Asian Development Bank (ADB) is the premier multilateral development bank in Asia and plays a leading role in providing private capital. ADB recently won the Asia Pacific Development Finance Institutions (DFI) of the Year Award by IJ Global — for the second year in a row. In Central Asia, ADB has historically been more active in sovereign operations, but in recent times this has changed significantly, with the Bank's private sector portfolio and team growing to respond to the rapid growth in private sector investment needs of the region. We asked Mr. Shantanu Chakraborty (SC), Director in charge of infrastructure financing for Central and West Asia at the Private Sector Operations Department (PSOD) of the Asian Development Bank (ADB) to share highlights of ADB's private sector infrastructure operations, its products, and vision for the region.

S.C.: The division that I lead covers ADB's support for private infrastructure in 16 countries, including two of region's largest economies- Kazakhstan and Uzbekistan. My division's mandate is particularly important as under ADB's Strategy 2030, the private sector is expected to play a major role in its operations. ADB's private sector operations are expected to reach one-third of its operations by number of projects by 2024. In addition, at least 75% of its activities will promote gender equality and support climate change mitigation and adaptation by 2030.

ADB's commitment to full alignment with Paris agreement

For several years, we have supported markets characterized by nascent regulatory set ups and identified and filled market gaps, where long–term commercial funding is not readily available for infrastructure projects. In recent years, ADB has set very ambitious targets on climate finance – if I were to describe one common thread that unites the thrust of ADB's operations in all countries in the region, it would be decarbonization. ADB has recently committed to achieve full alignment with the Paris Agreement for its sovereign operations by

1 July 2023; alignment of its nonsovereign operations will reach 85% by 1 July 2023 and 100% by 1 July 2025. As Asia and the Pacific is expected to gradually recover from the coronavirus disease (CDVID–19) pandemic, climate financing and green growth are expected to become mainstream. We also plan to significantly scale up our investments in adaptation and resilience, targeting cumulative financing of $9 billion in this area during 2019-2024.

To align its operations with the goals of the Paris Agreement, ADB will continue supporting the development and implementation of renewable energy and green growth–related plans of its developing member countries (DMCs) including in Central Asia. This includes supporting all forms of "transitions" away from fossil fuel–dependent industries, and mainstreaming climate resilience in all our investments.

ADB instruments and products

ADB has access to a wide spectrum of financing instruments to provide bespoke solutions for its private sector infrastructure clients, in a diverse range of sectors such as energy, transport, water, housing etc. Whether through novel long term local currency solutions or arranging third party funding, we support our private sector clients' ambitious goals to help mobilize financing and other expertise necessary to complete projects in a timely fashion and help our member countries' progress towards the Sustainable Development Goals (SDGs). My division is responsible for structuring financial solutions to strike optimal risk–return balance for all parties. Most of the financings we support are capital intensive greenfield projects implemented under non– or limited–recourse project finance structure. This kind of financing is not readily available from commercial banks because it entails long–term debt, the repayment of which relies on the cashflows of the specific project as opposed to the investor's balance sheet. The projects that we co– finance with our partners, including climate funds, are innovative, demonstrational and implemented under tight schedules. Therefore, we believe we play a critical for our clients as their trusted partner. In addition to deploying our own balance sheet, our Strategy 2030 has put significant emphasis on third party mobilization, with a target of $2.50 in cofinancing for every $1.00 from our resources. deploy our large number of cofinancing products extensively to maximize the amount of private capital that goes into development projects. These products include B–loans, various forms of guarantees, third party funds including some concessional funds, parallel loans, and risk transfers among others.

Support for private sector renewable energy in Kazakhstan

In 1994, Kazakhstan became the first country in Central Asia to join ADB.

As the largest economy in the region, Kazak is an important driving force for the green agenda the region. ADB's Country Partnership Strategy (202) (CPS) with Kazakhstan strongly reinforces this and seeks to foster sustainable green growth. Our CPS responds to climate change by promoting renewable energy sources and supporting climate change mitigation and adaptation efforts.

Since the adoption of the landmark "Nation Concept on Transition to a Green Economy until 2050" in 2013, Kazakhstan has repeatedly demonstrated its strong commitment to sustain growth and clean energy — which is a commend act given its predominance on fossil fuels. It has not only been successful in meeting its 2020 green targets, but also has set its eyes on even more ambitious goals for 2050 to keep up with international developments and commitments of various countries. After several years of successful rollout of private sector led solar power generation, the country is now actively looking into proven and new hybrid and storage solutions, promoting merchant Power Purchase Agreements (PPAs) to partially open the market, and exploring the potential for hydrogen as a clean alternative source of energy.

To complement Kazakhstan's move towards a greener regime, ADB has provided long–term local currency loans to two large utility–scale private sector solar power projects: the 50MW Baikonyr Solar power plant in Kyzyl–Orda region and the 100MW M–KAT solar power plant in Zhambyl region. These will ease power supply shortages and boost the share of renewable sources in the country’s energy mix. WE currently have several renewable projects in out pipeline where we plan to support new market mechanisms (such as auction-based tariffs) by providing long-term financing. We also seek to add value in all these projects by ensuring compliance with our stringent environmental standards.

As climate change adaptation and mitigation finance is a core development focus for ADB, we regularly issue green bonds to fund our clean energy investments. In Kazakhstan, in November 2020 ADB issued its first Green Bond Framework aimed at financing ADB’s portfolio of climate change adaptation and mitigation projects in Kazakhstan. The bond proceeds were used to fund the two solar projects in Kyzyl-Orda and Zhambyl regions.

Support for private sector renewable energy in Uzbekistan

Uzbekistan is the other prominent renewable energy market in Central Asia, with widespread reforms currently underway that have succeeded in attracting significant investor interest in recent years. The country joined ADB in 1995 and is striving to build a vibrant and inclusive market economy led by the private sector, with a strong green agenda.

But Uzbekistan is also heavily reliant on fossil fuel with most of its electricity supplied by natural gas. Its aging power grid results in high transmission and distribution losses. Power deficits are especially acute in southern and western regions, where some schools and hospitals are unable to operate at full capacity due to unreliable electricity supply.

Yet, given that Uzbekistan has one of the oldest solar laboratories in the world, it is no surprise that it is now taking the lead and has announced that by 2030, it plans to build 8GW of additional renewable capacity by 2050. As Uzbekistan opens its economy, makes long-term commitments and leapfrogs to competitive tenders, we are witnessing growing appetite from top investors and lenders from all over the world who are interested in competing in its large–scale, transparent auctions with bankable PPAs under very well–structured contractual structures. These are designed through extensive transaction advisory work provided by multilaterals such as ADB, IFC and EBRD. The result of such a transparent approach to project design and awards has been three record– low tariffs in recent months – that are considerably lower than the average cost of generation in Uzbekistan.

Uzbekistan's progress, over the past two years is very impressive. It has developed a robust PPP regime, expanded its pool of bankable renewable energy projects, while achieving record–breaking tariffs, including for the ADB–advised Sherabad solar power project, which will be the largest solar project in Central Asia with 457 megawatts of green, affordable, and sustainable power.    

Several renewable projects have already reached financial close. The first one to do so is the 100MW Nur Navoi solar park, the first independent power project (IPP) that won Renewable Solar Frontier Market Deal of the Year by IJ Global and that we were privileged to finance along with our development partners.

The financing package for the plant includes loans from ADB; the Canadian Climate Fund for the Private Sector in Asia II (CFPS II), which will be administered by ADB; and from the International Finance Corporation (IFC), with an offtaker payment guarantee arranged by the International Bank of Reconstruction and Development (IBRD).

The plant is being built near Navoi City in central Uzbekistan by United Arab Emirates–based Abu Dhabi Future Energy Company Private - Masdar, a global leader in renewable energy.

This ground–breaking 100 MW project will generate around 258.2 gigawatt–hours of clean energy annually, avoiding 157,502 tons of carbon dioxide emissions a year. It will sell its energy output to the National Electric Grid of Uzbekistan, under a 25–year power purchase agreement.

The way forward in rebuilding a post-COVID greener future

We are currently witnessing remarkable technological advancements, and sharply falling cost of renewables in Central Asia. This, coupled with strong commitments from the governments to decarbonize their predominantly fossil–fuel based economies, positions Kazakhstan and Uzbekistan well to respond to the energy transition challenges. We eagerly look forward to supporting this transition by mobilizing ADB's resources and helping to bring about a greener and cleaner tomorrow in Central Asia.