Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move: "That the Bill be now read a Second Time".

The Asian Infrastructure Investment Bank Bill, if approved by the Oireachtas, will facilitate Ireland’s future membership of the Asian Infrastructure Investment Bank, AIIB. It will provide for the approval of the articles of agreement of the AIIB and for payments to be made to the bank.

The AIIB is a new multilateral financial institution which came into operation in January 2016. Its objectives are to foster economic development and regional integration in Asia, primarily through investment in infrastructure. The bank has 57 founding members, including 14 European Union member states, and is based in Beijing, with China playing a leading role in its establishment.

Following Government approval in December 2015, the Department of Finance commenced formal negotiations with the AIIB secretariat on Ireland’s potential membership of the bank. Ireland made a formal application for membership of the bank in January 2017. On 23 March 2017, the AIIB approved the applications of 13 new prospective members, including Ireland.

Ireland’s AIIB membership would require ratification of an international agreement represented by the articles of agreement of the AIIB. Ireland would also have obligations as regards capital contributions. Article 29.5 of the Constitution provides, among other things, that: “the State shall not be bound by any international agreement involving a charge upon public funds unless the terms of the agreement shall have been approved by Dáil Éireann". Passage of the proposed Bill by the Oireachtas, and its enactment by the President, would confirm such approval. Similar requirements applied when Ireland joined other international financial institutions, such as the World Bank and, most recently, the Asian Development Bank in 2006.

The rationale for Ireland’s membership of the AIIB includes geopolitical and economic considerations, in particular trade relations with China and the wider Asian economy. Over the past 15 years, Ireland has increased its engagement with Asia, in particular China, the world’s second largest economy, in a broad number of areas. Bilateral trade has grown in significance and, in 2015, Ireland’s total trade with China was worth over €11 billion.

There are significant benefits to strong and open ties with China. Becoming a member of the AIIB would reflect and reinforce the growing relationship between the two countries. AIIB membership will also complement Ireland’s international development policy, which aims to support sustainable development and inclusive economic growth. The bank’s governance standards and performance since its establishment in January 2016 reinforce the perception that it will be an effective driver of development.

It has worked very closely with other international financial institutions, such as the IMF, the World Bank, the European Investment Bank and the Asian Development Bank, to adopt their best practices in regard to governance, organisational practices and project appraisal. On the other hand, not to join the AIIB would raise questions about Ireland’s position on China’s increasing integration into the global economy and international financial architecture. Such a decision could impair Ireland’s growing bilateral relationship with China, with potential adverse effects for Irish businesses.

The AIIB was founded to address the significant infrastructure gap in Asia. Research from the Asian Development Bank estimates that Asia will need to invest $1.7 trillion per year in infrastructure between now and 2030. This significant demand for investment cannot be met from other channels of finance such as existing international financial institutions, governments or the private sector in these Asian countries.

The bank was declared open for business on 16 January 2016. It approved its first loans on 24 June 2016. The authorised capital stock of the bank is $100 billion, with $20 billion in paid-in capital. The AIIB will follow the model of other multilateral development banks, raising funds on international markets at competitive terms. Since it came into operation, the bank has approved over $2 billion in loans.

The AIIB currently has 57 founding members which are divided into regional members, that is, Asian countries, and non-regional members, which are mainly European but also include Australia and New Zealand. Regional countries will hold 75% of the bank’s shareholding and thus contribute 75% of the capital of $100 billion, with non-regional countries holding 25% of the bank’s shareholding and contributing $25 billion in capital.

China is the largest shareholder in the bank, with 26% of its voting power. India is the second largest shareholder, with 8% of total voting power, while Germany is currently the largest non-regional shareholder with 6% of total voting power. Each member country is represented on the board of governors and nominates a governor and an alternative governor. As is the norm for membership of international financial institutions, it is envisaged that the Minister for Finance would be governor for Ireland at the bank.

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The principal office of the bank is located in Beijing, China. Unlike other international financial institutions, no member state representatives are based in Beijing, although the permanent staff may include people from member states.

The board of governors meets formally once a year for the AIIB's annual meeting. It elects a president for a term of five years and one or more vice presidents are appointed by the board of directors on the recommendation of the president. The current president is Mr. Jin Liqun, a Chinese national and former vice president of the Asian Development Bank, whose current term will expire in 2021. The board of governors also elects the 12 members of the board of directors who are responsible for the direction of the general operations of the bank. Nine directors are elected by regional members, while three others are elected by non-regional members. Members are arranged in constituencies headed by one of the 12 directors. On joining, Ireland will be part of the euro area constituency and represented by the director for the euro area.

To date, the bank has approved 13 projects in eight countries, with a focus spanning from transport to energy to urban development. Examples of projects the AIIB has financed to date include a $216.5 million dollar loan for a national slum upgrading project in Indonesia, co-financed with the World Bank; a $100 million dollar loan to finance a motorway project in Pakistan, co-financed with the Asian Development Bank and the United Kingdom's Department for International Development; and a $600 million dollar loan to support the trans-Anatolian natural gas pipeline in Azerbaijan, co-financed with a number of development banks.

EU member states have used their influence to ensure the standards of other multilateral development banks are mirrored in the AIIB in terms of investments, environmental and social safeguards, institutional governance and organisational matters. The bank has been very receptive to discussions on standards and safeguards and sought to adopt best practices. The mandate of the bank and the work undertaken by it to date on governance structures and safeguards covering investment, environmental and social issues demonstrate that it will complement existing international financial institutions. The majority of AIIB projects have been co-financed with other development banks, including the World Bank, the Asian Development Bank and the European Bank for Reconstruction and Development. This demonstrates the standard of project being financed by the AIIB and its intention to co-operate constructively with other international financial institutions. Both the president of the World Bank Group, Mr. Jim Yong Kim, and the president of the AIIB, Mr. Jin Liqun, have recognised the importance of ensuring a partnership approach, as evidenced by the memorandum of understanding they recently co-signed at the 2017 IMF-World Bank spring meetings to strengthen co-operation and knowledge sharing between both institutions.

The expected cost of membership for Ireland will be a total of approximately €25 million, spread over a five-year period, depending on prevailing exchange rates. Ireland has been offered 1,313 shares in the bank. This figure is based on the remaining unallocated capital in the bank and Ireland's relative GDP share among non-regional countries applying for membership in this round of applications. In capital terms, this equates to a total subscription of approximately €125 million, split between 80% callable capital and 20% paid in capital. In practice, this would result in a subscription of approximately €25 million, to which I have referred. In general, callable capital represents the capital for which a member country would be liable if the institution was to encounter acute financial distress, while paid-in capital is the amount a member country actually contributes to the institution in normal circumstances. Based on Ireland's membership of existing international financial institutions and the performance of these institutions to date, the probability of the callable capital being called on is negligible.

A contribution of approximately €25 million would also be broadly in line with our contribution to other international financial institutions, relative to their size. For example and taking into account the bank's global role, Ireland has paid-in capital in the World Bank of approximately €49 million. It also has paid-in capital of approximately €15 million in the Asian Development Bank. Ireland's capital contribution to the AIIB will be sourced from the Central Fund as is normal practice for international financial institutions. This has been provided for in the legislation. It is also expected that Ireland’s contributions to the AIIB will count towards the UN target of 0.7% of GNP for overseas development assistance, ODA. The programme for Government commits to continuing efforts to achieve this target as economic circumstances allow. While it remains to be formally decided whether contributions to the AIIB will count towards the level of ODA, indications are positive that this will be the case. In December 2016 the secretariat responsible for this issue in the OECD recommended that the AIIB be included in its list of ODA-eligible organisations. Once details are finalised, AIIB members will be able to count their AIIB contributions, or a significant proportion of them, towards their individual ODA targets.

I turn now to the specific provisions of the four sections of the Bill. Section 1 sets out the definitions used in the Bill.

Section 2 provides for the approval of the terms of agreement for membership of the Asian Infrastructure Investment Bank. The articles of agreement establishing the bank are set out in a Schedule to the Bill. Section 3 sets out the financial and other provisions associated with joining the bank.

Section 4 deals with the Short Title of the Bill. It also provides for the commencement of the provisions in section 3 on the day the State will become a member of the AIIB.

I strongly recommend Ireland's membership of the AIIB. The bank will make a significant contribution to economic prosperity and regional integration in Asia. Ireland's active participation in the AIIB will further strengthen our ties with this region, with expected benefits in trade links and possible procurement opportunities. Membership will be in line with Ireland's strong commitment to international development and I am confident that the AIIB will be an effective channel in that regard. I commend the Bill to the House.

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