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About JBIC

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Infrastructure and Environment Finance Group

Message from the Global Head of the Group

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There is still a significant gap between global supply and demand in infrastructure investment. In order to reduce the gap in global infrastructure investment, it is essential to provide a stable and efficient supply of long-term funds. To this end, JBIC strives to proactively offer long-term financing to infrastructure projects, while further mobilizing private-sector funds. It is expected to develop high-quality projects, especially in a public-private partnership (PPP) framework, that attract private-sector investors to participate. JBIC will make efforts to be involved in such projects from the early stage of the project development process in cooperation with the governments of countries where those projects will be implemented, as well as public financial institutions around the world.

Under its Third Medium-term Business Plan (FY2018–2020), JBIC will further strengthen its efforts in the area of infrastructure development, focusing particularly on support for projects to establish social infrastructure and an energy value chain such as Gas to Power, as well as to help protect the global environment such as low-carbon infrastructure. Regionally, JBIC will proactively work toward formulating projects in frontier countries, such as in Africa.

Kazuhisa Yumikura
Managing Executive Officer
Global Head of Infrastructure and Environment Finance Group

 

Business Environment and Key Challenges

Toward Enhancing International Competitiveness of Japanese Companies

Having formulated existing policies aimed at promoting quality infrastructure, the Japanese government announced in May 2016 an additional initiative called the "Expanded Partnership for Quality Infrastructure" ahead of the G7 Ise-Shima Summit meeting. The G7 leaders expressed, in the G7 Ise-Shima Leaders' Declaration, their agreement to align infrastructure investment with the G7 Ise-Shima Principles for Promoting Quality Infrastructure Investment (see table below). Also, at the 51st Asian Development Bank (ADB) Annual Meeting, Japanese Deputy Prime Minister and Finance Minister Taro Aso announced the government's intention to support various infrastructure projects that contribute to global environmental protection, including renewable energy projects, amid increasing environmental, social, and governance (ESG) investment across the world.

In line with these Japanese government policies, JBIC will continue its efforts to maintain and increase the international competitiveness of Japanese companies by promoting the export of high-quality infrastructure contributing to global environmental protection backed by Japan's advanced technology. Furthermore, JBIC will strive to address the challenges, as discussed more in detail below, in supporting Japanese companies to find more opportunities to invest in overseas infrastructure business and to participate in infrastructure development projects amid increasingly fierce international competition in the infrastructure field.

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(1) Responding to various risks

Infrastructure projects are considered to be exposed to various risks as the projects are, in general, large in size and also require a long time span from the planning and bidding phases of the project to construction and the recovery of invested funds. For example, if the counter party risk of the national or local governments of developing countries with low credit ratings is high due to the risk of failure to perform their contractual obligations, or if the future demand or sales of products or services to be delivered by the infrastructure operators are uncertain, the investment appetite of parties who are interested in the project might decline, or long-term funds enough to implement the project might not be available from financial institutions. Profits generated by infrastructure projects are, in principle, denominated in local currencies. On the other hand, while there is a need especially by developing countries to import leading-edge technologies and management know-how from overseas, those developing countries might need to depend on private-sector funds from overseas sources in foreign currencies due to the immature domestic financial systems. Given these situations, it is also important to find a solution to how currency risks are shared among parties involved in infrastructure projects, including the governments of projects' host countries.

(2) Promoting to develop bankable projects*1

When it comes to the development of public-private collaboration such as PPP projects and the Build-Operate-Transfer (BOT) model, especially in developing countries, there are cases where risks associated with those PPP projects might not be properly assessed and shared among project participants, including the government of a project's host country. This results in private-sector participants being exposed to excessive risk. This situation occurs due to: i) a lack of integrity and clarity in the legal system in the project's host country, ii) a lack of ability and experience in the government agencies or organizations of the project's host country to organize a PPP project, or iii) an absence of proper feasibility studies on the project. Under these circumstances, PPP projects face difficulty in obtaining investment from the private sector, and those projects do not progress in the way the host country's government expects. It is pointed out that it is important to share risks among all parties involved in PPP projects in a way that enables them to manage and control those risks on their own.

(3) Mobilizing a wide range of private-sector funds

Global demand for infrastructure is expected to continue growing at a faster pace than actual investments amid economic and population growth and rapid urbanization, especially in emerging countries. To reduce the global demand-supply gap in infrastructure investment, it is indispensable not only to address the above-mentioned challenges, but also to mobilize a wide range of private-sector funds, such as from life insurance companies, pension funds, or investment funds. This is because financing by Multilateral Development Banks (MDBs) and public financial institutions alone in each country such as JBIC is not sufficient to meet the global demand for infrastructure investment in terms of quantity.

Commitment to Low-Carbonization and Protecting the Global Environment

Economic development while protecting the global environment is now recognized as an international common issue, as highlighted by the adoption of the Paris Agreement in 2015. Against this backdrop, there is a global hope for implementation of projects that will contribute to protecting and improving the global environment. In this area, JBIC provides support to environment projects through its operations called "Global action for Reconciling Economic growth and ENvironmental preservation (GREEN)" (refer to page 57 for details). JBIC has established these GREEN operations in line with "Actions for Cool Earth: ACE 2.0," an initiative announced by the Japanese government in November 2015, aimed at supporting action in developing countries and the advancement of innovative technologies to address climate change. Following the announcement by Japanese Deputy Prime Minister and Finance Minister Taro Aso at the ADB Annual Meeting, JBIC launched its new global financing facility called "Global Facility to Promote Quality Infrastructure Investment for Environmental Preservation and Sustainable Growth (QI-ESG)" in July 2018. The aim of this facility is to provide a wide range of financing support for infrastructure development which is expected to help to preserve the global environment by utilizing the knowledge and technologies of Japanese companies.

Under these operations, JBIC will contribute to promote economic growth in developing countries and tackle various global environmental issues that affect the global economy by implementing measures for greenhouse gas reduction and climate change.

JBIC's Activities

Toward Enhancing International Competitiveness of Japanese Companies

In FY2017, the Infrastructure and Environment Finance Group approved nine financial commitments particularly in the field of electric power, totaling ¥209.0 billion. JBIC provided its first project finance for a solar power generation project in India. Additionally, JBIC provided project finance for an onshore wind power generation project in Egypt, which is also JBIC's first project finance for a wind power generation project in Africa. In Indonesia, JBIC financed a geothermal power project, the third geothermal project in the country funded by JBIC.

In regards to international competitive bidding on investment projects, JBIC supported Japanese companies in bidding for the projects and acquiring operation rights in the projects. During business negotiations with related parties not only in Asia, but also in the Middle East and North Africa, JBIC explained its capability to assume risk in projects and its various financial instruments for structuring projects.

Our activities to address the three key challenges mentioned earlier are as follows.

(1) Responding to various risks

As part of efforts to strengthen risk-taking capabilities, JBIC established its new financing operation called the "Special Operations" in accordance with the enactment of the Amendment Act of the JBIC Act in May 2016. This enabled JBIC to take further risk in projects in foreign countries. The scope of sectors in developed countries which are eligible for financing from JBIC has also been expanded through amendment of the cabinet order.

JBIC is also promoting consultations with local governments and companies in order to coordinate risk sharing in various projects. JBIC intends to proactively draw on its financial tools, such as acquisition of project bonds and Islamic finance, that have become diverse through the implementation of the Amendment Act of the JBIC Act.

(2) Promoting the formulation of bankable projects

infra02.jpgScenes from the policy dialogue with the government of Indonesia

JBIC works toward the formulation of bankable projects through policy dialogues, consultations, and negotiations with the projects' host country governments, their related parties, and project operators, and also through collaboration with MDBs.

In the policy dialogues, JBIC discusses various aspects, including: i) the macroeconomic conditions and investment environment, and financial systems in projects' host countries, which are crucial for the stable operations of infrastructure projects, and ii) regulations for infrastructure business, PPP schemes, and project formulation in infrastructure development in key sectors and major identified issues. In addition to regular discussions with the governments of Indonesia, Mexico, and Vietnam, JBIC responds to individual business negotiations and engages in discussions with a variety of countries considering various aspects such as the host country's legal system and risk sharing of involved parties for business concession contracts.

Furthermore, JBIC utilizes the knowledge of outside experts in implementing feasibility studies which are essential for realizing individual projects that will help maintain and improve the international competitiveness of Japanese industry.

In addition, JBIC cooperates with MDBs for promoting the formulation of bankable projects by participating as an Advisory Partner in the Global Infrastructure Facility (GIF)*2 led by the World Bank and joining the Business 20*3 task force for the infrastructure field.

(3) Mobilizing a wide range of private-sector funds

JBIC makes various efforts to execute its functions as a catalyst for further mobilizing private sector finance.

In FY2017, JBIC acquired part of privately placed Samurai bonds issued by the government of Turkey under JBIC's financing facility called "Guarantee and Acquisition toward Tokyo market Enhancement (GATE)." JBIC's support for the issuance of Samurai bonds in the Tokyo market helped provide broader investment opportunities for Japanese investors.

JBIC provides guarantees to private-sector financial institutions which support infrastructure projects in the form of cofinancing with JBIC, depending on the requirements of individual projects. For example, JBIC encourages private-sector financial institutions to participate in long-term financing, by providing risk guarantees to projects where the private-sector financial institutions might face high political and counterparty risk of host country governments and their agencies.

JBIC also holds seminars about project finance and GREEN projects for Japanese regional banks and life insurance companies. In recent years, JBIC has been expanding the base of financial institutions which intend to offer financing in collaboration with JBIC. JBIC also promotes credit securitization of its loan portfolio with the aim of mobilizing private sector finance.

Commitment to Protecting the Global Environment

infra03.jpgGeothermal power project in Iceland in which Japanese companies are participating

Under the GREEN operations, JBIC provides financing to environmental projects, in the form of loans, equity participations, and guarantees, while mobilizing private-sector funds. The environmental projects in which JBIC considers participating include: i) projects for solar power plants and energy-efficient power plants that utilize advanced environmental technologies, and ii) projects that ensure significant environmental preservation effects by introducing energy-efficient equipment. JBIC has so far made 31 financial commitments*4 particularly for projects aimed at renewable energy and energy efficiency.

Going forward, under its new global financing facility for QI-ESG established in July 2018, JBIC will also promote the use of the advanced environmental technologies of Japanese companies while supporting projects that will help protect the global environment.

 

Note
  1. *1Projects in which the feasibility, economic performance, and the risk burden of involved parties in the relevant project have been confirmed and assured, and the project participation of private-sector companies and long-term funding by financial institutions can be expected
  2. *2A platform set up and led by the World Bank Group aimed at the formulation of infrastructure projects utilizing PPPs
  3. *3Business 20 (B20) is the official G20 dialogue with the global business community.
  4. *4As of March 2018
Introduction of the Finance Groups