There was a time when a $100 per barrel oil price grabbed the headlines but now $200 per barrel is the minimum. A web search for "Asia's need for infrastructure" will return estimates from $165 billion a year to $20-30 trillion over 10 years. Project developers and financiers should demand a typhoon warning from Manila or Washington when such forecasts are released. We find ourselves faced with a bewildering variety of questions about to tackle this enormous apparent financing requirement.

In the first half of 2008, the total volume of project loans in the energy, resources and infrastructure sectors was about $24 billion, but less than half of this total was directed towards developing countries. Sometimes it is baffling to explain why the market opportunity in developing Asia has not resulted in more closed projects. The mid-year report card for the Asian project finance business might read "working hard, good opportunities, but needs to do more in developing countries." It would not be unfair. Rather than a typical review of current project finance market activity and bright sectors for the future, I will use this opportunity to examine what can be done by various parties to increase deals done.

Project finance activity in the region is dominated by three broadly-defined sectors – energy, resources and infrastructure – which account for 78% of Standard Chartered Bank's portfolio. Throughout Asia, governments have a dominant role in these sectors. They are involved in planning, ownership, production, distribution and pricing of oil, gas, power, natural resources and infrastructure. Where private enterprise is allowed to operate in energy, resources and infrastructure, it is typical to find limited recourse project finance. Given the quality of private sector-led projects and their contribution to economic development, it is surprising that governments have not opened up more opportunities to private sponsors.

I am often asked if there is sufficient supply of debt for projects, or conversely if the dearth of debt is a constraint on greater investment in Asia's energy, resources and infrastructure sectors. To answer in short: debt availability is not a constraint for sound projects, but lenders are waiting for the right opportunities and the right sponsors, and demanding prudent financial structures. There is no evidence that projects are being held-up by shortages of political risk insurance, mezzanine finance or export credits. And there are many cashed-up equity investment funds and private sponsors who are ready to acquire, develop, expand and maintain Asia's energy, resources and infrastructure sectors. In summary, private sector appetite and capacity is there.

I believe supply of private capital follows on the heels of demand from good projects, so if the market opportunities were greater, the private sector would respond with gusto. The fundamental issue is that in many Asian countries there is no clear political will in favour of private sector-led investment in energy, resources and infrastructure. Private investment is facilitated or tolerated in a limited number of areas. Examples are oil and gas production sharing contracts, mineral resource contracts of work, toll road concessions, independent power producers, mobile phone licences and port terminals.

In Asia, the mobile phone sector is a case study in how private ownership, foreign investment and innovation combine to provide highly cost-competitive services. Across the energy and infrastructure sectors, the efforts and perseverance of project developers are considerable and usually fairly rewarded. But tangled bureaucracy, unrealistic risk allocation, complex contractual frameworks, and a lack of transparency in contract awards, permits and approvals are serious obstacles and unmistakable signs of political apathy. More than corruption, more than country risk, more than any financial crisis these obstacles are the root cause of much of Asia's inadequate energy supplies and poor infrastructure.

In Asia, there are parallels between poor quality infrastructure and spiralling energy costs. At root both problems stem from serious under-investment and burdensome government controls. High oil prices teach us an important lesson: governments need to plan energy supplies to achieve diversity, security and price competition, and they need to manage demand through regulation or promoting market-based pricing. The same long-term planning is needed for infrastructure.

The economic success of Singapore, Korea and now China is due in large measure to long-term planning and continuous investment in quality infrastructure. The benefits to be realized from actively encouraging and promoting private enterprise in energy resources and infrastructure are huge. The message to Asian governments is obvious: these benefits are there for the taking.

Indonesia's gas prices near reality

How to boost the project flow

Here are some suggestions for government policymakers:

Focus on sectors where private enterprise is already active and seek feedback from market participants. For example, Indonesia is sensibly allowing wellhead natural gas prices to rise from around $2-3 per million BTU five years ago to more than $6 in 2008. However to ramp-up investment, project developers need assurance of creditworthy buyers and, most of all, simplification of administrative bureaucracy around production sharing contracts.

Develop long-term national policies for infrastructure and energy, ensure there is a role for private enterprise alongside state enterprises and, most of all, ensure prices provide a fair return to investors. For example, China's renewable energy policy offers a $0.036 per kWh premium for 15 years to renewable power producers. Interest is strong, which will benefit the economy given high oil and coal prices and supply bottlenecks. Standard Chartered is closing two deals this month.

Create a pipeline of opportunities for project developers because critical mass is more valuable than large one-off projects. For example, Thailand has committed to buy 5,000MW of power from Laos and five private hydroelectric projects are in operation or construction. Private sponsors' appetite is clear, although offtake tariffs will need to rise, in light of sharply higher construction costs.

However, there are also some suggestions for sponsors and lenders:

We are seeing a structural shift in the allocation of risks and rewards in favour of lenders. Early evidence suggests experienced sponsors are adapting to the rise in credit and liquidity spreads, lower hold amounts for loan commitments and the need for margin flex to achieve underwriting sell-down targets.

The risk of cost increases, caused by EPC price inflation, equipment supply bottlenecks or other project delays, is greater than in the past five years. Project sponsors and lenders need to ensure sufficient cost overrun support to mitigate these risks.

Simpler but better-priced deals may be quicker to close and marketable to a wider pool of lenders. A significant easing of loan transfer restrictions is needed. But lenders must resist adopting lowest common denominator solutions and remember that diminishing returns quickly set in with more covenants, controls, security and structural complexity.

The industry needs to consider structures that involve medium-tenor loans, even if these carry more refinancing risk. Medium term tenors will attract more lenders, especially local banks, and foster capital markets refinancing solutions. To date, the capital markets are all but excluded from infrastructure finance by long tenor bank loans. A greater diversity of debt financing sources is best for all.

Contact any one of us:

Singapore – Conor McCoole, +65 6228 3450, Conor.McCoole@standardchartered.com

Beijing – K.M. Sun, +86 10 8518 8838 (ext. 5087), Kemei.Sun@standardchartered.com

Hong Kong – Peter Ho, +852 2841 0382, Peter.Ho@standardchartered.com

Mumbai – Abhay Rangnekar, +91 22 22792416, Abhay.Rangnekar@standardchartered.com

Seoul – Kim Chul Bohm, +822 3702 5121, Chul-Bohm.Kim@standardchartered.com

Tokyo – Hidetoshi Hamada, +81 3 5511 1353, Hidetoshi.Hamada@standardchartered.com