AIIB Third Annual Governors Meeting Prioritises PPPs and Investments in Funds to Mobilize Private Capital for Infrastructure as the Way Forward
The last week of June saw India host the third annual meeting of the AIIB in Mumbai from the 25th Of June to the 26th of June 2018. The theme for this year’s meetings was “Mobilizing Finance for Infrastructure: Innovation and Collaboration.” In the run-up to the Annual Meeting, a number of lead-up events and seminars were held in different cities in India from February to June 2018. The theme of these events included infrastructure including mass rapid transportation systems, port and coastal infrastructure, urban development, futuristic, resilient, inclusive and digital infrastructure, regional development, clean and renewable energy, water and sanitation, public-private partnership and innovation in resource mobilisation.
AIIB’s theme for this year deepens concerns of civil society and communities who have been already concerned with the AIIB’s modalities of infrastructure finance like co-financing with other lead financiers like World Bank and funding through Financial Intermediaries. AIIB’s co-financing model which serves AIIB well, particularly if other institutions, such as the World Bank and Asian Development Bank, do not charge the AIIB all the costs they incur for due diligence and oversight. With low-cost co-financing fees, the AIIB can make significant profits since its own loan charges can easily cover its low administrative expenses. The other institutions, with their full suite of safeguard policies, also protect the AIIB from reputational risks associated with infrastructure projects. Currently, three projects, Transmission System Strengthening Project (approved project) which AIIB is co-financing with ADB, Amaravati CCP (proposed project) being co-financed with World Bank and Andhra Pradesh 24×7 – Power For All project being co-financed with World Bank; leaves AIIB absolved of any obligations. The policies, due diligence applicable are the responsibility of the lead financier. With financial Intermediary projects, there remain serious concerns regarding information disclosure and lack of accountability. In the past two years of AIIB’s existence, it has funded two FI projects in India. Last year, AIIB approved India Infrastructure Fund and still, no information regarding the subprojects has been disclosed. During this year’s annual meeting the AIIB Board approved the first phase of National Infrastructure and Investment Fund. There is no clarity as to which specific projects are these funds going to support.
With this as the current situation of AIIB’s innovations in funding, it seems that their only interest is on focusing on financing without much thought to issues of transparency, due diligence and accountability. Instead of focusing on supporting sustainable infrastructure financing the focus has been mostly on fast financing with India’s Minister of Finance Piyush Goel echoing during one of the sessions at the annual meetings a need to develop faster processes for loan disbursement. There seems to be a complete apathy towards issues of due diligence and environmental and social sustainability of financing infrastructure projects. The disastrous impact of this aggressive funding can been seen from the fact that during the open session of AIIB management with the CSOs serious environmental and social concerns were raised by CSO and community representatives from India (Amravati Capital City Project and concerns regarding NIIF, IIF), Indonesia (Slum Upgrade Project), Bangladesh (Bhola IPP), Myanmar (Myngian gas), Sri Lanka (Waste Management project) and many more countries where AIIB is funding. The fact that this is the situation only after two years of AIIB’s existence is alarming.
Apart from this another focus area for AIIB has been to support Public Private Partnership(PPP). AIIB President Jin Liqun during the opening session spoke about prioritizing Public Private Partnerships (PPP), private equity and investors to create “cash cows” and markets for the private sector. He also went on to state that “public sector should know its place; if they interfere too much they will scare away the private investors.” The undertones are of this message are very clear from creating more opportunities for the private sector in infrastructure, privatization of public sector will remain the focus. Also, World Bank recently published its draft of Country Partnership Framework for India (FY18-22) which talks about assessment of Infrastructure Sector to identify gaps and reforms to facilitate private investments, providing advisory and lending support for PPP transactions and partnership with domestic financial institutions such as the National Infrastructure Investment Fund (which AIIB is already supporting) and associated credit enhancement facility. In its draft strategy 2030 ADB’s one of the focus is to expand private sector operations strengthening the financial sector and capital markets, scaling up support for public-private partnerships, using private equity funds to extend the reach and preparing bankable projects that can attract the private sector. Looking at the framework of these institutions one can see the collision in terms of supporting infrastructure finance along with the intent to build inroads for private finance and public-private partnerships as a way forward. In the past the horrors of this aggressive push for private finance and PPPs have been witnessed through tainted projects like Tata Mundra Power Project (a PPP), GMR Kamalang Power Project (an FI project), WB supported water sector privatization (PPP) and many more such projects. These institutions have come together with a common agenda and new ways of financing and collaborating through models like co-financing. This should be an alarm for the next phase of aggressive push from Multilateral Development Banks playing the role of catalyst for private sector financing for infrastructure projects at a rapid pace at the cost of undermining the environmental and social sustainability, examples of which we have seen umpteen times.