Asia's Mekong region seen ripe for funding flow

By Robert Birsel

BANGKOK (Reuter): One of Asia's largest rivers, for decades seen as a war-torn backwater, is being touted as the thread linking the region's last great investment frontiers.

The Mekong river and the six countries on its banks, including some of east Asia's poorest and most isolated areas, promise untold opportunities, fund managers say.

"The opportunities are great," said Gene Simmons, managing director of Finansa Thai which is organizing three investment funds for the region worth $100 million.

The Mekong rises in southern China and flows south, where it forms the borders between the opium-growing hills of Burma and Laos, and then between Laos and Thailand. It continues on to cross Cambodia and flows into the sea through a broad delta in southern Vietnam.

"Because of the regional geopolitics these countries have been (inward looking) for many years," Simmons said in an interview. "Now it's clear that the rest of the world won't let them get away with that and everyone's killing themselves to get in there."

As well as vast hydropower potential, the region is seen as offering opportunities in a host of sectors including tourism, mining, transport and light manufacturing. But much investment is necessary before its potential can be fully tapped.

The Asian Development Bank (ADB) estimates that the Greater Mekong Sub-region will require more than $25 billion in infrastructure expenditure and it is going all out to rally private sector investment to the cause.

"A key challenge to project implementation is financing," Noritada Morita, the ADB's director of programs, told a conference.

"The costs associated with most of the priority sub-regional projects, particularly those in infrastructure, exceed the financial capacity of the six governments and official development assistance commitments."

As well as Finansa, which is organizing its funds with HG Asia, the Crosby Group has recently announced a $25.6 million fund that will invest in unlisted companies in the six countries.

"Governments in the Mekong region... are liberalizing their economies, promoting foreign investment and regional cooperation which is resulting in strong economic growth," Crosby said in a statement.

Thailand's southeastern Asian neighbors, including Malaysia and Singapore, are also keen to see that their businessmen get a piece of the action and are pushing for a role in the planning and development of the area.

Simmons and others said the ADB, which is investing $10 million in the Crosby fund, was a catalyst, helping to finance large-scale infrastructure such as roads and bridges, thereby facilitating private sector investment.

"The ADB is the one which has been really pushing projects which have strong sub-regional elements," said Peter Brimbell, of consultants The Brooker Group.

While stressing the opportunities for private investment, Brimbell said not all areas would be equally attractive to investors.

"Telecommunications is an area where the private sector will come in without too much trouble. The power sector is a bit more complicated. As for roads, it's very hard to imagine private sector involvement and railways, forget it," he said.

Brimbell warned that investment in the region should be seen as long-term and problems were bound to arise.

A $1.1 billion hydropower project in Laos, the Nam Theun 2 project being built by an international consortium, has been stalled while the World Bank seeks further studies on its environmental impact.

Despite the delay to the Nam Theun 2 project, a representative of one of the companies involved said the region had great opportunities.

"I would imagine that the Greater Mekong Sub-region has one of the highest growth rates and private sector involvement in the world," said David Iverach, of Australia's Transfield. "It's competitive as hell."

Plans to develop the Mekong river have been on the drawing board since the 1950s when the United Nations set up the Mekong Commission, grouping the river's four lower basin countries -- Thailand, Laos, Cambodia and Vietnam.

But decades of war in Indochina, coupled with fundamental disagreements over water usage, prevented any progress.

The four lower Mekong countries finally reached a broad agreement on water usage last year which the Mekong River Commission hailed as a landmark.

The commission, funded by donor governments, stresses sustainable development, poverty alleviation and the need for environmental impact studies.