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THE ASIA BOOM : Public Works : Asians Power Up the Private Sector : Billions are needed to build roads, bridges, airports and utilities--far more than governments can finance on their own.

November 29, 1994|CHARLES P. WALLACE | TIMES STAFF WRITER

MANILA — Just two years ago, the Philippines suffered crippling electrical brownouts almost daily. Workers sweltered in offices without air conditioning, shops had gasoline generators throbbing on the sidewalks outside, and factories were forced to curtail production because of the shortage of power.

"We were really hurting," recalled Guido Delgado, head of the state-owned National Power Co. "Not only did we need power fast, we needed to get in place huge amounts of generating capacity."

Faced with a desperate situation--no new power plants had been built for six years--the Philippines turned to a relatively new concept from the United States: independent, private power companies. A nearly bankrupt government with a disastrous credit rating approached foreign companies and offered them carte blanche if they could get the Philippines powered again.

Now, thanks to the crash program, brownouts are largely an unpleasant memory. More than $1 billion has been spent in the power sector since 1992, and electricity supplies have surged 18% in the past year.

Long regarded as one of the most backward countries in Asia, the Philippines has blazed a trail of privatized infrastructure projects that is being followed by governments from New Delhi to Beijing.

The reasons are obvious: Asia is in the midst of a boom of historic proportions. According to estimates by the Asian Development Bank, Asian countries, not including Japan, will have to spend $1.3 trillion in the coming decade on power, roads and other infrastructure just to keep up with their burgeoning economies. And Japan will spend $6.3 trillion on a host of public works projects of its own.

The Asian skyline is filled with construction cranes, from dams in India to magnetically levitated trains in Japan. The building of Hong Kong's new airport and its access roads and bridges, with a total cost of $20 billion, is one of the most expensive construction projects ever contemplated.

"Infrastructure development is indispensable in a country's overall economic development," said Cordell Hull, chairman of Bechtel Enterprises Inc., a giant California construction firm. "If it lags, there will be bottlenecks, inefficiencies and delayed or impeded economic development."

In China, for example, after more than a decade with yearly 10% growth, infrastructure needs are huge. The average time between trains is only about eight minutes, an indication that the tracks are dangerously overcrowded. Most ports are working at full capacity, and electrical brownouts are common.

Chinese officials estimate that the country will need 17,000 megawatts of new power production every year until the end of the decade. By comparison, the largest electric utility in North America, Ontario Hydro, has 34,000 megawatts.

"China's infrastructure hasn't kept up with economic growth," said Gerald L. Murdock, president of Hong Kong-based Asia Power Group Inc. "The country's power-generating capacity was inadequate to start with. The miles of China's railroads are the same now as at the time of the civil war in 1947."

Even a country as backward as Vietnam, which has virtually no modern industry to speak of, is forecasting that it will have to spend $500 million a year to meet its electricity needs.

Economists have found a direct link between investment in infrastructure and a country's wealth. A World Bank study concluded that, for every 1% increase in a country's economic growth, power supplies increased by 1.5%, telecommunications by 1.7% and paved roads by 0.8%. Since Asia's economic growth has averaged 8% for the past decade, all the infrastructure needs have risen accordingly.

As recently as a decade ago, most governments in Asia relied on public borrowing to finance their infrastructure projects and operated them as state-owned monopolies. But Asian governments found they do not have the cash to meet the huge financing costs expected in the next decade, and they have had to tap the private sector. Besides, private companies tend to do the job faster and more efficiently.

"The capital requirements are beyond the reach of most governments," said Vladimir Bohun, who heads the power division of the Manila-based Asian Development Bank. "We estimate that the region needs $500 billion over the next decade for the power sector alone."

As in the Philippines, many of the developing private projects are "build-operate-transfer" enterprises. A private company is given a government contract to build an electric power plant, for example, operates the plant for 20 years at an agreed price for electrical power, then turns it over to the government at no charge. The country gets the electricity with little investment of public money, while the company reaps the benefit of high returns on investment.

So far, privatized infrastructure projects have been used mainly for power plants. But the concept was also employed to build highways in Malaysia, Thailand and China, as well as telephone systems and ports.

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