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Economy

Asia needs too many roads, railways and power plants

Commuters try to pack into one of the few trains that run on the Philippine National Railways' woefully inadequate lines in Manila.

MANILA -- Asia's infrastructure needs are overwhelming. Governments and multilateral public lenders can only provide the money for a fraction of the ports, roads, railways and other pieces of society that much of Asia needs to grow and develop.

     The shortage of public funds is posing a serious challenge to policymakers across the region. It is clear that effective programs to tap private-sector financial resources are needed.

     In bustling Manila, it is a matter of urgency. 

     The metropolitan area teems with 12 million inhabitants. There, old trains sold to the country after they were retired in Japan crawl along a single-track line operated by the country's state-run railway company. The carriages still bear Japanese destination boards.

     The Philippine National Railways, or PNR, began service in 1892, when the country was under Spanish rule. Since then, the total distance that the lines cover has been reduced by more than half, from over 1,000km. 

     Currently, the public railway operates only 26 runs with seven trains. Unsurprisingly, PNR trains are almost always jam-packed.

     With a woefully inadequate train network, Manila's commuters are clogging roadways and causing chronic traffic jams. The need to expand and improve the country's rail network has long been recognized but ignored because of the government's financial squeeze.

     Now, with the Asian Development Bank taking the initiative, a large public-private partnership project to overhaul and enhance Manila's rail operations is getting underway.

     On May 15, the ADB and the Development Bank of the Philippines signed an agreement to provide advice to the country's government on a $3.8 billion, 653km railway upgrade.

     The ADB will help the government with the selection of contractors and with fund-raising to make it easier for private-sector players to take part in what will be the nation's biggest public-private partnership project to date.

     During its annual meeting, in early May in Azerbaijan, the ADB agreed with eight banks, including Japan's three megabanks, to tie up on public-private projects throughout Asia. 

     President Takehiko Nakao said the ADB will make good use of its knowledge and experience while teaming up with the private-sector and other international institutions.

     By itself, the ADB is far too small to meet Asia's infrastructure funding needs.

     Even though the ADB has decided to ramp up its annual lending capacity to $20 billion in 2017, that amount will represent only 2.5% of the $800 billion the region needs every year for roads, railways and power plants.

     China is partially stepping into the void with its new multinational lending institution, the Asian Infrastructure Investment Bank. But the AIIB, too, will only be able to provide Asia with a fraction of what it needs.

     For the ADB's new initiative, the main challenge will be to come up with effective infrastructure projects that can provide sufficient returns when completed. Returns, after all, are what investors are after.

     It will be a difficult task. Some companies are skeptical of how effective public-private partnerships can be. Railway projects in emerging countries, for instance, often don't pay off because fares cannot be set high enough to cover the massive initial investment.

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