Road and Rail Infrastructure in Asia

Executive summary

The Road and Rail Infrastructure in Asia: Investing in Quality report addresses the need for greater attention to be paid to investing in quality infrastructure in Asian countries. It includes an introduction to the main issues, illustrated through case studies on recent road and rail infrastructure (Chapter 1) and discussions of three key policy areas to be addressed in developing and implementing quality infrastructure: the roles and responsibilities of local governments (Chapter 2), financing options for infrastructure projects (Chapter 3), and the alignment of transport infrastructure planning with development strategies (Chapter 4).

The need for quality road and rail infrastructure

Additional investments are needed in transport, energy, communications and other kinds of infrastructure in many Asian countries and these gaps are likely to grow in future in response to economic growth, population increases and the need to respond to climate change. At the same time, new approaches to infrastructure investment are needed to promote quality in infrastructure investment.

Quality infrastructure is designed and implemented while taking into account a life-cycle perspective, employment creation, social and environmental impacts, alignment with broader development strategies, and resource mobilisation. It boosts economic activity, creates employment opportunities and expands the tax base; improves well-being and promotes inclusive growth; and also addresses environmental impacts. To develop quality infrastructure, a comprehensive perspective of infrastructure impact evaluation is important. This does not simply consider the financial feasibility of an individual project, but attempts to judge the full extent of the externalities. These externalities are often strongest at the local level, but can also be far-reaching. Moreover, a comprehensive perspective also needs to be adopted at high levels of government, to achieve sufficient political support, and to institutionalise practice within government.

Sixteen case studies on road and rail projects in India, Indonesia, Lao PDR, the Philippines, Sri Lanka, Thailand and Viet Nam illustrate some of the ways in which the concept of quality infrastructure has recently been put into practice in the region. These include the establishment of new institutions or development of capacities to improve governance, investing in maintenance, and the adoption of designs and construction practices to limit projects’ environmental impacts.

Local governments and infrastructure investment

Across Asia, local governments play important roles in the development and maintenance of road and rail infrastructure. Some of the challenges associated with local level investment in infrastructure are explored through the cases of Indonesia, the Philippines and Viet Nam; three unitary states with local governments that take considerable responsibility for infrastructure. In these three countries, access to land transport infrastructure varies among communities, but is associated with economic growth and development, as well as poverty reduction and other social benefits.

The ways in which local governments participate in infrastructure investment and the sources of financing for these investments differ between countries. The central government retains most of the responsibility for raising revenues in Indonesia, which are then transferred to local governments. In the Philippines, the Local Government Code of 1991 granted local governments the authority to use a number of sources of financing, including loans and credits with banks and other lending institutions, for the development and infrastructure projects. However, local governments in the Philippines have relied mostly on locally-sourced revenues and fiscal transfers to finance local infrastructure investment. Viet Nam is allocating funds under its medium-term investment plan for PPP and ODA projects, for the repayment of construction capital, and for unfinished and new projects, with more than a third of investment capital managed by local authorities.

Improving the efficiency and effectiveness of local governments in developing and implementing infrastructure projects will require improvements to planning and co-ordination, the development of institutional capacities, the use of broader sources of financing, and the incorporation of ongoing maintenance and monitoring costs in project budgeting.

Financing options for quality infrastructure investment

Addressing the need for increased investment in infrastructure and the development of quality infrastructure will require that new sources of financing be explored, and that consideration be given to their suitability to project needs. The public sector still bears much of the burden in financing infrastructure and is likely to continue to do so in Asian countries in the future. Public revenues can be increased through improvements to tax yields generally and the implementation of taxes specifically for financing infrastructure, such as vehicle taxes and road-use charges, energy taxes and taxing project beneficiaries. Various forms of these targeted taxes are being used to finance road and rail projects in OECD member countries and in Asia.

While the public sector will remain as the primary source of credit in the near term, the large infrastructure gap in Emerging Asia requires the use of new approaches to financing involving the private sector. Public-private partnerships have been used for a long time, but their use did not gain traction in many Asian countries as quickly as in Europe. Specific-purpose borrowing could also be used more often. Fostering greater private involvement in infrastructure finance will require, in many countries, the development of effective governance mechanisms and of financial markets.

The alignment of transport and development planning

A key component of quality infrastructure investment that could be developed further in many Asian countries is the use of complementary and co-ordinated development strategies and infrastructure planning. This includes the use of public investment management (PIM) systems to prevent many forms of resource waste through bad practices that are economically and socially costly. The alignment of plans is also supported through the use of effective systems for the appraisal of infrastructure projects and the institutionalisation of infrastructure governance. Appraisals can provide checks and balances that reduce the risk of excessive construction and operation costs.

Viet Nam, which has adopted many principles of quality infrastructure through its planning system, offers an interesting case study on the alignment of socio-economic development plans with transport infrastructure plannings. Further work could be done, however, to strengthen the connections between these two in the country. Detailed budgeting, time-specific targets, and clearer criteria, would be particularly helpful in addressing these challenges.