Asian power sector to benefit from China-led Asian Infrastructure Investment Bank

Even coal-fired power segment will be a beneficiary.

According to BMI Research, the China-led USD100bn Asian Infrastructure Investment Bank (AIIB) began formal operations on January 16 2016, with plans to agree its first set of loans by the end of the year, funding infrastructure projects both in and outside of Asia. The multilateral financial institution is made up from 57 founding members, 37 come from Asia and Oceania, while the remaining 20 originate from Europe, Latin America, Africa and the Middle East.

The establishment of the AIIB will help to improve the funding outlook for the Asian infrastructure sector and plug the financing deficit. The Asian Development Bank (ADB) has estimated that between 2010 and 2020, countries in the Asia region will require investment of USD800bn in infrastructure construction annually.

Here's more from BMI Research:

We note that the power sector is likely to be a particular area of focus for the AIIB, given the numerous bottlenecks in the region's power sector, in terms of low electrification rates, poor quality of supply and underdeveloped regulatory frameworks. Power consumption per capita remains below the global average and power shortages continue to negatively impact select countries across the region, including India, Cambodia, Pakistan and Indonesia.

The coal-fired power segment could be one key beneficiary of the AIIB. The financing environment for the global coal power sector is deteriorating significantly, as multilaterals and private financial institutions restrict funding lines to coal power plants; for example, the World Bank, European Investment Bank (EIB), the Export-Import Bank of the US, the European Bank for Reconstruction and Development (EBRD) and OECD. However, the AIIB has not openly acknowledged its stance on coal funding and, given the importance of coal in Asia's power mix (roughly 60% share - BMI 2016 forecast) and the sizeable coal project pipeline across the region, we believe the AIIB stands to become an important source of financing for the coal sector.