Ep65 Financing strategies for Asia’s energy transition, ft Srini Nagarajan, British International Investment

In this episode, Joseph converses with Srini Nagarajan, who heads Asia for British International Investment (BII). BII is the UK’s development finance institution. It is focused on investing in sustainable infrastructure and businesses in developing countries to promote economic growth and support the UK's development goals. Between 2022 and 2026, BII plans to allocate at least 30% of its total new commitments by value to climate finance. It already has investments in almost 1,500 businesses across 65 countries in emerging economies, with total assets exceeding $10.9 billion. The conversation covers the critical role of financial institutions in Asia's energy transition, actions governments can take to attract foreign investors, and the intersection of inclusion and climate change. Srini provides insights into BII's strategies, including investment in funds, direct equity investments, and the importance of blended finance. He also highlights successful examples from India and Southeast Asia. Enjoy the discussion and please do e-mail us to suggest topics for future episodes.

RESOURCES: About BII; Latest news from BII.

ABOUT SRINI: Srini Nagarajan is Managing Director and Head of Asia at British International Investment. Srini joined BII in 2013 to lead the Asia team under the organisation’s new investment strategy. He has the distinction of having been our first overseas employee and recently moved to Singapore to lead BIIs expansion into the Indo-Pacific region. He has been instrumental in building a high-quality portfolio in the region, which focuses across products and sectors. Under his leadership, BII has a strong presence on the ground and the team has made successful investments in the financial services, healthcare, logistics and renewable energy sectors – including the creation of BII subsidiary Ayana Renewable Power in India, a pioneer renewable energy developer. His role includes support in the origination, execution and management of the portfolio for delivering development goals and value. In addition, he is building BII’s presence in the South-East Asian markets with a focus on climate change. Srini started his career with Standard Chartered Bank, both in India and Southern Africa, before joining British International Investment in 1996. He has managed leasing companies in Africa and in India he managed legacy assets for value before moving into mainstream private equity investing for both British International Investment and Actis. He has a Masters degree in Economics and a post-graduate qualification in Business Administration from Warwick School of Business.

FEEDBACK: Email Host | HOST, PRODUCTION, ARTWORK: Joseph Jacobelli | MUSIC: Ep0-29 The Open Goldberg Variations, Kimiko Ishizaka Ep30-50 Orchestra Gli Armonici – Tomaso Albinoni, Op.07, Concerto 04 per archi in Sol - III. Allegro. | Ep51 – Brandenburg Concerto No. 4 in G, Movement I (Allegro), BWV 1049 Kevin MacLeod. Licensed under Creative Commons: By Attribution 4.0 License

Transcript

Ep65 Financing strategies for Asia’s energy transition, ft Srini Nagarajan, British International Investment

 PLEASE NOTE: Automatically generated transcript may contain errors. For accuracy, only rely on the original recording.

Joseph Jacobelli: Hello Srini and thank you so much for making the time. I know you're traveling around a busy person, so we're actually recording this on, on a Sunday, so I really appreciate that. How's everything at your end, Srini? 

Srini Nagarajan: Very well, thank you so much. Thanks to you Joseph for accommodating me on a Sunday.

Joseph Jacobelli: No, no, no problem. No problem. So maybe we can start with just a little bit of a personal introduction. I mean, we have your bio in the show notes, but could you tell us a little bit about, yourself and also how kind of you got into being interested in decarbonisation and energy transition related investments?

Srini Nagarajan: Thank you for this opportunity. Let me introduce myself. I'm Srini Nagarajan. I head Asia for an institution called British International Investment, and I joined BII. It used to be called CDC earlier Commonwealth Development Corporation in the mid-nineties and have been in the development finance world for a long period of time now.

The reason why development finance world, it's been absorbing me for a long period of time. It's because we really make a change in the lives of people using our capital effectively. It's extremely gratifying to work for an organisation where you really change the lives of people using your capital very effectively.

And the whole thing about climate change, the organisation's commitment to climate change. And with, with an annual investment of around 30% of its total investment commitment every year going towards climate change, particularly in the emerging markets. It's also one of the other great reasons which kind of motivates a person like me to stay on in the organisation and find new frontiers of what one could accomplish in the area of climate change.

The reason why I'm saying that is our job is to be much more catalytic in nature, which allows us to find newer frontiers by taking greater levels of risks vis-a-vis a commercial lender that makes us very special as an organisation. So that's perhaps one of the main reasons I've stayed on in this role for a longer period of time in this job, and this wonderful institution as well.

Joseph Jacobelli: Hmm. And before you joined BII what were you doing before then? 

Srini Nagarajan: I was a commercial banker, investment banker, and a commercial banker, more in the area of merchant banking those days, an area of capital markets. And in the mid-nineties when I really saw CDC in action, then now BII, in Africa, where they used to own companies and run it, and I really saw that in the 8, 9 years I spent in Africa, I really saw that they were, really making a change in the lives of people, principally by owning majority stakes in companies.

Training up locals in various countries in Sub-Saharan Africa and getting into some very you know basic industries and very, very important for nations like cement, sugar plantations, etc. And also thriving these economies. So that really shifted my thinking towards development financial institutions and how they're able to drive these economies and how they're able to, you know, bring this change at scale. Mm And that's probably, you know, that really motivated me. And the ability to find a pathway for commercial investors to come in later and fund these various companies, which they'd started nurturing over a period of time, is one of those main reasons that, this makes it a very special organisation, I would say.

Joseph Jacobelli: Right. So we are going to be discussing today three critical topics. One is the participation of financial institutions in Asia's energy transition. And secondly government actions to attract foreign investors in the energy transition projects. And last but not least, the intersection of inclusion and climate, which I think is a topic which is not necessarily very often discussed.

So first let's look at, you know, the first area. What are your views regarding the participation of financial institutions such as BII in Asia's energy transition? I mean, how critical is it for the growth of energy transition projects in the region? 

Srini Nagarajan: Let me take one step back and give you a little bit of background about this, the current state of BII, which then I'll put the context in there.

Given our long existence since 1948 over the last 70 plus years and our mission of being additive to commercial investors and not substituting them, we have the ability to come in early, take early-stage risks, mobilize commercial investors to scale the whole business. And BII is a very experienced investor in climate finance having committed more than a billion dollar over the last two years to fight the climate emergency.

Now, in this whole context, I think you know, Asia is crucial to the global climate efforts due to its rapid growth in energy, demand driven by urbanisation, industrialisation, and living standards. If you try and take one step back and see most of these emerging markets are in a conundrum between aspirations to become a high-income nation and reduce emissions.

And you actually need a balance to achieve the net zero. And something like a “just energy transition program”, which the UK government is supporting in countries like South Africa, Vietnam, and Indonesia. Helps you a lot in becoming more and more disciplined about emissions, really. So, Asia is crucial to global climate efforts to its rapid growth in energy demand driven by urbanisation, industrialisation, as and Asian energy demand is increasing as one of the fastest growing in the region.

As a matter of fact, as per the International Energy Agency estimates, the region's primary energy demand will grow by 1.8 times by 2050. And renewables in the whole power demand will grow by 4.4 times, really. And Southeast Asia, as you know, despite the rapid growth, the reliance on fossil fuel is quite high.

And as a result of which, given that nearly 80% of Southeast Asia's rise in energy demand has been met by fossil fuels since 2010, the climate impact per dollar invested in the region's energy transition is amongst the highest globally. And to address this growing energy demand and reduce dependence on fossil fuel, six Southeast Asian nations, including Indonesia and Vietnam announced net zero emissions and carbon neutrality targets. These sustainability ambitions require at least $200 billion of energy sector investment by 2030, of which over three quarters needs to be channelled into clean energy.

If you try and understand, what do investors look for in a region? There are four factors. One is policy consistency. Second one is linear and predictable deal flow. Third one is smooth execution. Fourth one is talent. Fifth, and the most important one is track-record of having made money. And I think in most of these boxes, if you're able to tick them consistently, natural flow of commercial capital is inevitable.

Southeast Asian nations are in this journey, and they currently have limited bankable opportunities. And quite a mixed regulatory and policy framework. And it's a journey. Of course, all these nations are taking a lot of efforts in these directions, but it's a journey. India, for that matter, is a little bit more advanced amongst these markets, and China, of course, is in a very different league.

So as a development institution, this is where we really come in. We take a longer term and flexible approach to de-risk projects, demonstrate viability and encourage market participation to mobilize capital and maximize development impact. So that's exactly our role really. Taking on your other part of your question, in terms of our own activities in the region as a part of our 2022-26 strategy, we have committed, as I said earlier, around 30% of our annual commitments by value in climate change.

And some of our notable investments in Southeast Asia. The way we look at all our investments in Southeast Asia is in four parts. One is we approach it through the lens of a limited partner and invest in climate transition funds. Where we have done funds like SUSI Energy Transition Fund. We have done SEACEF by Clime Capital. We have done Wavemaker Impact, which is more like a climate tech fund. We have done Navis, which is more like a private credit fund, and we will be shortly announcing one more fund. Now, all these are funds set up by very accredited fund managers through which we look for our very active co-investment opportunities.

Second methodology, which we invest is through, directly through, through platforms. These are direct equity investments. BII is slightly more specialized there. We have the benefit of having established platforms across our markets, both in Africa and Asia. In Africa, we own two large platforms. One is an IPP, a company called Globeleq. We own 70%. And the other one is the transmission platform called aGridworks. In India, we started a platform called Ayana. I can talk a little bit more about this going forward in this podcast. And we have started two new platforms in Southeast Asia.

One is for Rooftop Solar initiative, which is more on the commercial and industrial part, which is a company called Skye Renewables jointly with Idemitsu. The other one is a utility scale platform called SARA (Sustainable Asia Renewable Assets), which is a joint venture between FMO, SUSI Asia Energy Transition Fund, and BII, which is a brand-new platform, which has been set up in Philippines.

With the whole intent of doing energy transition projects in, in both Philippines and in Vietnam of larger scale, it's more a replicability of our learnings and the model which we establish in Ayana into these markets. 

Joseph Jacobelli: Got it. So you're saying currently you've got two methodologies, or two approaches I should say. One is investing in funds, and the second one is directly investing to the individual projects or individual companies or what you, what you call the platforms and. Is there a specific view in terms of how long these investments will be? Or you don't have, you know, like is it five years plus exit, 10 years plus exit, or it just depends on the individual investment.

Srini Nagarajan: Before I answer your question, I just wanted to say there are two other main products of ours which I just would like to amplify. Number one is debt, which is an important product for us. In debt, we do project finance for those individual projects, and we also do corporate debt.

And another big product, which we are nurturing pretty well in the region is called mezzanine. Mezzanine is neither a debt nor equity, and this is more, providing funding at the holding company level. Which will then be invested by the particular sponsor of the company into various SPVs underneath which they're building.

So mezzanine as a product is a very important product. And with a number of marginally bankable projects in Southeast Asia, which the marginally bankable projects to make them more bankable, mezzanine will be a very vital product. Mezzanine is a higher risk product than what debt is relatively lower risk than equity.

And it's a non-dilutive capital, which is particularly helpful for sponsors because they don't get diluted as a result of our investment. We are building this mezzanine book neatly and nicely within the region. And this is going to play a very pivotal role in terms of building more corporates within the region, really.

And so that's one. Those, those are the two main products. We also have some other products, few other products within our whole balance sheet, which we can do. One is in the form of trade finance with commercial banks. The other one, which is more like a risk sharing facility, which we, also do with commercial banks and institutions. So those are the two main products, which can be both funded and unfunded.

Now, coming back to your question, I think a broad mission in Asia is fundamentally to be that particular pioneer, the forerunner in the whole area of climate change, given our ability to take greater levels of risks.

So, what is our shareholder and our board, if you ask them, what they're really telling us is use our capital very effectively. Make sure that you don't crowd out private capital. You actually crowd them in and they're telling us to take greater levels of risks.

They're giving us different pools of capital, which is in the form of growth capital, which is in the form of catalytic capital, and they are saying to us, go and find new frontiers of investing to make sure that you're able to tackle climate change in conjunction with other institutions and partners.

That's precisely what they're telling us. And that's precisely what we are doing. And we have the ability to take greater levels of risks. And that's what this region really requires. And Southeast Asia may be, it's actually in a sense all these markets are maturing as we speak.

All these markets are very aspirational. As a result, they will emit more, and as a result of which they need to draw a line and find a balance. Like I said earlier. Between emissions and their aspiration to become a middle-income nation and a high-income nation eventually, and that whole aspiration is only going to be done by more, more and more responsible investing 

Joseph Jacobelli: Indeed. That's a good segway for the next set of questions, which is, based on your experience and given you speaking to, governments, you're speaking to other investors, speaking to banks, et cetera, what actions ideally, can governments take to encourage investors to fund energy transition projects in the region, particularly at the early stages?

Srini Nagarajan: I think the impact that the climate change can bring to the region as it resulted in governments actively promoting sustainability through various policies and initiatives as far as encouraging businesses, including startups, to develop technologies that can align with each nation's climate goals.

Really, the vulnerability of the region government initiatives, desire by business for increased investments and the annual climate funding of $210 billion needed in Southeast Asia makes it an attractive proposition for investors to invest in the whole region's climate space.

I think if you try and take an example of India, what they did in way back in 2017, 2018. What they really did was to create a more favourable environment. They said that look, we will do the land acquisition for you. We will make sure that the power evacuation is done through, through the transmission network from the particular site till a substation.

We will make sure that the power purchase agreement is signed and all approvals are in place. Now, can we go through a reverse auction, electronic bidding process? As a result of this whole process, they brought down the tariffs so low that the government benefited a lot as a result. Now, what did the investors gain out of this?

They didn't have to go through the rigamarole of land acquisitions and the whole process and fiction around it. And as a result of it, investors, when they bid, they start installing, the desired wind or, solar equipment and, and make sure that they're able to create scale.

So that created a more, predictable environment in terms of making sure that you're able to execute projects in time. You're able to, you know, collect tariffs in time. In fact, they went ahead and said that look, we will operate this under a central PPA structure, power purchase agreement structure.

Now that kind of an operating environment and the reverse bidding, electronic reverse bidding process, which brought in a lot of transparency to the process. It created a lot more confidence amongst investors to, to really pump in the billions of dollars into the country. Talk about the Canadian pension funds or the international you know, sovereign wealth funds from Singapore, from Japan.

Everyone brought in billions of dollars into the country. That's exactly what the Southeast Asian nations need to do. It's a journey. They are in the journey. I think they're really doing some of the most important examples in this whole journey is more the ASEAN Grid initiative, which the governments have recently initiated the Just Energy Transition program, which the governments are working on, and all these countries, as I said earlier, and also some of these programs pertaining to the fact that the energy storage programs and the green hydrogen and the various initiatives are there. I think the proof of p pudding in all this is creation of scale. The proof of pudding is making sure that the foreign direct investment comes into the country. Not just debt, but real equity comes into the country and there is scope to do a lot more in these countries.

They are still very, very early in this journey, and there is desire from the international institutions to invest. And I think if they further in a finesse it and create an operable environment, there is a lot of money to flow into these markets. But they are in the journey, but very early stages of the journey.

Joseph Jacobelli: Actually, I'm really glad Srini that you mentioned the India example because in my experience when I was a financial analyst back in the 1990s and 2000s used to go there and I would get really excited by all of the initiatives, etc. And then there’s no execution. And that was really disappointing. And it wasn't until like the 2010s that you saw that execution coming through. And I guess that's the principal answer to the question of how you can encourage investors is by giving, very consistent and transparent policy. And there's going to be some hiccups. There's no country in the world where there's no hiccups. There's hiccups in Europe. There's hiccups everywhere else. And, and there's challenges as this is an evolutionary process in terms of energy investments. But I think the India example is not mentioned enough, and it's a very, very good learning example.

Again, it's not, it's not perfect, but at the end of the day, what counts. Has your renewable energy or clean energy gigawatt count been going up? Answer yes. Has foreign investment been coming in? The answer is yes. So as far as I'm concerned it is a success story.

Srini Nagarajan: True. 

Joseph Jacobelli: I think that that's a really good best in class example India. Now let's talk about the kind of very complex subject, which is the intersection of inclusion and climate. How, how can that be addressed and how does one factor in inclusion when making investments. Could you talk a little bit about this and perhaps provide one or two examples, because I don't think it's a subject that is widely frequently spoken about by investors.

Srini Nagarajan: No, that's a very, very important topic and very, very close to our hearts as BII really. Because if you look at, let me give you a little bit of background about our development impact framework. If you look at our development impact framework which is what we call it a PSI framework, which is measurable, deliverable, and keeps us focused on our mandate, they include three important indicators.

One is productivity, second one is sustainability, third one is inclusion. Now, what do these three verticals really signify?

Productivity is about raising the productivities of economy so that they'll be able to support a decent standard of living for all. Building these economies of scale.

Sustainability is about transforming the economy to reduce emissions, protect the environment, and adapting to climate change.

Inclusive is about who benefits from this. This is sharing the actual benefits of this higher productivity and greater sustainability. With the marginalized sections of society.

That's what inclusion is really. Now, fundamentally, I think inclusion is a very important part of what we do. Inclusion, it says who really benefits from our money, and I think it keeps us extremely targeted, like I said earlier. And I think that's, that's where the real genesis of what we are doing comes from.

Now, I think when we try and look at all three main pillars. And our whole ambition, inclusion, and climate change are deeply intertwined because addressing climate change effectively requires recognizing and addressing that this disproportionate impact it has on the marginalized communities and ensuring their meaningful participation in solutions.

And I think you know inclusive. Climate change can also drive positive social change and reduce existing inequality for a period of time. Because, for example it doesn't matter because, because climate change affects all walks of society today, it doesn't matter whether you are rich or poor. It does affect all walks of societies, but marginalized communities get affected more. Because they have to reconstitute and restart their life if they really get affected. And if you look at countries like Bangladesh, they're very vulnerable every year. They get very vulnerable because of flooding situation, really.

And I think most of our inclusive, the whole intersection of inclusion, and climate change is something you know, BII will not forget, and BII's main mission is this, and we keep this in mind in the whole effort which we try to take in the area of climate change.

When we look at inclusion, I think we, we will be able to benefit a lot using intermediaries more than doing it directly. Because for us, because of our operating capacity and the minimum ticket size requirements and others, we try and use intermediaries more because their ability to reach the wider sections of society and also mobilizing other forms of capital and other like-minded investors is much higher.

For example, we gave a $75 million finance facility with Habib Bank in Pakistan. This new facility will be supporting farmers and Agri businesses in Pakistan by providing increasing access to essential finance and enhancing their whole resilience to climate change. Now this facility will be directed towards agricultural sector, which contributes to around 24% of Pakistan's GDP and employ 37% of the workforce.

And this facility will mainly support the small holder farmers, including those in the dairy and the poultry sector which often lack access to finance. So the farmers vulnerable to climate change impacts will receive support to adopt sustainable practices enhancing their resilience, yields, and income.

The other example I could give you is a dairy company in India called Akshayakalpa where we have provided equity support to this company. And in the process, what we have done is to provide a first loss type facility to a local non-bank. So that the local non-bank is able to lend money to the underlying, around 2,500 farmers to be increased to 5,000, where the farmers otherwise don't have access to finance because they don't have fixed hold properties. They only have cattle. And I think our ability to provide some kind of a first loss support. It increases the credit capacity of this whole borrower community. And the lenders feel more comfortable about it now. So they provide them, these farmers with more access to finance and they're able to multiply and grow their businesses.

Now, I think the two main examples, we, I mean, I can go on with a number of examples which we will be able to say. Now, I think our indirect investments in what is also helping is we have supported a company in Nepal which is to provide Internet service ability, a company called WorldLink. This provides internet to both the value of Kathmandu and to the out, out outskirts of the entire country, particularly in a very mountainous parts like Karnali and others, where I think the ability to have access to internet, farmers are able to plan their lives better. The dairy farmers are able to do this.

And including the hospital side are wholly benefiting from this. The doctors are benefiting from this. So I think having information and the impact of it on climate change affects all walks and every bit of society in our lives today. So what we are doing through WorldLink is to provide them with that access to information.

So similarly we have a number of examples in BII we can talk about. And I think suffice to say that this whole benefit of this whole direct and indirect investments we make is to clearly recognize the marginalized society should really benefit from our investments.

And we use a measure of $6.80, the World Bank standard. And adjusted to PPP terms in every country and that particular section, which could be customers, which could be suppliers, which could be their employees, or any particular measure we do. That's why our whole PSI framework is all measurable, both on Ex ante and Ex post basis, really, and we make sure it benefits that section of the society.

Joseph Jacobelli: Sure. I've got a couple supplemental questions regarding this topic. Both of us come from an investment banking, commercial banking background. And we know that, for a project to be sustainable first and foremost, it must be economically sustainable.

If it's at a loss sooner or later the wheels are going to come off. So when you, especially with regards to investing in funds and also the direct equity investments that BII makes, given the philosophy behind it, how do you take that into consideration.

I mean, taking inclusion just transition, et cetera, into, into consideration. The reason why I'm asking that Srini is because I'm sure you've heard about the mad debate going on about, whether impact investment and responsible investment actually makes better or worse returns. Which is a little bit ridiculous because it really depends on market cycles. If the markets are booming and everybody's interested in tech, you're not going to make a lot of money out of energy transition projects. Conversely, you know, I mean this, this cycles basically the point I'm trying to make.

So could you please address that? I mean, how do you think about these other factors when you are making your investment into the funds or the direct equity investments? 

Srini Nagarajan: Thank you. 

It's an interesting question. Actually, we have seen over a period of time, after a few decades rather that impact and returns can go hand in hand.

I don't think they're conflicting objectives. The one important parameter in the whole exercise is you need to be a bit patient in the whole journey, right? I think we have found repeatedly that impact and returns can go hand in hand. It is not a conflicting objective at all. Second important point here is in Asia, particularly emerging Asia, it's very important that you understand who you are backing.

Right. It's either the quality of your fund managers whom you back, or it's quote unquote what they call in countries in Asia, “the promoter or the oligarchs”. In some countries they call it, who do you really back? And how much are you aligned to their vision and objectives.

That's important once you keep your whole alignment, right. And if the ethical standards are met based on your anti-money laundering and bribery standards of the UK, I don't think you'll go wrong within these markets in Asia. And look at how, microcredit has grown in all, these countries.

Hmm. It is multi-fold grown. I mean, who would've ever thought that people at the bottom of the pyramid would have a credit culture? They have a fantastic credit culture. They've proven this over a period of time, except the fact that if you overburden them in some countries, that has happened as well. Then of course they have a problem.

I think that's a problem in terms of the credit bureau and the way they function. So that has not been an issue at all. Even in terms of healthcare, I would say you, you look at eyecare, the number of cataract surgeries, which are done in something like you know, millions, which are done in India. At such a rock bottom price done by institutions like Aravind Eye Care, etc, $1,200, $1,500. They do a cataract surgery done in masses. So the scale this can bring about can effectively bring down the cost of your operation and can turn this profitable for a period of time You need to be patient, though, this is not an asset flipping game that doesn't work here If you are willing to be patient.

If you are highly focused on unit economics, if you're highly focused on making sure that your product is accessible to those sections of society, I think it's very difficult to go wrong in this. You will get it right. We have seen that repeatedly in areas like healthcare, in areas like financial services.

Now, obviously if you over-leverage a business or you overburden a customer, you're bound to have trouble. And that is a culture which you actually create, right? That's actually, you know, your overdoing of things. And if you don't do something as silly as that, you will make money in businesses and eventually private capital will come in because they also need the mass impact it can create and the scale it can create really over a period of time.

The second point I would like to mention here is I think the benefit of institutions like us having multiple access to multiple pools of capital.

For example, we have this access to something called catalytic pool of capital. What do we do on the catalytic pool of capital? The path to profitability can be longer and we don't mind making a much lower return there. But the development impact has to be highly transformational. If you get that where in, in cases like WorldLink for example, where we knew it'll take a longer time for us to exit this business, we used a catalytic pool of capital. So that's one area which is very, very important. And I think if you use different pools of capital, since you got access to it, most of the development institutions have access to it and the multilaterals as well.

And it has to be channelized and used effectively so that the commercial lenders can eventually come. The third important aspect of this is using unfunded facilities very effectively, like guarantees, for example, and the MDBs and DFIs can use the guarantee facility very effectively.

Where they're able to guarantee local financial institutions, which could be local banks, commercial banks, or it could be international banks operating in these countries. And the trade and supply chain finance. So those come on very handy when the liquidity, the capital adequacy requirements, which these banks need to provide to these institutions, the underlying lending of theirs could be lower.

And that you enhance that ability to lend to this particular inclusive community by providing those guarantees. So that is actually a very, very powerful tool, which one can use very effectively. So I would say DFIs, we have multiple avenues and pools, which a smaller amount of capital can lead to catalytic impact on all these nations.

For example, what did Ayana do? We invested $100 million in 2018. We mobilized $2.8 billion in the process by the time we exited the business. The $100 million dollars of money which we put in by taking that level of risk in 2017 18, helped us mobilize such a large multi-fold amount of money and the impact it has in terms of creating scale of around 4.6 gigawatt of power.

And that's what the catalytic money can really do. And that's, that's the whole catalytic effect it can do. Yes. I mean, all what you do will not be succeeding. Yeah. It'll be mythical to think that anything you do will succeed. It won't. Mm-hmm. There will be some failures in the process because you tend to take early-stage risks, but that's part of the course.

This whole investing mission is like that. When you take a certain level of risk, you make a transformational impact. Ultimately, you need commercially sustainable business for it to create greater impact. Some of the businesses succeed, some of them may not, but you know, here we go.

Joseph Jacobelli: Mm-hmm. Mm-hmm. Two, two last questions Srini if I could. One is and they're kind of interrelated based on kind of the work and the discussions that you have with counterparties throughout the region. Where do you think we're at now? I mean, do you still see a lot of demand from investors . , And I totally agree with your earlier statement, that bankable projects are still relatively lacking in the region, but in terms of demand do you see that in 2025 relative to say, five years ago, actually, that was COVID, bad example during non-COVID times prior non-COVID times. Do, do you see that as being, a very strong momentum and related to that.

And that's the billion-dollar question. Over the next 25 years, how do you see the growth of energy transition projects in the Asia Pacific region evolving?

Srini Nagarajan: Can you explain your first question a little bit more to me?

Joseph Jacobelli: Sure. In terms of demand from investors, there's a lot of supply of capital globally. There's a lot of money that wants to invest into energy transition related projects in terms of demand for projects from investors in the Asia Pacific region in 2025 relative to a prior non COVID period, do you see that has having increased or is about the same or decreased? 

Srini Nagarajan: Well, taking your first question the demand for project itself is gradually increasing, I would say. As you know, you and I just spoke how do the economies evolve? The economies evolve in infrastructure when more and more platforms are there for them to invest. Mm-hmm. And definitely I think having a broader ownership structure broader structure of creating more entrepreneurs who can build infrastructure companies and build more platforms will provide more bankable opportunities within the region, just depending on few of the large industrial houses in countries to build infrastructure projects will not create scale. Of course, they are important for the countries, for these economies, but broad basing them is very important and that's where I think a vibrant private equity, a stock venture, capital environment is very important.

Right. 

These

Joseph Jacobelli: And, and you, you. Sorry, so sorry, just to clarify, so you see demand from investors as still being quite strong for projects in the region. 

Srini Nagarajan: Well, I think demand from investors in the appetite to invest is quite high, but however, they're not yet seeing the steady flow of bankable opportunities.

But if you ask me if they have appetite answers, yes, it is definitely there, but they're not seeing steady flow of bankable opportunities. And that's exactly where a DFI, like BII comes in and plays that credible role there. Right?

To answer your second question, I think in terms of energy transition projects in Asia I see that there is an increasing commitment from governments in the region towards renewables.

Scale is critical. And I also feel building local supply chain is also important because I think you can't import everything what you want and create the energy capacity in the country. You got to create your own supply chain of panel manufacturing, cell manufacturing, battery storage, manufacturing, everything.

These, these countries have to build the battery storage capacity and bring down the cost as well. And round the clock initiative is important if you want to create base load as far as renewables are concerned. Yeah. And I think there are some distance to go there.

There are good signs, but early signs at this point in time. The other important point I remember is the commercial and industrial Joseph is very important, should be encouraged because including open access, because any kind of decentralized energy solution is critical.

Especially in an archipelago like Philippines and Indonesia, talk about microgrids very important in these islands. Because the transmission network still is very, very weak in all these countries. It's still a long way to go. The third one, of course, is about the grid strengthening the ASEAN grid network which is a major initiative to connect the electricity networks in all the 10 near ASEAN nations.

And what they're trying to do is to facilitate cross-border power trading and enhancing energy security and sustainability. To have a fully integrated grid by 2045. That's a very important initiative that requires a lot of capital expenditure to be supported by institutions like, the World Bank, that's an important part of one once initiative.

You can't keep generating power, renewable energy, power without supporting grid. Yeah. 

Mm 

mm Last bit is about the industrial transformation, which is again, a very big business in Southeast Asia because you've got the heavy industries. Steel cement is one part. The down streaming of the, the precious metals, like nickel in Indonesia is an important part as well. So those, there is an enormous scope to transition those into, into renewable energy because that's a big part of the emission really. So in my personal view, I think you know, there are a number of these initiatives which are there.

The proof of pudding is how much more FDI really flows into these countries. There are signs, but it's a journey. It's, it's pretty early in the journey, I would say. 

Joseph Jacobelli: So I could qualify that as cautiously. Cautiously bullish. Bullish. Yeah. Would that be a good 

Srini Nagarajan: yeah, 

Joseph Jacobelli: I would say cautiously bullish.

Srini Nagarajan: Cautiously bullish. Think you know, if you look at international investors, let me just also add. They're not looking at deals less than, say, 150 odd million dollars, right? Mm-hmm. And those kinds of large, big-ticket transactions don't come without scale. Mm-hmm. And you have to create that scale and that vibrant environment for the international investors to come because these investors will not be writing small checks.

That's not, that's not their DNA. If you look at the sovereign wealth funds and the international pension funds, they're looking at big tickets. I mean, they have, some of them will say that look, we are not investing anything less than 250 to 500. And infrastructure is a capital guzzler, right?

Mm-hmm. And you can't create that scale. So I think creating more and more bankable opportunities, scaling them up, and there are institutions and funds which are willing to write large checks and garnering them will be very critical. So these I mean, all these economies recognize this. And in a way there is a recognition. That recognition has to be trans transformed into action and more consistent action, which results in deal flow.

Joseph Jacobelli: Yeah, I think some Asian countries, and won't mention specific countries, but they've been kind of struggling from my perspective because they don't really have a very coordinated approach. I mean, the centre, whether it's presidential palace, prime minister office, whatever it is, may have a view, but then to execute that throughout the bureaucracy is a big struggle.

I think that was, and don't pretend to be an India expert, but I think that that used to be the problem in India as well, back in the 1990s and, and 2000s. Where you go to three different government offices, say in Gujarat, and you get three different answers and three different views.

Whereas now it's a little bit more I mean it still exists of course, but it's a lot more coordinated. But then in some other Southeast Asian countries in particular, you still don't have that. And that to me is a big hindrance because at the very beginning you were mentioning. You know, policy consistency and transparency.

That's, I think some of the countries do, but it's all about execution. So if you're putting up, it's a kind of form of red tape, these different offices doing different things, not coordinating with each other and so on and so forth. I think I heard that, for example, to get a solar in the Philippines going, you need something like a hundred steps.

And the Philippines is one of the, let's say. Better bureaucracies out there. I mean, they, they kind of know what the problems are and they're trying to address it. So that's probably the one way of unlocking more, more projects. 

Srini Nagarajan: Well, I would say that look, most important thing here is technology. One of the reasons since I, we have done projects in India one of the countries where it's actually a substantial portion of our balance sheet is perhaps because, because of the digitisation efforts the government took of records and, and that cascaded down to the village level.

It's a journey. It's still happening, I would say. But in most parts of the developed parts of the country where most of these projects are happening, that's already happened. So that avoids any kind of the whole friction bureaucracy in the process and it's quicker as well. That is the only way to get rid of this and help you in terms of execution.

And I think, if you ask me, since it's proven and tested in a very large and difficult nation like India with the population. I see no reason why Southeast Asians nations cannot replicate the model and take it forward. And I think that's what, you know, that can raise a level of confidence substantial in all these nations.

I mean, how many platforms have foreign investors created and exited them successfully in the country? Is a great record in India. I mean, because it generates 200 gigawatts plus of renewable energy today, right? And a lot of platforms have been set up constant M&A keeps happening in those platforms.

We just exited Ayana from a $100 million investment initially. We exited this for $2.3 billion, along with the two other investors, the National Investment & Infrastructure Fund (NIIF), the Government of India sponsored fund, and a green growth energy fund, which UK government also supported and think fundamentally.

So there are ample examples of one can cite in these, in this particular journey. 

Joseph Jacobelli: Mm, 120% concur. Srini we, at the end of the, of the podcast and already abuse too much of your precious time. Do you have any concluding remarks or some key takeaways? 

Srini Nagarajan: Let me say this to you. I mean, I'll focus on climate because it's very dear to my heart of my heart and BII as well.

Climate change is a journey. We have to tackle this through multiple, on multiple fronts. It, we had to tackle this. We do energy transition, mitigation, adaptation, and resilience which we didn't talk much about keeping all sections of society. The one concluding among what I want to say here is about blended finance, really?

Mm-hmm. Blending is very important and much needed for tackling climate change. And blended finance brings together public, philanthropic and private capital into a single investment structure with each playing a distinct role and bearing different levels of risk and return. Really, that's what the beauty about blending is all about.

And I think MAS in Singapore has introduced you know, a blended finance, a pool of around $500 million under an initiative called the FAST-P program. So when blended finance structures are well designed, these structures enable private investors to access opportunities that would normally otherwise fall outside their risk return thresholds.

So unlocking new markets, diversifying portfolio, and generating measurable impact as well, really, and I think one of the points you made about the fact that how do we scale this business up? Particularly in a slightly unproven areas, blending can play a very important role. Because once commercial investors are able to smell the fact that this is commercially viable and it can scale, they will come there like a bee.

Really. They will be in a beeline to come there. So I think we have an important role as, as a DFI to play there and both in Southeast Asia and in South Asia. And I think. I just want to leave a thought with you that look blending of all these pools of capital, it's still a long distance to go.

There is a lot of desire amongst the philanthropy institutions to play a pivotal role in blending, and there are multiple pools of capital waiting for appropriate opportunities. We, as BII have a great role in bringing them together and we will continue with our mission in the region. 

Joseph Jacobelli: Fantastic. Thank you so much Srini, once again for your time. I wish you very safe travels. Thank you. And looking forward to our next discussion. 

Srini Nagarajan: Thank you so much, Joseph. Have a good evening. 

Joseph Jacobelli: Thank you.