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Business trends

Southeast Asia's burgeoning infrastructure market defies borders

Philippine and Thai groups find lucrative new markets in a region desperate for private investment

Power lines stretch across farmland in Laos, where Electricity Generating Authority of Thailand is building new generating capacity.   © Reuters

MANILA -- Southeast Asian engineering groups are looking beyond national borders for opportunities in a region forecast to need about $180 billion a year in infrastructure investment through 2030.

One such player is Manila Water, a unit of Philippine conglomerate Ayala. The company took an 18.72% stake in Thailand's Eastern Water Resources Development and Management in March. The investment represents a step toward growth in Southeast Asia, said Fernando Zobel de Ayala, Manila Water's chairman.

Also in March, the Philippine company acquired 20% of Indonesian water supplier Sarana Tirta Ungaran. Those two deals expanded its overseas footprint to three countries, including Vietnam, where the company put its experience stopping leaks to work.

Manila Water received its big break in 1997 when it was contracted to run water systems serving the eastern part of the Philippine capital, which were formerly run as a public utility. The Ayala unit eliminated rampant meter tampering and illegal connections using its team of engineers and inspectors. 

Before Manila Water took over, only 26% of customers in the service area had 24-hour running water. Now 99% do, and water loss through leaks between treatment plants and residents' homes has fallen to 11% from 63%.

Philippine infrastructure groups are fast establishing a presence across Southeast Asia, drawing on their experience leading private-sector projects at home. Their know-how built over the years can be exported easily to other parts of the region in need of better waterworks, roads and power grids.

Governments in the region are welcoming private-sector involvement to ease the burden of funding such projects, creating opportunites that companies like Manila Water are racing to meet.

Philippine infrastructure builder Metro Pacific Investments lifted its stake in Nusantara Infrastructure, an Indonesian toll road operator, to 48% from 6% late last year. This followed investments in Vietnam and Thailand, and Chairman Manuel Pangilinan says the company looks to reach Malaysia this year and Myanmar within a few years.

Cross-border forays also appear in electric power. A consortium consisting of Ayala, state-owned Electricity Generating Authority of Thailand and other companies purchased Indonesian geothermal assets in March 2017.

EGAT is building power stations in Laos and the Philippines, and plans to construct a coal-fired plant in Vietnam. The company began talks with Vietnam's state-owned utility over power purchasing and other particulars. Malaysian player YTL Power International is taking its electricity generation business to Singapore and Indonesia.

Telecom companies Axiata Group in Malaysia and Singapore Telecommunications look to develop growth markets in neighboring countries.

A water treatment facility in Ho Chi Minh City. Ayala unit Manila Water has invested in a Vietnamese water utility.

The Asian Development Bank forecasts Southeast Asia will need $2.8 trillion in infrastructure investment between 2016 and 2030. With government spending unlikely to keep pace, private investments would need to quadruple during that period to meet the demand.

In the Philippines, President Rodrigo Duterte has mapped out 8 trillion pesos ($153 billion) in infrastructure spending through 2022. Tax reforms are expected to add an extra 2 trillion pesos to tax receipts, but even so budget deficits are likely to continue. Economic aid from China and Japan will not fill the hole, either.

Indonesian President Joko Widodo also counts on private investment to help fund a proposed $450 billion infrastructure buildup.

Luckily for Association of Southeast Asian Nations members, the 3-year-old ASEAN Economic Community seeks to remove many of the barriers to cross-border corporate spending. The bloc aims to let companies in the region invest up to 70% in infrastructure projects regardless of nationality. Negotiations on that front have entered the final phase, but Vietnam has already promised to let ASEAN companies take full ownership in the construction sector.

These ventures carry risks for private investors. The Philippines re-nationalized operation of Terminal 3 at Ninoy Aquino International Airport, the gateway to Manila, after a change in government. Just before bidding was to start on a Manila rail extension, the Duterte administration decided to scrap the existing private funding arrangement. Companies and state authorities have quarreled over roles and financial burdens, as well as over government bailouts should infrastructure projects hit snags.

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