Post on 03-Apr-2018
1 PPP in Indonesia: Risk Allocation Guideline
2 PPP in Indonesia: Risk Allocation Guideline
FOREWORD
The increasing demand for infrastructure development to support Indonesia’s economic growth has led the Government of Indonesia to provide fiscal support and a
better framework in attracting private investment and participation of a measurable scale. On December 30, 2009 the Government of Indonesia has established
Indonesia Infrastructure Guarantee Fund or IIGF, as a State-Owned Enterprises (SOEs) under the Ministry of Finance which is responsible on providing government
guarantees for infrastructure projects developed under the Public Private Partnership (PPP) scheme. The critical roles of IIGF are:
As the GoI’s contingent support provider through provision of government-related contractual risk guarantees;
Enhancing the quality of the PPP transaction; and
Encouraging standardized and accountable approach for PPP implementation as being the single window processor for guarantee provision.
Through IIGF, the guarantees are made available with the aim of providing more certainty in achieving the necessary financial closing, by way of improving the
creditworthiness or bankability of the PPP projects. IIGF business models heavily relies on the current PPP and guarantee regulatory framework which should
emphasize on :
Project feasibility (technical, legal, economic, financial, social and environmental);
Contracting Agency’s readiness for implementation of PPP scheme; and
Ability of Contracting Agency to manage project risks which properly allocated to them.
With regards to the emphasis on the proper risk allocation, this Risk Allocation Guideline becomes very essential asa key reference in assessing and allocating risks
for the purpose of guarantee provision, as mandated by the regulation. This Risk Allocation Guideline is also intended to be a key reference for:
Contracting Agencies in developing the PPP Contracts as well as the Guarantee Application Package (GAP) to be submitted to IIGF for guarantee provision;
and
Investors and financiers in assessing their potential investment and financing for PPP projects in Indonesia.
Nevertheless, it is important to note that during implementation, some risk allocations may have variations to what have been outlined in this Guideline, as they are
subject to actual project and/or sector specific conditions, or agreed commercial position between the parties.
This Guideline is continuously improved and reviewed periodically, minimum once for every 12 months, by way of gathering feedbacks from key stakeholders as has
been conducted when developing this Guideline, such as: Ministry of Finance, Sectoral Ministries, Investment Coordinating Board, Bappenas, BPPSPAM, BPJT,
Regional Government, Investors and Developers, Banks, Multilateral Development Agencies, as well as Consultants and Experts in infrastructure risk.
Sinthya Roesly
President Director
Indonesia Infrastructure Guarantee Fund
3 PPP in Indonesia: Risk Allocation Guideline
TABLE OF CONTENTS
FOREWORD – PRESIDENT DIRECTOR, INDONESIA INFRASTRUCTUREGUARANTEE FUND ............................................................................................... 2 TABLE OF CONTENTS ..................................................................................................................................................................................................................... 3 LIST OF FIGURES ............................................................................................................................................................................................................................. 5 LIST OF TABLES ............................................................................................................................................................................................................................... 7 DOCUMENT LOG AND REVISION TABLE ...................................................................................................................................................................................... 8 DEFINITIONS AND GENERAL TERMS ............................................................................................................................................................................................ 10 GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT ........................................................................................................................................... 11 1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA ................................................................................................................................. 11 2 PPP STRUCTURES IN INDONESIA ............................................................................................................................................................................................ 12
2.1 GENERAL PPP STRUCTURE ....................................................................................................................................................................................................... 12 2.1.1 Usage-based PPP (Wholesale infrastructure) .................................................................................................................................................................. 13 2.1.2 Availability-based PPP (Retail Infrastructure) ................................................................................................................................................................... 13 2.1.3 Operation and Maintenance (O&M) Contract based PPP ................................................................................................................................................ 14
2.2 SECTORAL PPP STRUCTURE ..................................................................................................................................................................................................... 15 2.2.1 PPP Structure in Water Supply Sector ............................................................................................................................................................................. 15 2.2.2 PPP Structure in Waste Management Sector .................................................................................................................................................................. 16 2.2.3 PPP Structure in Toll Road Sector ................................................................................................................................................................................... 18 2.2.4 PPP Structure in Power Sector ........................................................................................................................................................................................ 20 2.2.5 PPP Structure in Energy Conservation Sector ................................................................................................................................................................. 22 2.2.6 Oil and Gas PPP Sector ................................................................................................................................................................................................... 23 2.2.7 PPP Structure Railway Sector .......................................................................................................................................................................................... 24 2.2.8 PPP Structure in Bus Rapid Transit (BRT) Sector ........................................................................................................................................................... 25 2.2.9 PPP Structure in Seaport Sector ...................................................................................................................................................................................... 25 2.2.10 PPP Structure in Airport Sector .................................................................................................................................................................................... 26 2.2.11 PPP Structure in Telecommunication Sector ................................................................................................................................................................ 28 2.2.12 PPP Structure in Urban Facilities Sector ...................................................................................................................................................................... 29 2.2.13 PPP Structure in Public Housing Sector ....................................................................................................................................................................... 30 2.2.14 PPP Structure in Hospital Sector .................................................................................................................................................................................. 31 2.2.15 PPP Structure in Education Sector ............................................................................................................................................................................... 32 2.2.16 PPP Structure in Sport Sector....................................................................................................................................................................................... 33 2.2.17 PPP Structure in Tourism Sector .................................................................................................................................................................................. 34 2.2.18 PPP Structure in Correctional Sector ............................................................................................................................................................................ 35
3 EVALUATION OF RISK ALLOCATION ASPECT FOR PPP PROJECT AND INFRASTRUCTURE GUARANTEE ROVISION .............................................. 36 3.1 RISK ALLOCATION PRINCIPLE IN THE CONTEXT OF PPP PROJECT IMPLEMENTATION ...................................................................................................................... 36
3.1.1 Risk Allocation Implementation in the Preparation and Transaction of a PPP Project .................................................................................................... 38 3.1.2 Risk Allocation Implementation in the Provision of Guarantee to PPP Project by IIGF ................................................................................................... 39
4 INFRASTRUCTURE RISK ALLOCATION GUIDELINE .............................................................................................................................................................. 40 4.1 PPP RISK CATEGORY ................................................................................................................................................................................................................ 40 4.2 RISK MATRICES BY PPP SECTOR ............................................................................................................................................................................................... 43
4 PPP in Indonesia: Risk Allocation Guideline
4.2.1 Risk Matrix for PPP Water Supply Sector ........................................................................................................................................................................ 43 4.2.2 Risk Matrix for PPP Waste Management ......................................................................................................................................................................... 49 4.2.3 Risk Allocation Matrix in Road Sector .............................................................................................................................................................................. 63 4.2.4 Risk Allocation Matrix in Electricity Sector ........................................................................................................................................................................ 71 4.2.5 Risk Allocation Matrix in Energy Conservation Sector ..................................................................................................................................................... 78 4.2.6 Risk Allocation Matrix in Oil and Gas Sector .................................................................................................................................................................... 82
4.2.7 Risk Allocation Matrix in Railway Transportation Sector ................................................................................................................................. 88 4.2.8 Risk Allocation Matrix in Bus Rapid Transit (BRT) Sector ................................................................................................................................................ 95
4.2.9 Risk Allocation Matrix in Seaport Sector ................................................................................................................................................... 103 4.2.10 Risk Allocation Matrix in Airport Transportation Sector .............................................................................................................................................. 109 4.2.11 Risk Allocation Matrix in Telecommunication Sector .................................................................................................................................................. 116 4.2.12 Risk Allocation Matrix in Urban Facilities Sector......................................................................................................................................................... 122 4.2.13 Risk Allocation Matrix in Health Sector ....................................................................................................................................................................... 128 4.2.14 Risk Allocation Matrix in Public Housing Sector ......................................................................................................................................................... 135 4.2.15 Risk Allocation Matrix in Education Sector ................................................................................................................................................................. 141 4.2.16 Risk Allocation Matrix in Sport Facility Sector............................................................................................................................................................. 147 4.2.17 Risk Allocation Matrix in Tourism Sector .................................................................................................................................................................... 154 4.2.18 Risk Allocation Matrix in Correctional Sector .............................................................................................................................................................. 160
5 SUMMARY .................................................................................................................................................................................................................................. 167
5 PPP in Indonesia: Risk Allocation Guideline
LIST OF FIGURES
Figure 1. Usage-based PPP or Wholesale Infrastructure .......................................................................................................................................... 13
Figure 2. Availability-based PPP or Retail Infrastructure........................................................................................................................................... 14
Figure 3. Water BOT Structure ............................................................................................................................................................................. 16
Figure 4. Waste Water Management BOT/BOOT and AP Structure .......................................................................................................................... 17
Figure 5. PPP Waste Water Management Structure ................................................................................................................................................ 18
Figure 6. Toll Road Full Concession Structure ........................................................................................................................................................ 18
Figure 7. Toll Road O&M Structure ........................................................................................................................................................................ 19
Figure 8. Combination of Toll Road Concession and O&M Structure ......................................................................................................................... 19
Figure 9. Toll Road and Non Toll Road AP Structure ............................................................................................................................................... 20
Figure 10. Electricity BOT Structure ...................................................................................................................................................................... 21
Figure 11. Electricity BOO Structure ...................................................................................................................................................................... 21
Figure 12. Minemouth BOT Stucture ..................................................................................................................................................................... 22
Figure 13. Street Lighting (PJU) or Energy Efficiency .............................................................................................................................................. 23
Figure 14. Oil Refinery BOT Structure ................................................................................................................................................................... 23
Figure 15. Railway Full Concession Structure ......................................................................................................................................................... 24
Figure 16. Railway O&M Structure ........................................................................................................................................................................ 24
Figure 17. BRT BOT Structure .............................................................................................................................................................................. 25
Figure 18. BRT O&M Structure ............................................................................................................................................................................. 25
Figure 19. Seaport Full Concession Structure ......................................................................................................................................................... 26
Figure 20.Airport Full Concession Structure ........................................................................................................................................................... 27
Figure 21. Airport O&M Structure .......................................................................................................................................................................... 28
Figure 22. Fiber Optic Network AP Structure .......................................................................................................................................................... 28
Figure 23. Public Market BOT Structure ................................................................................................................................................................. 29
Figure 24. Public Market AP Structure ................................................................................................................................................................... 30
Figure 25.Public Housing BOT Structure ................................................................................................................................................................ 30
Figure 26. Public Housing AP Structure ................................................................................................................................................................. 31
Figure 27. Hospital AP Structure ........................................................................................................................................................................... 31
Figure 28. School/Colleges AP Structure ............................................................................................................................................................... 32
Figure 29. Indicative structure of AP Payment Scheme of PTN-BH........................................................................................................................... 33
6 PPP in Indonesia: Risk Allocation Guideline
Figure 30. Sport BOT Structure............................................................................................................................................................................. 33
Figure 31. Sport AP Structure ............................................................................................................................................................................... 34
Figure 32. Tourism AP Structure ........................................................................................................................................................................... 35
Figure 33. Prison AP Structure ............................................................................................................................................................................. 35
Figure 34. Prison AP Structure ............................................................................................................................................................................. 36
Figure 35. Sequence of PPP Risk Allocation Logic .................................................................................................................................................. 37
Figure 36. IIGF Risk Allocation Guideline and the Prevailing PPP and Infrastructure Guarantee Framework .................................................................. 40
7 PPP in Indonesia: Risk Allocation Guideline
LIST OF TABLES
Table 1. Features of PPP Structure Options ................................................................................................................................................................................ 14
Table 2. Ilustration of Risk Allocation in the PPP Agreement ...................................................................................................................................................... 39
Table 3. Risk Matrix for Water BOT ............................................................................................................................................................................................. 44
Table 4. Risk Matrix for Solid Waste BOT ................................................................................................................................................................................... 50
Table 5. Risk Matrix for Wastewater Sector ................................................................................................................................................................................. 58
Table 6. Risk Matrix for Toll and Non-Toll Road .......................................................................................................................................................................... 64
Table 7. Risk Matrix for Electricity Sector .................................................................................................................................................................................... 71
Table 8. Risk Matrix for Energy Conservation Sector .................................................................................................................................................................. 78
Table 9. Risk Matrix for Oil and Gas Sector ................................................................................................................................................................................. 82
Table 10. Risk Matrix for Railway Sector ..................................................................................................................................................................................... 89
Table 11. Risk Matrix for BRT Sector........................................................................................................................................................................................... 95
Table 12. Risk Matrix for Seaport Sector ................................................................................................................................................................................... 103
Table 13. Risk Matrix for Airport Sector ..................................................................................................................................................................................... 109
Table 14. Risk Matrix for Telecommunication Sector ................................................................................................................................................................ 116
Table 15. Risk Matrix for Urban Facitilities (Market) Sector....................................................................................................................................................... 123
Table 16. Risk Matrix for Health Sector ..................................................................................................................................................................................... 129
Table 17. Risk Matrix for Public Housing Sector ........................................................................................................................................................................ 135
Table 18. Risk Matrix for Education Sector ................................................................................................................................................................................ 142
Table 19. Risk Matrix for Sport Facility Sector ........................................................................................................................................................................... 148
Table 20. Risk Matrix for Tourism Sector ................................................................................................................................................................................... 154
Table 21. Risk Matrix for Correctional Sector ............................................................................................................................................................................ 161
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8 PPP in Indonesia: Risk Allocation Guideline
DOCUMENT LOG AND REVISION TABLE
Version Description Notes
March 2011 First edition A dedicated workshop for gathering the inputs was conducted on 25-26 February 2011.
April 2012 Second edition A dedicated workshop for gathering the inputs was conducted on 14-15 March 2011. The improvements include: update on the PPP regulation (as enactment of Presidential Regulation 56/2011) update/add diagram describing PPP risk allocation implementation framework in relation to infrastructure
guarantee provision and to basic risk management process update on risk matrices, including additional column on specific conditions related to risk allocation add new PPP structures (and their risk matrices):
o Electricity: BOT minemouth o Toll road: Combination of Concession and O&M o Waste Management: BOT wastewater
April 2013 Third edition Based on inputs gathered thru discussions (e.g. face to face, mail, email and website), the improvements include: additional (and sharpening) risk event and mitigation strategy for the risk matrices, such as:
o land tenure risk (duplication of land ownership) o culture risk o operational risk – failure on project management (by PC) o operational risk – failure on project control & monitoring (by PC or CA)
March 2014 Fourth edition A dedicated workshop for gathering the inputs was conducted on 20-21 March 2014. The improvements include: update on the PPP regulation (as enactment of Presidential Regulation 66/2013 and VGF regulation) update on the description of cooperation scheme for water supply sector, waste management sector, toll
road sector, railway sector, seaport sector and airport sector additional (and sharpening) risk event and mitigation strategy for the risk matrices, such as
o limited workspace risk (for the project that needs lengthwise location) o local culture risk -> social and culture risk o tariff related risk: the needs for regulatory support (regulation for CA regional) o demand and revenue risk: socialization and eligibility support program o Expropriation: that contrasted to the takeover with compensation (nationalization)
March 2015 Fifth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from February 2 to 27, 2015. The improvements to the previous version, include:
Description on the preferences of the PPP scheme in RPJMN 2015-2019, overview of sectors and structures that may be undertaken in cooperation with the PPP scheme as in the just recently updated PPP regulation;
Adjustment of narration about reference on context of the elimination of Law No. 7 of 2004 on Water Resources;
Additions / adjustments of narration about cooperation of port sector and other sectors;
Some adjustments to the specific context and the typo in the matrix
Adjustment of additional risks in the matrix
March 2016 Sixth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from March 1 to 28, 2016. The improvements to the previous version, include:
9 PPP in Indonesia: Risk Allocation Guideline
Version Description Notes
Explanation on the overview of sector and structure that may be undertaken in cooperation with PPP scheme as in the just recently updated PPP regulation;
Improvement in PPP project structure figures;
Additions explanation of the recently updated regulation, particularly related to Availability Payment (AP) and Water Supply sector;
Additions / adjustments of narration about risk management process;
Some adjustments on specific contexts and typo in matrix;
Adjustments of risk category in matrix; and
Simplify the presentation of risk in one sector.
April 2016 Seventh edition Based on inputs gathered from stakeholders, both written and through discussion in the period from April 1-29, 2016. The improvements to the previous version, include:
Improvement of risk allocation matrix for Toll Road concession scheme, especially related to revenue risk during the ramp up period; and
Addition figure for indicative structure of AP Payment Scheme of PTN-BH (State University with Legal Entity status).
March 2017 Eighth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from Februari 8 – March 8, 2017. The improvements to the previous version, include:
Additions definition of BOOT;
Adjustment of PPP scheme definition and scope of works;
Improvement of risk allocation matrix, especially for electricity sector and oil and gas sector;
Additions of structure and risk matrices for bus rapid transit sector and correctional sector;
Additions of narration on project structure explanation in minemouth, water supply sector, and solid waste sector; and
Additional (and sharpening) of risk event and mitigation strategy for risk matrices.
10 PPP in Indonesia: Risk Allocation Guideline
BOO
BOT
PC
Financial Close
IIGF
(Full) Concession
PPP
Off-taker
CA
BOOT
DEFINITIONS AND GENERAL TERMS
Build Operate Own- a PPP contract under which the private party is responsible for the design, construction, operation and transfer of ownership
of the facility upon expiration of the contract period
Build Operate Transfer– a PPP contract under which the private party is responsible for design, financing, construction, operation of the
infrastructure facility and for which it retains ownership during and after the contract period.
Build Operate Own Transfer - a PPP contract under which the private party is responsible for design, financing, construction, operation and own
an infrastructure facility during the contract period and then transfer the ownership at the expiry of the contract.
Project Company; private business entities in the form of a limited liability Company, State-Owned Enterprises (BUMN), Regional-Owned
Enterprise (BUMD), and cooperatives which is the Contracting Agency (CA)’s or Government Contracting Agency (GCA)’s counterparty under
the PPP contract.which is the Contracting Agency (CA)’s counterparty under the PPP contract
The date at which all project contracts and financing documentations have been signed, and conditions precedent to initial drawing of the debt
have been fulfilled.
Indonesia Infrastructure Guarantee Fund a government-owned entity bearing mandate for infrastructure guarantee provision. Also known as PT
Penjaminan Infrastruktur Indonesia (Persero) (PT PII)
a PPP in which the private sector collects revenue for service fees directly from end users, general public in the form of tolls, fares or other
charges for using the facility.
Public Private Partnership or Kerjasama Pemerintah dan Badan Usaha.as stipulate in the current regulation (i.e. Presidential Decree No
38/2015);
Purchaser of infrastructure service in a PPP contract, usually the public utility company as part of the CA.
Contracting Agency – the project owner or the public sector counterparty in a PPP contract (as stipulated by the prevailing regulations). Also
known as Public Authority or Implementing Agency or Penanggung Jawab Proyek Kerjasama (PJPK) or Public Authority (PA) or Implementing
Agency (IA). Based on current regulation, the CA can be a Minister or Chairman of the Institution/Regional Head, or State-Owned Enterprises
(BUMN), Regional-Owned Enterprise (BUMD) in terms of regulation, provision of infrastructure organized or conducted by BUMN/BUMD.
11 PPP in Indonesia: Risk Allocation Guideline
GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT
The infrastructure challenges in Indonesia are imminent. As Government budget has its limitation, hundreds of trillions Rupiah are expected to come from private
sectors within a couple of years to help infrastructure development. Related to this need, the Government of Indonesia (GOI) has provided the regulatory and
institutional framework to attract interests from private sector, including participation in infrastructure projects under Public Private Partnership (PPP) schemes.
Citing the National Medium Term Development Plan 2015-2019, the PPP scheme is expected to be the backbone of development financing is cost-recovery,
especially in areas where people's purchasing power has been able to implement the user pay principle as in urban areas. Public funding will be prioritized to finance
development in areas of low income communities, accelerating the development of regional priorities and the services that are social or non-cost recovery. Policy
funding will also be directed to open up opportunities for hybrid financing that combine the potential of funding from the public sector, private and society. The
combination of the financing will be done in a variety of innovative in an effort to accelerate the development in various fields
In the context of the provision of fiscal support for those infrastructure projects, in December 2009, GOI has established PT Penjaminan Infrastruktur Indonesia
(Persero) (PT PII), or Indonesia Infrastructure Guarantee Fund (IIGF), a state-owned enterprises that are mandated to provide guarantees for private sector’ risks of
not-compliance with the financial obligation of the public or Contracting Agency (CA) under the PPP contract which may be thriggered by breach of contract and
changes in laws and regulations, IIGF and its guarantees are designed to increase investment comfort to private investors and lenders, and to ultimately accelerate
PPP project implementation in Indonesia.
1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA
In order to improve the creditworthiness of infrastructure projects as an effort to encourage private sector participation in the provision of infrastructure, the
government guarantee can be granted to infrastructure projects provided under PPP scheme, as just recently stipulated in Presidential Regulation No. 38 year 2015
on cooperation among Government and private entity in the provision of infrastructure (replace Presidential Regulation No. 67 of 2005 and its amendment) ("PPP
Regulation"). As stated in the regulations, the provision of government guarantees may be given by the Minister of Finance (MoF) through a Government established
entity to provide infrastructure guarantees (Business Entity for Infrastructure Guarantee). Based on Government regulations No. 35 Year 2009, IIGF is established
through state capital injection with the purpose of providing guarantees to infrastructure.
Provision of infrastructure guarantee through IIGF is regulated further through the Presidential Regulation No. 78 of 2010 on Infrastructure Guarantees for Public
Private Partnership Projects through the Infrastructure Guarantee Entity for ("Presidential Regulation 78/2010"), and Minister of Finance Decree No.
260/PMK.011/2010 on Implementation Guidelines for Infrastructure Guarantees in PPP Projects ("MoFD 260/2010"). In this book, these regulations are defined as
“Infrastructure Guarantee Regulation”. Further, the Government through the Minister of Finance Regulation No. 223/PMK.011/2012 has issued regulation about
providing feasibility support (viability gap fund) as a form of Government support for the project that economically viable but has limited financial feasibility. Lastly,
the Government, through the Minister of Finance Regulation No. 190/PMK.08/2015 about the payment of the availability of services in cooperation between the
Government and business entities in the provision of infrastructure.
Clause 11 of MoFD 260/2010 mandates IIGF to develop a guideline on infrastructure risk category and its allocation between the public and private sector (“Guideline
for Risk Category and Risk Allocation” or simply “Risk Guideline”), as a key reference for the CA in developing PPP contracts, as well as preparing and proposing
Guarantee Application Package (GAP) to IIGF, and for investors and financiers in assessing their investment and financing in Indonesia opportunities PPP project.
It is important to note that during implementation, some risk allocations may have variations to what have been outlined in this Guideline, as they are subject to
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12 PPP in Indonesia: Risk Allocation Guideline
actual project and/or sector spesific conditions, the generally accepted practice, sectoral regulatory contexts or agreed commercial position between the parties.
The Risk Guideline is developed through consultation with key stakeholders, e.g. MoF, Bappenas, BKPM, relevant CAs (Ministries, Regional Governments),
investors/developers, banks, multilateral development agencies, and other parties with competencies in the field of infrastructure risk. This guideline is also part of
publication series by IIGF and is complementary to the IIGF Guarantee Provision Guideline. These document serve as key references for IIGF in assessing the
viability of the GAP submitted by the CAs to IIGF.
2 PPP STRUCTURES IN INDONESIA
In developing this Risk Allocation Guideline, relevant PPP structures eligible under prevailing regulation in Indonesia serve as the basis to identify infrastructure
risks. Besides the generic, cross-sectoral PPP structure, specific PPP sectors are identified to be included in this Guideline. Such sectors include:
1. Water supply
2. Waste management
3. Toll road
4. Power supply
5. Energy conservation
6. Oil and gas
7. Railway transport
8. Airport
9. Seaport
10. Telecommunication
11. Urban facilities
12. Public housing
13. Health
14. Education
15. Sports
16. Tourism
17. Bus Rapid Transit
18. Correctional
Some sectors of economic and social infrastructure also has the potential to be applied, such as regional infrastructure, have not been incorporated into the study
on the basis that there is no potential projects that will be prepared in 2017.
2.1 General PPP Structure
Based on PPP Regulation, referring to the respective sector regulationthe CA can be the Minister or Head of Agency or Head of Regional Government, and in
terms of legislation of the public infrastructure provision is carried out by Central SOE or regional SOE, then the CA role is bourne by the said Central/Regional
SOE, thus the CA is the Central/Regional SOE (BUMN/BUMD). The CA along with public institution that affect PPP are stakeholders from government side. In
this Guideline, structure that is presented is a generic form which is a reference only and is not rigid, by considering the regulation dynamic, as wel l as the
situation and condition of projects reviewed.
Furthermore, element of stakeholders from the private sector is generally divided into private, the supporting of construction and operation aspects, and the
supporting financing aspects. Private is a contracting party of PPP and is responsible for the infrastructure and services provided in accordance with the output
specifications which contained in the contract. The supporting of construction and operation aspects, consist of design consultant, contractor, and operator. The
function of design consultants and contractors can be unified by selecting the Company’s Engineering, Procurement, and Construction (Engineering,
Procurement, Construction – EPC). The supporting parties of construction and operation aspects have engagement contract with the private sector aims to
make available infrastructure and the services provided under the PPP contract. The supporting of the financing aspects are the Project Sponsor and the
Lenders. The Project Sponsor are persons/companies individual/consorsium companies/cooperatives that provide private capitalization in accordace with the
requirements of the PPP contract, or also called investor. Generally, the project financing will not be fully sourced from the capital, but there is also financing
from the Lenders. Lenders are financial or banking institution either single or syndication which provides loans for project financing. Private do the loan
agreement with the Lenders that aims to finance project can be fulfilled and Private can be able to repay in accordance with specified requirements. Fulfillment
of project financing (financial close) is a key factor for early and sustainability of a project. Therefore, financial close become one of a
13 PPP in Indonesia: Risk Allocation Guideline
indicator that must be met in Consitions Precedent (CP) prior to the commencement of the contract effectively. The Government could provide various forms of
support such as the viability gap funding (VGF), tax incentives, partial construction support, etc. Beside that, the Government guarantee may also be given to
the projects through IIGF.
For the purpose of developing this Guideline, the PPP structure is classified based on the nature of service and inherent risks transfer inherent in the PPP
contract. The modalities of basic PPP project structure are Usage-based PPP and Availability-based PPP structure, which the application is based on an
assessment on option of cooperation scheme to formulate a business case to the scope of the project.
2.1.1 Usage-based PPP (Wholesale infrastructure)
In this structure, the scope for PPP is basically the entire works that previously be the responsibility of the public sector. As shown in the figure below, Private
directly providing infrastucture services to retail customer/end-users, which the Government act more as a regulator.
This structure has known as Full Consessions model (in Indonesia known as
“Consession” model) and is generally used in the toll road sector, the transport
sector (e.g. railway, seaport) and the utility sector (e.g. waste water). As
shown, the CA contractually agrees to provide the PC a concession right for
delivering the wholesale service during the PPP period. In certain sectors
where exploitation by the private sector is still considered sensitive (e.g. water
supply), the implementation of this scheme needs to be examined more
carefully, especially in the preparation of the concession agreement includes
coverage of a certain area that are not served by the existing services of the
public sector entity.
2.1.2 Availability-based PPP (Retail Infrastructure)
In these structure, the scope of work in this PPP structure only includes portions of entire works that previously be the responsibility of the public sector. Most
of this type of services include business process services as part of the infrastructure. Type of the services provision may include the the provision of generating
units/processors (“facility”), transmission provision of raw materials for the facilities, construction, and operations of major facilities to support services (such as
education and health sectors), or the output distribution facility to the main network to the subscriber.
Figure 1. Usage-based PPP or Wholesale Infrastructure
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As shown in the Figure, Private receive periodic payments from Private
during the contract period for the availability of facilities and infrastructure
services. Components include the periodic payments of the return on
investment (CAPEX), operating costs, and Return on Investment (ROI). As
users paid services to the Government and also through work units that
managed by BLU.
The contractual structure in this type of PPP applied in Build Operate
Transfer (BOT) scheme or other scheme which permitted by regulation as
long as the status of ownership of the asste at the end of the concession
belongs to the government. In that scheme, the Private is typically
responsible for design, construction, financing and operation and
maintenance of the facility, of which the result will be utilised/purchased by
the public sector’s CA.
2.1.3 Operation and Maintenance (O&M) Contract based PPP
In addition to the above 2 (two) structures, based on the PPP Regulation as also relevant to the potential applications especially in transport sector, the Operation
and Maintenance (O&M) contract could also be discussed further in this guideline. As it does not include the implementation and financing of construction
facility, O&M contract may refer to a Lease contract which enables the PC to be responsible for the management, operations and specific renewals of the
contracted facility.
During the PPP contract, it is the private sector who is responsible to provide the infrastructure services, but the ownership of the facility is kept by the public
sector as a party to make a capital investment. In other countries, the O&M contract can be shaped as affermage contract and lease contract. Below is the
description of features of the various PPP structures.
Table 1. Features of PPP Structure Options
Activities Availability-based Usage-based O & M
Ownership of asset during contract Private Private (except BTO) Government
Investment / Funding Private Private Government
Construction Private (+ Government, if regional project)
Private (+ Government) Government
Operation & Maintenance Private Private Private
Services and tariff collection to retail consumers / end users
Private/Government (depends on project scope)
Private Private/Government (depends on project scope)
Contract length (typically, by sectors) <20 years 20-50 years 5-15 years
Figure 2. Availability-based PPP or Retail Infrastructure
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Activities Availability-based Usage-based O & M
Customers Single customer/CA Retail customer/End-user Single customer/CA or Retail customer/End-user
Source of cash flow Payments by CA Payments from consumers Percentages of revenue from tariff
2.2 Sectoral PPP Structure
2.2.1 PPP Structure in Water Supply Sector
Structure of PPP in water supply sector refers to applicable regulation regarding water supply system and PPP Regulation. Based on
Presidential Regulation No. 122 of 2015 on Water Supply System, Central SOE/Regional SOE (PDAM/PDAB) in water supply is the CA
of SPAM development. In terms of Central SOE/Regional SOE financing capacity to fulfill the needs of SPAM Operation with a piping
network inside and outside the service area is inadequate, Central SOE/Regional SOE can cooperate with PC based on the principles that
covering: Water Intake Permit which is owned by Central SOE/Regional SOE and SPAM Operation by prioritizing low-income communities.
Cooperation with PC can only be done in the form of:
1. Investments of SPAM Development and/or SPAM Management of the raw water and production units;
2. Investments of distribution units which is further operated and managed by related Central SOE/Regional SOE; and/or
3. Investments of operating technology and maintenance in order to provide an effective and efficient of SPAM Operation with performance-based
contracts mechanism.
However, for areas outside of the Central SOE/Regional SOE services, Government or Local Government can establish the Technical Services Unit (UPT) or
Local UPT (UPTD).
In line with the regulations and the current projects implementation, the PPP structure which can be applied only an availability-based structure with BOT
scheme. In terms of inadequate PDAM financing capacity is is and to provide comfort in investment for PC, the Regional Head can be involved in PPP agreement
in accordance with its authority. This because the CA’s credibility play an important role for the successful project implementation.
2.2.1.1. Water BOT
The Private can invest in a one or combination of the build, operate, and maintain the water unit and production unit, build the distribution unit up, and/or
hold, operate, and maintain the operation and maintenance technology system, but not taking the demand risk or retail tariff collection tasks. In the bulk
water sales agreement, the resulted water from process done by the PC then sold to CA where PC will get compensation for the water treatment
services.
Figure 3. is the generic form of Water BOT scheme with PDAM/PDAB as CA. The project structure adopted an Availability Payment scheme. In this
case of services, CA specified in the contract to be able to provide a certain quantity, with the required quality of service, and continuity is assured during
operation period. SPAM development of inter-district/city is the responsibility of the Provincial Government, such as the Umbulan Regional SPAM
16 PPP in Indonesia: Risk Allocation Guideline
Project.Another important thing, the success key of project transaction is the Private sector (particularly lenders) need to be convinced that CA
demonstrate good creditworthiness in fulfilling the periodic payment obligation during the contract period.
2.2.2 PPP Structure in Waste Management Sector
In waste management, the project structure can use an availability-based PPP structure with BOT scheme. As for the solid waste management sector can use
the usage or availability-based PPP structure with BOT or BOOT scheme. The CA in this sector, in accordance with regulation, would be the Central Government
or Regional Government (i.e. city or municipal government or provincial government) depends on scope of of the project.
2.2.2.1. Solid Waste BOT/BOOT
By referring to applicable PPP regulation, one of the scope of cooperation is the downstream side of waste treatment, which is
built dan operate the waste treatment facility at Final Disposal facility. Besides allowed by regulation, the scope of cooperation in
the upstream side of waste management (waste transportation) or downstream side (final disposal) are quiet attractive for investors
(as long as not including the billing collection), due to the public awareness to make payments of waste retribution is still low and
the waste problem not yet considered as important issues.
Figure 3. Water BOT Structure
17 PPP in Indonesia: Risk Allocation Guideline
Figure 4. Waste Water Management BOT/BOOT and AP Structure
The Regional Government as the CA (usually as the waste supplier which collects from the domestic and non-domestic customers) would pay a tipping
fee for the service provided by the PC either in transporting waste and through the Final Disposal facility in form of tipping fee or customs gate. Depending
on the selection of technology applied, the output from the process done by the PC could be utilized or sold to generate additional revenue to the PC
(e.g. the electricity to be sold to PLN-state utility company or sales of processed products such as compost or brick). If adopted the AP payment scheme,
the sales of solid waste management output become Government income. At the end of the BOT/BOOT contract period, the ownership of the Final
Disposal facility shall be handed over to the CA. Nambo Regional TPPAS Project in West Java and Waste to Energy (WTE) of Batam Project are an
example of the PPP projects implementation in this sector.
2.2.2.2. BOT Waste Water Management (Centralized or Local)
Similar to the Solid Waste sector, the project can be done in BOT structure. In this case, PC only responsible build, operate, and
maintain the Wastewater Treatment Plant (IPAL), while the construction, operation, and maintenance of the main pipeline and
collection network including billing to retail customers commonly become Government responsibility. However, this scope can be
change depends on character of customer served (residential industrial).
18 PPP in Indonesia: Risk Allocation Guideline
Government as CA provide payment for services provided by PC. At the end
of the BOT contract period, the ownership of the infrastructure shall be
handed over to CA. Based on an early understanding on the current
regulations, the regional utility company such as PDAM (according to
Presidential Regulation No. 122/2015) or PD PAL in Jakarta can act as the
CA as long there is an assignment from the Head of Region.
In contrast to waste management, the output of waste water is still in the
form of water and sludge. The utilization of waste water can only be used
for the surrounding environment, has not for the commodity that could be
able increase a revenue yet. The PPP project in waste water management
sector that currently running (preparation stage) in Jakarta.
2.2.3 PPP Structure in Toll Road Sector
PPP can be run in toll road sector, as it is currently running and also in non-toll road sector. For toll road sector, so far the PPP is perfomed
through a wholesale infrastructure (usage-based type) scheme. The CA in toll road sector would be Toll Road Authority (BPJT) in Ministry
of Public Works and Housing, in the name of Minister. As for the non-toll road sector, PPP scheme in the form of availability-based
scheme. CA in a non-toll road sector refers to road
classes (national roads, provincial roads,
district/city roads). In the toll road sector there is
also known a Supporting BOT (SBOT) scheme,
which is applicable for toll road projects with BOT scheme that get the
Government support in form of Viability Gap Funding (VGF) or
construction of certain sections of the toll road. This scheme is also called
as Combination of Concessions and O&M scheme (Hybrid).
2.2.3.1. Toll Road BOT
In this structure, the users pay for the toll road services to the PC
as the concession (right) holder which is responsible for the
design, construction, operation and maintenance of the facility
until end of contract period. The concession is typically granted
to the PC with BOT type of structure. Demand risk and tariff-
related risk is most concerned risks for PC. For new roads where
the volume of vehicle users are still limited and uncertain, PC typically require fiscal support to demand risk, either directly or indirectly.
2.2.3.2. Toll Road O&M
Figure 5. PPP Waste Water Management Structure
Figure 6. Toll Road Full Concession Structure
19 PPP in Indonesia: Risk Allocation Guideline
In this scheme, the PPP scope is the operation and maintenance
of the available facilities. Therefore, design, construction and
financing of the toll road which is not included facility as the scope
of PC works. This structure can be chosen on a case:
A toll roads are not able to achieve a good commercial
viability if the investment costs included in the scope of PPP
offered; or
A toll roads infrastructure which has been shifted to the
Government after the end of concession period.
PC as operator (in this type of contract) will maintain the facility
and collect toll fee from users on behalf of the Government (as
the owner of the toll roads). In practice, PC can pay a concession
fee to CA and keep the residual payment from the collected tolls
as the PC income, or revenue sharing scheme between
Government and PC in accordance with agreement as stipulated
in the contract.
2.2.3.3. SBOT (Combination of Full Concession and O&M –
Hybrid)
This combination structure, also known as the hybrid scheme, can
be applied as the solution for a toll road network consisting
sections which are built and financed by various financing
sources. In this scheme, scope of work to be covered as PPP is
separated by different section, but included as one contract. Thus,
the risk profile for each party involved will be distinguished based
on the section being concerned. In this scheme, other than
revenue risk and tariff risk, the interface risk is also need to be
concerned by the PC. Toll road projects such as Cileunyi-
Sumedang-Dawuan (Cisumdawu), Balikpapan-Samarinda, and
Manado-Bitung are kinds of project that applied this scheme.
2.2.3.4. Toll Road and Non-Toll Road - Availability Payment
(AP)
Figure 7. Toll Road O&M Structure
Figure 8. Combination of Toll Road Concession and O&M Structure
20 PPP in Indonesia: Risk Allocation Guideline
This scheme can be applied to the toll road which is not financially viable, but economically viable and non-toll road. The implementation of this scheme
on the toll road is also called as Performance Based Annuity Scheme (PBAS), due to the opening of the toll road access can accelerate the isolated
region development, equitable development, or other strategic issues. The implementation in a non-toll roal intended for the fulfillment of minimum
service standards for non-toll roads, so the comfortness level, security, and safety of users can be improved. In the AP structure, the PC’s income is
only from AP’s payment.
Figure 9. Toll Road and Non Toll Road AP Structure
In a Toll Road case, UPT BLU responsible of payment collection from users, as the PMU in maintain the BU’s performance, and make a AP payments
according to PC’s performance. If E-Toll system has apllied and runs in PPP with AP scheme at the entire toll gates, the revenue of electronical ticket
payment can be deposited to Treasury Funds directly.
In a Non-Toll Road case, the Government appointed the PMU to maintain the PC’s performance, and ake a AP payments according to PC’s performance.
The PC’s scope includes design, build, and maintain the non-toll road or only maintain the roads during a certain period. The selected PC should be a
competent contractor in road development and maintainance so the cost and sub-contractor risk can be minimilize.
2.2.4 PPP Structure in Power Sector
In electricity sector, the PPP has been implemented only in the electricity generation part through the IPP (Independent Power Producer)
scheme, instead of other parts of the infrastructure provision service (e.g. transmission, distribution, tariff collection). Although, can uses
either a BOT or a BOO scheme, Indonesia's PPP project are likely to use BOT scheme which the ownership of assets transferred to the
public sector (PLN) after the expiry of the PPP contract (during the contract period the power plant is owned by the private IPP). The AP
scheme is considered and need further assessment, especially for off-grid electricity infrastructure (outside the network). Currently, this
Guideline only discuss about the BOT and BOO scheme in the electricity sector.
21 PPP in Indonesia: Risk Allocation Guideline
2.2.4.1. Electricity BOT
Contractually, PC or the IPP is responsible for the design,
construction, financing and operation and maintenance of the
electricity generating facility (the plant), then transfer the asset’s
ownership to the Government at the end of concession period. The
electricity generated by the plant is then sold by the PC to the PLN
as the State-Owned Company (BUMN) in an electricity sector and
also as the CA in a Power Purchase Agreement (PPA).
The PLN as the single off-taker pays for the electricity to PC in
periodical basis using a take-or-pay arrangement during PPA
period. Thus, the credibility of the PLN in serving the financial
obligation has always been the most concerned risk. PLTU Batang
Project is the example of IPP or the Electricity PPP which is
currently under preparation for construction.
2.2.4.2. Electricity BOO
Contractually, BOO scheme is not much different with BOT
scheme. The differences lies in the asset ownership status at the
end of the concession, the asset ownership remains at PC. The
electricity that power generated still sold by PC to PLN as the single
buyer (single off-taker) and also as the CA through the PPA.
PLN payments are conducted regularly on the take-or-pay
payment basis during the PPA. Therefore, the risk of fulfillment of
PLN’s financial obligation will remains as a major risk. The project
which is suitable with BOO scheme generally is renewable energy
projects.
2.2.4.3. Minemouth BOT
A minemouth power plan project is basically a coal-fired power
plan with below features:
- it is built with the rationale of minimizing the risks stemming
from supply uncertainty and price escalation of the coal as the fuel;
- coal transport cost component is relatively low due to the proximity of the coal mining location to the plant;
- relatively low quality of the coal as the fuel requires the plant to have an extra facility/technology to improve the coal quality. This will eventually
cause the plant construction and operation cost to be relatively higher than the other plant; and
Figure 10. Electricity BOT Structure
Figure 11. Electricity BOO Structure
22 PPP in Indonesia: Risk Allocation Guideline
- the plant location is typically remote from the main transmission line which requires further cost for extra transmission facility.
Figure 12. Minemouth BOT Stucture
As a PPP project, the variation toward the risk allocation scheme in this minemouth plant is not only depending on the chosen PPP structure. The issues
of ownership of the coal mining and determination of both mining and plant’s location will be very important variables influencing the risk allocation
scheme in the project. As an illustration in developing the risk matrix, the PPP structure for the selected minemouth project option is a BOT (considering
higher technology required by the plant) and where the location of coal mining is determined by (and then owned by) PLN as the CA.
As seen from the above structure, the scope of work as PPP is similar to he typical BOT scheme which is design detail, construction, operation, and
maintenance of generating facilities in order to provide electricity for the purchsed periodically and distributed by PLN to customers. The main distinction
would be on the risk profile to the parties involved, mainly the coal supply uncertainty and the coal price escalation (in addition to the risk related to the
mine acquisition and the mine operation to PLN in this minemouth project option). Beside that, the transmission network connectivity risk should also
be considered. The mitigation to be done is the clarity about who would bear the costs and the risk related to the development of additional transmission
line to be connected with the main transmission network, should be stipulated in the contract between PLN and IPP. The PLTU Sumsel 9 and 10 project
is one of example of the PPP projects that being prepared with this scheme.
2.2.5 PPP Structure in Energy Conservation Sector
23 PPP in Indonesia: Risk Allocation Guideline
In Energy Conservation Sector, the output of PPP
project is the efficiency in energy usage. Energy
efficiency projects, among others can be PJU
electrical efficiency by using LED lights and/or
solar energy use, or energy efficiency of a
building. Generally, PC is making an investments
to provide, operate, and maintain the
infrastructure facilities and services during a certain period. Considers
current regulation, the Availability Payment (AP) scheme be an PPP
scheme option in this sector.
2.2.5.1. Energy Conservation AP – Street Lighting (PJU)
This scheme applied to PPP Public Street Lighting (PJU) by
considering that PJU services is not user charge, although
people pay PJU tax collected by PLN, but the service availability.
PJU collected tax is a retribution which can not be an income for
PC. Therefore, the AP scheme can be an option. PPP project is highly depends on the road status and the assets located there, so it is necessary to
study the legal aspects first.
2.2.6 Oil and Gas PPP Sector
In the Oil and Gas Sector, PPP can be applied for
processing, storage, transportation, and/or
distribution infrastruktur. PPP projects in this sector
is currently none in Indonesia. The Bontang
Refinery PPP Project that was planned to be run as
PPP project is converted into direct assignment to
PT Pertamina (Persero) in accordance with the
Decree of the Minister of Energy and Mineral Resources No. 7935
K/10/MEM/2016 on assigment to PT Pertamina in the Development and
Operation of Oil Refinery in Bontang, East Kalimantan Province, dated
December 2016 .
2.2.6.1. Oil Refinery BOT
Based on the Pre-Feasibility Study results on development of Oil
Refinery in Bontang compiled by KPPIP in 2015, one option of
project structure states that PC scope includes the provision of crude oil supply, build, operate, and maintain facilities and services the oil refinery, sells
an oil product to Pertamina (as a Government representative) , and sells petrochemical products to the market.
Figure 13. Street Lighting (PJU) or Energy Efficiency
Figure 14. Oil Refinery BOT Structure
24 PPP in Indonesia: Risk Allocation Guideline
The main risk of Bontang Refinery project is the low economic of the project. To deal with the low economy needs a low interest loans and long tenor.
The other main risk is the condition of the market, where the domestic market price of gasoline based on import parity price, while the domestic market
price of diesel for export based on export parity price.
2.2.7 PPP Structure Railway Sector
Resembling to other (land) transport sectors, the
infrastructure PPP can be pursued with usage-
based type scheme. In accordance with applicable
regulation, the CA in this sector would be
Directorate General of Railway, Ministry of
Transportation (MoT).
2.2.7.1. Railway Full Concession
In the full concession scheme, the Government can grants the
authority to PC to collect the revenue directly from retail
customers/end-users. The PC is responsible for design,
construction, operation and maintenance of railway facllity and
infrastructure until the end of the contract period. With the
concerns huge investment cost and regulated tariff, experiences
in other countries show that the project will experience difficulties
in achieving the acceptable financial viability level if the scope
includes the facility and infrastructure, except its including the
scope of commercial utiization for area around the station or
transit-oriented developmet (TOD) concept, and availability of
Government support.
2.2.7.2. Railway O&M
Similar to O&M scheme in toll-road project, the PPP is typically
designed for infrastructure projects that have been built, so need
the PC which can operate and maintain the railway facility and
infrastructure.
PC will maintain the facility and infrastructure and collect toll on
behalf of the Government (as the owner of the railway
infrastructure). The revenue is then calculated as portion of the collected toll.
Figure 15. Railway Full Concession Structure
Figure 16. Railway O&M Structure
25 PPP in Indonesia: Risk Allocation Guideline
2.2.8 PPP Structure in Bus Rapid Transit (BRT) Sector
Law No. 22 Year 2009 on Traffic and Road Transport become the basis of bus rapid transit (BRT) system provision. As in the railway
sector, the BRT infrastructure PPP can be run with an usage-based scheme. Accordance with the applicable regulations, the CA of this
sector would be the Directorate General of Land Transportation, Ministry of Transportation/Governor/Regent/Mayor in accordance with
their authority.
2.2.8.1. BRT Full Concession
In full concession scheme, the Government may grants the
authority to the PC to collect the revenue directly from the retail
customers/end-users. The PC is responsible for the design,
construction, operation, and maintenance of the BRT facility until the
end of contract period.
Related to large investement cost and tariff regulated, the
experience of other contries indicates the project would be very
difficult to meet the financial viability when the scope of the
concession only covers the infrastructure facilities, unless the scope
include commercial utilization of the area around the station or the
transit-oriented development (TOD) concept and government
support is available. The Government need to ensure the availability
of required permit.
2.2.8.2. BRT O&M
In this scheme, the PC has the scope to provide, operate, and
maintain the BRT bus in accordance with the regulations issued by
the Government as the manager of the system. The PC accept
payment in form of Rp/km. The Rp/km costs has includes the cost
of leasing bus, OM, and profit. Tariff adjustment also conducted
periodically to reflect the inflation or a spesific formula agreed in the
contract.
2.2.9 PPP Structure in Seaport Sector
Figure 17. BRT BOT Structure
Figure 18. BRT O&M Structure
26 PPP in Indonesia: Risk Allocation Guideline
In this sector, regulatory framework of seaport sector in Indonesia allows PPP structure using usage-based type scheme (or a concession),
where the CA in this sector would be the Port Authority of the Ministry of Transportation (MoT). Full concessions can be made by the
assignment or PPP. Until now, granting the full concession in seaport sector is generally in the form of assignment to Business Entity Ports
(BUP) that already exist. The PPP scheme that already implemented in seaport sector is the West Shipping Channel of Surabaya PPP
Project , Tanjung Perak Port, Surabaya.
2.2.9.1. Seaport Full Concession
In the full concession structure, type of end-users in the project can be retail passengers, shipline companies and/or companies handling goods (i.e.
cargo or container). The CA for projects proposed or designated by the Ministry of Transportation through the Directorate General of Sea Transportation
would be the Ministry of Transportation or the Directorate General of Sea Transportation with the executing agency from Port Operator either the Port
Authority, Airport and Port Authority and the Port Operator Unit.
Refers to a business model that is prevalent as a PPP scheme in this
sector , the scheme that can be the implementation option is LPA
(Landlord Port Authority) which the government can lease the land or get
a concession fee on the control over existing port and related facilities the
PC. In this case , the PC can build or develop the existing port
infrastructure (e.g. warehousing, storing) to improve infrastructure
services in its operation,and obtain payment from users for the port
services.
In this scheme, which generally demand risk will be absorbed by the
private sector, Government (as the 'landlord') may receive lease payments
or concession fees from PC. Thus funds can be used to recover partial or
all of the cost of land acquisition and supporting facilities (e.g. break water,
access roads and other supporting facilities) which be the government's
obligation of PPP scheme. The amount of the lease or concession fee is
usually be a winner determination criteria in PPP auction, in other words, is determined by how much the
interest of investors. In terms of the concession period has expired, port facilities as the result of concession switch or handed over to the organizers of
the port in accordance with the agreement taken into account for a period of concession, then the management of land and port facilities that have
already switched to the organizers of the port can be given to the Business Entity Ports (BUP) for the provision and services of vessel, passengers, and
goods based on the joint use of which is conducted in accordance with the regulation.
This LPA model are still rather difficult to implement, especially for current conditions in Indonesia, because of the limited capacity of the government
budget to finance large investment in basic infrastructure. Another thing to consider is the access to/from the port.
2.2.10 PPP Structure in Airport Sector
Figure 19. Seaport Full Concession Structure
27 PPP in Indonesia: Risk Allocation Guideline
In this sector, so far there has been no projects implemented with the scheme in accordance with PPP regulation. Referring to Law No.
1 of 2009 on Aviation article 235, airport service can be performed by Airport Enterprise (BUBU) based on concession and or other
scheme (including BOT and management contract). The CA in this sector would be the Directorate General of Civil Aviation, Ministry of
Transportation.
As general, the scope of work and its type of infrastructure can be divided into:
Airport infrastructure, consist of:
o Air-side: runway, taxiway, apron, air traffic control (ATC)
o Land-side: terminal
o Commercial area around the airport
Transportation access infrastructure
o Train access
o Road access
Regarding cooperation option through the PPP scheme, because certain
types of infrastructure are not commercial in nature (especially Air-side), is
necessary to evaluate the needs of PC role, both brownfield area (the airport
is already operating) or greenfield areas (airports in new location). For
example, to involve the PC in greenfield areas, the Government should first
provide transportation access infrastructure adequately, including building
anair-side infrastructure through other funding sources.
2.2.10.1. Airport Full Concession
In the full concession structure, PPP in airport sector may include
provision and operation both airport facilities and services. The
Government may grants the authority to PC to collect the revenue
directly from the retail customers/end-users i.e.retail passengers,
shipline companies and/or companies handling goods (i.e. cargo or
container).
Full concession is usually given to the PC using BOT structure,
particularly in the context of expansion in the brownfield area. The
scope of work of the PC, as set out in the regulations, is to develop and operate both airport infrastructure and existing services, so it also possible to
include the scope of the commercial utilization of the airport area to PC. For greenfield area, the PPP scheme is more likely to not include air-side
infrastructure development as the scope of cooperation with PC.
Figure 20.Airport Full Concession Structure
28 PPP in Indonesia: Risk Allocation Guideline
2.2.10.2. Airport O&M
Similar to the O&M structure in other transportation projects, the
PPP is typically for a brownfield project which means that it does
not involve design, construction and financing of the airport facility.
The scope of work of the PC are to operate and maintain the
infrastructure. In other case, PC also assigned to manage the
commercial area at the airport which also can be revenue source
for PC.
The O&M operator as the PC maintains the facility and collects toll
on behalf of the government. The revenue is then calculated as
portion of the collected tolls.
2.2.11 PPP Structure in Telecommunication Sector
PPP in the telecommunication sector can be the
development of fiber optic networks, satelite, or the e-government system. The first PPP project in telecommunication sector is the Palapa
Ring project which is the construction of national fiber-optic backbone network. This project connects the entire archipelago and divides
into three territory packages, there are West, Central, and East. This project uses an Availability Payment (AP) scheme.
In addition, the Ministry of Communication and
Informatics is planning to implement a development
of Government Mulitfunction Satellite (“Satellite”)
project using the PPP scheme. The purpose of this Satellite is to provide the
facilities for Government to address the gaps in information dissemination
in all regions of Indonesia and become the complement of the Palapa Ring
project. Given the characteristic of information and communication
technology sector is quite same, then the project structure of Satellite project
is potentially similar to the Palapa Ring project.
2.2.11.1. Fiber Optic Networks Availability Payment (AP)
AP scheme is applied to this project because its economically
viable, but it is not financially viable if it is fully operated by PC. The
Minister of Communication and Information as CA is fully
responsible for demand risk.
BP3TI as regulatory agencies in telecommunication and information
sector acts as Project Management Unit (PMU) in charge to collect the tariff payment from network users, monitor the PC performances, and make an
Figure 21. Airport O&M Structure
Figure 22. Fiber Optic Network AP Structure
29 PPP in Indonesia: Risk Allocation Guideline
AP payment in accordance to PC performances. The scope of PC includes the design, build, operate, and maintain the telecommunication networks
for a certain period.
2.2.12 PPP Structure in Urban Facilities Sector
PPP in urban facilities sector including the utilities system and public markets. The types of urban infrastructure facilities in this Guideline
is a public market, due to the need for traditional market developmet is quite high. The existence of public market became one of tools to
monitor and stabilize the basic needs prices in the community.
Development and operation of traditional markets is the responsibility of district/city governments in accordance to a regional autonomy
regulation, except Jakarta became the responsibility of Governor. The regulator for market sector is the Ministry of Home Affairs related
to management and empowerment of traditional market, while the Minister of Commerce organize the arrangement of traditional market,
shopping centers, and modern shops.
The CA on this project is the Governor (DKI Jakarta in particular), Regent, or Mayor in line with their authority. BUMD, such as PD Pasar, can be the CA if there
is a delegation from the Regional Head. Cooperation scheme for market development can use the BOT scheme or an Availability Payment. However, the BOT
scheme currently became an option because the PC can have more flexibility to innovate to attract tenants and buyers. In addition, this scheme is quite attractive
to the private sector. AP scheme would be highly appropriate if the Government wants to intervene related to rental tariff for tenants, in order to to achieve the
level of ability and willingness of traders.
2.2.12.1. Public Market BOT
In this scheme, the PC pay a fixed contribution to the government
on the use of assets and concession rights. Specific risks that
related to market management are the location risk, the demand
risk (tenant), and competition risk. The location risk which is
particularly related to broad market affordability and market
accessibility. The demand risk for tenant interests is also became a
concern. In addition, their market competitors around the area will
also affect the traffic level and purchasing power that will impact the
tenant risk. Site conditions becomes an aspects that should be
assessed comprehensively at the beginning of the study as
mitigation. The demand risk becomes the main focus of the PC.
2.2.12.2. Public Market AP
In this scheme, the PC do the construction, operation, and maintenance, as well as the assets diversion after the contract expires. The demand risk
becomes a main focus of Government, so it needs a comprehensive review as mitigation.
Figure 23. Public Market BOT Structure
30 PPP in Indonesia: Risk Allocation Guideline
2.2.13 PPP Structure in Public Housing Sector
An availability of housing for lower middle class society is an issue that must be overcome in order to realize a more humane city. The
PPP implementation in public housing sector can help accelerate the development.
The CA on this project are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme
for public housing development using the BOT or the Availability Payment scheme. However, currently the BOT scheme becomes an
option because the PC can be more flexible to do a
trasaction process with buyers using the more
flexible financing schemes/ residential mortgage
loan.
2.2.13.1. Public Housing BOT
In this scheme, the PC pay a fixed contribution to the
Government for asset usage. Specific risks related to public
housing are location risk, demand risk (occupants or tenants),
and the default risk of the owner/tenant occupancy/room
payments. The location risk especially related to accessibility
(transportation), availability of public and social facilities around
occupancy, or else. The demand risk for tenants interest is also a
concern. In addition, the default risk of the owner/tenant
Figure 24. Public Market AP Structure
Figure 25.Public Housing BOT Structure
31 PPP in Indonesia: Risk Allocation Guideline
occupancy/room on the rent or maintenance costs. Site conditions
becomes an aspects that should be assessed comprehensively at
the beginning of the study as mitigation. The demand and default
risk of the owner/tenant occupancy/room payment become the
focus aspect of the PC.
2.2.13.2. Public Housing AP
In this scheme, the PC does not take the responsibility of demand
risk and payment of owner/tenant occupancy/room default. The
development of rental or owned modest apartment (“rusunawa” or
“rusunami”) with the concept without a down payment or relief on
payments by the residents can be applied so as to accelerate the
government programs in order to provide decent and affordable
housing. Those risks become the main focus of Government.
2.2.14 PPP Structure in Hospital Sector
The health sector is a major concern of Government, particularly related to service levels. The high demand should be offset by an increase
in health care facilities, such as hospitals. Therefore, the PPP in health sector is one of the way to accelerate the development in health
sector. The National BPJS services also support the health services improvement for the community.
The CA of this projects are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme
for health sector using the Availability Payment
scheme.
2.2.14.1. Hospital AP
In this scheme, the PC receive payments for their services
periodically from the Government during the concession period. The
PC scope covers building, provide, operate, and maintain the
facilities and hospital support services, and transfer it to the
Government at the end of the concession period. The Government
is responsible for the entire hospital management, including doctors
and nurses management.
Specific risks that related to the hospital is the delays risk in medical
equipment delivery, medical data risk, IT system and technology
risk, medical treatment risk, and excess patient risk. These risks are Figure 27. Hospital AP Structure
Figure 26. Public Housing AP Structure
32 PPP in Indonesia: Risk Allocation Guideline
the main focus of the PC depends on the scope of project. Pavilion Pirngadi Medan Hospital project may become a PPP pilot project which is being
prepared this year.
2.2.15 PPP Structure in Education Sector
The constitutional mandate that the Government is obliged to educate Indonesian citizen becomes a basis for allocation of 20% of the
government budget to the education sector. Compusory Education Program 9 years and now become 12 year, as well as the School
Operational Assistance (BOS) is a form of Government support in this sector. Educational needs is a primary need of society. The Ministry
who is responsible for national education system is the Ministry of Education and Culture. In addition, the Ministry of Research Technology
Higher Education is responsible for universities, and the Ministry of Religious Affairs is responsible for madrassas, boarding schools, and
Islamic colleges.
The CA on this project are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Under the law, the
primary and junior secondary education is the responsibility of the Regent/Mayor, the senior high school and vocational education are the responsibility of the
Governor, whereas the college is the responsibility of the Minister. At - Legal Entity of State University (PTN-BH) and State University-General Service Agency
(PTN-BLU), the rector is allows to be the CA by first reviewing their legal aspects of flexibility/autonomy . Cooperation scheme for education using the Availability
Payment scheme.
The CA for the frimary and secondary education are the district head as their authority. Cooperation structure for the primary/secondary education generally
use the AP scheme, so it can refer to structure and risk matrices for college. The college PPP Project presented in this Guideline is a generic model for the
provision of teaching and learning facilities. As for the facilities such as hospital or business incubator, need to pay attention to the sectoral condition and
peculiarities of the facility.
2.2.15.1. School/College AP
Scope of the PC covers build, provide, operate, and maintain
facilities and schools/colleges services, and transfer it to the
Government at the end of the concession period. The Government
is responsible for the entire school/colleges management services,
including the curriculum and teachers management. In this
scheme, the CA receive payments for their services periodically
from the Government during the concession period.
Specific risks related to the education sector are the disfunction of
teaching media, delays in the delivery of teaching materials,
student data leakage risk, IT system and technology risk, and
facility performance risk. Those risks are the main focus of CA
which depends on the scope of the project.
Figure 28. School/Colleges AP Structure
33 PPP in Indonesia: Risk Allocation Guideline
Figure 29. Indicative structure of AP Payment Scheme of PTN-BH
2.2.16 PPP Structure in Sport Sector
The availability of sport facilities for the communities
both athletes and the public, are necessary. This highly
affects the achievement of Indonesian sport at the
world level and also have an impact on the public
health quality. The acceleration of the availability of
sport facilities can be done with PPP scheme.
The CA on this project are the Minister, the Governor,
the Regent, or the Mayor in accordance with their authority.
Cooperation scheme for sport sector using the Availability Payment
scheme or Usage-based scheme.
2.2.16.1. Sport Stadium/Facility BOT
Scope of the PC covers build, provide, operate, and maintain
facilities and stadium/sport facility services, the shift it to the
Government at the end of the concession period. The PC also Figure 30. Sport BOT Structure
34 PPP in Indonesia: Risk Allocation Guideline
allocate the use of stadium for athlete training needs. In this scheme, revenue of the PC is fully derived from sport facilities rental and from the
supporting buildings, such as hotels.
The specific risk that must be considered by the PC is Non-Event risk, which is the absence of income source when there is no event or after a big event,
such as PON, SEA Games, Asian Games, and Olympics. The stadium operating and maintaining cost are very large, so the income sources only from
events is not enough, it needs other income from support facilities which would be the main income. The stadium operating and maintaining cost are
very large, so the proceeds from the events onlyy is not enough, need revenue from supporting facilities which would be a major sources.
2.2.16.2. Stadium/Sport Facility AP
Scope of the PC covers build, provide, operate, and maintain facilities and stadium/sport facility services, and transfer it to the Government at the end
of the concession period. The PC is also allocate the use of stadium
for athlete training needs. The other utilization of the stadium beyond
the athlete’s needs can be used as a income source for government.
In this scheme, the PC receive payments for their services
periodically from Government during the concession period.
Specific risks that must be considered by Government is Non-Event
Risk, which is the absence of the income source when there is no
event or after a big event, such as PON, SEA Games, Asian Games,
and Olympics. The stadium operating and maintaining cost are very
large, so the income sources only from APBN/APBD is not enough.
Turning on the stadium throughout the year is a major challenge.
Specific risk that must be considered by the PC are the facilities
performance risks, IT system and technology risks, and safety and
security risks (especially when the activities take a place).
2.2.17 PPP Structure in Tourism Sector
The PPP in tourism sector are tourism supporting facilities such as the promotion center and tourism marketing products, tourism
information center, and others. The Minister of Tourism became the regulator of this sector. The CA of this projects are the Minister, the
Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme for tourism sector using the Availability
Payment scheme.
The Tourism Region developed by PPP scheme is a part of the PPP regional infrastructure that has its own risk distinctiveness depends
on how their provision. Some examples of tourism area tobe developed are 10 priority tourism destinations, such as Toba Lake, Mandalika,
and Borobudur. The region development can be done by Joint Use (KSP), Cooperation of Infrastructure Provision (KSPI), or the other
possible scheme.
Figure 31. Sport AP Structure
35 PPP in Indonesia: Risk Allocation Guideline
2.2.17.1. Information and Promotion Center and Tourism
Marketing AP
The PC scope covers build, provide, operate, and maintain the
Information Center facilities and services, and transfer it to the
Government at the end of the concession period. In this scheme,
the PC receive payments for their services periodically from the
Government during the concession period. Revenue from the
successful promotion and marketing product could be an incentive
for the PC. Specific risks that must be considered are the facility
performance risks, IT system and technology risks, and promotion
and marketing risks (depends on the scope of the project). Those
three risks needs to be considered by the PC.
2.2.18 PPP Structure in Correctional Sector
The correctional infrastructure, especially prison or correctional institution (“Lapas”) is the priority needs due to the 470 out of 476 prison
have excess capacity. The function of prison is to provide guidance, so there is training facility for prisoners to get useful skills when
assimilated back in the community. Prison has already experience in cooperation with the third party, but not in the PPP scheme. The CA
of this project would be the Minister of Law and Human Rights in accordance with his authority. Cooperation scheme for prison sector
generally use the Availability Payment scheme, but the full concession is also open to do.
2.2.18.1. Prison BOT
Scope of the PC covers build, provide, operate, and maintain
facilities and prison facility services, and transfer it to the
Government at the end of the concession period. The correctional
facilities is also known as industrial prison that combined the
guidance function and production function as a single unit.
Spesific risk that must be considered by PC are security risk from
possible runaway and inherent risk of the production function. The
example of prison is being planned to be developed with BOT
scheme is Nusakambangan prison.
2.2.18.1. Prison AP
Scope of the PC covers build, provide, operate, and maintain
facilities and prison facility services, and transfer it to the
Figure 32. Tourism AP Structure
Figure 33. Prison AP Structure
36 PPP in Indonesia: Risk Allocation Guideline
Government at the end of the concession period. In this scheme, PC received payment for their services from the government periodically
during the concession period. Specific risk that must be considered by the PC is security risk from possible runaway and inherent risk of
industrial used.
3 EVALUATION OF RISK ALLOCATION ASPECT FOR PPP PROJECT AND INFRASTRUCTURE GUARANTEE ROVISION
3.1 Risk Allocation Principle in the context of PPP Project Implementation
At the PPP project preparation stage, the suitability of the risk allocation become the substance of risk analysis in the pre-feasibility study. Based on
the context of PPP implementation, definition and formulation of CA obligation to be included in the PPP contract needs to be based on the risk allocation
principle. An optimal contractual risk allocation is proportional to the maximum value for money.
The common principle for risk allocation is that (please also see Error! Reference source not found.), “A risk should be allocated to party which is
relatively able to manage the risk, or having the least cost of absorbing such risk. If this principle is implemented properly, it is expected that the risk
premium and the project cost would be lower leading to positive impact to the project stakeholders.”
Figure 34. Prison AP Structure
37 PPP in Indonesia: Risk Allocation Guideline
Figure 35. Sequence of PPP Risk Allocation Logic
The implementation examples of such principle in the market are as follow (can also use Key Questions as in Text Box 1):
o Risks which have not been managed well in the past by government, should be transferred if cost-effective (contruction, operation), should be borne
by private sector;
o Risks which are outside the control of either party, or equally influenced by both parties (e.g. certain force majeure events) should be shared; and
o Risks that the government can manage well, or is in a more informed position to control than the private sector (e.g. planning approvals, legislation
risks) should be retained;
o There may also be some risks that, while transferred, may possibly remain an exposure for the public sector (e.g. risk of sponsor default). If an event
cannot be resolved satisfactorily, the government steps in and assumes full responsibility for the risk (or the project as a whole). Potential project
case: delivery of critical social infrastructure and associated services.
38 PPP in Indonesia: Risk Allocation Guideline
3.1.1 Risk Allocation Implementation in the Preparation and Transaction of a PPP Project
In general, as in Text Box 2, the application of risk allocation is initiated from the PPP preparation stage, mainly through a project risk analysis as
part of the feasibility study (later to be used as the basis for drafting and negotiating the PPP agreement).
In evaluating the risk allocation, as part of the tender document during the transaction stage, the draft PPP agreement will reflect how the identified and
evaluated risks are allocated between parties (PC and CA) in the form of contractual clauses.
Text Box 1: Key Questions for Deciding which Risks to Allocate
Some questions to be answered from both perspective of the public agency and the private entity, first can be by asking: “To what extent can the public
agency…
Manage the likelihood of this risk occurring?
Manage the impact of this risk?
Absorb the impact of the risk?
Take specific measures to manage the risk?”
Logically, the same questions can be asked on the private entity’s ability in a PPP. Finally then we can answer: “Who is best able to manage and
absorb this risk?”
In addition to the above considerations, checks should be made to answer the following:
Similar contracts: Are there specific reasons to deviate from the risk allocation chosen in earlier transactions and described in the model PPP contracts?
Marketability: Are there any reasons to assume that the private sector will not accept the risk or price the risk at an unreasonably high value?
Incentives: Do any of the potential risk allocation mechanisms create unintended incentives for the private sector? Holistic approach: Do any of the potential risk allocation mechanisms create “gray areas” in terms of responsibility?
Text Box 2: Process, timing, information, and expertise needed for PPP Risk Allocation
Process: Risk allocation is at the core of the structuring of any delivery method, and requires transaction experience and market knowledge.
Timing: The initial risk allocation has to be determined before the drafting of the PPP agreement is completed. In practice, the process of drafting the
agreement often triggers discussions on risk allocation, and this can be facilitated by a sound risk assessment.
Information: Optimal risk allocation in a PPP is by definition project-specific and evolves over time. A good starting point is to look at earlier transactions to
understand the considerations in the risk allocation. Optimal risk allocation in a PPP evolves over time; need to look at more recent contracts.
Expertise: As in all other steps in risk assessment, risk allocation requires input from a range of disciplines:
o Technical, environmental, permitting, and traffic and revenue experts to determine the risk measures and manageability by risk type.
o Costing experts, to determine the costs of risk mitigation measures.
o Insurance experts, to determine insurability of certain risks (facilitating risk transfer to the private sector).
o Legal experts, to provide the risk allocation framework to be defined in the P3 agreement.
o Finance experts, to determine the marketability of certain risks. Preferably these experts have also been involved in project risk identification to ensure a good understanding of the specific risks.
39 PPP in Indonesia: Risk Allocation Guideline
From that contract clause, the risk can be described based o the triggering events, occurrence period and the consequences to each party upon the
risk occurrence, either as financial obligations or as non financial obligations, as depicted in the Table 2:
Table 2. Ilustration of Risk Allocation in the PPP Agreement
Risk Type Risk Allocation in the PPP Agreement
CA Shared PC
Risk A x Risk B* x Risk C x Risk D* x Risk E x Risk F* x *: Risk that leads to certain financial obligation of the bearer
As a note, contractual financial obligation arise from a risk event “compensation event”and not of the nature of 'relief event' (just need time extention,
without financial compensation).
Defining the optimal risk allocation through a discussion together with stakeholders. Participants are asked to jointly answer the key questions as
described in Text Box 1. It is important to jointly determine a convincing argument for a risk allocation for each of the risks.
Next step is to define the mechanisms reflecting this risk allocation. Most mechanisms—like the definition of, compensation for, and supervening
events—are standard, that have been used in most prior PPP transactions. However, project-specific considerations may lead to adjustments in these
mechanisms.
In a PPP contract, the typical allocation of risks between parties are as below:
o PC normally bear the risk related to financing, design, construction, procurement, operation andmaintenance (then transfer some of the risk to other
party, either consultant, designer, contractor, supplier, operator or user);
o CA representing government typically handle political risk, including change of law which the trigger is (relatively or better) controlled by the
government or public sector;
o Both parties are sharing risk related to Force Majeure events.
3.1.2 Risk Allocation Implementation in the Provision of Guarantee to PPP Project by IIGF
Basically, IIGF guarantee covers the financial obligations of the CA under PPP Agreement where the budget allocation of CA and its financial mechanism
need to be established to ensure the fulfillment of their financial obligations.
The IIGF decision in providing guarantee for risks in a PPP project is made after evaluation of, among others the conformity of the draft PPP Agreement
with the risk allocation principles (reflected in this IIGF Risk Allocation Guideline), as depicted below:
40 PPP in Indonesia: Risk Allocation Guideline
Figure 36. IIGF Risk Allocation Guideline and the Prevailing PPP and Infrastructure Guarantee Framework
Against to guarantee infrastructure coverage
by IIGF, Infrastructure Guarantee Fund
Regulation defines that the CA financial
obligations under the PPP contract cause a
rsk due to triggering events following:
a) Action or inaction of the CA or Government
other than the CA in matters which by law
or PPP regulations CA or Government
other than the CA have the authority to take
these actions;
b) The policy of CA or Government other than
the CA;
c) The unilateral decision of CA or
Government other than the CA;
d) The inability of the CA to perform an
obligation assigned to them by PC based
on PPP agreement breach of contract.
4 INFRASTRUCTURE RISK ALLOCATION GUIDELINE
This IIGF Risk Allocation Guideline provides 1) Risk Category and 2) Risk Allocation Matrix to be used as a reference for CA in preparing risk allocations of the PPP
project, which serves as the basis for CA’s preparation for guarantee proposal to IIGF as well as to enhance the implementation of the risk management frameworkfor
PPP project.
4.1 PPP Risk Category
The Risk Category Checklist is developed as a generic list of risk groupings which is expected to be used for generating identified risk events in each
specific PPP project. The identified risk events can be used further for risk assessment stage and developing risk allocation matrix/strategy.
This checklist is not meant to be exhaustive, therefore particular circumstances in each specific PPP project should also be considered.
1. Site risk is the risk that the project land will be unavailable or unable to be used at the required time, in the manner or at the cost anticipated, or that
the site will generate unanticipated liabilities.Thus, risks included into this category are:
a). Land Acquisitionrisk: risks related to the acquisition process of the required land for the project which may include potential cost and time over
run from the prolonged transaction process;
41 PPP in Indonesia: Risk Allocation Guideline
b). Landsite Unsuitability risk: risks that the proposed landsite may not be used for the project which the causes may include contamination,
discovery of artefacts, delays/rejection in achieving planning approvals, native title, etc;
c). Environmental Risk: risk of liability for losses caused by environmental damage arising (i) from construction or operating activities during the
Project Term, or (ii) from pre-transfer activities whether undertaken by the CA to the activities of the PC or the Subcontractors.
d). Risk related to an unexpected location: the risk of difficulties due to a utilization of site soil conditions that can not be detected earlier, including
geological conditions or other matters relating to underground conditions at these locations.
2. Design, construction and commissioning risk is the risk that the design, construction or commissioning of the facility or certain elements of each
of these processes, are carried out in a way which results in adverse cost and/or project delivery consequences. Risks included into this category
are:
a) Planning risk: risk that the proposed use of the project site in terms of the PPP Agreement and, in particular, the construction of the facilities on
the project site will fail to comply with any applicable laws relating to planning, land-use or building or any consent required pursuant thereto, or
that any such consent will be delayed or cannot be obtained or, if obtained, can only be implemented at a greater costs then originally projected;
b) Design risk:the risk that PC’s design may not achieve the required output specifications;
c) Completion risk: risk that the completion of the works required for a project may be (i) delayed so that the delivery of the services cannot
commenceat the scheduled Commercial Operation Date (COD), or (ii) delayed, unless greater costis incurred to keep to Scheduled COD, or (iii)
delayed due to variations;
d) Cost overrun risk: the risk that during the design and construction phase, the actual Project costs will exceed projected costs;
e) Commissioning risk: risk that the commissioning date is delayed or the results do not meet specifications of the CA or other relevant authorities;
3. Sponsor risk is the risk where the PC unable to fulfil their contractual obligations to the CA as a result of the actions of private investors as the
project sponsor, the PC failure to meet the requirements of the lender, or the lender’s failure to provide the loans.
4. Financial risk is ther risk related to financial viability aspects of the project. This may refers to a number of risks including the following:
a) Financing risk: risk that the financiers (debt and equity) will not provide or continue to provide funding to the project;
b) Financial parameter risk:risk that financial parameters e.g. inflation rate, exchange rate, market conditionsafter condition changes prior to the
contractor fully committing to the project, potentially adversely affecting project cost; and
c) Financial structure risk: risk that the financial structure is not sufficiently robust to provide fair returns to debt and equity holders over the life of
the project, and hence calls into question the continuing viability of the project;
d) Insurance risk: any risk that is insurable as at the signing date pursuant to the agreed project insurances but later become remains insurable
however with significant increase of insurance premium.
5. Operating risk is the risk that the process for delivering the contracted services – or an element of that process (including the inputs used within or
as part of that process) – will be affected in a way which prevents the PC from delivering the contracted services according to the agreed
specifications and/or within the projected costs. Risks included into this category are:
a) Maintenance risk: risk that (i) the cost of maintaining assets in the required conditions may vary from the initial projected maintenance costs, or
(ii) adverse input caused by failure to carry out maintenance properly;
b) Latent defect risk: risk of losses or damages arising from latent defects in the facilities included in the project assets;
42 PPP in Indonesia: Risk Allocation Guideline
c) Technology risk: risk that (i) the technology inputs fail to deliver the required output specifications, or (ii) technological improvements may render
technology inputs out-of-date (“technology obsolescence risk”);
d) Utilities risk: risk that (i) the utilities (e.g. water, electricity or gas) required for the operation of a project may not be available, or (ii) the project
will be delayed because of delays due to the removal or relocation of utilities located at the project sites;
e) Resource or input risk: the risk of failure or shortage in the supply of the inputs or resources (for example, coal or other fuels) required for the
operation of a project including in the quality of available supplies;
f) Industrial relations risk: risk of any form of industrial action – including strikes, lockouts, work bans, work-to-rules, blockades, picketing, go-slow
action and stoppages – occurring in a way which, directly or indirectly, adversely affects commissioning, service delivery or the viability of the
project.
6. Revenue risk is the risk that the project revenue is unable to meet the projected level of financial viability, due to the unexpected changes to either
the demand or the agreed tariff or combination of both. In the case, where the PC revenue is derived from service payments by CA (for example,
schemes BOT / Partial Concession, Performance-Based Availability schemes or Availability Payment Scheme), the risk of non-payment can be
included into the category of political risk (sub-sovereign or parastatal risk). Therefore, risks included into this category are:
a) Demand risk: risk that the demand for a service is unexpectedly lower than that initially projected, due to: 1) triggers (actions, decision / policy,
regulation) of the Government, or 2) the mistakes made by private parties either in the estimation of demand volume and the associated decline
in the quality of service; and
b) Tariff risk: risk that the tariff for a service is lower than that initially projected, due to: 1) the periodical tariff adjustment is not performed as
planned or the level of the adjusted tariff is lower than the projection, or 2) miscalculation of the tariff estimates or the standard level for requesting
tariff adjustment is not met.
7. Network connectivity risk is the risk that the government-controlled network(s) needed for the PC to deliver the agreed services are removed, not
adequately maintained or otherwise changed. This may prevent or frustrate the delivery of the contracted services, affect the quality of specified
outputs or affect the viability (value for money) of the project. Risks included into this category are:
a) Connectivity with the existing network risk: the risk that the access to the existing network is not developed as planned;
b) Network development risk: risk that the required additional network is not developed as planned;
c) Competing facility/competitor risk: risk that facility/infrastructure is built which eventualy competes with the delivery of the contracted services.
8. Interface risk is the risk that the method of project implementation by stakeholders or standard of delivery of the contracted services will prevent or
in some way frustrate the delivery of the public sector delivered facilities and infrastructure services or vice versa. The risk includes when the quality
of work done by government do not conform or not suitable with specification which us needed by the PC to produce the specific output according
to PPP contract, or vice versa.
9. Political Risk is the risk of unforeseeable action/inaction by the CA or any other government authority that materially and adversely affects the
expected Return on Equity, debt service or otherwise results in increased costs to the PC. Risks included into this category are:
a) Transferability risk: risk that the revenue/profit from the project could not be converted to the foreign currency and /or repatriated to the investor’s
home country
b) Expropriation risk: risk that the government seizes (including nationalisation of) the project assets either directly or indirectly which may trigger
termination of the project contract. This indirect expropriating action type of risk may overlaps with some financial risks (e.g. tax rate change
risk).
43 PPP in Indonesia: Risk Allocation Guideline
c) Change in Law (legislative and government policy) risk: risk of a change in legislation, which are discriminatory and specific that it can directly
reduce the level of financial feasibility project (can be triggered by the actions of the CA or non-CA);.
d) Sub-sovereign or Parastatal risk: risk that the subsovereign or parastatal entity which act as the CA in the project has failed to perform its
financial or other material obligations in contract triggered by the associated status as a givernment entity, including a legal status changes or
PPP organization refer to the related regulations.
e) Regulatory consent risk: risk that consents required from other government authorities can not be obtained or, if obtained, can only be
implemented at a greater cost than originally projected.
f) Tax rate change risk:risk that changes in applicable tax rates (income tax rate, VAT) or new taxes may decrease the anticipated return on equity.
10. Force majeure risk is the risk that a specified event entirely outside the control of either party (e.g. act of god, man-made catastropic event) occurs
and will result in a delay or default by the PC in the performance of its contractual obligations.
11. Asset ownership risk is the risk that events such as loss events (e.g. contract loss, force majeure), technological change, construction of competing
facilities or premature obsolescence occur, with the result that the economic value of the asset may deteriorate, either during or at the end of the
contract term.
4.2 Risk Matrices by PPP Sector
After the use of the PPP Risk Category, the identified risk events for each risk category is then evaluated using the risk allocation matrix provided for each PPP
sector and structure (“PPP Risk Matrix”). In developing such matrices, risk allocation principles and best practices, including relevant regulatory framework in
Indonesia were used as references. Furthermore, as explained in section 3.2.1, this matrix is only a reference and is not rigid, as the eventual risk allocation
needs to take into account the specific circumstances in the project being evaluated.
4.2.1 Risk Matrix for PPP Water Supply Sector
The risk matrices are refers to a watrer project with BOT (Built, Operate, Transfer) contract as identified in Chapter 2 that covers Transmission or Production or
Operation and Maintenance or Distribution or any combination thereof, excluding the retail Tariff Collection.
44 PPP in Indonesia: Risk Allocation Guideline
Table 3. Risk Matrix for Water BOT
Water BOT
Risk Category and Risk Event
Description [Pre-Construction/Construction/Operation]
Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form.
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties
45 PPP in Indonesia: Risk Allocation Guideline
Water BOT
Risk Category and Risk Event
Description [Pre-Construction/Construction/Operation]
Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Good and experienced design consultant or EPC
Usually identified at technical operational test
Fail to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damage.
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default od contractors/subcontractors
Default of contract settlement by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Commissioning & testing risk Incorrect time/cost estimates of technical commissioning – [Construction Stage]
x
Good communication & coordination
between contractor, testing consultant, and the right operators
Experienced testing and commissioning consultant
46 PPP in Indonesia: Risk Allocation Guideline
Water BOT
Risk Category and Risk Event
Description [Pre-Construction/Construction/Operation]
Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit.
Refund of land bailout fund risk
Land bailouts fund disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
47 PPP in Indonesia: Risk Allocation Guideline
Water BOT
Risk Category and Risk Event
Description [Pre-Construction/Construction/Operation]
Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability to manage operational aspect of the Project – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient plant
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x
Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Shortfall of input quantity Raw water deficit due to reasons under public sector control – [Operation Stage]
x
Sound regulation and good coordination of the agencies
Decrease of input quality Declining water quality due to reasons under public sector control – [Operation Stage]
x
Sound regulation and good coordination of the agencies
Uncertainty of input continuity Uncertainty of input continuity due to raw water capacity changes – [Operation Stage]
x
Sound regulation and good coordination of the agencies
Depending on water source location
Shortfall of output quantity Shortfall of output quantity due to operation process performance – [Operation Stage]
x Competent operator; Penalty mechanism
Decrease of output quality Decrease of output quality due to operation process performance – [Operation Stage]
x Competent operator; Penalty mechanism
Uncertainty of output continuity
Uncertainty of output continuity due to operation process performance – [Operation Stage]
x Competent operator; Penalty mechanism
Losses of water quantity in transmission network
Leakage/contamination in transmission network – [Operation Stage]
x Good standard of work and maintenance
Transmission networks still include production unit system
Losses of water quantity in distribution network
Leakage/contamination in distribution network – [Operation Stage]
x Good standard of work and maintenance
PC involvement in downstream can only build and handover, the Government project
6. REVENUE RISKS
Absorb level risk in the initial period
Output is unabsorbed in the initial operational period due to the implementation is under the planning target – [Operation Stage]
x Due to ‘take or pay’ clause in water purchase contract
Decrease in the demand volume on project output
Resulted in a decrease in water sales revenue and the deficit for PC – [Operation Stage]
x Good marketing program; NRW reduction program; PDAM Financial Management
Failure in the initial tariff determination
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x
Feasibility support (VGF);
Regulation related to tariff mechanism and incentive
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
On tariff indexation to agreed inflation rate – [Operation Stage]
x
Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
48 PPP in Indonesia: Risk Allocation Guideline
Water BOT
Risk Category and Risk Event
Description [Pre-Construction/Construction/Operation]
Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISKS
Network connectivity and connecting facilities risk
Breach of authority’s obligation to build and maintain the required network and build connecting facilities – [Operation Stage]
x
Good contract understanding by public sector
Construction synchronization
Distribution network management risk
Limitations of distribution network management constructed by private – [Operation Stage]
x Increase in the capacity management of distribution networks
Competitors facilities risk Breach of authority’s obligation not to build a competing facilities; or
Law enforcement of underground water utilization (ABT) is not working
[Operation Stage]
x Good contract understanding by public sector
Availability of ABT utilization regulation
Law enforcement team of ABT utilization is formed and works well
Supporting legal framework, can be a regional regulation
Coordination with Indonesian Army, Police, and Attorney in law enforcement process
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x 5 Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied
standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x
Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
49 PPP in Indonesia: Risk Allocation Guideline
Water BOT
Risk Category and Risk Event
Description [Pre-Construction/Construction/Operation]
Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker
x
Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force
majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate
the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
As shown in the matrix, there are some risks which are specific to this structure and sector, while other risks are applicable accross sectors. The specific sectoral
risks in this structure are revenue risk (i.e. Absorb level risk in the initial period), those related to the raw water input to the facility (i.e. quality, quantity and
continuity), the parastatal risks (i.e. breach of offtaker’s contractual obligations and the privatisation of the offtaker) and the demand risk which is basically
minimized through a take or pay clause in the water purchase agreement with the CA.
4.2.2 Risk Matrix for PPP Waste Management
4.2.2.1 Solid Waste BOT
50 PPP in Indonesia: Risk Allocation Guideline
Risk matrix below refers to a BOT contract with the usage-based and AP scheme which the PC is responsible for Production, Operation and Maintenance
(i.e.build and operate the Final Disposal facility), but not taking either the waste collection or the retail Tariff Collection tasks. For the usage-based scheme, as
the reference is income from the selling of a waste processing products.
Table 4. Risk Matrix for Solid Waste BOT
Solid Waste Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form.
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
51 PPP in Indonesia: Risk Allocation Guideline
Solid Waste Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Society distress Due to potential discomfort from the process/output – [Operation Stage]
x
Socialization to those impacted
Mature planning of an implementation schedules in order to fulfill the AMDAL requirements
Failure to apply environmental permits
PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL – [Pre-Construction Stage]
x
Competent environment aspects
specialist consultant
Mature planning of an implementation schedules in order to fulfill the AMDAL requirements
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Good and experienced design consultant or EPC
Usually identified at technical operational test
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
52 PPP in Indonesia: Risk Allocation Guideline
Solid Waste Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
availability, delay in returning site access – [Construction Stage]
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default od contractors/subcontractors
Default of contract settlement by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Commissioning & testing risk Incorrect time/cost estimates of technical commissioning – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Can be shared with the Government when extreme fluctuations
53 PPP in Indonesia: Risk Allocation Guideline
Solid Waste Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Hedging instruments; such as future contract and currency options
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability to manage operational aspect of the Project – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Disruption of transportation routes and schedules certainty
Route and schedule changes to transport the garbage due to traffic conditions and more – [Operation Stage]
x Good management on waste transportation system
Government can help even the transportation done by PC
Pollution of licit water in transportation
Leaking of licit water/splattered at the time of the process of hauling trash – [Operation Stage]
x Service level criteria;
Procedure transportation systems
In the case of PC have met the service level
Shortfall of input quantity Due to the low ability of hauling trash – [Operation Stage]
x Solid waste guarantee;
Waste management socialization
54 PPP in Indonesia: Risk Allocation Guideline
Solid Waste Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Decrease of input quality (waste composition)
Decrease of output quality due to waste composition changes – [Operation Stage]
x Restrict the scavenger role against the waste composition
The scavenger role can change the waste composition
Processed output quantity does not fulfill the standard
The resulting output is not in accordance with the plans and specifications in the quantity – [Operation Stage]
x Solid waste guarantee;
Operation running optimally and efficiently
Especially for technology that produce that is sold/distributed
Processed output quality does not fulfill the standard
The resulting output is not in accordance with the plans and specifications in the quantity – [Operation Stage]
x Solid waste supply guarantee;
Operation running optimally and efficiently
Especially for technology that produce that is sold/distributed, except the electricity
Categorization as Waste Residue B3
As a result, needs to the residues processing in particular (B3) – [Operation Stage]
x The 3R implementation (Recycle, Reuse, Reduce)
Labs testing to decide waste categorize at Pre-Construction and Construction Stage
This risk especially for processing solid waste by incinerator
6. REVENUE RISKS
The risk of discrepancies of input supply in the initial period
The input supplied in the operational period does not meet with the feasibility study – [Operation Stage]
x Due to ‘take or pay’ clause in water
purchase contract
Decrease of demand volume of project output
Resulted decreasing of revenue and deficit for the CA – [Operation Stage]
x
Consistency and an in line regulation with the objective of the project
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Survey the right and tested heat waste, and cover various climates
Competent consultant and laboratory
If triggered by the Government activities, a guarantee of minimum income can be considered
Miscalculation of the tariff estimates
Tariffs determination of waste processing products are too optimistic – [Operation Stage]
x Market surveys are needed
Revenue Risk below applied to AP schemes
Decrease of demand volume of project output
Resulted decreasing of revenue and deficit for the CA – [Operation Stage]
x Policy is consistent and in line policy with the objective of the project
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Survey the right and tested heat waste, and cover various climates
Competent consultant and laboratory
If triggered by the Government actions, a guarantee of minimum income may be considered
Miscalculation of the tariff estimates
Tariffs determination of waste processing products are too optimistic – [Operation Stage]
x Market surveys are needed
Leakage of tariff payment collection
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
Failure of AP’s in time payment
Government cannot make an in time payment – [Operation Stage]
x The escrow account mechanism which combine the revenue of toll tariffs
The IIGF guarantee may be submitted and implemented
Revenue Risk below applied to BOT, BOOT, and AP schemes
Fail in the initial tariff determination
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x Feasibility support (VGF);
Regulation related to tariff mechanism and incentive
Supporting legal framework, can be a regional regulation
55 PPP in Indonesia: Risk Allocation Guideline
Solid Waste Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Failure in submission of tariff adjustment (both tipping fee or AP)
Due to the PC cannot fulfill the agreed minimum standard
x Good operational performance
Supporting legal framework
Delay in periodical tariff adjustment
On tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance
Supporting legal framework
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operational performance
Supporting legal framework
Supporting legal framework, can be a regional regulation
7. NETWORK CONNECTIVITY RISK
Network connectivity and connecting facilities risk
Breach of authority’s obligation to build and maintain the required utilities network (electricity/gas) and build connecting facilities – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
Especially for processing technology that produces electricity or gas
Competitors management risk Breach of authority’s obligation not to operates the old facilities or build the new facilities - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
56 PPP in Indonesia: Risk Allocation Guideline
Solid Waste Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations Due to privatization of the Off taker
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
In the waste management sector the sector-specific risks are revenue risk (falure of tipping fee payment or selling price of output (electricity, RDF)) environmental
risk (i.e. society distress due to potential discomfort from the process/output, failure to apply EIA (Environment Impact Assessment)/AMDAL), operating risks
(i.e. quantity short fall of waste as input, waste composition risk, incompliance of output quality), network risks (i.e. uncertainty in existing waste collection
network, non-fulfilment of authority’s obligation to maintain required waste collection network and to develop required facilities) and interface risk (i.e. imbalance
between input & treatment capacity in early operating years).
Interesting fact is highlighted as a legitimate action of government to reduce waste production (i.e. 3R programme: Recycle, Reuse, Reduce) may actually
hinder the PC to obtain sufficient volume of waste to be treated. On tha tariff side, the government actually collects 2 types of tariffs, i.e. waste retribution tariff
(i.e. for the waste management service) for operational cost of having waste disposal facility, and a compensation for negative impact to the environment. This
two types of tariff can be supported by an operational subsidy from the local government’s budget as part of the CA’s source for tipping fee to the PC.
4.2.2.2 Wastewater BOT
Below risk matrix refers to a project with BOT contract where PC is repsonsible for construction, operation and maintenance (construct and operate the waste
treatment plant/WTP, may include the transmission network), but not responsible for collecting the wastewater and tariff collection from end users.
57 PPP in Indonesia: Risk Allocation Guideline
58 PPP in Indonesia: Risk Allocation Guideline
Table 5. Risk Matrix for Wastewater Sector
Wastewater Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
59 PPP in Indonesia: Risk Allocation Guideline
Wastewater Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Society distress Due to potential discomfort from the process/output – [Operation Stage]
x Socialization to those impacted
Mature planning of an implementation schedules in order to fulfill the AMDAL requirements
Failure to apply environmental permits
PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL – [Pre-Construction Stage]
x Competent environment aspects specialist consultant
Mature planning of an implementation schedules in order to fulfill the AMDAL requirements
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification when the tender process;
Capacity of good design
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Good and experienced design consultant or EPC
Usually identified at technical operational test
Failure to maintain security and safety within the location
The rate of accident during works are going high – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
60 PPP in Indonesia: Risk Allocation Guideline
Wastewater Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU fund availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
61 PPP in Indonesia: Risk Allocation Guideline
Wastewater Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability to manage operational aspect of the Project – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Shortfall of input (waste) quantity
The waste volume that channeled does not according to plan – [Operation Stage]
x Waste supply agreement
Waste management socialization
Regulations related to the obligation of having the independent processing system or connection to waste water networks
The quality of processed output did not fulfill the requirement
Decrease in output quality due to the process performance in operation – [Operation Stage]
x Competent operator; Penalty mechanism
Leakage/contamination in wastewater networks
Leakage/contamination in the main pipe network and wastewater collectors – [Operation Stage]
x Good standard of work and maintenance
6. REVENUE RISKS
62 PPP in Indonesia: Risk Allocation Guideline
Wastewater Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Absorb level risk in the initial period
Output is unabsorbed in the initial operational period due to the implementation is under the planning target – [Operation Stage]
x Due to ‘take or pay’ clause in water purchase contract
Failure in the initial tariff determination
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x Feasibility support (VGF);
Regulation related to tariff mechanism and incentive
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
On tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISK
Wastewater network connectivity and connecting facilities risk
Breach of authority’s obligation to build and maintain the required network and build connecting facilities – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
Wastewater distribution network management risk
Limitations of wastewater distribution network management by Government – [Operation Stage]
x Increase in the capacity management of distribution networks
Competitors facilities risk Breach of authority’s obligation not to build a competing facilities - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
63 PPP in Indonesia: Risk Allocation Guideline
Wastewater Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
In wastewater management sector, the specific risks are similar to those of waste sector. In this sector, volume and quality of waste supply usually do not vary
very much. Other than that, it is depending on the applied technology and perception of output user candidates (processed clean water), which output is not
commercial in nature.
4.2.3 Risk Allocation Matrix in Road Sector
The risk matrices are provided for the 4 identified PPP structures for toll road and non-toll road sector, namely: (1) Full Concession Toll Road, (2) O&M Toll
Road, (3) Combination of Full Concession and O&M, (4) Availability Payment in Toll and Non-Toll Road. For Full Concession Toll and Non-Toll Road scheme
is a combination of Full Concession Toll Road matrix and O&M Toll Road which is depend on the selected segment.
64 PPP in Indonesia: Risk Allocation Guideline
Risk matrix below refers to a toll and non-toll road project is according to the selected scheme.
Table 6. Risk Matrix for Toll and Non-Toll Road
Toll and Non-Toll Road
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
1. SITE RISKS
Site Risk below applied to BOT, SBOT, and AP schemes
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State- cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation for and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe
65 PPP in Indonesia: Risk Allocation Guideline
Toll and Non-Toll Road
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
possibility of route change – [Construction Stage]
installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Site Risk below applied to BOT, O&M, SBOT, and AP schemes
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of biodiversity of forest/conservation area
Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]
x Conduct studies of biodiversity for impacts mapping
AMDAL implementation
The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL
Obstruction of access to the public transportation
Project which cut the residential areas may cause impact of communication access and economic society disruptions – [Construction & Operation Stages]
x Develop a new transportation access that mutually agreed
This condition can be related with cultural aspects in an area where the project is implemented
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Design, Construction, and Commissioning Risks below applied to BOT, SBOT, and AP scheme
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Good and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
66 PPP in Indonesia: Risk Allocation Guideline
Toll and Non-Toll Road
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design, Construction, and Commissioning Risks below applied to BOT, O&M, SBOT, and AP scheme
Design faults Caused design extra/revise which asked by operator – [Pre-Construction & Construction Stage]
x Good and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
67 PPP in Indonesia: Risk Allocation Guideline
Toll and Non-Toll Road
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational aspect of the Project – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun Mis-estimation of O&M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
68 PPP in Indonesia: Risk Allocation Guideline
Toll and Non-Toll Road
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Incompetent of toll road services in technology and information systems
The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
Traffic accident or safety issues
Highly traffic accident - [Operation Stage] x Third party liability insurance
6. REVENUE RISKS
Revenue Risks below applied to BOT, O&M, and SBOT scheme
Lack of project revenue’s risk in ramp up period
The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation.
x x When risk absorbed by public sector, the Government can provide certain funds if the revenue in the ramp up period is not adequate
Changes in the traffic demand projection
Resulted in a decrease in revenue and the deficit for PC – [Operation Stage]
x Accurate traffic survey
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x
Accurate traffic survey
Soft loan at the initial operation
If triggered by Government actions, guarantee request may be considered
Toll collecting company fails to collect tolls
Due to failure/non-optimality of payment collection system – [Operation Stage]
x Collection system and good
operational performance
Revenue Risks below is only applied to AP scheme
Changes in demand volume projection
Resulted increase on revenue and deficit for Government
x Accurate traffic survey
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate traffic survey
Soft loan at the initial operation
If triggered by Government actions, guarantee request may be considered
Toll collecting company fails to collect tolls
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Failure of AP’s in time payment
Government cannot make an in time payment x The escrow account mechanism which combine the revenue of toll tariffs
Revenue Risks below applied to Full Concession, O&M, Combination of BOT, O&M, SBOT and AP scheme
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
69 PPP in Indonesia: Risk Allocation Guideline
Toll and Non-Toll Road
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
7. NETWORK CONNECTIVITY RISKS
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
Non-Toll networks management risk
Limitations of Government in manage the non-toll traffic which impacts to toll road management performance – [Operation Stage]
x The traffic management with consider pattern of the transport movement through toll and non-toll roads
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
X xx 4 Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
70 PPP in Indonesia: Risk Allocation Guideline
Toll and Non-Toll Road
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISKS
Asset Ownership Risks below applied to BOT, O&M, SBOT, and AP scheme
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset Ownership Risks below applied to BOT, SBOT, and AP scheme
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Asset Ownership Risks below especially applied to O&M scheme
Transferred business and the existing toll road assets management
Uncertainty of business condition after the transfer from previous operator and an anticipated of existing toll road conditions
x Good and complete pre-feasibility business study
The Full Concession of toll road sector-specific risks are site risks (i.e. land acquisition-related), revenue risks (i.e. traffic demand risk and tariff risk) and network
risk (i.e. connectivity issue, competing route). As a note, the risk events listed above is still limited to at-grade (on ground) type of road and fly-over (above
ground) type (i.e. not include under-ground/ tunnel).
The specific risks in toll road O&M structure (i.e. land acquisition-related), design, construction and comissioning risks and also the toll road business/ asset
transfer risks. On other toll road sector-specific risks (i.e. demand risk, networkand interface risk), they are still main concerns of the PC. Especially for interface
risks, the exposure is relatively higher.
In this combined structure, as there is a minor difference with the previous 2 matrices, the interface risk will be fully borne by the PC. Therefore, the construction
contract to contractor (also for operations) from both public sector and private sector must be aligned in defining the expected quality of the work towards the
whole toll road sections as one integrated network.
As a note, for Availability Payment (AP) scheme, the main specific risk is revenue risks (i.e. payment failure by the Government) due to the AP payment is the
only income sources of PC.
71 PPP in Indonesia: Risk Allocation Guideline
4.2.4 Risk Allocation Matrix in Electricity Sector
The risk matrices are provided for 2 identified PPP structure, namely: Electricity BOT and BOO, and Minemouth Power Plant BOT . Risk matrix below refers to
a BOT contract (Built, Operate, Transfer) of the power plant project. The PC (typical known as the IPP) sell the genereted power to PLN as the off-taker during
the Power Purchase Agreement (PPA) period and shall return the plant to the PLN after the contract ends. As a note, in BOO (Build, Own, Operate) asset
transfer does not occur.
Table 7. Risk Matrix for Electricity Sector
Electricity Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
Especially for Mine mouth Power Plant, the project land requirement is also depends on the selected mine site
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Especially for Minemouth Power Plant, usually remote
72 PPP in Indonesia: Risk Allocation Guideline
Electricity Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
mine sites so that these issues are relatively manageable
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods;
Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Society distress Due to potential discomfort from the process/output – [Operation Stage]
x Socialization to those impacted
Mature planning of an implementation schedules in order to fulfill the AMDAL requirements
Failure to apply environmental permits
PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL – [Pre-Construction Stage]
x Competent environment aspects specialist consultant
Mature planning of an implementation schedules in order to fulfill the AMDAL requirements
Site Risks below has a different risk allocation that depends on PPP project types
Unforeseen difficulties of site conditions
Electricity BOT, BOO Delay due to uncertainty of geotechnical site condition – [Construction Stage]
x x Land use historical data and land investigation
As land requirement is not extensively large geotechnical risk may relatively be managed. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Minemouth Power Plant BOT
Due to uncertainty of ground conditions, either plant or coal mining – [Construction Stage]
x Land use historical data and land investigation
Risk allocation to public sector as mine ownership option is by public sector
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification when the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
73 PPP in Indonesia: Risk Allocation Guideline
Electricity Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant
Usually identified at technical operational test
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier Penalty clauses of Liquidity
Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced testing and commissioning consultant
3. SPONSORRISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely the budgeting process
74 PPP in Indonesia: Risk Allocation Guideline
Electricity Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational aspect of the Project – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun Mis-estimation of O&M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
75 PPP in Indonesia: Risk Allocation Guideline
Electricity Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Operation Risks below has a differences of description and mitigation which depends on PPP project types
Increase in fuel costs
Electricity BOT, BOO This risks may be triggered by fuel price increase in the export market – [Operation Stage]
x Long-term fuel supply contract
Minemouth PLTU BOT This risks may be triggered by coal price increase in the export market – [Operation Stage]
x Long-term fuel supply contract
Good mine operator
Coal price regulation
Also under this option mine is owned by public sector, fuel supply risk is closely related to mine operation
Shortfall of supply or decrease of fuel quantity
Electricity BOT, BOO Fuel supply reduced/stopped or decrease of fuel quantity– [Operation Stage]
x Long-term fuel supply contract
Minemouth PLTU BOT This risks may be triggered by coal price increase in the export market – [Operation Stage]
x Long-term fuel supply contract
Good mine operator
Coal price regulation
Also under this option mine is owned by public sector, fuel supply risk is closely related to mine operation
Uncertainty of fuel availability Fuel supply in this context the coal is not available until the end of the concession – [Operation Stage]
x Especially for Minemouth PLTU, feasibility study conducts properly and implementation process is running well
Electricity BOT Uncertainty of continuity in fuel availability – [Operation Stage]
x Long-term fuel supply contract
Minemouth PLTU BOT This risks may be triggered by mismatch between production and power plant operational schedules – [Operation Stage]
x Long-term fuel supply contract
Good mine operator
Coal price regulation
Also under this option mine is owned by public sector, fuel supply risk is closely related to mine operation
6. REVENUE RISKS
Changes in the demand volume on project output
Volume on output demand is increase or decrease – [Operation Stage]
x Understanding the technological capability to produce electricity by the PC
Good contract understanding by both parties
Changes in the demand volume on project output
End (retail) consumers does not pay
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x Feasibility support (VGF); Supportive regulation.
End (retail) consumers does not pay
Failure in the initial tariff determination
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x Feasibility support (VGF); Regulation related to tariff mechanism and incentive
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
76 PPP in Indonesia: Risk Allocation Guideline
Electricity Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Miscalculation of the tariff estimates
Tariffs are too optimistic – [Operation Stage]
x An accurate of Cost Production calculation that consideredvarious aspects
7. NETWORK CONNECTIVITY RISKS
Electricity network connectivity and connecting facilities risk
Breach of authority’s obligation to build and maintain the required network and build connecting facilities – [Operation Stage]
x Good contract understanding by public sector
Competent PMO
Commitment and transmission development budget from PLN
Construction synchronization
Electricity distribution network management risk
Limitations of electricity distribution network management by Government – [Operation Stage]
x Increase in the capacity management of distribution networks
Competitors facilities risk Breach of authority’s obligation not to build a competing facilities - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISK
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
77 PPP in Indonesia: Risk Allocation Guideline
Electricity Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker [All Stages]
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset Ownership Risks below applied to all BOT & BOO scheme
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset Ownership Risks below applied to Electricity BOT & Minemouth BOT scheme
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally, in this electricity BOT structure, the specific risks are asset transfer risk at the end of the PPA period. Those risk is distinguishing between BOT and
BOO which is not make asset transfered. In addition to that, the sector-specific risks are parastatal risks (i.e. breach of offtaker’s contractual obligations and the
privatisation of the offtaker).
From the above risk matrix, in relation with the selected minemouth KPS project structure options, it is seen that there are some new risks appeared as a result
of coal mine ownership by PJPK namely land risks (related cost of mine acquisition process and mine geotechnical risks). Other than that, although this structure
is selected to minimize power plant fuel availability risk (subset of operational risks), increased cost and availability of coal supply risks are very much related
to mine operation. Furthermore, fuel supply risk may also be triggered by the disharmony between mine production and power plant operation.
78 PPP in Indonesia: Risk Allocation Guideline
As a mitigation measure, other thanthe involvement of credible mine operator and long-term supply contract, supply and minemouth coal price arrangements
are also required in relation with supply transfer potentials as a result of coal price increase in export or other industry market
4.2.5 Risk Allocation Matrix in Energy Conservation Sector
Risk matrix below is applied to Public Street Lighting (PJU) project and also energy efficiency which is done with AP scheme. Both of prorojects does not need
the massive site (PJU) or in site where owned by the Government (the building which will be applied to energy efficiency), so the location risks that related to
status and land acquisition has a very low risk value, almost none.
Table 8. Risk Matrix for Energy Conservation Sector
Energy Conservation Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Good and experienced design consultant or EPC
Usually identified at technical operational test
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damaes
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
79 PPP in Indonesia: Risk Allocation Guideline
Energy Conservation Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced testingand commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability of funds with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
80 PPP in Indonesia: Risk Allocation Guideline
Energy Conservation Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational aspect of the Project – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun Mis-estimation of O&M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Uncertainty of energy source continuity
Electricity source continuity, either from PLN or solar panels are not guaranteed – [Operation Stage]
x
A comprehensive study
Anticipate acts: electricity back up facility/other utilities
Usually should be anticipated as early as possible
6. REVENUE RISKS
Changes in the demand volume on project output
Volume on output demand is increase or decrease – [Operation Stage]
x
Understanding the technological capability to produce electricity by the PC
Good contract understanding by both parties
Failure of AP payment in timely manner
The Government cannot make a payment in timely manner – [Operation Stage]
x
The escrow account mechanism which combine the revenue of PJU taxes
Failure in the initial tariff determination
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x Feasibility support (VGF); Regulation related to tariff mechanism and incentive
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
81 PPP in Indonesia: Risk Allocation Guideline
Energy Conservation Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISKS
Electricity network connectivity and connecting facilities risk
Breach of authority’s obligation to build and maintain the required network and build connecting facilities – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
Electricity distribution network management risk
Limitations of electricity distribution network management by Government – [Operation Stage]
x Increase in the capacity management of distribution networks
8. INTERFACE RISK
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
82 PPP in Indonesia: Risk Allocation Guideline
Energy Conservation Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker [All Stages]
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally, in Public Street Lighting AP and structure, the specific risks are revenue risk (i.e. failure in payment by the Government), the assets transfer risk after the Power Purchase Agreement (PPA) ends. The other sector-specific risks are parastatal risks (i.e. breach of offtaker’s contractual obligations and the privatisation of the offtaker).
4.2.6 Risk Allocation Matrix in Oil and Gas Sector
The risk matrices provided to PPP BOT (Build, Operate, Transfer) structuer. The PC are bulding, operating, maintaning, and selling the oil and gas products.
Table 9. Risk Matrix for Oil and Gas Sector
Oil and Gas Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
83 PPP in Indonesia: Risk Allocation Guideline
Oil and Gas Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for refinery has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form.
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
84 PPP in Indonesia: Risk Allocation Guideline
Oil and Gas Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Society distress Due to potential discomfort from the process/output – [Operation Stage]
x Socialization to those impacted
Disruption of biodiversity of forest/conservation area
Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]
x Conduct studies of biodiversity for impacts mapping
AMDAL implementation
The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL
Failure to apply environmental permits
PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL – [Pre-Construction Stage]
x Competent environment aspects specialist consultant
Unforeseen difficulties of site conditions
Due to uncertainty of geotechnical ground conditions – [Construction Stage]
x x Land use historical data and land investigation
The difficulties that impossible to identified at the planning stage will be taken over by the Government
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal &
x The selecting process of a credible contractors & subcontractors
Penalty implementation
85 PPP in Indonesia: Risk Allocation Guideline
Oil and Gas Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
financial management factors – [Construction Stage]
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability and quality of inputs
Risk that related to difficulties in selection and procurement of a crude oil that affect the quality of refinery products quality – [Operation Stage]
x Planning process and a well-designed of supply chain
86 PPP in Indonesia: Risk Allocation Guideline
Oil and Gas Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability to manage operational aspect of the Project – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Prolonged downtime The operation suspended due to technical disorder aspects, maintenance, or other issues related – [Operation Stage]
x Spare part availability ad guarantee from vendors
Safety and health of works risk during the operation
An accident or health disorder of workers – [Operation Stage]
x Properly, good, and integrated of K3 implementation programs
The risk of cessation of operation facilities due to unexpected factors
The operation facilities are stopped due to fire or other aspects
x Insurance
6. REVENUE RISKS
Changes in the demand volume on project output
Volume on output demand is increase or decrease – [Operation Stage]
x Good contract understanding by both parties
The PC does not pay in timely manner
Due to bureaucracy process and the PC’s performances – [Operation Stage]
x Good contract understanding by both parties
Failure in the initial tariff determination
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x Feasibility support (VGF); Regulation related to tariff mechanism and incentive
Supporting legal framework, can be a regional regulation
87 PPP in Indonesia: Risk Allocation Guideline
Oil and Gas Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic so it’s beyond the parity price prediction – [Operation Stage]
x The calculation factorial needs to be agreed
7. NETWORK CONNECTIVITY RISK
Oil pipeline and/or natural gas network connectivity
Breach of authority’s obligation to build and maintain the required network and build connecting facilities – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
Oil and/or natural gas network management risk
Limitations of oil and/or natural gas network management by Government – [Operation Stage]
x Increase in the capacity management of oil and/or natural gas networks
Refinery products distribution risk
Unreadiness of refinery products distribution conducted by the Government – [Operation Stage]
x Developing the system of a competent supply chain distribution
Competitors facilities risk Breach of authority’s obligation not to build a competing facilities - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS – to all PPP projects scheme and type
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
88 PPP in Indonesia: Risk Allocation Guideline
Oil and Gas Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS - to all PPP projects scheme and type
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset Ownership Risks below applied to all PPP projects scheme and type
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset Ownership Risks below applied to all PPP project scheme and type, besides BOO
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally, in Oil Refinery and Natural Gas BOT structure, the specific risks are operational risk (i.e.remember the strategical industries and more concern on
extra management), the network connectivity risk, and parastatal risk (i.e. breach of offtaker’s contractual obligations and the privatisation of the offtaker).
4.2.7 Risk Allocation Matrix in Railway Transportation Sector
The identified risks are more relevant to a railway project providing transportation service for passengers rather than for cargos. Design and construction risks
in this sector are typically higher compared to other transportion modes (i.e. road, bridge) due to the complexity of the applied technology and the required
89 PPP in Indonesia: Risk Allocation Guideline
specification to a specific service level of the output. For risks associated with the cooperation scope with TOD scheme, not be the scope of the principal project
risk.
The PPP scheme in railway sectors, generally used the full concession and O&M. Full concession involves design, construction, financing, operation, and
maintanance of a whole railway transport facility, including the fare collection from end-users. In addition of O&M scheme is only operation and maintenance of
a railway facilities.
Table 10. Risk Matrix for Railway Sector
Railway Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
Site Risk below applied to all Full Concession scheme
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
90 PPP in Indonesia: Risk Allocation Guideline
Railway Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
executor or provider including the compensation scheme and form
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Site Risk below applied to Full Concession and O&M scheme
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Disruption of biodiversity of forest/conservation area
Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]
x Conduct studies of biodiversity for impacts mapping
AMDAL implementation
The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL
Obstruction of access to the public transportation
Project which cut the residential areas may cause impact of communication access and economic society disruptions – [Construction & Operation Stages]
x Develop a new transportation access that mutually agreed
This condition can be related with cultural aspects in an area where the project is implemented
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Design, Construction and Commissioning Risks below applied to Full Concession scheme
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
91 PPP in Indonesia: Risk Allocation Guideline
Railway Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design, Construction and Commissioning Risks below applied to Full Concession and O&M scheme
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, testing consultant , and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
92 PPP in Indonesia: Risk Allocation Guideline
Railway Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
93 PPP in Indonesia: Risk Allocation Guideline
Railway Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of toll road services in technology and information systems of railway service
The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
Traffic accident or safety issues
Highly traffic accident - [Operation Stage] x Third party liability insurance
6. REVENUE RISKS
Lack of project revenue’s risk in ramp up period
The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation.
x
Changes in the traffic demand projection
Resulted in a decrease in revenue and the deficit for PC – [Operation Stage]
x Accurate traffic survey
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate traffic survey
Soft loan at the initial operation
If triggered by Government actions, guarantee request may be considered
Toll collecting company fails to collect tolls
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISK
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
Non-Toll networks management risk
Limitations of Government in manage the non-toll traffic which impacts to toll road management performance – [Operation Stage]
x The traffic management with consider pattern of the transport movement through toll and non-toll roads
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
94 PPP in Indonesia: Risk Allocation Guideline
Railway Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of
project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied
standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
95 PPP in Indonesia: Risk Allocation Guideline
Railway Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
covered by the insurance, then it taken over by the Government.
11. ASSET OWNERSHIP RISK
Asset Ownership Risk below applied to all Full Concession and O&M scheme
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset Ownership Risk below applied to Full Concession scheme
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Asset Owner Risk below especially applied to O&M scheme
Business transferred and an existing railway assets management and currently built
Uncertainty of conditions upon transfer from earlier operator and unanticipated condition of railway existing condition
x A robust business due to diligence (in PFS)
As seen from the above table, in railway concession there some specific risks embedded (which some are similar to risks in the toll road full concession),
namely: land acquisition risk, demand and tariff risks, and interface risk. The special risks of O&M Railway structure (compared with Railway Full Concession)
are design construction & commissioning risks and the business/asset transfer risks. On the other toll road sector-specific risks (i.e. demand risk, tariff risk,
network risk, and interface risk), they are still main concerns of the PC, albeit of lesser magnitude than that in the concession structure.
4.2.8 Risk Allocation Matrix in Bus Rapid Transit (BRT) Sector
The most specific risk in BRT sector is the interface risk – the transision of the existing transportation to a mass transportation system. Intensive socialization
and communication with all of the stakeholders, especially the drivers and the transportation owners must be done to have a same understanding for a better
public service provisions. A success of transision process will determine the success of procurement and operation in the future.
The PPP scheme in BRT sectors, generally used the full concession and O&M. Full concession covers design, construction, financing, operation, and
maintanance of a whole BRT facility, including the fare collection from end-users. In O&M scheme is only covers operation and maintenance of a BRT facilities,
while the other facilities directly managed and/or cooperate with third party through Non-PPP mechanism.
Table 11. Risk Matrix for BRT Sector
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
Site Risk below applied to all Full Concession scheme
96 PPP in Indonesia: Risk Allocation Guideline
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form.
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
97 PPP in Indonesia: Risk Allocation Guideline
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Site Risk below applied to Full Concession and O&M scheme
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of biodiversity of forest/conservation area
Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]
x Conduct studies of biodiversity for impacts mapping
AMDAL implementation
The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL
Obstruction of access to the public transportation
Project which cut the residential areas may cause impact of communication access and economic society disruptions – [Construction & Operation Stages]
x Develop a new transportation access that mutually agreed
This condition can be related with cultural aspects in an area where the project is implemented
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Design, Construction and Commissioning Risks below applied to Full Concession scheme
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
98 PPP in Indonesia: Risk Allocation Guideline
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design, Construction and Commissioning Risks below applied to Full Concession and O&M scheme
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, testing consultant, and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
99 PPP in Indonesia: Risk Allocation Guideline
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of toll road services in technology and information systems of railway service
The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
Traffic accident or safety issues
Highly traffic accident - [Operation Stage] x Third party liability insurance
6. REVENUE RISKS
Revenue Risk below applied to Full Concession scheme
100 PPP in Indonesia: Risk Allocation Guideline
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Lack of project revenue’s risk in ramp up period
The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation.
x
Changes in the traffic demand projection
Resulted in a decrease in revenue and the deficit for PC – [Operation Stage]
x Accurate traffic survey
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate traffic survey
Soft loan at the initial operation
If triggered by Government actions, guarantee request may be considered
Toll collecting company fails to collect tolls
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Revenue Risk below applied to Full Concession and O&M scheme
Fail in the tariff determination Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISK
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
Non-Toll networks management risk
Limitations of Government in manage the non-toll traffic which impacts to toll road management performance – [Operation Stage]
x The traffic management with consider pattern of the transport movement through toll and non-toll roads
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Interface Risk below applied to Full Concession and O&M scheme
101 PPP in Indonesia: Risk Allocation Guideline
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of
project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied
standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
Interface Risk below applied to Full Concession scheme
Public transportation transition risk
Fail in transition of the existing transport process, then it becomes the BRT bus operator – [All Stages]
x x Government prepare a transition plan and milestones that agreed together with the entrepreneur party and the transport drivers
Intensively of Organda involvement in transition process
The drivers moved become BRT driver with payroll system
The entrepreneur had the chance to become bus operator that paid Rp/km
BUP provides a service training of users oriented to operators and all doers
Provision of financing scheme that simplify an existing operator to become a BRT bus operator
A strike of public transportation due to the absence of an agreement on the transition mechanisms.
BUP doesn’t perform the contractual obligations to recruit the an existing driver, then it becomes a risk allocation in PC’s side.
Interface Risk below applied to O&M scheme
Public transportation transition risk
Fail in transition of the existing transport process, then it becomes the BRT bus operator – [All Stages]
x x Government prepare a transition plan and milestones that agreed together between the entrepreneur party and the transport drivers
Intensive Organda involvement in transition process
The drivers moved become BRT driver with payroll system
The entrepreneur had the chance to become bus operator that paid Rp/km
BUP provides a training of users oriented services to operators and all doers
Provision of financing scheme that simplify an existing operator to become a BRT bus operator
A strike of public transportation due to the absence of an agreement on the transition mechanisms.
102 PPP in Indonesia: Risk Allocation Guideline
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset Ownership Risk below applied to all Full Concession and O&M scheme
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset Ownership Risk below applied to Full Concession scheme
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
103 PPP in Indonesia: Risk Allocation Guideline
BRT Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
The assessment carried out by mutually agreed independent appraisers
Asset Owner Risk below especially applied to O&M scheme
Business transferred and an existing railway assets management and currently built
Uncertainty of conditions upon transfer from earlier operator and unanticipated condition of railway existing condition
x A robust business due to diligence (in PFS)
As seen from the above table, a ful concession structure of BRT has some sectoral risks (which similar to risks in the railway full concession), namely: land
acquisition risk, demand risk, tariff risk, and interface risk. The specific risks of O&M Railway structure (compared with Railway Full Concession) are operation
risk, tariff risk, and asset ownership risk. On the other specific sectoral risk (demand risk, network and interface risk ), still become the PC’s attention, but the
exposure may not as large as a full concession projects.
4.2.9 Risk Allocation Matrix in Seaport Sector
Risk matrix below refers to a seaport project with a concession structure that involves design, construction, operation and maintenance of the seaport facility,
including tariff collection from customers.
Table 12. Risk Matrix for Seaport Sector
Seaport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
1. SITE RISK
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
104 PPP in Indonesia: Risk Allocation Guideline
Seaport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form.
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of biodiversity of forest/conservation area
Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]
x Conduct studies of biodiversity for impacts mapping
AMDAL implementation
The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
105 PPP in Indonesia: Risk Allocation Guideline
Seaport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, testing consultant, and the right operators
Experienced testingand commissioning consultant
3. SPONSOR RISKS – All PPP scheme
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC
x The selecting process of a credible lenders
106 PPP in Indonesia: Risk Allocation Guideline
Seaport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
or due to an internal issues – [All Stages after Financial Close]
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications; Reward and punishment mechanism.
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
107 PPP in Indonesia: Risk Allocation Guideline
Seaport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of toll road services in technology and information systems of seaport service
The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
Traffic accident or safety issues
Highly traffic accident in both land-side or seaside - [Operation Stage]
x Third party liability insurance
6. REVENUE RISKS
Lack of project revenue’s risk in ramp up period
The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation.
x
Changes in the traffic demand projection
Resulted in a decrease in revenue and the deficit for PC – [Operation Stage]
x Accurate traffic survey
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate traffic survey
Soft loan at the initial operation
If triggered by Government actions, guarantee request may be considered
Toll collecting company fails to collect tolls
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISKS
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
108 PPP in Indonesia: Risk Allocation Guideline
Seaport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Non-Toll networks management risk
Limitations of Government in manage the non-toll traffic which impacts to toll road management performance – [Operation Stage]
x The traffic management with consider pattern of the transport movement through toll and non-toll roads
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality
of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x X Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard
/method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker or default by the PC
[All Stages]
x Political risk insurance
Government guarantee
109 PPP in Indonesia: Risk Allocation Guideline
Seaport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
In the seaport full concession structure, similar to the railway full concession, the specific risks are land acquisition risk, certain operating risk (i.e. traffic accident
or public safety concerns), demand and tariff risks, and interface risk (i.e. on standard delivery and technology).
4.2.10 Risk Allocation Matrix in Airport Transportation Sector
Risk matrix below refers to an airport project with a full concession and O&M structure that involves design, construction, operation and maintenance of the
airport facility, including tariff collection from customers.
Table 13. Risk Matrix for Airport Sector
Airport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISKS
Site Risk below applied to Full Concession scheme
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
110 PPP in Indonesia: Risk Allocation Guideline
Airport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form.
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Site Risk below applied to Full Concession an O&M scheme
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
111 PPP in Indonesia: Risk Allocation Guideline
Airport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of biodiversity of forest/conservation area
Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]
x Conduct studies of biodiversity for impacts mapping
AMDAL implementation
The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL
Obstruction of access to the public transportation
Project which cut the residential areas may cause impact of communication access and economic society disruptions – [Construction & Operation Stages]
x Develop a new transportation access that mutually agreed
This condition can be related with cultural aspects in an area where the project is implemented
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Design, Construction and Commissioning Risks below applied to Full Concession scheme
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design, Construction and Commissioning Risks below applied to Full Concession and O&M scheme
112 PPP in Indonesia: Risk Allocation Guideline
Airport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, testing consultant , and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
113 PPP in Indonesia: Risk Allocation Guideline
Airport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of toll road services in technology and information systems of railway service
The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
Traffic accident or safety issues on air-side
Highly traffic accident on air-side - [Operation Stage]
x Third party liability insurance These depends on causes of the accident and the cope of cooperation agreement, remember that the Government take a control of ATC, while the possibility of operational on field it’s by the PC
6. REVENUE RISKS
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate traffic survey
Soft loan at the initial operation
If triggered by Government actions, guarantee request may be considered
Failure in tenant and/or Aeropolis reaps
The PC failed to obtain tenants or buyer – [Operation Stage]
x Comprehensive planning on feasibility study
114 PPP in Indonesia: Risk Allocation Guideline
Airport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Strategical and implementation of a competent marketing
Toll collecting company fails to collect tolls
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISK
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Contract synchronization
Non-Toll networks management risk
Limitations of Government in manage the non-toll traffic which impacts to toll road management performance – [Operation Stage]
x The traffic management with consider pattern of the transport movement through toll and non-toll roads
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
115 PPP in Indonesia: Risk Allocation Guideline
Airport Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset Ownership Risk below applied to all Full Concession and O&M scheme
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset Ownership Risk below applied to Full Concession scheme
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Asset Owner Risk below especially applied to O&M scheme
Business transferred and an existing railway assets management and currently built
Uncertainty of conditions upon transfer from earlier operator and unanticipated condition of railway existing condition
x A robust business due to diligence (in PFS)
116 PPP in Indonesia: Risk Allocation Guideline
Similar to the seaport and railway concessions,the specific risks embedded in airport concession, are land acquisition risk, demand and tariff risks, and interface
risk (i.e. on standard delivery and technology).
Similar to toll road sector, specific risk in O&M Aiport structure (compared to airport full concession) are site risks (i.e. land acquisition-related), design
construction & commissioning risks and the asset ownership/transfer risks. On other sector-specific risks (i.e. demand risk, network risk and interface risk), they
are still main concerns of the PC, albeit of lesser magnitude than that in the full concession structure.
4.2.11 Risk Allocation Matrix in Telecommunication Sector
The risk matrices are provided for AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC are building, operating, maintaining, and selling the
products.
Table 14. Risk Matrix for Telecommunication Sector
Telecommunication Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
1. SITE RISKS
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
117 PPP in Indonesia: Risk Allocation Guideline
Telecommunication Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Society distress Due to potential discomfort from the process/output – [Operation Stage]
x Competent environment aspects specialist consultant
Mature planning of an implementation schedules in order to fulfill the AMDAL requirements
Failure to apply environmental permits
PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL – [Pre-Construction Stage]
x Competent environment aspects specialist consultant
Mature planning of an implementation schedules in order to fulfill the AMDAL requirements
Disruption of biodiversity of forest/conservation area
Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]
x Conduct studies of biodiversity for impacts mapping
AMDAL implementation
The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS – All PPP projects scheme and type
118 PPP in Indonesia: Risk Allocation Guideline
Telecommunication Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Good and experienced design consultant or EPC
Usually identified at technical operational test
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, testing consultant , and the right operators
Experienced testingand commissioning consultant
3. SPONSOR RISKS
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
119 PPP in Indonesia: Risk Allocation Guideline
Telecommunication Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU fund availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
120 PPP in Indonesia: Risk Allocation Guideline
Telecommunication Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Resource or input risk The risk of failure or shortage in the supply of the inputs or resources (for example, coal or other fuels) required for the operation of a project including in the quality of available supplies – [Operation Stage]
x The PC provide an alternative solution, includes the back up
Prolonged downtime The operation suspended due to technical disorder aspects, maintenance, or other issues related – [Operation Stage]
x Spare part availability ad guarantee from vendors
Latent defect risk The risk of loss or damaged due to latent defect in facilities which include as a project assets – [Operation Stage]
x Strict control to the procurement of project assets and forcing the BUP to replace the damaged
Failure in technology risk The technology used could potentially fail to give the required output specifications – [Operation Stage]
x Before the signing of agreement contract, the bidders already familiar about the consequences of punishment if breaking the deal
Technology obsolescence The development of technology that make the technology used becomes obsolete (technology obsolescence – [Operation Stage]
x Verify for technology used fulfill the current standard
6. REVENUE RISKS
Changes in the demand volume on project output
Volume on output demand is increase or decrease – [Operation Stage]
x Understanding the technological capability to produce electricity by the PC
Good contract understanding by both parties
Changes in the demand volume on project output
End (retail) consumers does not pay
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x Feasibility support (VGF); Supportive regulation.
End (retail) consumers does not pay
Failure in the initial tariff determination
Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]
x Feasibility support (VGF); Regulation related to tariff mechanism and incentive
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
121 PPP in Indonesia: Risk Allocation Guideline
Telecommunication Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
7. NETWORK CONNECTIVITY RISK
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
Non-Toll networks management risk
Limitations of Government in manage the non-toll traffic which impacts to toll road management performance – [Operation Stage]
x The traffic management with consider pattern of the transport movement through toll and non-toll roads
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
122 PPP in Indonesia: Risk Allocation Guideline
Telecommunication Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally in AP scheme of Telecommunication BOT structure, the obselescence and failure of technology risk becomes a very specific risk in this sector.
Telecommunications and informatics changes very quickly, so it needs to be an understanding on the technology development and also the user needs in order
to avoid the design errors.
4.2.12 Risk Allocation Matrix in Urban Facilities Sector
Risk matrices are provided for BOT (Build, Operate, Transfer) and AP of PPP structure. In both schemes, the PC has the scope of works that includes building,
operating, maintaining, and assets transfer. The differencies of demand risk aspect, due to the AP scheme is not allocated to the PC.
123 PPP in Indonesia: Risk Allocation Guideline
Table 15. Risk Matrix for Urban Facitilities (Market) Sector
Urban Facilities (Market) Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISK
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage
124 PPP in Indonesia: Risk Allocation Guideline
Urban Facilities (Market) Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of biodiversity of forest/conservation area
Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]
x Conduct studies of biodiversity for impacts mapping
AMDAL implementation
The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
125 PPP in Indonesia: Risk Allocation Guideline
Urban Facilities (Market) Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, testing consultant, and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS – All PPP scheme
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
126 PPP in Indonesia: Risk Allocation Guideline
Urban Facilities (Market) Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of technology and information service systems
The technology used cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
Traffic accident or safety issues
Highly traffic accident - [Operation Stage] x Third party liability insurance
6. REVENUE RISKS
Revenue Risk below applied to all BOT scheme
Changes in the traffic demand projection
Resulted in a decrease in revenue and the deficit for PC – [Operation Stage]
x Accurate traffic survey
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate traffic survey Soft loan at the initial operation
If triggered by Government actions, guarantee request may be considered
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Failure of AP payment in timely manner
Government cannot make a payment in timely manner – [Operation Stage]
x The escrow account mechanism which combine the revenue of toll tariffs
Revenue Risks below applied to Full Concession, O&M, Combination of Full Concession and O&M, and AP scheme
127 PPP in Indonesia: Risk Allocation Guideline
Urban Facilities (Market) Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISKS
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
The smoothness of transportation system risk
Limitations of Government in manage the traffic on around the site which impacts to service performances – [Operation Stage]
x The traffic management with consider pattern of the transport movement
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
128 PPP in Indonesia: Risk Allocation Guideline
Urban Facilities (Market) Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker or default by the PC
[All Stages]
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally in Market BOT structure, the specific risks are asset transfer after the end of contract period and demand risk. In addition of AP scheme, the operatioan
and asset transfer risks gain the special attention by the PC.
4.2.13 Risk Allocation Matrix in Health Sector
Risk matrices are provided for BOT (Build, Operate, Transfer) of AP scheme. The PC responsible of build, operate, and maintain the hospital facilities, also
switched to the end of concession period.
129 PPP in Indonesia: Risk Allocation Guideline
Table 16. Risk Matrix for Health Sector
Health Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISK
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities s
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form.
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
130 PPP in Indonesia: Risk Allocation Guideline
Health Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
131 PPP in Indonesia: Risk Allocation Guideline
Health Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
availability, delay in returning site access – [Construction Stage]
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced testing consultant and commissioning
3. SPONSOR RISKS – All PPP scheme
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Hedging instruments; financing in Rupiah
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
132 PPP in Indonesia: Risk Allocation Guideline
Health Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of technology and information systems of health service
The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
Delay on tools delivery and medical needs
The risk of delay in delivery that becomes PC’s responsibility - [Operation Stage]
x Integrated and competent of planning, communication system, logistic system, and control system
Data leakage and management risk
Patient medical data is not well recorded and leaked - [Operation Stage]
x Integrated, competent, and equipped of tested scurity systems of planning, communication system, logistic system, and control system
Technology obsolescence The development of technology that make the technology used becomes obsolete (technology obsolescence – [Operation Stage]
x Verify for technology used fulfill the current standard
Medical treatment risk Accident during the medical treatment x x Implement the medical treatment procedures according to the SOP
Ensure the competency of technology /systems before the medical treatment process is done
This risks are depends on the cause that refers to scope of the cooperation
133 PPP in Indonesia: Risk Allocation Guideline
Health Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Pollution of medical waste risks that is hazardous toxic material (B3)
The operational activities of hospital/health facility could potentially cause environmental pollution from medical waste produced – [Operation Stage]
x Comprehensive AMDAL studies
Making the medical waste management facility that fulfill the regulatory standards
Medical waste management could be done by certified third party from authorized agency (KLHK)
6. REVENUE RISKS
Decrease in the demand volume projection (patient)
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate traffic survey
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Increase in demand volume projection (patient)
Patient visits are beyond the expected on the study and contracts which affect the operating performance, including the costs rises – [Operation Stage]
x x Good contract understanding by public sector
The PC and Government discussion related to contracts
Basically it becomes the PC responsibility, but only when it reaches the upper limit of volumes
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate traffic survey
Soft loan at the initial operation
If triggered by Government actions, guarantee request may be considered
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Failure of AP payment in timely manner
Government cannot make a payment in timely manner – [Operation Stage]
x The escrow account mechanism which combine the revenue of toll tariffs
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISKS
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
The smoothness of transportation system risk
Limitations of Government in manage the traffic on around the site which impacts to service performances – [Operation Stage]
x The traffic management with consider pattern of the transport movement
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
134 PPP in Indonesia: Risk Allocation Guideline
Health Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker or default by the PC
[All Stages]
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
135 PPP in Indonesia: Risk Allocation Guideline
Health Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
insurance, then it taken over by the Government.
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally in Hospital AP structure, the specific risks are the technology obsolescence risk, work and technology interface risk, medical treatment risk, medical
waste management risk as B3, and data leakage and management risk.
4.2.14 Risk Allocation Matrix in Public Housing Sector
Risk matrices are provided for BOT (Build, Operate, Transfer) PPP structure. The PC scope of work involve building, operating, and inrfastructure maintaining,
also asset transfer after the end of cooperation period.
Table 17. Risk Matrix for Public Housing Sector
Public Housing Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
1. SITE RISK
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
136 PPP in Indonesia: Risk Allocation Guideline
Public Housing Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
CA output specification should refer to best practice
137 PPP in Indonesia: Risk Allocation Guideline
Public Housing Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced tester consultant and commissioning
3. SPONSOR RISKS – All PPP scheme
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
138 PPP in Indonesia: Risk Allocation Guideline
Public Housing Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
139 PPP in Indonesia: Risk Allocation Guideline
Public Housing Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Security and safety risk Highly of accident and losses - [Operation Stage] x Good implementation of security and safety systems
Third party liability insurance
6. REVENUE RISKS
Revenue Risk below applied to BOT scheme
Changes in the demand volume projection
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate market survey by experienced consultant
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate market survey by experienced consultant
If triggered by Government actions, guarantee request may be considered
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Revenue Risk below only applied to AP scheme
Changes in the demand volume projection
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate market survey by experienced consultant
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate market survey by experienced consultant
If triggered by Government actions, guarantee request may be considered
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Failure of AP payment in timely manner
Government cannot make a payment in timely manner – [Operation Stage]
x The escrow account mechanism which combine the revenue of toll tariffs
Revenue Risk below applied to BOT and AP scheme
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISKS
140 PPP in Indonesia: Risk Allocation Guideline
Public Housing Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
The smoothness of transportation system risk
Limitations of Government in manage the traffic on around the site which impacts to service performances – [Operation Stage]
x The traffic management with consider pattern of the transport movement
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations x Political risk insurance
Government guarantee
141 PPP in Indonesia: Risk Allocation Guideline
Public Housing Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice
Specific Conditions related to Risk Allocation
Due to privatization of the Off taker or default by the PC
[All Stages]
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally in Public Housing BOT structure, the specific risks are the demand and operation risk. Meanwhile on AP scheme, the demand risk is allocated to the
Government.
4.2.15 Risk Allocation Matrix in Education Sector
Risk matrices are provided for BOT (Buil, Operate, Transfer) PPP structure, the PC is responsible in buil, operate, and maintain the education facilities, also
asset transfer at the ends of cooperation period.
142 PPP in Indonesia: Risk Allocation Guideline
Table 18. Risk Matrix for Education Sector
Education Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISK
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
143 PPP in Indonesia: Risk Allocation Guideline
Education Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
144 PPP in Indonesia: Risk Allocation Guideline
Education Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, testing consultant , and the right operators
Experienced testing and commissioning consultant
3. SPONSOR RISKS – All PPP scheme
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff
145 PPP in Indonesia: Risk Allocation Guideline
Education Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of technology and information systems of education service
The technology used cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
Delay on tools delivery and teaching and learning needs
The risk of delay in delivery that becomes PC’s responsibility - [Operation Stage]
x Integrated and competent of planning, communication system, logistic system, and control system
Data leakage and management risk
Students data is not well recorded and leaked - [Operation Stage]
x Integrated, competent, and equipped of tested scurity systems of planning, telecommunication and infromation system, and control system
Technology obsolescence The development of technology that make the technology used becomes obsolete (technology obsolescence – [Operation Stage]
x Verify for technology used fulfill the current standard
This is depends on the PC’s scope of cooperation
6. REVENUE RISKS
Decrease in the demand volume projection
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate market survey by experienced consultant
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Curriculum changes The curriculum changes which affects to the increase in operating cost – [Operation Stage]
x x Good contract understanding by public sector
The PC and Government discussion related to contracts
Basically it becomes the PC responsibility, but only when it reaches the upper limit of volumes
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate market survey by experienced consultant
If triggered by Government actions, guarantee request may be considered
146 PPP in Indonesia: Risk Allocation Guideline
Education Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Failure of AP payment in timely manner
Government cannot make a payment in timely manner – [Operation Stage]
x The escrow account mechanism which combine the revenue of toll tariffs
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISKS
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
The smoothness of transportation system risk
Limitations of Government in manage the traffic on around the site which impacts to service performances – [Operation Stage]
x The traffic management with consider pattern of the transport movement
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
147 PPP in Indonesia: Risk Allocation Guideline
Education Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker or default by the PC
[All Stages]
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally in Education BOT structure, the curriculum risk is quite high due to refers on history that the leadership changes impacts to curriculum changes. In
addition, the students data leakage risk, availability of utilities are the risk that gain a special concern by the PC.
4.2.16 Risk Allocation Matrix in Sport Facility Sector
148 PPP in Indonesia: Risk Allocation Guideline
Risk matrices are provided for full concession and AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC scope of works including building,
operating, and maintaining the infrastructure, also asset transferring at the ends of concession period. The full concession scheme can be implemented if the
commercial facility being built is quite attractive and worth supporting investment and OM cost of sport facility. The selected commercial facility surely has its
own type of risk that need to be further assessed. The risk in commercial facility were not assessed in this guidelines.
Table 19. Risk Matrix for Sport Facility Sector
Sport Facility Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISK
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally
149 PPP in Indonesia: Risk Allocation Guideline
Sport Facility Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
possibility of route change – [Construction Stage]
at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
150 PPP in Indonesia: Risk Allocation Guideline
Sport Facility Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, testing consultant, and the right operators
Experienced testingand commissioning consultant
3. SPONSOR RISKS – All PPP scheme
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
151 PPP in Indonesia: Risk Allocation Guideline
Sport Facility Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of technology and information systems of sports facility service
The technology used cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
This conditions are depends on the class of the sports facilities that provided
6. REVENUE RISKS
Revenue Risk below applied to Full Concession and AP scheme
Lack of project revenue’s risk in ramp up period
The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation.
x
Changes in the demand volume projection
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate market survey by experienced consultant
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate market survey
Experienced model consultant in commercial facility designed
If triggered by Government actions, guarantee request may be considered
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x Collection system and good operational performance
152 PPP in Indonesia: Risk Allocation Guideline
Sport Facility Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
Revenue Risk below applied to AP scheme
Changes in the demand volume projection
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate market survey by experienced consultant
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate market survey
Experienced model consultant in commercial facility designed
If triggered by Government actions, guarantee request may be considered
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x Collection system and good operational performance
Failure of AP payment in timely manner
Government cannot make a payment in timely manner – [Operation Stage]
x The escrow account mechanism which combine the revenue of toll tariffs
7. NETWORK CONNECTIVITY RISKS
Network Connectivity Risk below applied to Full Concession scheme
Network connectivity of product marketing risk
PC cannot managed the markets – [Operation Stage]
x Good contract understanding by public sector
Contract with main buyer since early on
Construction synchronization
The smoothness of supplier system risk
PC cannot guarantee the supplier system – [Operation Stage]
x Supportive government policies
Contract with measured suppliers
i.e. quota of beef imports
Competitors facilities risk Breach of authority’s obligation not to build a competitor facility that similar to commercial facility - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
153 PPP in Indonesia: Risk Allocation Guideline
Sport Facility Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker or default by the PC
[All Stages]
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
154 PPP in Indonesia: Risk Allocation Guideline
Sport Facility Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
it taken over by the Government.
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally in Sports Facility BOT structure, the specific risks are operational risk and asset transfer risk after the ends of the cooperation period. In addition, the
other specific risks are parastatal risk (i.e. breach of the off-taker’s contractual obligations and privatization of the off-taker).
4.2.17 Risk Allocation Matrix in Tourism Sector
Risk matrices are provided for AP scheme with BOT (Build, Operate, Transfer) structure for the development projects of information centre, service, and tourism
promotion types. The PC is responsible to building, operating, and maintaining the infrastructure, also asset transferring at the ends of concession period.
Table 20. Risk Matrix for Tourism Sector
Tourism Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISK
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
155 PPP in Indonesia: Risk Allocation Guideline
Tourism Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Unissued of the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
156 PPP in Indonesia: Risk Allocation Guideline
Tourism Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced tester consultant and commissioning
3. SPONSOR RISKS – All PPP scheme
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
157 PPP in Indonesia: Risk Allocation Guideline
Tourism Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation
Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
158 PPP in Indonesia: Risk Allocation Guideline
Tourism Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of technology and information systems of tourism facility service
The technology used cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
This conditions are depends on the class of the tourism facilities that provided
6. REVENUE RISKS
Decrease in the demand volume projection
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate market survey by experienced consultant
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate market survey by experienced consultant
If triggered by Government actions, guarantee request may be considered
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x x Collection system and good operational performance
This risk is highly depends on scope of the PC
Failure of AP payment in timely manner
Government cannot make a payment in timely manner – [Operation Stage]
x The escrow account mechanism which combine the revenue of toll tariffs
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
7. NETWORK CONNECTIVITY RISKS
Road and transportations network connectivity
Breach of authority’s obligation to build and maintain the required network – [Operation Stage]
x Good contract understanding by public sector
Construction synchronization
The smoothness of transportation system risk
Limitations of Government in manage the traffic on around the site which impacts to service performances – [Operation Stage]
x The traffic management with consider pattern of the transport movement
Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
159 PPP in Indonesia: Risk Allocation Guideline
Tourism Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker or default by the PC
[All Stages]
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
160 PPP in Indonesia: Risk Allocation Guideline
Tourism Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
insurance, then it taken over by the Government.
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally in Tourism BOT structure, the specific risks are operational risk and asset transfer risk after the ends of the cooperation period. In addition, the other
specific risks are parastatal risk (i.e. breach of the off-taker’s contractual obligations and privatization of the off-taker).
4.2.18 Risk Allocation Matrix in Correctional Sector
The correctional institution not only about the prison building but also includecoaching facilities. The coaching facilities that has a commercial aspect can become
a sources of investement return. Risk matrices provided for full concession and AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC is
responsible to building, operating, and maintaining the infrastructure, also asset transferring at the ends of concession period. The selected coaching facility
surely has its own type of risk that need to be assessed. The risk in coaching facility were not assessed in this guidelines.
161 PPP in Indonesia: Risk Allocation Guideline
Table 21. Risk Matrix for Correctional Sector
Correctional Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
1. SITE RISK
Land acquisition delay and costs overrun
Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]
x The Government clears project landsite before PC procurement process through:
Government needs to set the project location and ensure the availability of all the necessary documents;
Government needs to ensure the availability of land acquisition funds;
Government needs to ensure the availability of team that conduct the land acquisition process;
Government needs to ensure that the land acquisition process could be run in accordance to the regulation.
Land requirement for intake location, WTP and transmission network has been identified clearly
The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities
Land acquisition can't be performed entirely
Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]
x Clear land legal status and procedure in project land clearance
Discrepancy risk in RTRW
Unissued the location determination or location permit risk by the Local Government
Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk
Land owned by State cannot be purchased
Delay of appraisal result by the National Land Agency (BPN)
Land cannot be used after land acquisition
Difficulties access to the land due to social disruption – [Construction Stage]
x x Including project communication strategy, social issues mapping, and related key figures
Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process
Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]
x Fair compensation and good communication with those impacted
Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form
Land requirement for this kind of project is usually not extensively large, social impact is relatively small
Unforeseen difficulties of site conditions
Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change– [Construction Stage]
x x The utility identification at planning stage supported by an adequate data
Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government
162 PPP in Indonesia: Risk Allocation Guideline
Correctional Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Limitation of construction working space
Related to the provision of land for working space during construction – [Construction Stage]
x Good construction methods; Socialization by government
If there is a public rejection, the Government can help
Damaged of artifacts and antiquates in the site
The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]
x Land use historical data and land investigation
Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]
x Implement validation and completion of land tenure;
Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important
Contamination/pollution to the site environment
Contamination/pollution to the environments that interfere the project implementation – [All Stage]
x Comply with good environment impact analysis
Disruption of the community conveniences around the project area
Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]
x Conduct comprehensive AMDAL studies and implement them well
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output specifications
Time and cost overruns due to unclear output specification – [Pre-Construction Stage]
x Clarification during the tender process;
Capacity of good design;
The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.
CA output specification should refer to best practice
Failure to maintain security and safety within the location
Highly accidental rates during the construction works – [Construction Stage]
x Implementation of a good work security and safety
Competent and experienced EPC
Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]
x Agreement on volume and threshold changes approval procedures
Provide the calculation of price escalation factor on the contract
Good relationship with supplier
Penalty clauses of Liquidity Damages
Contractors/subcontractors bad performances
Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Default by contractors/subcontractor
Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]
x The selecting process of a credible contractors & subcontractors
Penalty implementation
Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]
x Competent and experienced design consultant or EPC
Usually identified at technical operational test
Delay in completing construction works
May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]
x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages
163 PPP in Indonesia: Risk Allocation Guideline
Correctional Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Operation & commission testing
Mis-estimation of time/cost in technical operation testing – [Construction Stage]
x Good communication & coordination between contractor, consultant testers, and the right operators
Experienced tester consultant and commissioning
3. SPONSOR RISKS – All PPP scheme
Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]
x Consortium is supported by credible and solid sponsors
Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]
x PQ process to select credible sponsors
Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]
x The selecting process of a credible lenders
PC performances to fulfill the contract
Eligibility lenders
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]
x Good coordination and consortium with potential and credible lenders
May be caused by conditions precedence are not fulfilled
VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]
x Ensure timely budgeting process
Provide the bailout funds that managed by the BLU unit
Refund of land bailout fund risk
Land bailouts disbursement by the Government to the PC is late – [Construction Stage]
x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold
Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]
x Financing in Rupiah
Purchase price index taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options
Can be shared with the Government when extreme fluctuations
Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]
x Tariff indexation factor; interest rate hedging
Can be shared with the Government when extreme fluctuations
Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]
x Consult with insurance specialists/brokers
Especially for insurance risk coverage under force majeure conditions
5. OPERATING RISKS
Security and safety of correctional facility
Breach of security and/or safety, i.e. runaway prisoners
x Integrated and tight security system
Availability of facilities Due to the facilities cannot be developed – [Construction Stage]
x Competent contractor
Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]
x Competent operator; Clear output specifications
Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]
x Good human resources and industrial relation policies
May be by operator, sub-contractors, or suppliers staff
164 PPP in Indonesia: Risk Allocation Guideline
Correctional Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
National scale demonstration that led to the national work strikes can be considered in the force majeure category
Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]
x Implement people-oriented community engagement program; community empowerment
Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]
x Develop operations management plan and to be performed professionally
Failure of project control and monitoring
Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]
x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]
x Competent operator; Contract escalation factor
More frequent of maintenance than expected
Mis-estimation of life cycle expenditure
Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]
x Deal/contract with suppliers as earliest as possible
Increase in energy costs - due to inefficient unit
Increases of energy cost due to inefficiency of operation performance – [Operation Stage]
x Good unit specifications and quality
Irregular availability of required utilities
Availability of utilities, such as irregular electricity and internet – [Operation Stage]
x Anticipation measures: Electricity back-up facilities/other utilities
Usually this should be anticipated as earliest as possible
Incompetent of technology and information systems of sports facility service
The technology used cannot be reliable, so disturbed the operation – [Operation Stage]
x Choose the competent technology and the right vendor
This conditions are depends on the class of the sports facilities that provided
6. REVENUE RISKS
Revenue Risk below applied to Full Concession and AP scheme
Lack of project revenue’s risk in ramp up period
The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation.
x
Changes in the demand volume projection
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate market survey by experienced consultant
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Mis-estimation from previous model
Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]
x Accurate market survey
Experienced model consultant in commercial facility designed
If triggered by Government actions, guarantee request may be considered
Revenue Risk below applied to AP scheme
Fail in the initial tariff determination
Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]
x Good operational performance
Supporting regulation
Supporting legal framework, can be a regional regulation
Delay in periodical tariff adjustment
i.e. on tariff indexation to agreed inflation rate – [Operation Stage]
x Good operational performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
165 PPP in Indonesia: Risk Allocation Guideline
Correctional Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Level of the adjusted tariff is lower than initially projected
Especially after tariff indexation and tariff rebasing– [Operation Stage]
x Good operation performance; regulation that regulated the rate and adjustment of tariff period
Supporting legal framework, can be a regional regulation
Miscalculation of the tariff estimates
Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]
x Accurate users’ affordability and willingness survey
Changes in the demand volume projection
Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]
x Accurate market survey by experienced consultant
Soft loans in initial operation
If triggered by Government actions, guarantee request may be considered
Tariff collecting company fails to collect
Due to failure/non-optimality of payment collection system – [Operation Stage]
x Collection system and good operational performance
Failure of AP payment in timely manner
Government cannot make a payment in timely manner – [Operation Stage]
x The escrow account mechanism which combine the revenue of toll tariffs
7. NETWORK CONNECTIVITY RISKS
Network Connectivity Risk below applied to Full Concession scheme
Network connectivity of product marketing risk
Breach of authority to buy prisoners products or cancellation of the main buyer – [Operation Stage]
x x Good contract understanding by public sector
Contract with main buyer since early on
Construction synchronization
The smoothness of supplier system risk
PC cannot guarantee the supplier system – [Operation Stage]
x x Supportive government policies
Contract with measured suppliers
i.e. quota of beef imports
Competitors facilities risk Breach of authority’s obligation not to build a competitor facility that similar to commercial facility - [Operation Stage]
x Good contract understanding by public sector
Supporting legal framework, can be a regional regulation
8. INTERFACE RISKS
Disparity of the time and quality of work risk
Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]
x x Coordination and integration of project implementation schedule
Remedial action by party who has lower quality of works
Differences of service standard /method risk
Substantial reworks due to different standard/ method of delivery – [Construction Stage]
x Agreement on the applied standard/method of delivery in advance
Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]
x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]
x Local financing
Off-shore account
Guarantee from central bank
166 PPP in Indonesia: Risk Allocation Guideline
Correctional Sector
Risk Category and Risk Event
Description Public Private Shared Mitigation Strategy based on Best
Practice Specific Conditions related to
Risk Allocation
Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
General change in law (include tax)
Can be considered as business risk – [All Stages]
x
Discriminatory or project specific change in law (including tax)
In form of tax policy by the relevant authority (central or regional) – [All Stages]
x Mediation, negotiation
Political risk insurance
Government guarantee
In addition to having a clear contractual provisions, including compensation
Delay in achieving planning approval
Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]
x Clear contract provisions including the compensations
The initial planning or design changes due to construction work
Fail or delay in obtaining necessary consents (excl. Planning)
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Usually related to issues other than planning
Delay in gaining access to the site
Only if it caused by the public sector's unilateral/improper decision – [All Stages]
x Clear contract provisions including the compensations
Parastatal risk Breach of off taker’s contractual obligations
Due to privatization of the Off taker or default by the PC
[All Stages]
x Political risk insurance
Government guarantee
10. FORCE MAJEURE RISKS
Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]
x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.
Political force majeure Events of war, riots, civil disturbance – [All Stages]
x Insurance, to extent possible
Extreme weather Due to climate changes or other factors – [All Stages]
x Insurance, to extent possible
Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]
x Either party should be able to terminate the contract and trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP contract ends
The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]
x The making of the contract that governing the matter of transfer of assets
The assessment carried out by mutually agreed independent appraisers
Generally in Correctional Facility with BOT structure, the specific risks are operational risk and asset transfer risk after the ends of the cooperation period. In
addition, the other specific risks are parastatal risk (i.e. breach of the off-taker’s contractual obligations and privatization of the off-taker). Especially for full
concession, the inherent risk of developed commercial facility needs to be considered.
167 PPP in Indonesia: Risk Allocation Guideline
5 SUMMARY
From the discussions above, especially on each sector and each PPP structure risk allocation, there are some similarities and differences on how the risks
are allocated between the public and private sector, including when the risk should be shared between the two parties. The summary of similarities and
differences is shown in Table 22 below.
Table 22. Risk Matrix Summary for all PPP Sectors
Allocation Similarity Difference
Public Sector Site risk (land acquisition and land status-related)
Political risk
- Currency inconvertibility and Non transferability
- Expropriation
- Discriminatory and Specific Change of Law (incl.Tax)
- Regulatory consent
- Parastatal risks
- Authority’s default
Operational risk
- Input quantity, quality and continuity
Revenue risk
- Tariff adjustment breach
- Project viability
Network connectivity risk
- Competing route & connectivity
Revenue risk
- Demand risk (Water BOT, Solid Waste BOT, Wastewater BOT,
Electricity BOT, Mine-mouth BOT)
Private Sector Site risk (ground conditions-related)
Design, construction and commissioning
- Default by contractors and sub-contractors
Operating risks
- Output quantity and quality
Political risk
- General Change of Law
Revenue risk
Financial risks
Sponsor risks
- Default by the PC
Revenue risk
- Demand risk (Full concession of Airport, Seaport)
Shared Force Majeure risk
Interface risk
- Disparity of the quality of the works
Revenue risk
- Demand risk (Full concession and O&M for toll road, railway,
airport sector) – depends on who triggers the risk
168 PPP in Indonesia: Risk Allocation Guideline