Governments in the region are investing in infrastructure projects to stimulate activity, yet just how much of this stimulus is now translating into business for law firms?

The global financial crisis has triggered an outpouring of trillions of dollars in stimulus packages in the Asia-Pacific region. Aggressive reactions from many south-east Asian governments are pushing economies forward, slowly lifting the burden of a global economy stifled by recession. It’s no secret that governments are looking to invest in major infrastructure projects to stimulate activity in local economies. In some countries, such as Vietnam and India, creating infrastructure is not just a step towards economic recovery – it is vital to continued growth and development.

Regional overview

As reports of trillions of stimulus dollars flooding the markets in the Asia-Pacific region come in, there is an expectation that building & construction, infrastructure and project finance legal practices have now been thrown into overdrive – but just how accurate is this perception? “The difficulty with stimulus packages is that there is this perception that you decide you’re going to spend, for example, two trillion on infrastructure and suddenly you can turn a tap on and everybody is going to be gainfully employed. That simply is a fallacy,” says Ian Laing, a Hong Kong-based partner at Pinsent Masons.

“It takes time to bring an infrastructure deal to market – sometimes it takes years. You can’t just decide to build a tunnel and expect that six months later you’ll have a spade in the ground. It’s just not realistic.” Laing and his team have had a busy six months, in which they have acted for the bidding of the US$1.763bn privatisation of Power Sector Assets and Liabilities Management Corporation (PSALM), the government agency responsible for handling the sale of the Philippines’ National Power Corporation’s assets. It has also advised on the groundbreaking US$5.6bn Hong Kong/Zhuhai/Macau Bridge project, where a Pinsent Masons’ consortium won appointment through a public tender over eight consortia comprising 23 law firms.

Laing’s point, however, is that infrastructure projects require significant investment from all the parties involved and they also take time to develop. A stimulus package introduced earlier this year – or even late last year – may not have had sufficient time to take effect in the infrastructure sector in the Asia-Pacific region. “Certainly within South-East Asia there’s always been a push to develop infrastructure with varying degrees of success… but from the lawyer’s perspective, [the stimulus] hasn’t really changed the landscape for us,” says Jeff Smith, a partner of Norton Rose with experience in Singapore and Bangkok.

However, this does not mean that there is no activity in the infrastructure sector. On the contrary, Norton Rose has been busy with public/private projects (PPPs)in Singapore and working with PLN, Indonesia’s state-owned electric utility company, on new electricity projects.i

Need for investment

Emerging economies, particularly in South-East Asia, have a huge need for infrastructure. The developing economies in East Asia alone require an estimated total of US$162bn annually between 2006–2010 for electricity, telecommunications, major paved interurban roads, rail routes, water and sanitation. And India is estimated to require US$1.7trn in financing to meet its infrastructure needs over the next 10 years. “Even without the stimulus package, there are parts of the [Asia-Pacific] region in such obvious need of infrastructure and development. There’s enough to keep me going for the rest of my career,” says Smith. “Even in developed nations, such as the United Kingdom or Singapore, which are highly developed in terms of infrastructure, there’s a constant quest for new infrastructure and for refreshing old infrastructure. This is something which will never change.”

Considering the need for vital infrastructure in some South-East Asian countries, there is also a great demand for private investment. “The local government [in Vietnam] is very eager to invite investors. They are more aggressive and are pressing us to find investors for them. We have a client database and we search the news and other information. We are trying to find out [who are] the best investors suitable to meet the needs of the local government,” says Eric Eunyong Yang, a partner in the Vietnamese office of Yulchon.

So much so that a successful tender may turn on just how much ‘development capital’ a foreign construction company will bring to an infrastructure project. “It’s not uncommon for governments in Vietnam, Indonesia and Thailand to look at this factor in the tendering process,” says a Hong Kong-based construction lawyer. “These governments will often look for, say, a Japanese construction company to bring JBIC [Japanese Bank for International Cooperation] money along with them, or a Korean company to come to the country along with the KDB [Korean Development Bank] capital, or a private contractor to have the backing of an infrastructure-focused private equity fund … it’s a big part of the industry.”

It’s big as some developing countries still face difficulties in attracting private investment. “In the less developed nations, sometimes the laws and regulations are slightly less clear, which creates an element of uncertainty in how things are interpreted… it is a less clear environment in which to operate. You might find that bureaucracy can slow things down and developers and financiers can find this a bit frustrating,” says Norton Rose’s Smith.

Of course, private investors are also wary of corruption issues and the uncertainty surrounding government interference with decisions.

NEXT: The role of law firms

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