"Large connectivity infrastructure generates growth spillovers that outweigh its debt costs"

"cut from PKR650 billion in FY2020 to PKR630 billion as resources were diverted to social protection. Despite the pandemic, however, infrastructure projects in energy and transport have experienced little hindrance. Similarly, private sector projects, mostly concentrated in renewables, have not had many hiccups. 96     ASIAN INFRASTRUCTURE FINANCE 2021 Despite the negative effects of COVID-19, infrastructure has gained traction. The cost of financing is expected to decline in the near term, at least in renewable energy. Market participants posited that the agreement between independent power producers and the government to reduce the cost to end consumer, and efforts of multilaterals to improve cost of financing and sector reforms should help drive costs down. Development finance institutions handle most project financing and domestic banks support balance-sheet financing. The syndicated loan market is relatively underdeveloped. From 2016 to 2019, the country had 15 syndicated loan transactions, while 2020 saw no syndicated loan transactions in infrastructure, down from three in the preceding year. The private and public sectors are expected to play sizable roles in infrastructure development. Market participants are hopeful that the number of transactions will pick up, particularly in energy. Government Bond Returns and Syndicated Loan Spreads, Pakistan 10-year government LCY bond returns (monthly average) 9.62% (2020) 12.91% (2019) 20-year government LCY bond returns (monthly average) 10.57% (2020) 13.52% (2019) Syndicated loan spreads, 2020 (over hard currencies: US dollar, euro, pound sterling, yen) No data LCY = local currency, US = United States. Data source: Refinitiv Key Project Highlights, Pakistan • Karot Hydropower Station is a 720-megawatt hydropower project in the Jhelum River, expected to produce 3,206 gigawatt hours of energy annually. The project is expected to be financed under an 80:20 debt-to-equity regime. Equity holders in the project include China Three Gorges South Asia Investment Limited and Silk Road Venture Investment Company. The debt provider consortium is composed of China Exim Bank, China Development Bank, Silk Road Fund and the International Finance Corporation. • Rehabilitation and Upgradation of Karachi–Lahore Peshawar (ML-1) Railway Track project includes doubling the entire 1,872-kilometer (km) track from Karachi to Peshawar. The project is expected to raise the speed of passenger trains from 110 km/hour to 160 km/hour and freight trains to 120 km/hour. The estimated project cost is USD6.8 billion (Dawn, 2021). The project was approved by the Executive Committee of the National Economic Council in August 2020. • Sukkur Solar Power Project is an upcoming 105-megawatt solar project in Sindh province. The project, sponsored by a joint venture of Scatec and Nizam Energy, is expected to cost USD90.91 million. Financial close was achieved in February 2021 as the project sponsors were able to gather debt commitments from Dutch development bank FMO, Bank of Punjab, Faysal Bank and PAK Kuwait Investment. The project was awarded a cost-plus tariff by the regulator. They believe that support from multilateral and bilateral players will be critical to keep borrowing costs low while unlocking more private capital. Infrastructure is expected to remain a critical component of short- and medium-term development aspirations as the government focuses"

"2021 for roads, highways, power and urban infrastructure. Private sector financing of infrastructure is still in a nascent stage and mostly through public- private partnerships (PPPs). The government has mainstreamed PPPs in economic planning by promulgating a PPP law, viability gap fund guidelines and procurement guidelines. The government has established a separate budget for PPP financing, which rapidly increased from USD300 million in FY2018 to USD4.3 billion in FY2021. Despite the progress made, PPPs are yet to achieve their full potential, especially in transport. Government Bond Returns and Syndicated Loan Spreads, Bangladesh 10-year government LCY bond returns (monthly average) 8.66% (2020) 8.43% (2019) 20-year government LCY bond returns (monthly average) 8.94% (2020) 9.04% (2019) Syndicated loan spreads, 2020 (over hard currencies: US dollar, euro, pound sterling, yen) Energy and power: London interbank offered rate + 300 basis points LCY = local currency, US = United States. Note: Figures in italics indicate fewer than five transactions in 2020. Data source: Refinitiv. Key Project Highlights, Bangladesh • Padma Bridge Rail Link Project. A 225-kilometer railway line connecting two sides of the Padma River, the project will link Dhaka to Jashore. The project is being implemented by Bangladesh Railway and is expected to be completed in June 2024. Exim Bank of China will fund 85 percent of the contract agreement, which is expected to be about USD4.5 billion, and the Bangladesh government the remaining 15 percent. The bridge is expected to shorten domestic travel times and significantly improve domestic connectivity. • Dhaka Ashulia Expressway Project. The elevated expressway will connect the Dhaka economic processing zone and Hazrat Shahjalal International Airport and significantly reduce travel time by bypassing overcrowded roads in the capital city and its suburbs. The expressway will link with Dhaka Elevated Expressway and thereby improve connectivity. The total project cost is estimated at USD2 billion and expected to be completed by mid-2022. • Meghnaghat-2 Power Plant. The 583-megawatt combined cycle gas turbine project is being developed by a joint venture between Summit Corporation and GE Capital US Holdings. International Finance Corporation, Swiss Export Risk Insurance and Standard Chartered Bank are the main project lenders, providing about 60 percent of the total project cost (USD600 million). Financial close was achieved in December 2020. The project is expected to commence operation in 2022 and, when commissioned, become the largest combined cycle gas power plant in Bangladesh. In early 2021, market participants said they expected domestic and foreign borrowing cost to soften over the next 12 months. The government’s borrowing cost is expected to decline significantly as evidenced by a sharp drop in government bond yield since mid-2020, driven by excess liquidity caused by stimulus measures and the lack of other investment opportunities. A ceiling on the lending rate at 9.0 percent was imposed for all sectors, barring credit cards. This reduced the borrowing cost for some bigger firms. However, the ceiling may price out some small and medium-sized enterprises as banks may find it imprudent to lend at this rate, given the high supervision cost and weak bad loan recovery framework. The interest rate cap may accentuate the accumulation of bad loans. Market participants expected foreign currency borrowing cost to trend downward because of the decline in global interest rates in 2020 and the improvement in macroeconomic fundamentals. China In"