WITH strong underlying demand, private capital can flow into infrastructure investments in the Pacific, but private finance for basic infrastructure such as transport and utilities remain impaired to date.
In their research published on ANZ Group’s Pacific Insight publication, three Australian-based senior international economists said local developers were rarely able to fund the share of project costs – 25–30 percent – that most banks required.
As a result, local developers turn to green funds and philanthropic capital.
“With the current focus on sustainability, there is a growing amount of capital being made available, but issues such as scale, the ability to build a portfolio, limited knowledge of the Pacific’s green ambitions and credit risks tend to discourage top tier investment funds,” ANZ Group senior international economists Dr Kishti Sen, Catherine Birch and Tom Kenny said in the report.
“For projects which have demonstrative net economic benefits but less ability to capture revenue streams directly through user charges, governments could adequately support development by financing the gap between economic benefit and revenue capture.”
The economists said governments could also consider (minority) stakes in joint ventures to developers as a way of showing support for the projects and ensuring common interests, as well as sharing in the dividends.
They said this hybrid style financing could shorten the timeline of complex projects.
The report cited unlocking private capital for the electricity sector and noted the Government’s strong desire to move away from diesel to cleaner fuels as Fiji’s baseload increased.
It noted its advocacy of and commitment to renewable energy was strong.
“The high cost of importing diesel, the increased frequency of climate events and the commitment to reduce greenhouse gas emissions have pushed investment in green electricity generation, transmission and distribution to being a national priority.
“The Fiji Government may seek private capital to increase baseload power and to hasten the transition to a de-carbonised grid.
“However, the key to financing power projects is an offtake, (buyer) at fixed price, for most of the power generation, with a credit worthy counterparty.
“Fiji’s power utility is seen by investors as a sound risk. That said, governments could offer guarantees to help bridge funding gaps,” the senior economists said.
