As a crossroads for Chinese and Indian trade in ancient times, the city of Samarkand is an apt location for the Asian Infrastructure Investment Bank’s annual meeting, where it hopes to foster cross-border collaboration between its 110 member countries.
Amid its minarets and bazaars, air quality in Uzbekistan’s cities frequently falls short of World Health Organization guidelines, impacting residents’ health and welfare.
Yet AIIB chief financial officer Andrew Cross told Infrastructure Investor he has seen changes as the country begins to move away from the fossil fuels on which it has historically relied.
“You see a real push here, obvious evidence of a focus on renewables and how that can impact people’s lives,” Cross said.
While the World Bank has developed a roadmap for air quality improvement in Uzbekistan, it notes that “the most cost-effective policies and measures might not be the easiest and quickest ones to implement”.
It is a stance Cross echoes in his view on how to tackle a $5 trillion annual gap in Asian infrastructure financing.
“There’s no such thing as low-hanging fruit; it’s all been long-picked,” he said.
“Hence the need to have a large, well-capitalised organisation that is made up of so many countries, because a lot of the challenges around infra are not just national but also [about] connectivity.”
Indeed, many of AIIB’s investments cover several countries, and are sometimes – given AIIB’s 50 non-regional members – for projects outside of Asia itself, as with its $100 million investment in the Latin America-focused Patria Infrastructure Fund V.
“Globalisation, trade, ports, rail, roads, power grids – much of that is all about connectivity to other countries and so cross-border impact is really important to us,” Cross said.
Closer to the boardrooms of the annual meeting, Uzbekistan currently has 14 AIIB-backed projects underway or in the pipeline, covering a range of sectors from energy to rural infrastructure.
In one completed project, AIIB approved $145 million in funding for Emirati renewable energy company Masdar to develop three solar photovoltaic plants in Samarkand, Jizzakh and Sherabad with a total capacity of 897MW.
Each plant has long-term agreements for power supply, and Cross said their competitive tariff rates help to prove the viability of solar against fossil fuels.
Meanwhile, he said the land used for the solar farms will not replace agricultural production.
“The whole point of infrastructure is that it’s impactful.
“Therefore, you have to be thoughtful around land use disruptions, access to grazing and local farming communities.”
The name’s bond, blue bond
Cross said environmental and social considerations become especially important when partnering with the likes of the International Finance Corporation, which has its own set of standards to uphold.
In July, AIIB announced a partnership with IFC to jointly invest up to $150 million in Southeast Asia Commercial Joint Stock Bank’s (SeABank’s) green and blue bonds.
The investment, which will support SeABank’s financing of projects related to water, renewables and energy efficiency, marked both the first issuance of a blue bond in Vietnam and AIIB’s first blue bond investment.
While green bonds – used to finance projects with positive environmental impacts – have soared into the mainstream since the European Investment Bank issued the first one in 2007, blue bonds – used to finance projects with a positive impact on the ocean – are still a relatively underutilised instrument.
However, Cross said blue bonds have the potential to follow in the footsteps of their green counterparts, leveraging the success of early examples like Seychelles’ sovereign blue bond.
“When all of the various participants were getting involved in green bonds, nobody thought that it was going to be a trillion-dollar market, which it is now.”
AIIB aims to catalyse the adoption of financing instruments like blue bonds, encouraging the private sector to get involved.
“Our shareholders, the 110 countries, gave us [almost] $100 billion.
“But when you think about $100 billion, it doesn’t go into $5 trillion – whatever way you do the math, you can’t get it into that number.
“So, there’s a clear, rational, pragmatic reason why you need the private sector to be involved.”
Cross said once instruments like blue bonds have become established, AIIB does not aim to compete with the private sector and will happily bow out.
“There are things that we can do to mobilise, to be catalytic, to be innovative, to be in early. And then as the private sector builds their confidence, as investors get used to the asset class, as they get comfortable with bonds in infrastructure, then we’ve fulfilled our mandate.
“And then we take our $100 billion of capital and apply it somewhere else to cause the same cascade effect.”