~ Anuradha Munshi
Asia Infrastructure Investment Bank (AIIB) recently concluded its Second Annual Board of Governors’ meeting in Jeju, South Korea. The three-day-long meeting, during June 16-18, 2017, saw the participation of Board of Governors, representatives from the finance ministry of various countries, banking industry, corporates, and civil society organisations.
The three days also provided an opportunity for the CSOs to have a discussion with the Jin Liqun, Bank’s President in one of the sessions. In this session, Liqun’s address was followed by a discussion in which about 120 CSOs were present. Liqun said that AIIB is ready to listen, open to criticism, and willing to correct itself. He stated that the Bank ensures that three basic criteria are met before making any investment—financial sustainability, environmentally friendliness, and acceptance by the locals. He further said that the Bank would follow Paris Agreement to support low carbon projects.
However, in spite this being an open session, not much time was provided to the CSOs to adequately keep their points as a few questions were reserved for the representatives of the industries. This left very little time for the CSOs to interact with Liqun, who had to leave early.
The primary concern put forward by CSOs was about the deficiencies in the environmental and social framework, especially regarding the projects funded by financial intermediaries. There were questions on the manner in which consultations have been planned for the AIIB’s complaints handling mechanism. Also, questions were raised on AIIB’s support for the hydropower plant in Georgia despite facing local resistance, which is a violation of a core value Liqun had just enunciated. There were also serious concerns about the recklessness with which AIIB is clearing projects without even having most of its systems in place. It was observed that the answers to most of the questions asked in this session were evasive.
India at AIIB
The meeting saw the participation of Indian Finance Minister Arun Jaitley, senior representatives of the Ministry of Finance, financial institutions, and industry, during the India Seminar on June 16. Jaitley in a seminar on Indian Policy, Progress and Prospect in Infrastructure Development spoke about the infrastructure deficit in the country and the need to focus on it before investing in the manufacturing industry. He mentioned India’s national highway program as a successful model of infrastructure building in the country and based its success on easy exit policy, flexibility, and hybrid policy for revenue. The minister termed success of national highway program as a success of Public Private Partnership (PPP) model in India.
Jaitley also insisted upon the need for additional resources for the functioning of 71 airports and building 32 to 35 airports in new cities to promote regional connectivity. He advocated the provision of tax concessions and subsidies as an incentive to the airlines to fly to these cities.
While referring to the railways, the minister said that much investment is required for the upgradations. He emphasised the need of privatisation of some of its services by citing an example of the redevelopment of 400 railway stations by private companies.
On the infrastructure front, he said that the creation of smart cities and industrial corridors have an enormous potential to generate infrastructure, which he saw as a quintessential factor to bring in investment for the manufacturing industry in the country. He also spoke about the problem of surplus capacity in the power sector; and electrification as a focus area for the Modi government. He emphasised the need to invest in the improvement of distribution systems and electrification and mentioned AIIB’s approval of Transmission System Strengthening Project as an example to highlight the government’s focus on electrification.
The Modi government’s current priority is to invest in the infrastructure sector for which the government is also looking at PPPs as a successful model. Towards achieving this goal National Investment and Infrastructure Fund (NIIF) will be the mother fund under which sub-funds are located. Sujoy Bose, CEO, NIIF, who was also present at the AIIB meetings, spoke on setting up of NIIF to raise debt to invest in the equity funds of infrastructure finance companies in India. He emphasised on the need to focus on the infrastructure development to attract international capital as it is mostly interested in investing in constructed assets, and not on infrastructure development. AIIB will consider its USD200 million investment to NIIF as a financial intermediary in the fourth quarter of 2017.
Apart from this, the AIIB is also funding India Infrastructure Fund, which was cleared by the AIIB Board a day ahead of the Annual Board of Governors Meeting. Likewise, the controversial Amaravati Sustainable Capital City Development Project will be soon considered up by the Board.
These investments indicate the direction in which AIIB is heading on the three core values reiterated by the Bank’s president. If one looks alone at India Investment portfolio of AIIB, two of the projects, IIF (approved) and NIIF (under consideration for approval), will be implemented by financial intermediaries. There is no transparency on who will get these funds for infrastructure development and for what projects in particular. Amravati Project which is up for consideration has been marred by large social and environmental issues like displacement and diversion of forest land in India. From hydro power project in Georgia to the Amaravati Capital City Project, the Bank has neither shown much respect for the environmental and social concerns. The core values mentioned in front of the CSOs are far away from what is being pushed in the country investment open discussions, where the investing is speedy and profitable as the respective governments take care of the land and environmental issues. There are serious concerns about the manner and speed at which both India and AIIB are heading on their investments with priorities centred on the projects and not on environment and people.