Building effective partnership Deny Sidharta and Jared Heath  ;   Deny Sidharta is a partner at Soemadipradja & Taher and Jared Heath is a senior associate at Corrs Chambers Westgarth. Both are lawyers specializing in infrastructure and PPP projects

JAKARTA POST,  25 Februari 2014

                                                                                                                        

                                                                                         

                                                                                                                       

Indonesia aims to be among the top 10 global economies by 2025, but this ambition depends on infrastructure investment. Indonesia’s infrastructure needs are both significant and urgent. The Indonesian government supports infrastructure delivery at all levels of government through public-private partnerships (PPPs), but to date none have actually been completed. While progress has been made in establishing the framework for PPPs, opportunities for improvement remain. Indonesia needs over US$300 billion in infrastructure. According to the Indonesian government’s Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI), around a fifth of this infrastructure is to be delivered through PPPs. Indonesia’s National Development Planning Board (Bappenas) recently released its latest PPP Book, which identified 27 projects worth $47.34 billion to be made available to investors beginning in 2014. However, the number of projects actually underway is limited. Some are still in development and are yet to be released, others have been started and then stalled. To date, no PPP project in Indonesia has achieved financial completion. The question is why? Presidential Regulation No. 67 of 2005 (as amended) provides the legal framework for PPPs to deliver transportation, roads (including toll roads and toll bridges), irrigation systems, drinking water, liquid waste management, telecommunications, power and oil and gas infrastructure. And a range of state-owned entities have been created to assist with the financing and bankability of PPPs. PT Sarana Multi Infrastruktur (PT SMI) and PT Indonesia Infrastructure Finance (PT IIF) were both set up to provide alternative sources of funds (both debt and equity) to finance projects. PT SMI is wholly owned by the Indonesian government, while PT IIF is a private enterprise jointly funded by the government, the Asian Development Bank (ADB), the International Finance Corporation and two private financing institutions. PT Penjaminan Infrastruktur Indonesia (PT PII) is another government-owned entity that provides project guarantees to the private sector. It aims to improve the creditworthiness of public sector counterparts, hence increasing private sector participation and ring-fencing the government’s contingent liability. Indonesia’s sovereign wealth fund, Pusat Investasi Pemerintah (PIP), is financing land acquisition for PPPs and a number of state-owned construction entities are actively involved in infrastructure projects. The Finance Ministry has also established a viability gap fund to provide additional capital to ensure the financial viability of projects. Capital is also available from multilateral institutions (such as the ADB and the World Bank) and private financing institutions. While long-term local-currency funding requires more development, the biggest difficulty is enabling Indonesian infrastructure projects to attract international finance in competition with projects from more established jurisdictions with more favorable risk returns. One major impediment to infrastructure projects has been land acquisition. In 2012, the House of Representatives enacted the Land Acquisition Law. This law and relevant implementing presidential regulation are intended to streamline the acquisition process. Although these only have limited application to projects already under way, they should assist in facilitating future projects. So what impediments remain? There are three major challenges for PPPs in Indonesia: project conceptualization, certainty of the legal and regulatory framework and capacity building. Some have conceived of PPPs simply as a source of private sector finance or a convenient mechanism for transferring risk to the private sector. Instead, PPPs should be seen as a method for delivering innovation and value for money. Risks should be allocated to the party best placed to manage them. If inappropriate risks are imposed on the private sector, the project simply becomes un-bankable. With a proliferation of players (Finance Ministry, Bappenas, PT SMI, PT IIF and PT PII) and potential projects, establishing a central PPP unit to drive projects with proper planning and risk allocation is critical. While the presidential regulation for PPPs has established the basic legal framework, regulatory certainty remains a substantial issue. Coordination and consistency can be improved among the national, 34 provincial and more than 500 regency and municipal governments. The presidential and legislative elections this year also contribute to a current general state of uncertainty regarding policies and priorities. Finally, even though there has been much investment in developing the national government’s capacity to deliver PPPs, significant opportunities remain to develop the capacity of other levels of government, which are often the contracting authorities that enter into the PPP concession deed and are responsible for its delivery. Without active engagement of these other levels of government, infrastructure projects will not advance. Encouragingly, there are positive developments. After commencing in 2003, then being abandoned in 2011, the Jakarta Monorail Project recommenced in 2013. Last year also marked the launch of the Jakarta mass rapid transit system. At the Asia-Pacific Economic Cooperation (APEC) Summit in Bali in 2013, the leaders agreed to establish a pilot PPP center in Indonesia, which will assist the Finance Ministry to build capacity in designing and managing PPPs. If the PPP center focuses on the remaining challenges and there is a collective commitment to developing quality projects rather than simply the pipeline quantity, there is every prospect that Indonesia’s infrastructure ambitions can more rapidly be translated into reality. ●