Business Environment and Key Challenges
In keeping with JBIC’s Medium-term Business Plan (FY2018–FY2020) formulated in June 2018, the Infrastructure and Environment Finance Group regards the following fields as key challenges and will focus on supporting the businesses of Japanese companies in areas such as environmental projects and projects in frontier markets.
(1) Growth areas, new fields
Gulf PD Natural Gas-Fired Combined Cycle Power Plant Project
“Society 5.0” is being promoted with the aim of incorporating cutting-edge technologies into industry and daily life in society to spur economic development and solve social issues. Against this background, even in the overseas deployment of infrastructure systems, digital technologies and ICT are expected to be utilized in response to social issues and to the needs of emerging countries. It is important to regard the overseas development of infrastructure in a form that contributes to society as a business opportunity. This includes charging and discharging of electric vehicles (EVs), supplying energy stably based on power demand forecasts, achieving local production of energy consumed locally, shifting energy supply between regions, and optimizing energy savings at home using supply forecasts.
Moreover, in emerging countries, economic and social foundations are currently being strengthened, and domestic infrastructure development and infrastructure development to strengthen connectivity within and between regions are expected to be promoted. Amid these anticipated plentiful business opportunities, the overseas business deployment of Japanese companies is expected to further advance. In particular, support for frontier market regions such as the Mekong region, South Asia, and Africa is also a sector on which the government of Japan is focusing, as symbolized by the Free and Open Indo-Pacific and the Tokyo International Conference on African Development (TICAD), and there are expectations that public-private partnerships will jointly cultivate businesses.
(2) Infrastructure projects that are highly important on the policy front
The “Export Strategy for Infrastructure System” revised in July 2020 emphasizes the importance of encouraging Japanese companies with technological strengths and knowledge to go overseas markets not only by exporting equipment, but also by obtaining more orders for infrastructure as systems including design, construction, operation, and management of infrastructure as well as increasing investments in local businesses.
Also, to prevail against increasingly fierce international competition, the importance of initiatives by the government of Japan and government agencies in addition to private company-led independent efforts is being emphasized. JBIC is also working to strengthen its structure for supporting Japanese companies, such as by expanding the scope of its support.
At the G20 Osaka Summit convened in June 2019, the G20 Principles for Quality Infrastructure Investment were agreed upon and the importance of considering the principles of transparency, openness, and sustainability in infrastructure projects was emphasized. The government of Japan will promote the development of a business environment that boosts infrastructure orders of Japanese companies and contribute to the promotion of the SDGs.
(3) Low-carbonization and global environmental preservation
The Paris Agreement, an international framework for cooperative action on climate change was adopted in June 2015. Following this, Paris Agreement Work Programme, a guideline for implementing the Paris Agreement, was developed in December 2018. Subsequently, negotiations on the implementation guidelines of Article 6 (market mechanism) of the Paris Agreement, which had been ongoing, were held in December 2019. Against these backdrops, there is rising demand for low-carbon or carbon-free infrastructure across the entire world, including in developing countries. In addition, as the effects of global and large-scale climate change can now be observed, environmental issues are attracting more attention than ever before, including in developing countries. Besides demand for high-quality drinking and industrial water due to the progress of rapid urbanization and that for infrastructure for treating increasing volume of waste, there is a need for the international development of energy infrastructure and urban transportation infrastructure that contributes to the reduction of CO2 emissions.
The Infrastructure and Environment Finance Group performed the following activities in FY2019:
(1) Initiatives for low-carbonization and global environmental preservation
JBIC provided a loan for the Taza onshore wind power generation project in Morocco. The government of Morocco aims to raise the ratio of renewable energy to 52% of total capacity generated by 2030 to reduce the environmental burden and, at the same time, respond to growing demand for electric power. Against the backdrop of these policies of the government of Morocco, Mitsui & Co., Ltd. and a French renewable energy company established a project company that constructs and operates an onshore wind power generation plant with a total generation capacity of 87.21MW to be located in Taza in the northern area of Morocco. This company will sell the generated electricity to Morocco’s public electricity and water company for 20 years following the completion of construction.
Meanwhile, JBIC set up a credit line with Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) to support a renewable energy projects in Vietnam. The government of Vietnam has also set the target of increasing the ratio of renewable energy to power generation capacity to 21% by 2030 under its revised Seventh Power Development Plan. To support the attainment of this target, it utilized the financing tools under Global action for Reconciling Economic growth and ENvironmental preservation (GREEN) operations.
In addition, JBIC provided support for projects that contribute to global environmental preservation, such as by setting up a credit line with Corporación Andina de Fomento and supporting a natural gas-fired combined cycle power plant project in Thailand.
(2) Initiatives for frontier markets
Besides the previously described projects in Morocco and Vietnam, JBIC provided support through export finance to Bangladesh Chemical Industries Corporation (BCIC), a state-run entity of Bangladesh. In Bangladesh, the production of agricultural products such as rice and jute is flourishing thanks to the blessings of the Ganges River. Although agriculture is one of its main industries, Bangladesh relies on imports for two-thirds of the fertilizer used for its crops. The government of Bangladesh and BCIC decided to introduce the fertilizer plant manufactured by Mitsubishi Heavy Industries, Ltd. to promote domestic production of fertilizer and JBIC provided the funds to support the purchase of the entire fertilizer plant.
(3) Initiatives for infrastructure projects that are highly important on the policy front
In June 2019, JBIC provided a loan that will support a freight railway project in Brazil.
This project supports the domestic freight railway business undertaken by Mitsui & Co., Ltd. together with Vale S.A., a Brazilian resources company, and contributes to the improvement of transportation infrastructure in Brazil.
JBIC also provided support for a natural gas-fired power generation and desalination project in Qatar and for a car logistics terminal operation project in Turkey.
(4)Collaboration with other countries and institutions
JBIC is making efforts to identify potential projects and reduce risks to realize and accelerate infrastructure projects by leveraging its strengths as a policy-based financial institution, building relationships with governments of other countries, and collaborating with other institutions.
As for collaboration with other countries, JBIC has undertaken activities that utilize our network of sovereign counties, including regularly holding policy dialogues with the governments of Indonesia and Mexico as well as workshops on waste treatment and power generation projects for officials of the government of Oman. Through these activities, JBIC works to support the business deployment of Japanese companies by ascertaining the needs of partner countries and providing knowledge. Regarding initiatives for frontier markets, JBIC will strengthen collaboration with public financial institutions of other countries such as the Export Credit Bank of Turkey, Export-Import Bank of India, and Indonesia Eximbank and will establish a support structure for businesses that Japanese companies and companies from other countries undertake in third countries while also working to support the identification of potential projects.
As for collaboration with other organizations, based on Japan-U.S.-Australia Trilateral Infrastructure Partnership for strengthening relations in line with the Free and Open Indo-Pacific vision, JBIC agreed on a joint declaration with the Overseas Private Investment Corporation (OPIC (name at the time)) of the U.S. and the Department of Foreign Affairs and Trade (DFAT) and the Export Finance and Insurance Corporation (Efic (name at the time)), both of Australia, in accordance with the G20 Principles for Quality Infrastructure Investment agreed upon at the G20 Osaka Summit. In addition, Japan, the U.S. and Australia are collaborating in dispatching delegations to Papua New Guinea and Indonesia in advancing initiatives to contribute to the economic development of each country and region.
As for initiatives related to “growth areas, new fields,” after building a relationship with the European Investment Bank (EIB) last year, JBIC signed a memorandum of understanding on business cooperation with the European Bank for Reconstruction and Development (EBRD). By sharing knowledge related to finance for innovation and deepening understanding, JBIC will strengthen its ability to respond to projects that utilize new technologies.