 – 2015. The main rail project is the Light Rail Transit extension in Kuala Lumpur, which is at advanced planning stage. There are also a number of projects at feasibility stage.
Thailand: PPPs have previously been used in the transport, communication, logistics and electricity generation sectors. Models are mostly BTO (build-transfer-operate), with some BOT (build-operate-transfer), BOO (build-own-operate) and AOT (acquire-transfer-operate) schemes. Under current PPP legislation, it can take up to four years to process PPP investments. However, new PPP legislation being enacted this year will hopefully resolve this. As of this year (2013), there are three potential projects in the transport sector – two rail and one motorway, including two high speed rail lines from Bangkok. There is also talk of a high speed railway line to link Thailand, Laos and China, for which feasibility studies have been undertaken.
Vietnam: This is an emerging PPP market, with an ambitious programme of projects in the power, transport and social infrastructure sectors. However, Vietnam's PPP programme is still very much in the early stages and PPP legislation is still being implemented. As of April 2012, 30 investment proposals were announced as potential PPPs, including roads, electricity, airports, hospitals, water, river ports and urban infrastructure development projects. One potential PPP rail project is the construction of train terminals in the country, though information on this is limited.
Myanmar: With Myanmar opening its doors to foreign investment, possibilities are emerging for many different types of infrastructure projects, including rail. However, as a newly emerged market, delays and other difficulties are sure to be encountered. There is a proposal to develop a railroad from Myanmar to Thailand as part of the US$50 billion Dawei multi-sector infrastructure project.
As is the case in many other emerging economies, reliable sources of information can be hard to come by except where one has good contacts on the ground. A further risk to investors is that rail projects can, because of their cost, scope and politically sensitive nature, be prone to long lead in times and delays. Nevertheless, there is a clear political will for infrastructure investment in the region, and it should be seen as encouraging that most of these countries have either recently undergone or plan to undergo reform to allow for and strengthen the regulation of PPPs. These markets therefore hold a great deal of potential for private sector investors.
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