RESEARCH REPORT CRITICAL REVIEW OF INDONESIA PPP ... · RESEARCH REPORT CRITICAL REVIEW OF...
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Transcript of RESEARCH REPORT CRITICAL REVIEW OF INDONESIA PPP ... · RESEARCH REPORT CRITICAL REVIEW OF...
RESEARCH REPORT
CRITICAL REVIEW OF INDONESIA PPP REGULATIONS AND FRAMEWORKS
Challenges and ways forward
Authors:Danang ParikesitIrene Nindia Laksmi
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This research is conducted by IIGF Institute’s advisor facilitated by Korean Development Institute (KDI) and supported by Inter American Development Bank. This publication is distributed for the purpose of increasing awareness of Indonesia’s PPP regulation. The content of this publication is the sole responsibility of the authors and does not represent the policy of the Republic of Indonesia, Ministry of Finance and Indonesia Infrastructure Guarantee Fund. Copyrights of the report belongs to KDI.
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About the AuthorsProf. Dr. Danang Parikesit is a professor at Universitas Gadjah Mada, a board member of Indonesia Infrastructure Initiative (IndII) and a former policy adviser of the Minister of Public Works (2010-2014).His research interest is on transportation planning and policy, and project finance. Since 2013, he has been helping The Indonesia Infrastructure Guarantee Fund (IIGF) to set up IIGF Institute, a think-tank and capacity building unit of IIGF, aimed at improving the awareness of a well-defined, evidence-based policy on infrastructure, and the capacity of both government contracting agency and professionals.
Irene Nindia Laksmi, SH, is a graduate from Universitas Indonesia, majoring in Law. Her research interest is on civil and business law. Recently she has an specific interest on laws and regulation concerning PPP in infrastructure. She has developed a structured report and survey on Indonesian PPP framework.
About IIGF InstituteIIGF institute is a knowledge resource center and educational institution founded by PT Penjaminan Infrastruktur Indonesia (Persero) / IIGF. IIGF institute provides knowledge and education for key stakeholders and general public on the provision of the privately-financed infrastructure projects (particularly PPP) in various sectors, especially related to its financing, risk
management, and credit enhancement. IIGF institute is established as an implementation of the IIGF’s CSR program and will gradually be developed into a nonprofit institution. It is expected that IIGF Institute will contribute in the creation of the well-informed PPP society in Indonesia, which encourages bankable PPP dealflows to accelerate better infrastructure provision service to the Indonesian people.
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Table of ContentTABLE OF CONTENT ...................................................................................................................... iv
LIST OF ABBREVIATION ................................................................................................................ vi
1. Introduction: Infrastructure Challenges for Indonesia .............................................................. 1
National Plan of Indonesia .................................................................................................................................. 2
Macroeconomic developments .......................................................................................................................... 3
Infrastructure challenges and opportunities ...................................................................................................... 7
2. Evolution of Indonesia’s PPP Framework .................................................................................. 13
Evolution PPP regulations ............................................................................................................... 14
The Changing Scene for PPPs in Indonesia: the Impacts of decentralization ..................................................... 18
3. The Current Legal Framework .................................................................................................. 21
The definition of PPPs in Indonesia regulations ................................................................................................. 22
Jurisdictions of PPPs in Indonesia ....................................................................................................................... 25
Procurement Regulations ................................................................................................................................... 26
Processes and procedures for PPPs (solicited and unsolicited projects) ............................................................ 26
4. Stakeholders and Categories of PPP .......................................................................................... 43
The PPP unit ........................................................................................................................................................ 44
Parties in PPPs implementation .......................................................................................................................... 45
PPPs at the subnational level .............................................................................................................................. 49
PPP project selection categories ......................................................................................................................... 50
5. The Regulatory and Fiscal Framework of PPPs .......................................................................... 53
Fiscal risks, project risk, and risk allocation ........................................................................................................ 54
Fiscal Support to PPP Projects and the Role of Government Agencies ............................................................... 57
Laws of budgetary process .................................................................................................................................. 59
The budgetary process and PPPs ......................................................................................................................... 61
6. Operational Procedures: Pre-contractual Development and Contract Management ................. 65
Financial support platform and contractual structure ........................................................................................ 66
Renegotiation and disputes ................................................................................................................................. 67
7. Conclusion and Way Forward to Further Improve Indonesia’s PPP Framework for Infrastructure
Development ........................................................................................................................... 69
Encouraging private participation in infrastructure: state-of-the art for Indonesia ............................................ 70
The plan for 5 years of infrastructure development ........................................................................................... 71
PPP in the current Indonesia’s medium term development plant ..................................................................... 72
The way forward in improving Indonesian PPP framework................................................................................. 73
MAIN REFERENCES ........................................................................................................................ 82
ANNEXES ....................................................................................................................................... 84
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LIST OF FIGURES
FIGURE 1. Economic Conditions in Indonesia from 2010 to 2014 ................................................................... 6
FIGURE 2. Constraints for Doing Business in Indonesia, 2007 and 2011 ......................................................... 7
FIGURE 3. Details of Indonesia Infrastucture Investment Need Based on Sectors .......................................... 8
FIGURE 4. Infrastructure Spending by Source of Fund, APBN, APBD, SOE, and Private Sector ........................ 9
FIGURE 5. Increasing of Private/Business Entities Participation in Infrastructure in Indonesia (USD Million) . 10
FIGURE 6. Financing Gap and the Possible Sources of Funding ...................................................................... 11
FIGURE 7. Phases of PPPs in Indonesia .......................................................................................................... 28
FIGURE 8. Steps of PPPs Unsolicited Projects by the Private Sector in Indonesia ........................................... 40
FIGURE 9. Planning Stages of PPP Project in Indonesia .................................................................................. 50
FIGURE 10. Planning Document of PPP in Infrastructure Provision .................................................................. 51
FIGURE 11. Steps to Handle Project Risks ........................................................................................................ 57
FIGURE 12. Budgetary Process, Example for Year 2014/2015 ........................................................................... 61
FIGURE 13. The Demand for Transportation Sector ......................................................................................... 71
FIGURE 14. Infrastructure Investment Needs, by Source of Funding ................................................................ 72
FIGURE 15. Percentage of PPP Projects to country infrastructure investment .................................................. 74
FIGURE 16. Core Function of the 3IDE (Indonesia Institure for Infrastructure Development) ........................... 80
LIST OF TABLES
TABLE 1. The Evolution of PPP Legal Framework in Indonesia ..................................................................... 16
TABLE 2. Features of The Presidential Regulation No. 38 of 2015 ................................................................ 16
TABLE 3. Indonesia’s Infrastructure Laws and Revision ................................................................................ 17
TABLE 4. Financing Commitments of PT SMI as of 31 December 2014, by Sector ......................................... 48
TABLE 5. Key Local Government Budgetary Documentation ........................................................................ 63
TABLE 6. Schedule of Activities Carried out during Budget Planning Year .................................................... 64
LIST OF BOXES
BOX 1. Highlighted Articles of the Indonesian PPP Regulation – Presidential Regulation No. 38 of 2015
concerning Cooperation between Government and Business Entities in
the Provision of Infrastructure .......................................................................................................... 23
BOX 2. Highlighted Articles of the Indonesian PPP Regulation at the Subnational Level – Government
Regulation No. 50 of 2007 Regarding Implementation Procedure for Regional Cooperation .............. 49
BOX 3. Study Case: Giwangan Terminal., Yogyakarta, Indonesia ................................................................... 55
BOX 4. Study Case: Power Plant, Central Java, Indonesia .............................................................................. 56
BOX 5. Incomplete Contract in PPP Project ................................................................................................... 67
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LIST OF ANNEXES
ANNEX 1. PPP Regulations Prevail in Indonesia until 2015 ............................................................................... 84
ANNEX 2. List of PPP Portfolio in 2013 (The latest book of PPP) ....................................................................... 87
ANNEX 3. Summary of Public Private Partnerships Projects by Contracting Agency in 2012 ............................. 89
ANNEX 4. List of PPP Portfolio Projecs Already Tendered in 2013 .................................................................... 90
ANNEX 5. PPP List of Unsolicited Projects within 2010-2015 ............................................................................ 93
ANNEX 6. List of Infrastructure Investment, by Sector (1990 – 2014) ............................................................... 95
ANNEX 7. Infrastructure Investment by Sub-sector (1990 – 2014) .................................................................... 96
LIST OF ABBREVIATION
ABBREVIATION DESCRIPTION
AMDAL Analisis Mengenai Dampak LingkunganEnvironmental Impact Assessment
APBD Anggaran Pendapatan dan Belanja DaerahRegional Government Budget
APBN Anggaran Pendapatan dan Belanja Negara
APBN-P Anggaran Pendapatan dan Belanja Negara – PerubahanIndonesian Revised Budget
BAPPENASBadan Perencanaan Pembangunan Nasional/Kementerian Perencanaan Pembangunan Nasional
BLU Badan Layanan Umum
BPJT Badan Pengatur Jalan TolThe Indonesia Toll Road Authority
BUPI Badan Usaha Penjaminan Infrastruktur
DPR Dewan Perwakilan Rakyat
FDI
GOI Government of Indonesia
PDAM Perusahaan Daerah Air MinumLocal Government Water Company
PELINDO PT Pelabuhan Indonesia, Indonesia port company. In Indonesia,commercial ports are assigned to SOE, and divided into 4 regions
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ABBREVIATION DESCRIPTION
PJPK(GCA)
Penanggung Jawab Proyek Kerjasama
PLN PT PLN is Indonesian SOE electricity company
PP(GR)
Peraturan Pemerintah
PT PII(IIGF)
PT Penjaminan Infrastruktur IndonesiaIndonesia Infrastructure Guarantee Fund (State Owned Enterprise)
KKPPI Komite Kebijakan Percepatan Penyediaan Infrastruktur
MoF Kementerian KeuanganMinistry of Finance
MP3EI Master Plan Percepatan & Perluasan Pembangunan Ekonomi Indonesia
P3CU Unit Pusat Kerjasama Pemerintah dan Swasta
Perpres Peraturan Presiden
PIP Pusat Investasi Pemerintah
PKPS Pengembangan Kerjasama Pemerintah Swasta
PLN Perusahaan Listrik Negara(State Electricity Company)
KPS / KPBU Kerjasama Pemerintah Swasta / Kerjasama Pemerintah Badan Usaha
PT SMI
RPJMD Rencana Pembangunan Jangka Menengah Daerah
RPJMN Rencana Pembangunan Jangka Menengah Nasional
SKKL Surat Keputusan Kelayakan Lingkungan
VGF Dana Pendampingan Pemerintah
Infrastructure Challenges
for Indonesia
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National Plan of IndonesiaIndonesia has a national plan in the framework of delevoping many aspects of life such as politic, education, food, rural areas, environment, law enforcement, infrastructure, energy, economic,social and culture, and good governance. The current national plan in the new administration of President Joko Widodo, and his Vice President, Jusuf Kalla (2014-2019) islabelled as “Nawa Cita”.“Nawa Cita” is derived from Sanscrit, which “nawa” means “9 (nine)” and “cita” means “goal or purpose”. This plan ends the previous national plan on the President Susilo Bambang Yudhoyono (2004-2014), dubbed “Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI)” established in 2011.
This “Nawa Cita” consists of nine priorities agenda. Those priorities are stipulated because Joko Widodo has identified some major problems in Indonesia, which are: (1) Threats to the authority of the state. The country has lost its capability to impose its authority and failed to ensure the safety of all citizens, detect future therats to its sovereignty, protect human rights and uphold a strong law enforcement, leading to the people’s distrust towards public institutions; (2) Weaknesses in the pillars of the economy: this is shown by the continued high rate of poverty, welfare inequality, development gap between regions, environmental destruction as a result of over-exploitation on the country’s natural resources, as well as a high dependency on food, energy, finance and technology, and (3) Intolerance and crisis of national character: the weakening in Indonesia’s national character as a nation of high spirited fighters as a result of the spread of sectarian conflict which reduces the spirit of solidarity and mutual cooperation.1 Because of those three major problems that existing in this world’s fourth-most populous country, the couple of the new President decide to make the priorities list.
Those nine priorities agenda in Nawa Cita are, first, to renew the state’s obligation to protect all people and provide security to all citizens through the free and active foreign policy, national security and the development of reliable national defence based on integrated national interets and strengthening identity as a maritime nation. Second, the presence of the government through a clean, efffective, democratic, and reliable governance. Third, to build Indonesia from its periphery; to strengthening the rural areas within the framework of a unitary state of Indonesia. Fourth, to reject a weak state by reforming the system through corruption-free dignified, and reliable law enforcement. Fifth, to improve the quality of life of Indonesia citizens by improving the quality of education and training through “Smart Indonesia” program with 12 years of compulsory and free education,
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increasing Indonesia’s social welfare and health through the “Healthy Indonesia” and “Prosperous Indonesia” programs, to encourage land reform and land ownership for the people in Indonesia by 2019, develop more villages of row houses. Sixth, to improve people’s productivity and competitiveness in the international market so that Indonesian can move forward and stand up with other Asian nations. Seventh, to achieve economic independence by moving the strategic sectors to domestic economy, expand the irrigation network. Eighth, to revolutionise the nation’s character through a policy of restructuring the national education curriculum. Ninth, to strengthen the spirit of “unity in diversity” and social reform of Indonesia.2
The third, sixth, and seventh agendas are concerning to the PPP programs. The third is implemented by improve public services in villages, subdistricts and districts, implementation of village law, structuring of new autonomous regions for the welfare of the people. The sixth is implemented by construct 2,000 kilometers of roads, develop 10 new airports and 10 seaports, construct 10 industrial estates along with housing for workers, build 5,000 traditional markets, provide one-stop services for the processing of investments and business licenses with completion target of 15 days, set up development and infrastructure bank, build regional science and techno parks, academies, and vocational schools. Then the seventh is implemented to cover 3 million hectares of rice fields, open 1 million hectares of rice paddies outside Java, build a bank for farmers and small businesses, end the conversion of agricultural land, cut energy imports by promoting exploration at home, construct more gas pipelines, prioritise the use of coal and gas to fuel electricity, achieve a financial inclusion ratio target of 50 percent, target a tax ratio of 16 percent, restrict the sale of national bank to foreign investors, increase research in agriculture and industry. Building the infrastructure of roads, public housing, agricultural, etc will implemented through PPP scheme.
Macroeconomic developmentsIn December 2013, the World Bank published the Indonesia Economic Quarterly (December 2013) entitled “Slower growth; high risks” which examines the economic situation of Indonesia before entering 2014. The report findings are still relevant today, and illustrate the vulnerability of macroeconomic condition of Indonesia. The adjustments Indonesian economy is still going to continue weakening commodity prices and external financing conditions more stringent, and the balance of payments pressures. A number of policies have been implemented, especially through tighter monetary policy, which resulted in real depreciation amount large enough and investment spending and the growth of production (output) has been weakened.
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These developments generally support the sustainability of macroeconomic stability, including helping to lower the current account deficit, although its effects continue, will add uncertainty to the domestic economy. At the same time, the international environment is also shifting, with global growth expected to rise, bringing potential policy changes, especially the United States monetary policy, which could increase pressure on Indonesia’s external financing position.
In line with the slowing rate of growth, and risks faced by the national economy, there is a great need for Indonesia to further enhance the progress of policies that focus on the macro as tighter monetary policy, exchange rate adjustment and import pressure, the reforms more progressive to encourage exports and to support the inflow of capital investment, particularly foreign direct investment/FDI. Progress in the implementation of a credible such efforts can help limit the vulnerability of Indonesia’s balance of payments to the global financing conditions more stringent, or more volatile, and can help support a strong investment cycle, including foreign investment, and production growth in the medium term.
The political dynamics after the election year can play an important role development, but it also adds to the importance of clear communication and coordination on comprehensive reform, both in the formulation and implementation stages, and error prevention policy making. This will support the confidence of domestic and foreign investors to Indonesia’s growth prospects, and the inflow of foreign financing.
Entering 2014, the baseline projections (baseline) is the continued strengthening of global economic conditions, with the improvement in high-income countries, which support the growth of developing economies, notably including China, and encourage the continuation of a moderate increase in demand for Indonesian exports.3 If it continues, began stabilizing world commodity prices such as coal, natural gas and palm oil (CPO) will help slow the decline in the exchange rate of Indonesian trade that has driven most of the decline in the balance of payments. However, the condition of “baseline” with a slight improvement in growth in the world, along with the possibility of tightening the liquidity condition of the world, and a more structured downward pressure on prices from supply-side factors, will not reflect the huge increase in commodity prices for 2014.
In general, exchange rate adjustment and monetary policy implemented in the previous administration to bring a positive influence to the stability of the macro economy, the
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depreciation of the Rupiah act as “shock absorbers” for weakening trade by encouraging the export receipts and reduce demand for imports. However, the adjustments were to cost, and can carry risks, especially by applying pressure to the government and private sector balance sheets through increased value amount of foreign debt (especially if there is a difference between acceptance and exchange expenses) and eroding acceptance because of higher costs of debt repayment and costs import.
Monetary policy and exchange rate adjustments carry the load for the short-term macro adjustment. Budget 2014, maintaining an attitude of non-expansive, with a projected decrease in the fiscal deficit amounted to 1.7% of overall GDP. Budget 2014 does not have a reception reform plan or any major expenditure, although there is a decrease in electricity subsidy allocation by 29% compared to the year 2013, reflecting plans to continue rising for tariff adjustments that are still ongoing. With the positive impact of subsidized fuel price hike in June 2013 offset by the weakening rupiah, the planned allocation for fuel subsidies remain significant in 2014 amounted to USD 211 billion (or 2% of GDP), an increase of USD 11 trillion over the APBN-P 2013. Budget 2015, altough not without resistance from the parliament, is expanded significantly due to the bold move of the current government to reduce the fuel subsidy and adjust the energy tariff. The challenge today however, is the procurement speed and capacity of the administration.4
With the continued impact of lower commodity prices, tighter external financing conditions, higher real interest rates in the country, and the depreciation of the rupiah, Bank Indonesia projected that GDP growth will slow to 5.3% in 2014 to a “base case “, from 5.6% in 2013. However, the projections also contain considerable uncertainty factors and risks are skewed to the lower domestic growth. In particular, the baseline projections (baseline) depends on the adequacy of the support of external financing conditions to avoid external balance adjustment more abrupt, which will cause economic disruption and slow growth. Such a decline can be triggered by the development of the international market, or, more specifically, because of economic developments and policies in the country, such as depreciation and subsidy / fuel prices.
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capacity toabsorb the budget in the year 2015. Even if the budget can be absorbed, there will be an issue of the quality of spending made, especially in regards with infrastructure quality.
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Scenario 1: 2010 2011 2012 2013 2014GDP Growth (%) 3.5 4.5 5.5 5.5 5.5
-1.6 -1.4 -1.1 -0.9 -0.832.9 32.2 30.8 29.3 27.8221 223 216 218 248
Scenario 2: Business as usual 2010 2011 2012 2013 2014GDP Growth (%) 5.4 6.0 6.2 6.2 6.2
-1.6 -1.4 -1.1 -0.9 -0.831.9 30.8 29.2 27.6 26.0224 228 223 226 258
Scenario 3: Big push 2010 2011 2012 2013 2014GDP Growth (%) 5.6 6.4 6.8 7.0 7.2
-2.6 -2.4 -2.1 -1.9 -1.932.8 32.4 31.5 30.4 29.2284 298 304 324 375
Scenario 4: Bigger push 2010 2011 2012 2013 2014GDP Growth (%) 5.6 6.5 7.1 7.4 7.6
-2.6 -2.6 -2.6 -2.6 -2.632.8 32.6 32.1 31.5 30.9284 307 343 388 463
Figure 1. Economic Conditions in Indonesia from 2010 to 2014(Source: World Bank Jakarta, May 2010)
Weakening economic growth will have implications on poverty reduction. Models poverty World Bank projects that the poverty level in March 2014 will reach 11.0 to 11.1%, indicating a slowdown in the pace of poverty reduction taken place and demonstrates that the Government’s poverty rate target for 2014 of 8-10% is unlikely to be achieved.
Figure 1 shows us that from 2010 until 2014, Indonesia GDP growth is increasing, budget deficit is decreasing, public debt to ratio is decreasing, and GoI gross financing needed is increasing. This condition supports Indonesia to develop infrastructure.
Ministry of National Development Planning / National Development Planning Agency (BAPPENAS) (2015) estimated that the need of investment in infrastructure nationally in Indonesia during 2015-2019 reached 4,796.2 trillion IDR or around 399.67 billion USD. It means the need of investment each year is around 73.788 billion USD while the GDP in 2014 is about 822.32 billion USD. So, the need of investment in 2015 is around 8.9% of GDP. On the other side, the state budget allocated for infrastructure is just 2 – 3% of GDP. In conclusion, the infrastucture gap in Indonesia is 5 – 6% of GDP. The need of investment from 2015-2019 will be explained in figure 3.
From the busines point of views, infrasructure is also seen as the major impediment for their growth. World Bank survey (as reported by the Indonesia Infrastructure Initiative, IndII) showed a consistent result of the year 2001 and 2007.
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Figure 2. Constraints for Doing Business in Indonesia, 2007 and 2011(Source: IndII, http://www.indii.co.id:8080/contents.php?id_contents=60&id_ref_menu=151)
Infrastructure challenges and opportunitiesThe Government of Indonesia estimated that investment needs for infrastructure within 2015 - 2019 reached 4,796.2 trillion IDR or around 399.67 billion USD because of the increasing of income per capita every year in a long term while the investment needs within 2010 - 2014 reached 214 billion USD. It means that strong economic growth is projected, thus requires more development of basic infrastructure. The previous administration relied upon the economic acceleration framework labelled as the MP3EI or the acceleration and expansion of Indonesia’s economic development, aiming at 12% nominal growth.5 During that period, the government is seeking an economic transformation using six development corridors troughout Indonesia.
There are three main steps to strengthen the economic acceleration, first, controlling the deficit to be within safe limits, through optimization of income while maintaining the investment climate and maintaining environmental conservation, as well as improving the quality of expenditure and improving the expenditure structure, second, controlling the ratio of government debt to PDB (GDP) through controlling financing sourced from debts within safe limits and control, as well as directing the use of debt to productive activities, third, controlling the fiscal risk to be within the limits of tolerance, among others, by controlling the ratio of debt to revenue in the country, controlling the debt service ratio, and maintaining the composition of the debt within measurable safe limits and guarantees.6
Figure 3 gives us information that the investment need in 2015 until 2019 consists of 12 sectors: roads, railways, sea transportation, aviation, land transportation, urban
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6 Budget in Brief APBN 2015 Republic Indonesia, General Directorate of Budget Ministry of Finance Republic of Indonesia
Infrastructure
Prvt. Business Developm Programs
Business and LG Interaction
Land Availability
Business Licenses
Transaction Fee
The Regent/Mayor Capacity and
Legal System Created by LG
Security and Conflict Resolution
0 10 20 30 40
20172011
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transportation, electricity, energy (oil and gas), communication technology and informatics, water resources, clean water and waste, and housing. Each sector will need budget from state/local, SOE, and/or private.
Sector StateBudget
LocalBudget SOE Private Total
Roads 268 200.0 65.0 200 733Railways 93 - 11.0 122 226
260 - 238.2 93 591.264 5.0 50.0 25 14437 - 10.0 - 4761 15.0 5.0 5 86
Electricity4 120 - 445.0 435 1000Energy (oil and gas) 4.3 - 151.5 351.5 507.3
15 15.3 27.0 223 280.3Water Resources 196 68.0 7.0 179.9 450.9Clean Water and Waste 131 198.0 44.0 30. 403Housing 184 44.0 12.5 87 327.5TOTAL 1,433.3 545.3 1,066.2 1,751.4 4,796.2Percentage 28.88% 11.37% 22.23% 36.52% 100%
Figure 3. Details of Indonesia Infrastucture Investment Need Based on Sectors (2015 – 2019) (IDR Trillion)
The period of 2015-2019 is the Third RPJMN (National Medium Term Development Plan) after the Long Term Develpment Plan,7 focusing on strengthening overall development in various fields with an emphasis on achieving economic competitiveness on the basis of competitiveness of natural and human resources as well as the development of science and technology.
In 2015 Budget Law or APBN, the deficit of 2.21% toward GDP (Gross Domestic Product) is lower than the 2014 revised budget, which was 2.40% toward GDP. This indicates the desire of the Government and the House of Representatives to provide a broader fiscal space to accommodate the visions and missions of the new government. 2015 APBN is also the first to include the allocation of Village Fund as a form of implementation of Law No. 6 of 2014 on Village. Village Fund Allocation is expected to have an impact on improving the welfare of the community, especially in strengthening the efforts to encourage more equitable economic growth.8
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of Indonesia
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The new administration through Bappenas identifies that in order to stimulate development for the high-growth and least-developed economy of the country, the government should invest heavily with infrastructure and providing enough energy supply. Right after the President is taking power, he continuously and consistently expresses his vision that infrastructure should be his top priority9 besides making a structural adjustment on the expenditure and revenue structure, including rationalizing the subsidy and energy price, as well as continue a reform in the natural resource sector, notably oil, gas and mineral resources. He also continue his campaign for improving the condition of people at the Indonesian border, villages and remote areas. Reallocation of financial resources coming from the new fiscal window (due to the reduced fuel subsidy) is used to develop infrastructure in those regional, both using decentralized funds, direct investment and the newly established “village funds” to be allocated to each village in Indonesia. The government is putting its commitment to increase its infrastructure spending by more than 5% in the next 5 years.
Figure 4. Infrastructure Spending by Source of Fund, APBN (National Budget), APBD (Sub National Budget),SOE and Private Sector
(Source: Bappenas/JICA - Medium Term Economic Infrastructure Strategy:
Large investment, commercially feasible projects such as powerplant, toll roads, ports continue to seek financial resources from private sector, either through PPP scheme or utilizing SOE as investment vehicle. Bappenas data demonstrates that theres is an up-anddown of investment in the privately funded projects. The telecom sector, which is relatively fully deregulated and the most investment-friendly sector, remain the highest proportion of privately funded project, followed by the energy sector – where the
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26.1127.0437.9313.60
54.14
45.58
50.74
24.54
60.27
51.18
38.30
46.28
78.79
73.69
42.63
55.33
91.34
74.86
40.25
32.44
99.37
68.98
47.85
41.80
128.64
74.06
56.95
46.90
166.18
99.10
68.40
53.20
190,83
99.10
68.40
53.20
196,72
132.36
77.40
60.20
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2.72%
3.77%
5.24%4.96% 5.06%
4.26%4.00% 4.13%
4.69%4.99% 5.07%
5.00%
4.00%
3.00%
2.00%
1.00%100.00
200.00
300.00
400.00
500.00
600.00
0.00%
104.68
APBN Total (IDR Trillion) APBD Total (IDR Trillion)SOE Total (IDR Trillion) Private Sector Total (IDR Trillion)Total Infrastructure Investment Share of GDP. % Total Priority 1 Infra Investment Share of GDP. %
175.00196.02
250.44 238.89258.01
306.55
386.88411.53
466.69
4.53% 4.51%
2.74%3.47% 3.63%
3.98%
4.72%
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government is still using PLN and PERTAMINA (the Indonesian energy company, previously oil and gas company) to invest heavily on power plant and oil and gas production/refinery facility. The electricity connection from designated powerplant and the main gridline is still the issue due to the loss of energy.
Private participation seems to follow a “cyclic” pattern which is governed by various factors, notably the political economy of the country and policy environment that promotes or hampers the private sector investment for infrastructure, i.e. foreign direct investment and negative investment list.
Figure 5. Increasing of Private/Business Entities Participation in Infrastructure in Indonesia(USD Million)
(Source: World Bank Jakarta, June 2015)
The Mid-Term review from the Bappenas/JICA (2013) indicated that the budget window for infrastructure is merely 7% of the existing budget10, leaving a huge demand for investment coming from elsewhere. The analysis shows us that there was 7% growth target requires: Rp 1.923,7 trillion (about USD 161.8 billion) of investments during 2010 2014 and Central Government budget can only cover 29.1% of total investment need. This means there is big opportunity for private investment through PPP (Rp 668,34 trillion or 34.7%).
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the total revenue from tax, oil/gas and other revenues by debt servicing, mandatory and emergency spending such as salary for
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The study team estimates that, with the government’s plan to utilize SOE as the main driver for economic development, the method to reallocate the funding gap will be as determined as Figure 6 shows.
Figure 6. Financing Gap and The Possible Sources of Funding(Source: Bappenas/JICA - Medium Term Economic Infrastructure Strategy:
1 2 3 4GAP SOE Funding
IDR(2,086)USD 190
IDR(84)USD 7
IDR(370)USD 34
Assuming PPP is 25% of Total InfrastructureDemand IDR 3.456 Trillion (USD 314 Billion)
Ass
umpt
ions
:
Corporate BalanceSheet Funding Only60-30D/E Leverage
YGF for 5 yearPeriod at 40%
Filled by utilizingborrowing capacity
Power 100%Transportation 20%Water Resource 10%
Water Supply & Sanitation 10%of Pure PPP
IDR(495)USD 45
IDR(341)USD 32
IDR(796)USD 72
$-
$(500)
$(1,000)
$(1,500)
$(2,000)
$(2,500)
Pure PPP PPP with VGF Off Balance Sheet Remaining Cap
USD at 11,000 IDRIn IDR Trillion (USD Billion)
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Evolutionof Indonesia’s PPP
Framework
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Evolution of PPP regulationsUntil today, Indonesia’s PPP regulations can be divided into three stages of development.
1st generation of PPP (up to 1998)
First generation of Indonesian PPP is characterized by the market opening of two sectors, namely toll road and power (IPP) sectors. PPPs or “Kerjasama Pemerintah dan Swasta (KPS, until 2014) or “Kerjasama Pemerintah dan Badan Usaha (KPBU, since 2015) were iniatially introduced in the early 1990s for the development in infrastructure projects, especially for toll roads. Due to the increased need for the government toexpand a toll road project which had started in 1978, the government began to opt for a financial arrangement under a PPP scheme. Under this scheme, business sector involvement was used to fulfil government targets to accelerate the development of transport infrastructure through partnerships with a state-owned enterprise, PT Jasa Marga has been assigned as the regulator and was the operator until being replaced later in 2005 by a buffer body named the Indonesia Toll Roads Authority (BPJT) regulated by Ministry of Public Works Regulation No.295/PRT/M/2005. As a legal foundation for private sector participation as well as to attract private sector interest in the construction of roads through PPPs, the government enacted Law no. 13 of 1980 concerning Road. Following this, toll roads began to be managed by the private sector from 1989 form wich point private sector participation in toll road operations began to grow, although at a slow pace.11 There are only 4 (four) sectors known until 1998: Road (Law No. 13 of 1980), Electricity (Law No. 15 of 1985), Drinking Water (Law No. 11 of 1974), and Railway (Law No. 13 of 1992). Then followed by Tellecommunication in 1999 (Law No. 36 of 1999).
2nd Generation PPP (1998 – 2004)
The first general PPP regulation applied to all sectors is the Presidential Decree (In Indonesia: Keputusan Presiden) No. 7 of 1998 concerning Cooperation Between Government and Private Business Entities In The Development and or Management of Infrastructure then replaced by Presidential Regulation (In Indonesia: Peraturan Presiden) No. 67 of 2005 concerning Cooperation Between Government and Business Entities In The Provision of Infrastructure, then this regulation has been amendment three times by Presidential Regulation No. 13 of 2010, Presidential Regulation No. 56 of 2011, and Presidential Regulation No. 66 of 2013. Then Presidential Regulation No. 38 of 2015 replaced all on March 20, 2015 with condition the matters that this regulation is not regulate still appoint to the previous regulation.
11
Economic Master plan”, presented in June 2012, p 48.
15
The regulation addresses loopholes in previous regulations12, sets the agenda for open and transparent public priority projects to be implemented;13 created the mechanism for proposing unsolicited projects and increasing government support. Apart from the main regulations related to PPPs, each line ministry has also published a number of relevant government regulations in order to provide more detailed information14 to private business entities working on and outside of infrastructure projects.
3rd Generation PPP (2005 – 2015)
Then many organs supporting PPP established in 2005 - 2010, those are Committee of Infrastructure Priorities Development Acceleration (KPPIP), The State Owned Enterprise named PT SMI, Indonesia Infrastructure Guarantee Fund (IIGF / PT PII)15. Besides the organs, there are also some new regulations which amendment their prior regulations. The tasks of Committee of Infrastructure Priorities Development Acceleration (KPPIP) are, first, stipulating strategies and policies to accelerate Infrastructure Priorities Development. The second is monitoring and controlling the implementation of the strategies and policies in order to accelerate infrastructure priorities development. The third is facilitating capacity improvement for appratus and institutions that are related to the infrastructure priorities development. In executing its tasks, KPPIP involves ministries, institutions, local governments, enterprises, and other parties whise functions and tasks relate to infrastructure priorities development acceleration. In addition, KPPIP can also recruit individual expert, institution, and/or enterprise and create consultant panel.16
There is no transparency law and/or fiscal responsibility law in Indonesia. The financial condition of the project known by parties in project. Concerning the limit, there is no limit in the use of PPPs17 by the government like in other countries.
12
and concession permit13
projects that can be accessed by the society. But not all PPP Projects registered in this Bappenas PPP Book. Projects that registered are projects in large-scale
14
15
16
17 Limit in nominal and also percent of GDP
16
Table 1. The Evolution of PPP Legal Framework in Indonesia
No. Milestone of PPP Legal Framework in Indonesia
1 No. 7 of 1998In The Development and or Management of Infrastructure (in Indonesia: KPBUS)
2No. 67 of 2005 Provision of Infrastructure (in Indonesia: KPS)
3No. 13 of 2010
In The Provision of Infrastructure (in Indonesia: KPS)
4No. 56 of 2011
5In The Provision of Infrastructure (in Indonesia: KPS)
6Provision of Infrastructure (in Indonesia: KPBU)
4th Generation of PPP (from 2015)
The latest generation of Indonesian PPP is marked with the enactment of Presidential regulation No. 38/2015 as depicted in the above table. The expansion of scope in the PPP projects and various new incentives provided to attact project developers, mediators and government contracting agencies are expected to give a thrust to the increase of projects financed through PPP scheme. Table 2 below highlights the features of the most recent regulations regarding PPP.
Table 2. Features of The Presidential Regulation No. 38 of 2015
No. Aspects
1 Agencies State/Regional Owned Enterprised could be GCA as long as
2 Types of InfrastructureAdding economic and social infrastructure, such as energy
infrastructure, tourism objects, hospital, school.
3 Hybrid Financing
4 Criteria of UnsolicitedProject
Technically integrated to the master plan of the relevant sector
infrastructure
17
No. Aspects
5 by GCA
671 of 2012 on Organizing Land Procurement for the Public Interest
recovered by the GCA)
7 Success Fee Mechanismand success fee for the privates that prepare the project.
8 Government Support Viability Gap Funding
9process or direct appointment.
10 Financial Closeextended for maximum 6 months.
11 Return of Investment User ChargesAvailability Payment
12 PPP Node
project
In summary, there are considerable changes in the infrastructure laws and regulations throughout 35 years of Indonesia’s infrastructure development, as shown in the following table.
Table 3. Indonesia’s Infrastructure Laws and Revision
No Sector1 Road Act No. 13/1980 Act No.28/2004
2 Toll Road 15/2005GR No.44/2009 and GR
No. 43/2013
3 Guidelines for Procurement Concession of Toll Road - Public Works No. 13 of 2010
4 Energy/Geothermal - Act No.27/20035 - GR No.59/20076 Waste - Act No. 18/20087 - GR No.81/2012
8 Guidelines for Waste Management -Minister No. 33/2010
18
9 Electricity Act No.15/1985 Act No.30/200910 - GR No. 14/201211 Oil and Gas - Act No.22/200112 GR No. 36/2004 GR No. 30/200913 GR No. 35/2004 GR No. 55/200914 Act No. 36/1999 Act No.52/200015 - GR No.52/200016 Airport - Act No.1/200917 - GR No. 40/201218 Railway Act No. 13/1992 Act No. 23/200719 Railway Provision - GR No. 56/200920 Drinking-Water Act No. 11/1974 Act No.7/200421 Development of Drinking-water Supply System - GR No. 16/2005
22water Supply System -
Public Works No. 12/2010
23 Sea Transport and Port Act No. 21/1992 Act No. 17/2008, GR No.61/2009
The Changing Scene for PPPs in Indonesia:Impacts of decentralization
Prior to 2002 the policy decision making in Indonesia was largely centralised. However since 2002 the country experienced a significant degree of decentralisation following the passing of the State Finance Law of 2002. Budget Law is enacted annualy which is also in compliance with transparency law stipulated in the Law No. 14/200818. This process largely entailed the decentralisation of democratic authority and decision making. Government finance still remains largely centralised though. Provinces and local authorities receive an equitable share of national revenue based on a formula for the division of revenue, but local authorities do not really possess a tax base of their own. Since 2010 local authorities can raise property taxes. On local government level there has so far not been much investment expenditure happening, but there are proposals currently that at least 20% of their expenditure should be investment. As discussed further below it is important to note that sub-national government is not obliged to follow central government rules for PPPs. This is only the case if guarantees or fiscal support is sought.19
There are 490 local governments in Indonesia, each with its own water SOE (PDAMs) and regional bank SOE. Most of the water SOEs are still indebted to the central government, following the serious financial troubles into which these SOEs ran following the Asian
18
19 OECD Reviews of Regulatory Reform Indonesia Public-Private Partnership Governance: Policy, Process, and Structure,p 13
19
financial crisis of 1997. These SOEs are not allowed to borrow money unless they repay their debts to central government, which consequently limits such activity.20
As part of the decentralisation that occurred since 2002, and in particular in terms of the State Finance Law of 2002, some decision making power shifted from Bappenas (The National Planning Agency) to the Ministry of Finance (MoF). In addition, decision making power also shifted to local authorities, which means that the various Bappedas (Regional Planning Agencies) operating on lower tiers of government do not any longer primarily report to Bappenas, but to their respective local authorities. On local authority level
road trips to the various local authorities, followed by an invitation to local authorities and
containing potential PPP projects. 21
Before the reform process started in the early 2000s most projects that were not undertaken by the central, provincial or local government themselves were awarded through direct appointment to either SOEs or private firms.22 As part of the reform process the Indonesian government wanted to improve the process and principles through which projects are awarded. This includes the introduction and use of competitive bidding. As a result Bappenas developed and government introduced Presidential Regulation 67 of 2005. This regulation was improved and augmented further by the introduction of Presidential Regulations 13 of 2010 and 56 of 2011. These regulations regulate what the eligible contracting agencies are and the role of potential private participants. In addition, regulations set out the responsibilities of the Ministry of Finance with respect to the granting of fiscal support and guarantees to specific projects in the procurement process. 23
Since the introduction of the reform and above mentioned Presidential Regulations three Infrastructure Summits were held, the product of which has been a list24 of possible PPP projects. Many countries seek to kick start a PPP program by nominating a few (a handful) PPP projects based on both national priorities and their chances of success. On the experience of the first handful of projects a more generic approach to PPPs can be developed and rolled out in at national and sub-national level. The first Infrastructure Summit was held
20 Ibid.21 Ibid.22
in 1997---1998.23 Ibid.24 Indonesia made list of PPP Projects in PPP Book published by Bappenas since 2009. The previous projects (before 2009) are not
documentated/listed. The list projects within 2009---2015 is in annex.
20
in 2005 and resulted in a list of 91 projects. The list increased to 101 potential projects and 10 model projects (these 10 model projects as priority project) as part of the second Infrastructure Summit in 2006. By the time of the third Infrastructure Summit in 2010 there were 72 potential PPP projects, 27 priority projects (priority is formerly name, currently name is prospective projects. The difference between the potential and priority/prospective projects will be explained later in the subtitle PPP Project Selection Categories), and one ready for offer. However, this rather long list was subsequently shortened25 substantially so that by the fourth Infrastructure Summit held in April 2011 there were 5 showcase projects and 11 other projects. Nevertheless, by June 2011 the Bappenas PPP Book 2011 stood at 79 projects of which 45 were potential projects, 21 priority projects, and 13 were ready to offer. In addition, contract award went to one project, the Central Java Power Plant (originally part of the 10 model projects identified in the 2006 Infrastructure Summit and signed on 6 October 2011), meaning that this project is the only project to date to have passed through the project creation cycle specified in terms of the Presidential Regulation 67 of 2005, 13 of 2010, and 56 of 2011.26 PPP cycle and its figure process will be explained later in the subtitle Process and procedures for PPP (solicited and unsolicited projects).
The latest PPP Book established by the Ministry of National Development Planning/Nation-al Development Planning Agency is the projects in 2012 and 2013 which total 58 projects in 2012 and 27 projects in 2013. Then in 2015, there is the latest Presidential Regulation concerning PPPs: PR No. 38 of 2015.
25
26 Ibid.
The CurrentPPP Legal Framework
3
22
The first general PPP regulation (not in sector regulation) was Presidential Decree (In Indonesia: Keputusan Presiden) No. 7 of 198827 concerning Cooperation Between Government and Private Companies In The Development and or Management of Infrastructure, then replaced by Presidential Regulation (In Indonesia: Peraturan Presiden) No. 67 of 200528 concerning Cooperation Between Government and Business Entities In The Provision of Infrastructure, then this regulation has been amendment three times by Presidential Regulation No. 13 of 2010, Presidential Regulation No. 56 of 2011, and Presidential Regulation No. 66 of 2013. Then Presidential Regulation No. 38 of 2015 replaced them all.
Presidential Regulation No. 38 of 2015 stipulated the definition of PPP or KPBU (Kerjasama Pemerintah dan Badan Usaha), it is Cooperation Between Government and Business Entities In The Provision of Infrastructure for public interest based on the specification that has been determined before by the Minister / Head of the Institute / Head of the Region / the State Owned Enterprises/the Region Owned Enterprises, which partially or entirely use the resource of the Business Entity by considering risk allocation between the parties. (Article 1 paragraph (6)) Discussions on the PPP definition have made another term comes up, that is concesion. In Presidential Regulation No. 61 of 2009 concerning Port “Concession is right-giving by the port organizer to the Port Business Entity to implement activities of providing and / or services for a certain period of time and certain compensation” so in conclusion Concession is the right-giving to the Business Entity to implement activities of providing and / or services for a certain period of time and certain compensation.29 Concession is also known as Concession Permit, it is a permit for the Provision of Infrastructure provided by the Minister / Head of Institution / Regional Head to the Business Entity determined through public bidding (Presidential Regulation No.13 of 2010 concerning Amendment to the Presidential Regulation No. 67 of 2005 concerning Cooperation Between Government and Business Entities In The Provision of Infrastructure). There is also PFI (Project Finance Iniatiative), another type of PPP known in many countries, but in Indonesia there is no regulation regulate concerning PFI Type.
27
28
is the Provision of Infrastructure Projects undertaken through the Partnership Agreement or the provision of Concession Permit
of PPP in form of permit29
by the Concessionaire
23
Until 2015, there are 10 fields of regulation concerning PPPs in Indonesia. Those are toll road, energy, waste, electricity, port and sea transport, telecommunications, oil and gas, airport, railway, and drinking water. This box 1 describes the latest Presidential Regulation in Indonesia regarding PPP. It shows us matters that stipulated in its PR.
BOX 1.
REGULATION NO. 38 OF 2015 CONCERNING COOPERATION BETWEEN GOVERNMENT AND BUSINESS ENTITIES IN THE PROVISION OF INFRASTRUCTURE
Article 3 define the object and purpose of PPPs in Indonesia including suffice the funding needs continuously in the Provision of Infrastructure through the mobilization of private funds; embody the Provision of Infrastructure with quality, effective, efficient, right on target, and punctual; create an investment climate that encourages participation of Business Entities in the Provision of Infrastructure based on right business principles, encourage the use of the principle of user pays service that they received, or in certain cases considering the user’s ability to pay; and/or provide the certainty of investment returns of Business Entities in the Provision of Infrastructure through the mechanism of routine payment by the Government to the Business Entities.
Article 4 establishes the principles of PPPs in Indonesia, including Partnership, Expendiency, Compete, Risk Control and Management, Effective, and Efficient in the Provision of Infrastructure.
Article 5 stipulates the sector of infrastructures that allowed implemented through PPP. Those are 19 infrastructures consist of economic infrastructure and social infrastructure, includes:
a. Transportation infrastructure, b. Road infrastructure, c. Water resource and irrigation infrastructure, d. Drinking water infrastructure, e. Central wastewater management system infrastructure, f. Local wastewater management system infrastructure, g. Waste management system infrastructure, h. Telecommunications and informatics infrastructure, i. Electricity infrastructure, j. Oil and gas and energy infrastructure,
24
k. Energy conversion infrastructure, l. Urban facilities infrastructure, m. Education facilities infrastructure, n. Sports facilities and infrastructure, o. District infrastructure, p. Tourism infrastructure, q. Health infrastructure, r. Correctional Institution Infrastructure, s. Public housing infrastructure.
Article 6 stipulates that the Minister/Head of the Institute/Head of the Region acted as PJPK / CA (Contracting Agency) in the implementation of PPPs considering the sectoral regulations.
Article 8 stipulates that the State Owned Enterprises acted as PJPK / CA (Contracting Agency) in the implementation of PPPs considering the sectoral regulations.
Article 9 stipulates that in case State Owned Enterprises acted as PJPK / CA (Contracting Agency), PPPs are implemented through an agreement with the Implementer Business Entity.
Article 11 stipulates that in Indonesia regulation in case of the return on investment implementer of business entities sourced from user fees in form of tariff, availability payment, and/or other as it is adjusted to the regulation or act.
Article 14 stipulates that unsolicited project of PPP by Business Entities allowed with some criterias.
Article 15 stipulates that the Government can give support to the PPPs.
Article 16 stipulates that form and procedures of support as mention in article 15 stipulated by the Minister of Finance.
Article 17 stipulates that the Government can give guarantee to the PPPs.
Article 18 stipulates that Government Guarantee given by the Minister of Finance through the Infrastructure Guarantee (State Owned Enterprise).
Article 44 stipules that the Minister/Head of the Institute/Head of the Region will appoint specialized unit in Ministry/Institution/Region as the PPP Node.
25
Jurisdictions of PPPs in IndonesiaThere are 3 (three) types of PPPs known in the worldwide, PPPs, Concessions, and PFI (Project Finance Initiative), whereas Indonesia does not make differences among those types. Those are regulated in the Presidential Regulation No. 38 of 2015 concerning Cooperation Between Government and Business Entities In The Provision of Infrastructure which replaced Presidential Regulation No. 67 of 2005 that has 3 amendments: Presidential Regulation No. 13 of 2010, Presidential Regulation No. 56 of 2011, Presidential Regulation No. 66 of 2013 and for procedures are in Regulation of the State Minister of National Development Planning / Head of National Development Planning Agency No. 3 of 2012 on General Guidelines of Implementation of Cooperation Between the Government and Business Entities in Provision of Infrastructure.
As we know, PPPs were born because the government need help from the private sector or it can be said that PPPs come from the government, but as time goes by, it can be also come from the private sector. It is named PPP unsolicited projects. The private sector can request to the Minister / Head of Region / Head of Institute. Indonesia regulation allows unsolicited projects by the private sector with some criterias. Those criterias are30:a. Technically integrated with the master plan of the sector concerned;b. Economically and financially feasible; andc. Entities that filed the initiative has sufficient financial capacity to fund the implementation
of Infrastructure Provision.
Than the proponent Business Entity shall prepare a feasibility study on the proposed of PPP and the proponent Business Entity can be given alternative compensation31: a. Provision of additional value of 10%. b. Granting the right to make an offer by Enterprise initiator to the best bidder (the right to match), according to the results of the assessment in the tender process; orc. Purchase PPP initiatives, among others, intellectual property rights attached to them by the Minister / Head of the Institute / Head of the Region or by the winner of bidding. The alternative compensation must be included in the agreement of the Minister / Head of Region/Head of Agency Agency. Further information, especially regarding the process of unsolicited project will be explained later in the subtitle Processes and procedures of PPP (solicited and unsolicited project). The list of unsolicited project is in annex.
30
31
26
Procurement RegulationPublic Procurement Regulation is Presidential Regulation No. 70 of 2012 concerning Amendment to the Presidential Regulation No. 54 of 2010 concerning Government Goodsi/ Services Procurement. This public procurement regulation does not regulate provision for the implementation of PPP or any specific type of PPP.
On the other side as we know based on the prior data above, PPP Regulation is Presidential Regulation No. 38 of 2015 concerning Cooperation Between Government and Business Entities In The Provision of Infrastructure that replace Presidential Regulation No. 67 of 2005 concerning Cooperation Between Government and Business Entities In The Provision of Infrastructure that has 3 amendments: Presidential Regulation No. 13 of 2010, Presidential Regulation No. 56 of 2011, and Presidential Regulation No. 66 of 2013. In conclusion, Indonesia does not regulate relationship between the public procurement regulation and the PPP regulation.
Processes and procedures for PPPs(solicited and unsolicited projects)
A. Solicited Projects
For solicited proposals, the PPP project cycle consists of four phases, namely planning, project preparation, transaction, and contract management.32 The legal basis of Processes and procedures for PPPs, form identification to award and oversight is the Regulation of The State Minister of National Development Planning / Head of National Development Planning Agency No. 3 of 2012 on General Guidelines of Implementation of Cooperation Between The Government and Business Entities in Provision of Infrastructure. Figure 7 below shows the interrelation between the four phases of the projects cycle.
From the figure 7, the PPP Process is defined as follows.
32
27
1. PPP Project Screening This phase is divided into two parts:
a. Identification and Selection of PPP Project The purpose of this phase is to identified the project which can attract private
sectors partners, in according to government policies and objectives as well as limited resourcess and readiness of the project. The selection phase is important for investor to convince them that a particular project has politics and economics value which make it not easy to be stopped, diverted or thoroughly amended. The identification and selection phase is conducted by the Government Contracting Agency (GCA or in Indonesia is called PJPK), which in the implementation using specific approach and criteria:
to ensure the Project is included in the government‘s development plans and programs, and to ensure this project has technical and economic foundation as well as the support from the stakeholders.
it needs to ensure the project’s compliance with the national / local medium-term development plan, and infrastructure strategic plan as well as project location with spatial layout plan. Besides it should also ensure the cross sector linkages and the compliance with current regulations.
is to compare the benefit from PPP Project and Non PPP Project. In detail, the value for money qualitative criteria is as follows: (value for money in Indonesia is not conducted formally in regulation. There is no quantitative form of value for money)1) The investments value that require effective risk management;2) The private sector has an advantage in the PPP Project implementation;3) Technology and other aspects related to the sector is table and adaptive to
changes, and;4) The existence of attractive incentives for private sector.
28
Figure 7. Phases of PPPs in Indonesia
b. Determination of Project Priority After the identification and selection phase, the GCA will conduct the project
prioritization. The methods used in the determination of project prioritization is Multi Criteria Analysis (MCA). MCA includes the following criteria :
33
Cooperation Project;
34
33
34
Phase I:PLANNING
Public Consultation Information Dissemination
Phase II:PROJECT PREPARATION
Public ConsultationInformation Interaction
Phase III:PROJECT PREPARATION
Public ConsultationMarket Sounding
Phase III:CONTRACT
MANAGEMENT
ProjectIdentification& Selection
Output:List of Priority Project
Project Preliminary Report
Output:Project Preparation Document
Process for Requesting the Required GovernmentSupport and/or Guarantee
ENVIRONMENTAL IMPACT ASSESSMENT (EIA) PROCESS
LAND ACQUISITION PROCESS
INSTITUTION/AGENCY INVOLVED
Government ContractingAgency (GCA)/Bappenas
GCA, KKPPI, BKPM, BAPPENAS,RMU-MOF, IIGF, BPN, KLH
GCA, KKPPI, RMU-MOF,IIGFBKPM, BAPPENAS, BPN
GCA, RMU-MOF, IIGF, BKPMBAPPENAS, KLH
EIA BY THE SPV
GS and/or GGConfirmation/
In Principle Approval
Allocation, Disbursement, Monitoringprocess of GS and/or evaluation ofGuarantee and Regress Agreement
Output:Pre-FS Document
Output:PPP Agreement
Guarantee & Regress Agreement
Output:Financial Close,
EPC Contract O&M Contract
Output:Periodic Report on Management Implementation
ProjectPrioritization
OutlineBusiness Case
ProjectReadiness
Management Plan of The
Implementation of The PPP Agreement
Management the Implementation
of the PPP Agreement
Completion ofPrefeasibility Study
(Final Business Case)
Program
Signing PPP Agreement
29
For PPP in central government level, Ministrial / Institution leader or President Director of State Owned Enterprise (SOE)35 will issued a sub-sector PPP Priotization Planning, and submit the list to the minister / head of the institution through PPP node. PPP node then evaluate and propose the priority recommendation to minister / head of institution to make a determination and submit it to minister of development planning. Minister of development planning then evaluate and establish a list of PPP Priority plan for each ministrial sector in PPP plan list. At the moment, there is no relationship between PPP timetable and TIP timetable.
For local PPP Projects, Head of SKPD authorized to PPP, choose the priority for PPP Plan that is under the SKPD (local government’s department) authority then submit itu to the district Mayor. The Mayor then determines the local PPP’s priority list and submit it to the minister of development planning and related ministry. The evaluation of local and central PPP Project list will be stipulated by Minister of Development Planning in the National PPP Project List.
c. Supporting Activities during the PPP Project Planning1. Environment Related Activities In case consultant assistance is needed, GCA prepare terms of reference for the
consultant procurements. Consultant will be in charge of preparing Enviromental Impact Assesment (AMDAL) documents and filling UKL-UPL form.
2. Land Acquisition issues GCA will conduct studies of land acquisition which consist of :
whether or not the resettlement plan is needed in accordance with the law.
acquisition and resettlement.3. Government endorsement or guarantees GCA will conduct studies related the
needs of government endorsement or guarantees which consist of :
needed for approval, and early identification for government guarantee necessity and documents needed to obtain approval.
35 The port project Kalibaru is executed by PT Pelindo II/IPC and then tender out the sub-concession agreement with the private sector.All IPP projects are having contracts with PT PLN
30
2. Project Preparation Phase This phase is intended to ensure GCA availability to implement PPP, risk allocation from
PPP to Business entity is studied carefully and the project gives benefits to society. The project preparation phase will be divided to 2 steps which are:
a. Outline business case This assesment will be divided into several parts :
1. Legal Assesment Legal and institutional assesment includes :
2. Technical assesment Technical assesment will consist of :
arranged in the short, medium and long term, accompanied with scenario and sensitivity test.
cost estimation – as the main criteria.
technical requirements, cost and land ownership.
3. Feasibility Study – Socio Economic Cost Benefit Analysis (SECBA) The scope of this study covers Project Rationale, benefits of the project, as well
as a quantitative assessment based on existing guidelines. SECBA is undertaken by using approaches such as:
prices into economic prices for each input and output by the corresponding economic factor conversion
and the state
ENPV approach using a economic or social discount rate; and
PPP towardthe project viability level.
31
4. Feasibility Study – Market Risk This study was conducted to determine consumer expectations (service level,
the potential demand and rates) and to gauge the interest of investors and financial institutions on PPP together with the conditions and requirements as well as to prepare a strategy to reduce market risk.
Market Analysis carried out by the followings:
as well as the minimum level of support from the government and / or government guarantees required
determine the volume of credit that can be allocated in PPP
5. Feasibility Study - Financial Analysis Financial analysis aims to determine the financial feasibility of the project
Financial analysis is done by:
by calculating the weighted average capital to assess whether the capital cost competitive;
cash available to pay obligations (principal and interest) that will mature in the current year;
costs, taxes depreciation, and capital expenditures;
whose value is equivalent to dollars;
government guarantees
6. Feasibility Study – Risk Analysis Any risk of the implementation of PPP should be identified, assessed and allocate
it to the party which is able to cope the risk with the lowest cost. Risk analysis is done by:
32
1. Shanties availability2. Repatriation of profits3. Construction and operation of infrastructure4. The commercial feasibility of infrastructure5. Supply of raw materials6. Legislation7. The right to passage of PPP
costs that may arise from government endorsement and / or government guarantees
government or business entities
7. Feasibility Study – Tariff Structure Analysis Tariff Structure Analysis is done by fulfilling the following conditions : any risk of
the implementation of PPP should be identified, assessed and allocate it to the party best able to cope with the lowest cost. Risk analysis is done by:
benchmark for producing an adjustment to the parameters used;
determination of tariff payments for business entities
of tariffs during the term of the PPP
between enterprises and GCA in the event:a. increase in the value of PPPb. PPP Development finish earlier then expectedc. Returns PPP exceeds the specified maximum level, so it is possible to
implement the additional sharing mechanism
8. Environmental and Social Assesment Environmental and social assesment, including :
9. Assessment of the form of cooperation Forms of PPP should reflect the allocation of risk, responsible for financial and
asset management cooperation. In addition a comparison of each alternative
33
form of partnership should be made, as well as recommendations on the choice of the form / most appropriate partnership schemes (or against some of the best alternative).
10. Assessment of the necessity for Government endorsement / guarantee The provision of government endorsement aimed at improving the financial
feasibility of the PPP. Endorsement is provided in the form of fiscal contributions and / or non-fiscal, such as licensing, land acquisition, construction partial support, and / other supports. Not all activities in the field of infrastructure service through PPP schemes provide a reasonable rate of return (cost recovery or financially viable). To improve the financial viability, it is necessary for government intervention in the form of the provision of government support. While the giving of government guarantees aims to reduce the risk of business entities in the implementation of a similar PPP.
11. Procurement Plan Draft The draft includes the business entity procurement plan, procurement
documents, the implementation phase as well as a list of potential candidates.
12. PPP Provisions Draft This draft contains various requirements which will regulates the partnership
between government and business entity in PPP implementation.
b. Preparation of Readiness Study Readiness Study is conducted by GCA, especially on the land availability (clean and
clear status), the availability of the supporting documents. Readiness Study shall be conducted by following:
1. Approval of the stakeholders pertaining to the concept of the Cooperation Project.
2. Application to obtain principle agreement of the Government Support and/or Government Security, when necessary.
3. Cooperation Project Management Team has been formed, legalized, and functioning in accordance with the roles and responsibilities already determined.
4. Preparation of the design budget and schedule of implementation of site / land readiness, resettlement, environmental compliance as well as settlement of legal issues.
Ministry of Finance will review after the preparation phase finish. Unit in the Ministry of Finance that is responsible for reviewing the PPP projects, monitoring and evaluation the PPP portfolio is Directorate Government’s Support and Infrastructure Financing Management as a part of Directorate General of Financing
34
and Risk Management Ministry of Finance. There is no National System of Investment Projects. The budget cycle will explained later on other section.
c. Supporting Activities during PPP preparation
1. Activities related to the environment Conduct EIA/AMDAL mechanism which includes:
a. The announcement about the planned activities and conduct consultations with the public on the environment
b. Start and finish preparing the EIA document or UKL-UPL
2. Activities related to the land acquisition:a. GCA conduct the land acquisition planning and resettlementb. GCA then finalize the document and start the process to obtain approval of
the budget and PPP implementation schedule
3. Activities related to government guarantee:a. GCA consult with Bupi to obtain an initial indication of assurance requirements
for a PPPb. GCA then prepare and submit a letter of introduction and screening form to
request a government guarantee to Bupic. GCA ensure that BUPI published conformation to proceed PPP
3. Transaction PhaseThis phase is divided to :a. Completion of the prefeasibility study (final business case) GCA reviews the final
pre-feasibility study and prepares the procurement plan draft to complete the pre-feasibility study documents which will be used as a basis to prepare the public tender document.
This phase is carried out by completing the pre-feasibility study component
consisting of:
anda/ or government guarantees and financing structure
35
GCA then holds market interest exploration to obtain input and determines theinterest of potential investors in the PPP and create a list of potential investors.
b. Business entity Procurement Business entity procurement is divided into two steps :
1) Businees entity Procurement Planning In the Planning Stage, GCA will form a Procurement Committee who understand,
and has acquire sufficient knowledge in procurement procedures, the scope of PPP, contract laws and the regulations of the relevant sector infrastructures, technical aspects and financial aspects. The committee then arrange a schedule of procurement and procurement notices concept. In this phase GCA also implements Interests Assessment Market (Market Sounding). This market sounding is conducted to obtain input and determine the interest of potential investors for the PPP project offered. It is important for GCA to pack a project that will be offered in order to attract investors to invest. In this stage the Procurement Committee prepare Self-Estimated Price (HPS), the Prequalification Document and Document Procurement.
2) Business entity procurement implementation This phase consists of :
a. Pre-qualification The procedure for the implementation this phase:
condition to take the pre-qualification documents
procurement committee
research and re-evaluation if ithe objection is proven to be true
b. Offering Implementation This phase consist of drafting a list of participants, the invitation delivery, and
tender document retrieval.
36
c. Procurement Explanation / Briefing In this steps, committee will explaing the followings: the procurement
methods, procedures for submission of bid documents, the documents that must be attached, the procedures for opening the tender document, methods of evaluation, issues that can decline an offer, the concept of the agreement, the terms and procedure offer’s evaluation and the quantity, period, and the party who can issue a bidding guarantee.
d. Submission of the Proposal Method of submitting the tender documentshas two lid methods, the
first lid contains administrative and technical documents, and second lid contains financial documents, then both lids is included in one cover lids then submitted simultaneously to the procurement committee. Documents submitted directly to the procurement committee in place, date and time specified in the public tender document.
e. Bidding Documents Oppening This procedure should pay attention to the number of witnesses which is
at least one representative from at least two participants of the tender. If less than this amount the opening can be delayed or continued by pointing out additional witnesses outside the procurement committee. The Committee shall examine, show and read in front of the bidders regarding the completeness of the documents, and then if the bidding documents is complete,the bidding document will be signed by the committee and two representatives from the tender participant. The committee then makes Minutes of Proposal Examination (BAPP), which was read and signed by the committee and 2 witnesses.
f. Evaluation of Offers Evaluation is undertaken in accordance with the provisions in the Bidding
Documents.
g. Establishment of the Minutes of Procurement Results Procurement committee will make conclusions from the results of the
evaluation set forth in Minutes of Proposal Evaluation (BAHP) signed by the chairman and all the members of the procurement committee or at least two-thirds of the members of the procurement committee.
h. Tender winner stipulation Procurement Committee sets the prospective winner of the tender based
on the results of the evaluation. The committee makes and delivers to GCA the the report in order to stipulate the tender winner. In case GCA does not
37
agree with the suggestion from the committee , then GCA will discuss the issue with the Procurement Committee to make decisions and puts it in the minutes that consist objection and agreement, to be signed by GCA and Procurement Committee (This decision is final).
i. Stipulation of a Single Bidder The committee set a single bidder as the winner if there is only one tenderer
who has followed the pre-qualification and / or submit bid documents and meet the technical requirements. The committee then carry out negotiations with the sole bidder after receiving an order from the Minister / Head of the Institution / Mayor. In the event the Minister / Head of Institution / Mayor approves the negotiation results, procurement committee may set a single bidder as a winner.
j. Objection from bidder(s) The Bidders who objected to the stipulation of the winning bidder or bidders
are given an opportunity to submit an objection in writing with evidence. GCA then announces the results of a study from the objection and takes a reasonable action.
k. Winner Stipulation Letter Issuance GCA will issue a winner stipulation letter regarding the winning bidders as
the PPP executor, in condition there is no objection or the objection can be proven to be untrue.
l. PPP Agreement Signing Preparation This procedure will be done in two steps :
a. Business Entity establishment Process Winning bidders must establish a business entity which will sign the PPP
Agreement.b. PPP Agreement Signing Process PPP agreement signed by GCA and business entities, and will be effective
after preliminary requirements stipulated in the agreement has been obtained by all parties.
4. Contract Management Contract management activites include monitoring the concession / contract to comply
with the regulation during the period of validity. Management activities consist of the management of the implementation of this agreement during the execution of preconstruction, construction, commercial operations, and the termination of the PPP agreement.
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a. Pre-Construction Management of the implementation of the PPP agreement during the
preconstruction is conducted since the signing of a PPP agreement to financial close. The things that need to be monitored at this stage is the fulfillment of preliminary requirements (conditional precedent) by enterprises in the agreement and financing and monitoring of the process of preparing Term of Reference for EIA (KAANDAL) and EIA.
b. Construction Management implementation during construction is conducted since the start
of construction until the PPP project is operating commercially. At this stage, the implementation management is undertaken towards new infrastructures design or explanation on the services provided,combining of new facilities with existing facilities; footprint access and rights to disclose problems related to the failure and inability of business entity to meet the PPP agreement; delays or changes in the construction schedule; construction design variations; job readiness / operations; conformity with the technical planning of the construction; property and planning; as well as issues regarding labor and the risk borne by GCA.
c. Commercial Operation At the time of commercial operation, management of the implementation of PPP
agreements is conducted since the project began to operate commercially until the expiration of the PPP agreement. At this stage, it is necessary to monitor the performance of services or service standards in accordance with the PPP agreement.
d. PPP agreement ends The transfer of assets back to GCA is one thing to consider in managing the
implementation of the PPP agreement upon termination of the PPP agreement. The transfer of assets is done if the forms of PPP using the transfer option / transfer of assets. Tranfer of ownership is the process of transferring all assets built and / or maintained during the period of cooperation to GCA when the PPP agreement expires.
The following are the stages in transfer of ownership:
Valuation of assets of all infrastructure components / systems that are included in the PPP agreement is based on the conditions / technical performance and the remaining age of each component.
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Compensation to be paid by GCA to business entities is in accordance with the values listed in PPP agreement.
Official Project Transfer from business entity to GCA after asset valuation report was agreed and signed by both parties.
B. Unsolicited Projects
Unsolicited Proposals is a little bit different with a general PPP project mechanism. Unsolicited proposal have an additional phase, which is a approval for business entities as initiator before the tender phase. Unsolicited proposals for PPP is conducted into two stages. The first stage is a usual step in most cases and takes place from the time the proponent presents the project to the government until all internal assessments and approvals are finished and the project is ready to be publicly tendered. The second stage involves a competitive tender process; approaches tend to differ in incentives or benefits to the original proponent of the project. Picture 7 below shows detailed steps for each stage of the management process for a private business entity initiating an unsolicited infrastructure proposal. The principle in designing the procedure for unsolicited proposals is that the proponents should know precisely where and to whom to submit their proposals, what information is required, and the steps and time frame for decisions to be made.
a. Approval from GCA for Project Concept from initiator Step 1 Process to get GCA Approval for initiator to prepare PPP Project This step is divided into 4 stages :
1. Initiator submit the intent letter to propose PPP Project concept suggestion, completed with project concept documents and qualifications of initiator documents
2. GCA evaluate the Project concept document3. GCA evaluate the initiator qualification4. GCA make decisions
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Step 2 Process to get GCA Approval for initiator to continue the completion of the PPP feasibility
study and the fulfillment at the requirments for business entity to join the tender, this step consist of three activities :1. Initiator proceeds with the implementation and completion of the pre-feasibility
study and submit the pre-feasibility documents to GCA2. GCA evaluates and assesses the pre-feasibility study3. GCA approves or rejects the PPP proposal
Figure 8. Steps of PPPs Unsolicited Projects by the Private Sector in Indonesia
Step 3Process to obtain approval from GCA for Initiator to be stipulated as initiator.This step is divided into 5 activities :1. Initiator completes the pre-feasibility study and pre-qualification requirement fulfillment2. Initiator obtains SKKL or UKL-UPL (environmental problem mitigation actions) and
environmental permit and location stipulation3. GCA evaluates and assesses the feasibility study documentas and pre-qulification
requirements fullfillment documents4. GCA establishes the decisions
Qualification of the To-be-Proponent (TbP)
Document
for conducting Pre-FSStep 1
competitive tender processStep 4
Step 5
Step 6
take part in tender processStep 7
Step 8
Step 10
Step 11
Bonus Point Option
Match OptionStep 9
Document
Document
for conducting FSStep 2
and fulfillment of PQ
and the Fulfillment of PQ requierements
and determines the compensation option for the proponent
Step 3
Approval Process as the Proponent of Unsolicited Proposal
Competitive Tender Process
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5. GCA setsa compensation for initiator. The compensation is provided in the form of :
explicitly stated in tender documents
days from the enacment of the best offer in the tender
proposal including IPR
In case the initiator get additional point or right to match, than the ownership of all feasibility study and other documents will be transferred to Minister / Head of institution / District head. In case the project proposal is bought then the initiator is prohibitied to join the tender.
b. Tender Mechansim for Unsolicited proposals The tender mechanism for unsolicited proposals and solicited ones is similliar or
pratically the same. The only different is in the tender winner enactment stage, the initiator will receive compensation in the form of additional points or right to match.
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Stakeholders and Categories of PPP
4
44
The PPP unitThe institution in charge of coordinating Indonesia’s PPP program are the Ministry of Finance and Ministry of National Development Planning / National Development Planning Agency (Bappenas). Under the Ministry of Finance there is a newly established (in 2015) and a dedicated PPP unit at the national level, named Directorate of Government Support and Infrastructure Finance Management, Ministry of Finance.36 At the Ministry of National Development Planning / National Development Planning Agency (Bappenas) there is a PPP unit named Directorate for PPP Development (PKPS).
The different implementing agencies in infrastructure sectors liaise with Bappenas to decide which projects should be procured as PPPs. The Ministry of Finance makes recommendations about fiscal support for projects. Indonesia’s infrastructure is rigorously demarcated by sector, each one having its sector law. Thus, coordination is essential for infrastructure development to be effective. By the very fact of its name, KKPPI (The Policy Committee for the Acceleration of Infrastructure Provision) has been assigned the task of ensuring effectiveness. KKPPI was later transformed into different name KPPIP (the Committee of Infrastructure Priorities Development Acceleration) which plays a key role in providing interministerial coordination and quality control in the structuring of projects as well as coordinating policies that affect infrastructure development. However, as the top decision making committee for PPP in Indonesia, KPPIP is yet to play a strong leadership, to ensure an effective and active leader in supporting PPP project preparation and implementation.37
Nevertheless, the government realizes the need to create an effective coordination framework with strong political leadership to reinforce its infrastrructure program in general and that of PPPs in particular. At the initiative of Bappenas, the Ministry of Finance and the Coordinating Ministry of Economic Affairs a revitalization scheme of KPPIP is being developed and designed to be the champion institution at the top.
36 This is a recent change in the Ministry of Finance. The similar unit was actually placed under the Fiscal Policy Agency at the MoF, named a Centre for Fiscal Risk Management
37
45
Parties in PPPs implementationThe parties in the implementation of PPPs in Indonesia are GCA (Government Contracting Agency, or PJPK Penanggung Jawab Proyek Kerjasama) and the Business Entities (in addition: Supporting Institutions). Government Contracting Agency (GCA) is the government’s representative or partner in the public private partnership (PPP). It can be ministry or the Minister, government institution or Head of the Institute, local government or Head of the Region or Mayor, or state-owned enterprise, which is responsible for providing infrastructure in accordance with the law.
Regarding the supporting institutions, there are two SOEs that Government Indonesia established to help the provision of infrastructure. First one is the Indonesia Infrastructure Guarantee Fundor IIGF, which is a State Owned Enterprise that is established by the Ministry of Finance. As one of the fiscal tools of the government, IIGFis under a direct supervision of the Ministry of Finance and has a mandate to provide guarantee for infrastructure projects under Public Private Partnership (PPP) scheme. IIGF is part of the government’s efforts to accelerate infrastructure developmentin Indonesia, by providing contingency supporti/ guarantee for the risks caused by the government’s action or inaction, which deters the economic feasibilities of the PPP project.38
Basically, guarantee can be provided for the financial obligations of GCA, triggered by the risk events allocated to GCA in the PPP agreement, so long as the financial obligation can be quantified or there is a compensation formula stated in the PPP agreement. Some examples of the financial obligations that can be covered by Infrastructure Guarantee are the one caused by the delay in obtaining permit / license, change in regulation, absence of tariff adjustment and failure in integrating the network / facilities.39 IIGF reviews the PPP Projects before their approval. IIGF will provide a guarantee after the following considerations have been met by the proposed PPP project:
respect to the proposed PPP project
38
39 Ibid
46
Eligibility Criteria that each PPP project proposed to receive a guarantee from IIGF must meet the following:
(Presidential Regulation No. 38 of 2015 and / or any other applicable regulations);
is awarded through a transparent and competitive tender process;
viable, as well as socially desirable;
The Eligibility Criteria are applied in order to:
are not excessive
In short, the purpose in establishing IIGF are as follow:40
scheme.41
projects.
government’s contingent liability.
The second institution is PT SMI (Sarana Multi Infrastructure: State Owned Enterprise on PPP Facilities). PT SMI is a SOE which was established by the Government of the Republic of Indonesia (GoI) on February 26th, 2009 with an objective to accelerate infrastructure development in Indonesia. PT SMI is also as a Non-Bank Financial Institution which focuses on Indonesia’s infrastructures financing, PT SMI had obtained a business license as stipulated in Minister of Finance Decree No.396/KMK.010/2009 dated 12 October 2009.42
PT SMI has four strategic roles in leveraging Indonesia’s infrastructure development. Those are 1) A catalyst in acceleration of the infrastructure development in Indonesia 2)
40 Ibid41
42
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Provide alternative source of fund to financing project 3) Promote and Support Public Private Partnerships (PPP) 4) Increase the size, capacity and its effectiveness through the partnerships with third parties.43 PT SMI has a subsidiary company named PT Indonesia Infrastructure Finance.
Based on Minister of Finance Regulation Number 100/PMK.010/2009 regarding Infrastructure Financing Companies, PT SMI origina leligibility is to finance infrastructure development in following sectors:44
stations;
networks, distribution networks, and drinking water treatment facilities.
networks, and waste collection facilities.
distribution.
and oil & gas distribution.
Minister.
Between 2013 and 2014, PT SMI has provided more than IDR 8,100 Billion (equivalent to USD 623 Million, 1 USD = IDR 13,000) investment financing for various infrastructure projects. The list is shown below.
43 Ibid44
Investasi Pemerintah, PIP). This would allow SMI to expand the scope of its services to cover a wider infrastructure sector
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Table 4. Financing Commitments of PT SMI as of 31 December 2014, by Sector
Sektor
Realisasi Komitmen 2014 / 2014 Comitments
Realisasi Komitmen 2013 / 2013 Comitments
Proporsi terhadap Total Komitmen
2014 of 2014 Total
Commitments
Pencapaian dibandingkan
Komitmen 2013i/ Achievement
Compared to 2013Commitments
Sector
IncestasiInvestment
Financing
Ketenagalistrikan 1.962,20 1.756,46 35% 112% Electricity
Minyak dan Gas Bumi
870,49 572,58 16% 152% Oil and Gas
Jalan 500,00 300,00 9% 167% Roads
Transportasi 582,50 507,50 10% 115%
Telekomunikasi 62,21 200,00 1% 31%
Air Minum 350,00 440,00 6% 80% Water Supply
Irigasi - - - -
Subtotal 4.327,39 3.776,54 78% 115% Subtotal
KerjaWorking Capital
Financing
Ketenagalistrikan 94,43 - 2% - Electricity
Minyak dan Gas Bumi - - - - Oil and Gas
Jalan 320,08 196,92 6% 163% Roads
Transportasi 126,59 25,18 2% 503%
Telekomunikasi 450,00 350,00 8% 129%
Air Minum - - - - Water Supply
Irigasi 260,91 127,90 5% 204%
Subtotal 1250,00 700,00 22% 179% Subtotal
Total 5.577,39 4.476,54 100% 125% Total
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PPPs at the subnational levelIn Indonesia, sub-national entities can enter into PPPs. Those laws / regulations guiding the use of PPPs at the sub-national level are Government Regulation No. 50 of 2007 regarding Implementation Procedure for Regional Cooperation, approved on August 22, 2007 and Regulation of The Minister of Home Affairs No. 22 of 2009 regarding Technical Guidelines on Procedure for Regional Cooperation, approved on May 22, 2009.
BOX 2.HIGHLIGHTED ARTICLES OF THE INDONESIAN PPP REGULATION AT THE
IMPLEMENTATION PROCEDURE FOR REGIONAL COOPERATION
Article 3 define the subjects who can be the parties in the regional cooperation: the Governor, the Regent, the Mayor, and third party.
Article 5 stipulate that the Regional Cooperation written on the Cooperation Agreement.
Article 7 stipulate the procedures of the Regional Cooperation can implemented through: a. Head of the Region or one of the parties can initiate or offer plan of regional cooperation to the head of other region about a specific object b. Draft of the cooperation agreement contains at least: 1. The subject of cooperation 2. The object of cooperation 3. The scope of cooperation 4. The rights and obligations of the parties 5. The period of cooperation 6. The termination of cooperation 7. Circumtances forces and 8. Dispute resolution c. Head of the region in preparing the draft of cooperation agreements involve the related institutional / other related work unit in the region and can ask for opinions and suggestions from the experts, the Minister / Head of Non-Departmental Government Institution d. Head of the Region can issue a Power of Attorney for the completion of the draft of cooperation. e. Further provisions on technical guidelines as referred to a, b, and c regulated by the ministrial regulation.
Article 8 stipulate that the implementation of the cooperation agreement can be implemented by the regional work unit.
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PPP Project at the sub-national level will be guaranteed by IIGF. Based on prevailing regulations, IIGF is mandated to process, and monitor guarantees as well as claims through a single window to future eligible PPP Projects in Indonesia.
PPP project selection categoriesThe list of Public Private Partnership in Indonesia consists of three categories: (i) Potential Projects; (ii) Prospective Projects (formerly known as priority projects); and (iii) Ready for Offer Projects. The PPP Book is prepared and published every year in accordance with the process of the Government’s Work Plan.
In order to be registered in the PPP Book, the Minister, Head of Institution, or Head of Local Government / Mayor / Governor must submit their project proposal to Bappenas along with a statement about the Ministry / Institution or local government working unit that will responsible for planning, preparation, and transaction of the proposed PPP project. The PPP project proposal should be accompanied by supporting documentations that differs between planning stages, as shown in Figure 9 and 10 below.
Figure 9. Planning Stages of PPP Project in Indonesia
READY FOROFFER PROJECT
PROSPECTIVEPROJECT
POTENTIALPROJECT
- Preliminary Study
- Executive Summary ofPreliminary Study Documents
- Project PreparationDocuments
- Executive SummaryProject Preparation Documents
- Pre FeasibilityDocuments
- Executive SummaryPre-Feasibility Study Documents
- In-principal approval forGovernment Support/Guarantee (if
Requiered)
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Figure 10. Planning Document of PPP in Infrastructure Provision
Medium Term Development Plan
Annual GovernmentWork Plan
Ministry / AgencyAnnual Work Plan and Budget
PROCUREMENT OFPPP PROJECT
Ministry / AgencyStrategic Plan
I. Potential Projecta. Conformity with the national / regional. mid term development plan and the
infrastructure sector’s strategic plan;b. Conformity of the project’s location with the Regional Spatial Planning;c. Linkage between the infrastructure sectors and the regional areas;d. Cost recovery potential;e. Preliminary Study.
II. Priority Projecta. Included in PPP Potential Project Planner proposed by contracting as
unsolicited projects;b. Based on Pre-Feasibility the project is feasible from legal, technical, and
financial aspect;c. Risk identification and allocation has been identified;d. PPP mode has been defined;e. Government support has been identified (for marginal project).
Potential Project
Priority Project
III. Project Ready for Offera. Bidding Document has been completed;
b. PPP Procurement team has been established and ready to operate;
c. Procurement schedule has been defined;
d. Government support has been approved (if requiered).
Project Ready for Offer
Public - Private Partnership Criteria
P P P B O O K
PLANNING DOCUMENT OF
IN INFRASTRUCTUREPROVISION
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The Regulatory and Fiscal Framework
of PPPs
5
54
Fiscal risks, project risk, and risk allocationTechnically, the PPP is a cooperation scheme in which the government normally transfer risks to the private sector with the promise of financial compensation for the risk transferred to the private sector (Wibowo and Mohamed, 2008). Many infrastructure projects intervened by complex risk (Ng & Loosemore, 2006) which has the potential negatively impact the effectiveness of PPP projects. Therefore, the effectiveness of the implementation of PPP is very dependent on the allocation and better risk management among the public (government) and private investors (Murphy, 2008). In Indonesia, the risks are allocated to the party who most able to control the risks in order to ensure efficiency and effectiveness in the provision of infrastructure. The party who most able to control the risks is usually the GCA or the GCA appoint the supporting agency because the GCA or its supporting agency is the party who really know the conditions, for example: in roads sector, the party who most able to control the risks is BPJT or if project held in the subnational level, the GCA might be the Head of Region or Regional Government. The allocation of risk must be agreed upon by the parties and written into a cooperation agreement.45 In practice, when the project is guaranteed by IIGF, the company will undertake a thorough assessment on the risk allocation and assist GCA to allocate risks according to each party’s capacity.
However, the allocation of risk often can not be translated into a good text cooperation agreement practically (World Bank, 2012). Marques & Berg (2011) said that the allocation of risk is one of the major constraints in the design of the PPP agreement and is the main cause of failure of private sector participation in PPP projects. One form of the lack of proper risk allocation is the imposition of excessive risk to a particular party or loading a risk to the party which actually can not control it well.If the government allocates risk to those who are not able to control the risk, then the chances are that the investor will inflate the cost of the project to compensate for the severity of the risk, or even out of the project (Barrett, 2003).
On the contrary, if most of the risks remain in the government, the PPP scheme advantages in maintaining the quality of infrastructure and public services will be reduced because of the risk actually act as an incentive for the private sector to maintain the quality of the project (bettignies & Ross, 2004).46
45
46 Ibid.
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Because Perwita continue to lose money as a result of his behavior was not a commercial area in the terminal, Perwita and the municipality agreed to terminate the contract. The process of transfer of assets covered disputes asset appraisal method. Perwita sued the city government to obtain compensation for the cost of investment and win. The government of Yogyakarta appealed.
The project is a classic example on the inappropriate risk allocation among parties. Risk is not a primary focus in the PPP agreement Giwangan, seen from the assumption that the private sector is expected to assume all risks arising during the construction and management of the terminal. In fact, there are many factors that affect the performance of the management of the terminal and are beyond the control of the private sector, for example, the error of macro transportation system design and enforcement of traffic rules is weak. The construction of a terminal in the southern area deserted suburban certainly not attractive to private investors.
47
success (www.iigf.com)
BOX 3. STUDY CASE: GIWANGAN TERMINAL, YOGYAKARTA, INDONESIA.47
In 2002, the government of Yogyakarta city intends to build a terminal in the area Giwangan to develop the economy of the southern part of the city Yogayakarta and to organize traffic in the South region. The city government opened an opportunity for the private sector to build a terminal in the Bus type A, PT Perwita Karya (“Perwita”) won the tender.
In 2006, Perwita complaint because the presence of illegal terminals around Giwangan disrupt the commercial operation of the terminal. In addition, the newly renovated terminal Jombor DI Yogyakarta Provincial government evolved into a more crowded terminal than of Giwangan because of its strategic location. The rise of low-cost airlines tickets and sluggish local economy as a result of the massive earthquake that occurred in 2006 was also lead to changes in passenger behavior and lead to lonely bus passengers in the terminal.
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BOX 4. STUDY CASE: POWER PLANT, CENTRAL JAVA, INDONESIA48
PPP Project of Power plant in Central Java is the first large-scale PPP projects Showcase which its investment value is more than 30 trillion IDR, as well as the first PPP project implemented by Presidential Decree No. 67 Year 2005 on Cooperation Government With Business Entities in the Provision of Infrastructure. In 2006, The government has set a power plant project in Central Java as one of the PPP model projects. In addition, the project is also one of the projects which are incorporated in the Master Plan for the Acceleration and Expansion of Economic Development (MP3EI) and also PPP showcase models that have been proposed by the Government in 2010.
The signing of the project document have proved that the PPP scheme based on the process which are open, competitive, transparent and accountable can be implemented in Indonesia. This success also shows that if the process of procurement of PPP projects implemented in accordance with the principles that have been determined, it can be obtained better quality, more reliable and more efficient infrastructure services so that it can provide good impact for the country, especially for the budget. Looking ahead, the Government will be more encourage the role of supporting institutions such as PT Sarana Multi Infrastruktur and Indonesia Infrastructure Guarantee Fund to support and oversee the process procurement of PPP projects so that this success could soon be developed in the sector and another project.
The project received the government guarantee by using the shared guarantee scheme between the Government and the Indonesia Infrastructure Guarantee Fund that obtain a mandate based on Presidential Decree No. 78 of 2010 concerning Guarantee of Infrastructure in Government Cooperation Project with Business Entity which is done through Infrastructure Guarantee Agency. Guarantee for Central Java Power Plant PPP Project cover specified financial obligations of the PLN in the Power Purchase Agreement (PPA), that included PLN’s financial obligations related to the purchase of electricity monthly from Independent Power Producer (IPP). Provision of Government Guarantees for Central Java Power Plant Project is a step forward in the process of infrastructure development in Indonesia because there is new guarantee scheme more transparent and accountable through PT PII as one of the Government’s fiscal policy instrument.
48
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As shown in the example, the frequency of the occurrence probability of risk is measured and the degree of their impact. The probability of the frequency of the least risk passengers enter the terminal due to the “shadow” terminal high enough. It is not true if if the government is not able to estimate it. The government needs to align its policy with the spirit of public service and to have a risk analysis established in the contract. Awareness, mindset, and the capacity of stakeholders also need to be built to improve the quality of the procurement process / project execution.
Figure 11. Steps to Handle Project Risk
Fiscal Support to PPP Projectsand the Role of Government Agencies
The Minister of Finance established some recent incentives concerning the Government support (fiscal and / or guarantee) for PPP. Among others, there are four important regulations as follows:
J-Power Consortium, Ithocu and Adaro are the winner of the bidding in Central Java Power Plant Project 2x1000 MW on June 17, 2011 which subsequently has established PT Bhimasena Power Indonesia as the entity implementing the project. PPP scheme which will be implemented in this project is a Build-Own-Operate- Transfer (BOOT) with concession period of 25 years. The project is expected to begin commercial operation (Commercial Operation Date / COD) at the end of 2016. While the technology used is ultra-supercritical, which has level of efficiency and carbon emissions better than coal plants that PLN is currently owned so it is environmentally friendly power plant. In addition, Central Java Power Plant will utilize low-calorie coal supply nationwide. This matter will help PLN reduce the cost of goods production (BPP / Biaya Pokok Produksi) and reduce government subsidies to PLN. In addition, this project will open employment opportunities to minimum of 5,000 locals and give opportunities for participation to the local component in the production process, and this will further encourage the development of the national economy.
Steps ofMinimization
Quantificationof the ImpactRisk AllocationRisk Identification
The Evaluation of The Probability of
The Frequency
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for PPP infrastructure projects through IIGF.
regulation relaxes the source of funds to purchase land. To give more flexibility and speedier process of land acquisition, private sector may purchase the land and then reimbursed by the government.
alternative financing mechanism in developing infrastructure projects under the Public Private Partnership model.
regarding the procedure for requesting and providing such guarantee.
Fund.
Those 5 (five) regulations are expected to compliment each other and give a push for more private sector investment in infrastructure.
Institutionally, Bappenas PPP unit stands in the Directorate for PPP Development (PKPS) at the Deputy of Infrastructure, and a PPP unit under the Directorate General for Debt Management will spearhead the promotion of PPP. As the execution of PPP project planning, preparation and transaction has been devolved to the respective line ministries and contracting agencies, the Government has recognized the need to establish a Central PPP Unit (PC3U) to be responsible for ensuring policy consistency, quality control and transparency, establishing standards and principle that all transactions must follow, and monitoring the execution for compliance.
Given the remarkable investment needs and the limited capital resources, the unit will prioritize PPP projects according to their development impact and their readiness toward implementation. Other tasks include: assisting line ministries and local governments in identifying, preparing, and implementing PPP projects; reviewing project evaluation carried out by the PPP nodes; assessing requests for Government support to PPP projects; coordinating such support with MoF, publishing status reports on PPP projects and disseminating relevant information; preparing guidelines and manuals for PPP projects; and building capacity in the PPP nodes. The P3CU is currently being developed and it is envisaged as an independent, centralized organization dedicated to PPPs with access to
59
fiscal budget allocation decisions. This dedicated unit will be placed under a high-level political leadership and decision making institution that has the authority to: (1) coordinate across planning and fiscal agencies; (2) decide on cross ministerial conflict resolution; and (3) drive legislative improvements.49
The homogeneity of regulatory arrangements and practices in infrastructure sector is another important cross-cutting issue, with wide variations found from sector to sector. Nevertheless, progress has been made towards a more consistent regulatory framework. The Government has established regulatory bodies although not yet fully independent for toll roads (BPJT), the downstream end of the oil and gas sector (BPH Migas), and telecommunications (BRTI). These bodies are already operational in terms of budgeting, staffing, functions, and standard operations. Various short-term recommendations to move towards the introduction of internationally recognized regulatory practices have been identified. These include consolidating the existing regulatory functions under each line ministry, building the line ministries’ capacity in regulatory procedures, creating a more transparent regulatory environment, encouraging stakeholder participation in regulatory matters, and allowing tariffs to reach cost recovery levels.
Law of budgetary processThe law guiding the budgetary process is the Law of State Budget (APBN). The Law of State Budget is issued annually. The latest of the State Budget Law is Law No. 3 of 2015 concerning Amendment of Law No. 27 of 2014 regarding the budget of state income and expenses for 2015. Stages in the planning and preparation of the state budget can be explained as follows.50
First, a preliminary stage.
This stage begins with the preparation of the draft state budget by the government, among others, include the determination of the basic assumptions of the state budget, estimated revenues and expenditures, priorities and budget preparation exercise. At this stage also held a commission meeting between the respective commissions with its partners (ministries / technical institutions). This stage ends with the process of finalizing the preparation of the draft budget by the government.
49
50
60
Second, the filing stage, discussions,and determination of the state budget.
Stages starting with the president’s speech as an introduction to the Draft State Budget and Financial Memorandum. Then there will be a discussion between the finance minister and the House Budget Committee, and between commissions with departments / agencies related technical.The results of this discussion is the Law on State Budget, in which includes the allocation for each department / agency, sector, sub-sector, program and project / activity.To finance the general duty of government and development, department / agency filed a Work Plan and Budget of the Ministry / Agency to the Ministry of Finance and Bappenas to be discussed later Budget Implementation List and verified before payment process. This process must be completed from October to December.
In the implementation of the state budget in the form of a presidential decree made instructions (Presidential Decree) as the Budget Implementation Guidelines. In carrying out the payment, the head office / project leader in each ministry and agency submits a Request for Payment to the Regional Office of the State Treasury.
Third, the state budget oversight.
Oversight of the implementation of the state budget is implemented by supervisors both external and internal government. Below the example of a budgetary process in 2014.
The government together with the House of Representatives of the Republic of Indonesia has discussed and agreed on 2015 APBN by taking into account the consideration of Regional Representative Council of the Republic of Indonesia.However, in both APBN and APBD (local government budget), the PPP program has not been integrated as part of the permanent / annual budgetary system. This has been the indication of the absence of macroeconomic policy in the budget process when it comes to PPP scheme. There is a budget process for some form of government support such as VGF, land fund (for toll road sector), but not for periodical payment to the private partnerin a PPP project.
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Figure 12. Budgetary Process, Example for FY. 2014 / 2015
The budgetary process and PPPs
There is no specific budgeting process of PPP because it is incorporated in the regular budgeting process of line ministry. Several articles in Indonesia’s Constitution bear directly on the character of Indonesia’s State budget: State sovereignty is invested in the people
Preparation of fiscal capacityJanuary - February 2014
Preliminary DiscussionJune 3 to July 10, 2014
Decree of the Minister finance on Budget Ceiling of K / L (Ministry or Agency)July 10, 2014
President speech on Finance Memorandum and APBN SubmissionAugust 15, 2014
Discussions with the House of RepresentativesAugust - September, 2014
Plenary session of the House of Representatives od the Ratification of the APBN LawSeptember 29, 2014
Law No. 27 pf 2014 on 2015 APBNOctober 14, 2014
Presidential Regulation on APBN DetailsNovember, 2014
DIPA (Budget Warrant) submissionNovember, 2014
Budget ImplementationJaniary - December 2015
Indicative Ceiling of the Expenses Standard of The Minister of Finance and the Minister of National Development Planning / Head of Bappenas (National Development Planning Agency)
March 19, 2014
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and is exercised in accordance with law (Article 1:2 of Constitution 1945); the President exercises the power of the State (Article 4:1); the House of Representatives (DPR) is vested with lawmaking authority: comprising power to legislate, approve budgets and conduct oversight of government (Article 20:1 and Article 20A); the State budget (APBN for short) is to be determined annually by law and implemented in an open and accountable manner in order to maximize public welfare (Article 23).
In 2003 as part of its program of reform post-Soeharto and as a sign of its intention to restore the original purposes of State budgeting—the Indonesian government passed a new law (Law No 17/2003) on State Finances. This was the first time since the colonial era that Indonesia had modernized its financial legislation: previously, its budgetary processes had been based on the Dutch system called Indonesische Comptabiliteitswet (ICW for short) dating from the 1920’s. The reform process saw the enactment of several other budget-related laws: Law No. 1/2004 on the State Treasury, Law No. 25/2004 on State Planning, Law No. 32/2004 on Regional Governance, Law No. 33/2004 on Fiscal Balance and Law No. 15/2004 on State Audit.
Indonesia is a unitary state with a decentralized system of regional government. The national budget (APBN) is the preserve of the central government and the DPR. Budgets at the subnational or local government level are called APBDs: there are currently 529 separate APBDs produced by local governments and approved by elected local consultative assemblies (known as DPRDs) in each region; consistent with the unitary nature of the Indonesian State, APBDs also require central government (specifically the Ministry of Home Affairs) approval before implementation.
It takes almost a year to plan, draft, discuss and adopt a budget at both the national and local level. In the case of APBNs (State budgets), the process begins with national-level community consultations on development planning (known as Musrembangnas) held early in the budget planning year (in Indonesia, fiscal years run from 1 January to 31 December). Government then draws up its budget assumptions, policies and work plans and submits these to the DPR in May. In June, the DPR’s Budget Committee (known as Banggar) meets with government officials to form a number of budget working groups; the ensuing discussions involve all eleven of the DPR’s sectoral committees or commissions (Komisi I-XI) who meet with representatives of ministries / agencies they oversight. By July Banggar finalizes its report of these preliminary discussions and continues discussion of the budget outline. On 16 August the President delivers his budgetary discourse before Parliament, at the same time tabling the government financial statement, the draft APBN and proposed work and budget plans for each central government ministry / agency (known as RKA
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K/L). The APBN is adopted into law by a plenary session of the DPR in October. Detailed implementation of the budget is then spelt out in Presidential decrees and “budget implementation check lists” (called DIPAs) prepared for each ministry / agency. The budget begins to be implemented on 1 January.
Indonesian budget law provides for a mid-year budget revision process. Budget revision processes mirror the normal budgetary process and end with the adoption of the revised budget (known as APBN-P).
Guidelines for the formulation and adoption of local government budgets are laid down in Minister of Home Affairs regulation No. 13/2006 concerning “Guidelines for Management of Local Finances” and various ministerial edicts since then. Processes at the local level mirror those used for State budgets. The following tables provide details of key local government budget documentation and the timetable set for various stages of the budgetary process.
Table 5. Key Local Government Budgetary Documentation
PLANNINGPHASE
DISCUSSIONPHASE
IMPLEMENTATIONPHASE
ACCOUNTABLILITYPHASE
Local Government work plans (RKPD)Work plans of local government work units/departments (SKPDs)
Basic Budget Policies (KUA) and Provisional
Funding Levels (PPAS)Budget and work plans of each local SKPDs
(APBD)Local head of government (HoG)
details of APBDBudget
checklist (DPA) for each local SKPDLocal government
revised local budget (APBD-P)
providing details of APBD-P
semester budget outcomes
accountability od APBD
of local governance (ILPPD)Reports on
local governance (LPPD)Local goverment accountability report (LKPJ)
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Table 6. Schedule of Activities Carried out during Budget Planning Year
MONTHWEEK
I II III IV
Junegeneral budget policy to local parliament Discussion of budget policy
Julyto local parliament
Discussion onbudget ceiling
August
September
Octoberlocal government
November
December
Operational Procedures: Pre-contractual
Development and Contract Management
6
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Financial support platformand contractual structure
Financial support institutional is an important thing to develop the PPP projects. Indonesia has institutional financial support platform for PPPs. The government of Indonesia has established two financial institutions under Ministry of Finance: (1) The IIGF (Indonesia Infrastructure Guarantee Fund) or PT PII which provides government guarantees or credit enhancements only to PPP projects that are financially feasible; (2) PT SMI (Sarana Multi Infrastruktur) which acts as facilitator and catalyst for infrastrructure development in Indonesia, including the promotion of public private partnership schemes and funding activities in various infrastructure-related sectors inthe form of debt, equity, and mezzanine financing.
In addition, PT SMI established its subsidiary company PT Indonesia Infrastructure Finance (IIF).51 PT SMI recently received assets of the Center for Government Investment (PIP, now dismantled) which was a public service agency (BLU) that provides pre-financing arrangements for land acquisition.
As other countries give special fiscal treatment for their PPPs, Indonesia has regulations concerning special fiscal treatment.52
Basically, in the Indonesian PPP context, the source of cost recovery of the investment will come from the user fee. In the case of electricty and in some limited case water, the government through PLN (electricity company) and local water company (known as PDAM) are the off takers. While in the first example, the investor takes both the demand and construction risks, the later case gives a comfort to investors for having government as the offtaker, hence relieving investors from the demand risks. The current Presidential Regulation No. 38/2015 on availability payment is paving the way for infrastructure sector other than electricity and water to enjoy the shift of demand risks to the government.
51
infrastructure development. See www.iif.co.id52
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In case of the return on investment commitee of business entities sourced from payment by users in the form of tariffs, PJPK/CA (Contracting Agency) determine the tariffs for providing the beginning of infrastructure. Tariff in the beginning and its adjustment set to ensure the return on investment which includes the closure of capital cost and operational cost and profit in certain period of time. Based on the consideration of the GCA, if tariff in the beginning and its adjustment has not been able determined to return the entire investment of business entities committee, the tariff can be determined based on the ability of users.53
For the availability payment, in case of the return on investment commitee of business entities sourced from the payment of the availability of services, GCA allocated fund payment of the availability of services for providing infrastructure implemented by committee of business entities during the period time stipulated in Cooperation Agreement. Allocation fund payment of the availability of services implemented by taking into account: (a) capital fee. (b) operational fee and (c) profit of committee of the business entities.54
Renegotiation and disputesRenegotiation can be mentioned as one of alternative dispute resolutions through the consensus. It would be better for every PPP agreements if there’s a clause which clearly describe the parties are possible to request for the negotiation of PPP Agreements and the list of occassion which can be decided as a basis of requesting the renegotiation. Thus, in the future, one of the parties who will get the disadvantages of the changing occassion or the fault of risk estimation, the party above is able to use the party’s rights to request the renegotiation’s proposal and the other party has to pay for attention to that suggestion which is a legal of a renegotiation request as it has been agreed.55
53Indonesia, Peraturan Presiden tentang Kerjasama Pemerintah dengan Badan Usaha dalam Penyediaan Infrastruktur, Perpres nomor 38 tahun 2015, LN nomor 62 Tahun 2015, Pasal 12
54Indonesia, Peraturan Presiden tentang Kerjasama Pemerintah dengan Badan Usaha dalam Penyediaan Infrastruktur, Perpres nomor 38 tahun 2015, LN nomor 62 Tahun 2015, Pasal 13
55Repository UGM, “Alokasi Risiko dalam Proyek KPS”
BOX 5. INCOMPLETE CONTRACT IN PPP PROJECT
The classic example of incomplete contract for PPP Project in Indonesia is the story of 24 toll road segments of the Trans-Java toll road network. All of the projects stops because of unclear responsibility of each party in the land acquistion. The contract cannot be terminated because of this compliance issue.
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The issue is related to the exemption of barriers to deliver renegotiation proposal to the negotiating table. It may be that the parties to a concession infrastructure projects have to feel comfortable with the risk allocation stipulated in the concession agreement. Therefore, they will feel suspicious of the proposal to renegotiate the allocation of risk and tend to be cold towards renegotiation offer. This is where the main points of the proposed policy, each party shall be entitled to propose renegotiation and to be heard. As such, the parties can at least get a chance to voice their interests.
If the parties do not have the right to renegotiate the validity of the proposal to be heard, then the party who feel that their interests have been disturbed by a developmental state will feel forced. A sense of compulsion can be followed by denial of responsibility, conflict, and finally ending with the dispute. As revealed Ng & Loosemore (2006), risk sharing can lead to chaotic intricately supervision responsibilities and responsibility to control risk. As an example the case of the Bus project, Yogyakarta example of engagement with the private sector must eventually quits decades before the end of the concession period. Neither the government, the private sector, as well as taxpayers lose money as a result.
So it can be concluded that the renegotiation and successful renegotiation will have a financial impact that distanced the government, private sector, and taxpayers lose in Indonesia. Ministry of National Development Planning said that from 2009 until 2014, there are 42 projects have been renegotiated. The projects that have been renegotiated usually are the projects in already tendered. After the renegotiation, the GCA will decide if it is necessary to hold an auction or bidding once more.
Another example of incomplete contract is the case of Kanci – Pejagan Toll road. The project owned by (at that time) Bakrie Toll is among the first to operate in the Trans Java toll road network. As a pioneer, this toll road segment is located in the middle of the network, and thus suffered from the inability to exploit the network economies. The second problem hit the the toll road when the government built a flyover at the national road parallel to the road segment, causing almost 50% traffic diverted to the road of the newly constructed infrastructure. The third financial disaster struck the company when the provincial road that connects to the toll road was damaged by the landslide. The Public Works department of the provincial government needed to wait until the budget was approved before reconstruction was undertaken. Bakrie Toll was not able to renegotiate this condition because the contract simply wont allow this risk to be borne by the government.
Conclusion and Way Forward to Further Improve Indonesia’s PPP Framework for
Infrastructure Development
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Encouraging private participation in infrastructure: state-of-the art for Indonesia
The working paper has extensively discussed about the laws and regulations enacted by the Indonesian government on the implementation framework of PPP in infrastructure, and how it evolves since its inception following the Presidential Regulation No. 7/1998 on the Cooperation between Government and Private Business Entities. The regulation is then replaced by the Presidential Regulation No. 67/2005 on the Cooperation between Government and Private Business Entities in the Provision of Infrastructure. The later regulation, drafted by the inter-ministerial committee on infrastructure was regarded as the beginning of government policy mainstreaming efforts of PPP in infrastructure.
The user charge principles however, were first introduced in the road sector by transforming the Aid-funded Jagorawi Highway into Jagorawi Toll Road in 1978. The toll system was very successful which than lead into the establishment of PT Jasa Marga (later becoming a public company), the Indonesia’s first toll road authority. After the Law No. 38/2004 on Roads, PT. Jasa Marga remains as a toll road company, and the government contracting-agency is transferred from the Ministry of Public Works to the Toll Road Development Agency.
So far, there is no investment in the public ports and airports, mostly due to the large risks associated with the policy changes within governments and stringent government regulations despite the recent Presidential Regulation No. 39/2014, allowing 100% foreign ownership of ports and airports. On the other hand, ports for special purposes, i.e. serving industrial area, have been an interest of private investors. Some of Indonesian special purpose ports and port terminals have been successfully constructed and operated.
Other sectors such as telecommunication, private participation in the ownership and operation of telecomm infrastructure and services was even more successful through the speed up process of ending a duopoly system of Telkom and Indosat, both of the are State Owned Companies. Later, Indosat went to IPO. The public and institutional investors now own most of the Indosat’s shares. In the power sector, the Indonesian government opened the power generation sector by introducing a scheme of IPP (Independent Power Producer), which follows the international best practice, including the small and medium size (renewable) power plant using FIT (Feed In Tariff) system.
In water sector, the progress of private participation made a history when the RWE Thames Water and Suez-Lyonnaise entered into Indonesian market by investing in Jakarta. The contract between the investors and the Jakarta Provincial government was legally
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challenged several times. The issue of government responsibility to top up commercial tariff without a proper mechanism in reviewing the production costs is the center of the dispute. The recent decision of the Constitutional Court Justice to revoke the Law No. 7/2004 of the Water Resource (and the re enactment of Law No. 11/1974 on Irrigation) has put investment on water treatment and waste distribution facilities on hold. Private sector investment in liquid and solid waste were still limited, mainly due to the size of investment, production risks, and a weak financing frameworks, especially on government guarantees and off-taking responsibility of the local government.
The plan for 5 years of infrastructure developmentThe current administration is aiming at IDR 5,519 Trillion of budget for infrastructure (or equivalent to USD 424.5 Bio, 1 USD = IDR 13,000) in the next five years (2015-2019). The most ambitious is for the power generation sector of 35,000 MW and the transportation sector. This would require the current IPP portion of 16% (7.7 GW) to be significantly increased to reach 32% (26 GW) by 2019, requiring investment needs of IDR 435 Trillion (or USD 33,5 Bio) from the private sector. On top of that, the existing Electricity SOE PT. PLN should raise their funds from both the government capital injection and the financial sector.
For the transportation sector, the figure below illustrates the scale of the investmentFigure 13. The Demand for Transportation Sector
2,650 Km1,000 Km
46,770 Km
3,258
60 location
50 units
29 cities6 metro
citiies and 17 large cities
15 locations20 units
Cargo services 6 locations
24 new ports
26 Pioneering freight ships
2 Livestock ships
500 units
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The President Jokowi has made a clear statement that during his term in the administration, the country has made a great leap toward modern infrastructure system, allowing the economic sector to grow and wealth is distributed geographically and among demographic categories. By securing the energy, food infrastructure and lowering logistics costs, the government is aiming at sustaining development amidst the possible global recession hits the economy. He has made an unpopular decision to reduce the fuel subsidy, adjust the price of energy and at the same time freeing some fiscal space for infrastructure investment and direct subsidies to the poor and disadvantages.
PPP in the current Indonesia’s medium termdevelopment plan
The huge investment required by government’s plan means that the administration seeks financial support from various sources. Around 40.1% of the budget comes from the national government and 9.9% of it will be provided by sub national governments (mainly for decentralized infrastructure such as urban transport infrastructure, water, and waste treatment facilities). Using the current decentralized budget law, the national government remains in control of allocation of national financial resources to be allotted to sub national government.
This will leave a half of the investment to be met by both State Owned Enterprise and private sector through PPP Scheme. The figure below illustrates the source of investment for infrastructure by 2015 – 2019.
Figure 14. Infrastructure Investment Needs, by Source of Funding
2,215.6040%
Source of Investment for Infrastructure(IDR Billion, 2015-2019)
National Budget
Local Govt Budget
SOE
Private Sector
1,692.3031%
1,066.2019% 545.30
10%
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It is very clear that while the government will possibly have in control of its own budget and SOE budget, more than 30% of investment should be sought from the private sector.
The newly established inter-ministerial committee on infrastructure development (abbreviated KPPIP in Indonesian language) has pushed for a relaxed requirement for PPP market entry and procurement while at the same time focusing on project preparation and creating a progressive incentive system. The Indonesian government has also set a timebound law on land acquisition for infrastructure development through Law No. 2/2012. The existing Viability Gap Funding (VGF) scheme allowing a sub commercial project to be procured using PPP framework is already put in place, and the on-going-preparation of availability payment (or in some other literature is known as performance based annuity scheme, PBAS) is soon to be introduced by the government.
The way forward in improving IndonesianPPP framework
Indonesian PPP framework has been progressed quite significantly since its was introduced in 1998. At the same time, the Indonesian government is also committed to the principle of good governance, and hence all procedures and mechanisms should be bulletproof to avoid misconduct and misappropriation of authority, especially from the government contracting agencies.
Learning from the case study, there are scopes for improvement in implementing PPP projects in Indonesia. Given the size of investment required, and the existing government capacities to procure infrastructure projects, the study identifies the following actions to be taken.
1. The absence of macroeconomic policy for PPP – boundary of the use of PPP
The Ministry of Finance has currently no explicit policy on the scale of PPP on infrastructure in relation with both government budget and GDP (Gross Domestic Product).
In the previous administration (2014-2019 MP3EI development plan), when result was disappointing. Unrealistic approach to achieve up to 9% real economic growth using infrastructure investment creates market distrust on how the government will reach such an investment target. The current domestic borrowing capacity is also currently suppressed with only 8% national banking capacity to provide loan, mostly short term
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(tenor up to 5 years) and mainly absorbed by the household consumption sector, i.e. consumer loan. The structure of PPP deal that are mostly generating revenue using local currency (except for large scale IPP, and to a certain extent port charges56).
Figure 15. Percentage of PPP Projects to Country Infrastructure Investment
The financial authority, i.e. Ministry of Finance and the Financial Service Authority (OJK: Otoritas Jasa Keuangan) for fiscal and monetary policies should work together on this particular issues. The government should send a right signal to the market in order to have a clear policy message on development. Different countries have their specific policy on the cap, or budget ceiling as well as a indicative/definitive budget line to support PPP Projects. In Indonesia, budget treatment is considered in a case-by-case approach, and little provision is made at the upper level (budgetary policy). The government may use both top down or bottom up approach to arrive at a certain consensus on the level of comfort in term of fiscal policy.
2. The need to incorporate PPP planning process into a government budgetary process
So far, budgetary process is leaving PPP projects out of conversations. The regular budget process consider only national and sub national government revenue and expenditure side. With the greater risks and responsibilities given to the government to promote
56
= 22%
46.0
UK
44.0
Thai-land
Brazil South Korea
Rusia India Italy US China Aus-tralia
Ger-many
FrancePortu-gal
44.0 43.0
23.020.0
18.0 17.0 16.012.0
10.0 9.0
3.0
13 selected countries, total budgeted PPP projects until 2012
PPP as a percentage of total historic infrastructure investmentsPercentage (%), by country
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PPP projects, the government, i.e. Ministry of National Development Planning/National Development Planning Agency (Bappenas), will have to start initiating an integration of all infrastructure development, including those undertaken by SOE and under PPP scheme.
This approach requires a longer term perspective planning since the risks and uncertainties in the time schedule for SOE and PPP Scheme are relatively high. Projects are also implemented using longer lead time, as opposed with the annually budgeted projects of the government. Lowest bid practice of the government project often may contradict with PPP project which has a principle of value-for-money and life cycle costing. The government, i.e. Bappenas and MoF begins to understand the different features of the two categories of financing scheme and must start to incorporate into a single budgetary process. At the beginning, the government may use an arbitrary budget to be allocated for PPP projects, but as the experience will suggest, the estimate of the budget can be more accurately placed in the consolidated budget.
3. Capacity of the GCA, especially at local government level
With large and mega projects are carried out using government direct assignment to SOE, private sector is seeking for opportunities in the medium sized-projects (i.e. less than USD 400 million57). The needs for small and medium-sized project for PPP in Indonesia has been identified earlier by Parikesit et.al. (2008) for several reasons. The important cause for promoting small and medium-sized PPP project is to give a learning ground for international investors to engage in the Indonesian PPP framework, for domestic investor and financial institutions to have a level of comfort in working with the government on infrastructure project using PPP scheme, and for the government to have more success stories.
Many of this project types are local government PPP projects in water, waste, and to some extent transportation projects like small port and terminal facilities. IIGF for example has been working extensively with many local governments on the PPP project in water. It is apparent that even until the 3rd Generation of PPP Framework (until 2015, prior Presidential Regulation No. 38/2015), the discussion about PPP is largely undertaken at the national government. The existence of Government Regulation No. 50/2007 that opens up a door for local government to exercise a cooperation agreement with private sector, is implemented in a limited scale and size.
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The needs for GCA at local level to understand, plan, design and execute PPP projects is arguably the critical issue, even before they start to think about introducing PPP for local infrastructure. A nation-wide and structured capacity building58 will be necessary to expose PPP framework to help them making a better decision.
4. Not yet functioning PPP center at the Ministry of Finance, and the future of KPPIP
The newly established Directorate of Government Support and Infrastructure Finance Management at the MoF will be designed as the main PPP node of the Indonesian Government. In the absence of the Deputy of Infrastructure due to reorganization of Bappenas, the existence of PPP center at MoF is even more crucial to ensure the success of PPP in Indonesia. The PPP center can be designed to be similar to the Phillipine model, and may start its taks by developing and issuing an official PPP guidelines and manuals so that both GCA and project proponents can have a similar understanding on PPP framework.
The role of KPPIP should remain an inter-ministerial platform for establishing a
PPP priority list and assist GCA to prepare PPP project proposal. Promotion of the Indonesian PPP market, project’s market soundings exercise and road shows should be jointly organized between KPPIP and the investment board. KPPIP should continue tapping international expertises and at the same time, together with MoF develop local expertise to ensure the increase of national capacity to engage all stakeholders with PPP projects.
5. Government financing flexibility in land acquisition and the presidential regulation No. 30/2015
Presidential Regulation No. 30/2015 stipulates the opportunity for private sectors to pre finance the land acquisition in the case where government funding is not yet available. This regulation is the third ammendment of the operational guideline for the land acquisition in infrastructure development, mainly implemented through PPP framework. The important feature of this regulation is on the article 117A as follows.
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method.
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(1) Funding Land Acquisition for Public Interest can be sourced from Business Entities that require land under the (PPP) agreement, which is acting on behalf of state institutions, ministries, government agencies, provincial governments, and / or the district / city governments .
(2) Land Acquisition financing by enterprises as referred to in paragraph (1) be paid back by the state institutions, ministries, non-ministerial government agencies, provincial governments, and / or the district / city government through the state budget and / or budget after the land acquisition process is completed .
(3) The repayment referred to in paragraph (2) may be calculated as a part of return on investment.
The above article poses two issues, both technical and conceptual.
The technicalities in recovering the cost of land acquisition has to be described in a great detail to avoid moral hazards. The eligibility of costs components to be recovered by the government should be listed in an explicit and transparent manner. This will be a cumbersome process and might pose a risk of dispute over the recoverable costs. Conceptually, this regulation might contradict with the Land Acquisition Law No. 2/2012 which is based on the argument that land acquistion has to be the responsibility of the government and treated as a government part in a PPP deal. If the repayment of land acquistion costs borne by the private sector is considered in the costs of services, i.e. transferred to user in the form of user charge, then the user will be the one that absorb the sunk-cost of land acquisition, not the government.
In the one hand, all investors are aware of the rigid and lengthy procedure for allocating government budget for land acquisition, but on the other hand the use of private funds might expose the project on the moral hazard and might be conceptually incorrect.
The solution of this issue lays on the capability of the goverment to establish a list of eligible recoverable costs, to maintain integrity for the unit responsible for valuation of actual and acceptable land acquisition costs, and the elimination of the paragraph (3) of the article 117A to avoid misconception of the goverment responsibility to acquire land for infrastructure.
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6. Consolidation of procurement process for TIP and PPP
Traditional investment project (TIP) is governed by Presidential Regulation No. 4/2015 as the 4th ammendment of the PR 54/2010. The implementation of TIP is safeguarded by Government Procurement Policy Institute (abbreviated LKPP in Indonesian language)– a government institute mandated to oversee the government procurement. LKPP also trains and issue certificate of procurement officers.
Meanwhile the most recent regulation on PPP is the Presidential Regulation No. 38/2015. Both of categories are going through different procurement processes. This often confuses GCA which is already more familiar with traditional procurement. The proposal is to empower LKPP to undertake the same oversight role for procurement in PPP projects. This consolidation will enable gatekeeping role in procurement process becoming more effective. LKPP can also issue accreditation of training centers for PPP procurement officers, in the same credibility as the training for TIP procumenent officers.
7. Issues in the concession agreement design, renegotiation and dispute settlements
PPP projects often suffer from incomplete contract. Incomplete contract means that the PPP agreement in the form of concession and obligations for each parties might be subject to unforeseen risks. The risks occur because of the inability of the parties to identify the risks and their associated mitigation actions, or the occurence of risks not considered during the planning and construction stage. Risk profile of the project will keep changing along the duration of concession. The lessons learned from BOX 4 reveal that the PPP contract should allow the exposure of risks to be structured, allocated and mitigated throughout the concession period. Failing to identify this issue will create a non-conducive business environment and poor relationship between government agencies and private investors.
When the government decides to consolidate procurement process for TIP and PPP
projects, LKPP will be an ideal candidate for hosting the renegotiation of concession contract and dispute settlement. With a designated quarter for renegotiations and dispute settlements, both private sector and GCA will understand where they should go in such unlikely events.
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8. Toward the establishment of Indonesia infrastructure bank vis-à-vis the need for equity support and guarantee
The SMI has recently received a significant state capital injection and transfer of assets from Government Investment Centre. It is expected that SMI (and IIF) would play a role in financing Indonesia’s infrastructure. Which part is SMI going to allocate their funds? In the equity component or in the loan component of the project. This question is still relevant until today given the current portfolio of SMI is heavily skewed toward commercial loan for working capital. The participation of SMI as a project sponsor, that carries risks throughout concession period is very limited (if not none), due to stringent rules and regulations set forth by its stakeholder, that is the MoF.
This idea for creating an infrastructure bank or financial institution that seeks funds from institutional investors to be utilized to provide loans to infrastructure projects is seen as diversion to respond to the lack of support to project developers. A financial model that allow project sponsors to partner with SMI and other AAA-rated equity financiers will increase the succes of project transaction.
The availability payment scheme stipulated in the Presidential Regulation No. 38/2015 certainly requires further homework, including developing an operational guideline on how to apply for such facility and the role of IIGF to guarantee government compliance to to fulfil its payment obligation.
9. The re-emergence of the role of SOE in the Indonesia infrastructure market
The current administration is betting for its infrastructure development on the hand of its State Owned Companies (SOE). Not only conventional infrastructure operators are forced to invest in longer term infrastructure assets, but other companies such as government service/contracting companies are encouraged to diversify their business. Recently, the Minister of SOE signed an MoU with Chinese NDRC (National Development and Reform Commission) to engage China and Chinese Corporations to invest in Indonesia, through G2G, G2B, or B2B arrangements. A decision to convert the planned PPP project for Airport Link with the modified PPP project (a PPP project with a stand by/non-competitive portion SOE) is an example of various infrastructure projects to be implemented. Other mode of delivery includes a direct assignment to SOE to implement projects, i.e. ports, airports, high speed rail, and partners those SOE with their foreign counterparts.
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While this model may answer a timeline issue in PPP projects, it will probably send a wrong market signal to global investors. The Indonesian government needs to seek the way to best place its SOE in the infrastructure market.
10. PPP policy review process, repository of Indonesia’s experiences, public information disclosure for PPP plan and contracts
The area of which Indonesian PPP framework has not putting its attention is on the public disclosure of the procurement process and concession contracts. While other countries such as Australia has already publish their PPP contract for public review, such documents are still regarded in Indonesia’s business practice as a private property.
Another issue that Indonesian government should put more efforts is the documentation of success and failures of PPP projects. While in some extent IIGF Institute has started to pioneer this exercise, the government should establish an institution to house experiences throughout the evolution of Indonesian PPP, from the 1st generation until the 5th generation of PPP.
11. Creating a network of excellence for Indonesia’s infrastructure development and PPP policy
With the huge demand for infrastructure investment, the country will require all back ups available to ensure the success of policy implementation. The Indonesia Infrastructure Initiative (IndII) has just recenty completed a commitment survey to establish a multi-partner center for infrastructure (Duffield, 2015). They requested industry leaders and government officials to reconfirm their commitment to support the center. The result was promising with the majority of respondents gave their promises to continue support such an independent center when it is established.
Figure 16. Core Function of the 3IDE (Indonesia Institure for Infrastructure Development)
Integrating & Supporting diverse stakeholders -
Jakarta & beyond
Professional Skill DevelopmentNew Research
& Studies
Knowledge exchange,communication & dissemination
Independent analysis & peerreview of plans, policies
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Another initiative from the IIGF Institute that needs to be supported is the attempts to engage universities into curriculum development in PPP. Large universities have entered into MoU with IIGF to undertake research and teaching programs in PPP. Creating a mass of experts and advisers will also be critical to PPP projects leading to transaction and physical implementation of the projects. Formation of professional society in PPP will be an initial step toward meeting the competence standard of a global PPP experts.
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MAIN REFERENCESBooks and Published Reports
OECD, 2013, OECD Reviews of Regulatory Reform Indonesia Public-Private Partnership Governance: Policy, Process, and Structure, September 2013.
BAPPENAS, 2012, “Public-Private Partnership” Infrastructure Projects Plan in Indonesia 2012 published by Ministry of National Development Planning/National Development Planning Agency, Jakarta.
BAPPENAS, 2013, “Public-Private Partnership” Infrastructure Projects Plan in Indonesia 2013 published by Ministry of National Development Planning/National Development Planning Agency, Jakarta
BAPPENAS/JICA, 2013, Medium Term Economic Infrastructure Strategy: Background Study for RPJMN 2015 – 2019, Jakarta.
IIGF Institute, 2014, Kompendium Rekomendasi Kebijakan Infrastruktur: Kajian Studi Kasus Indonesia Infrastructure Roundtable 2013-2014, Kerjasama antara Universitas Indonesia, Institut Teknologi Bandung, dan Universitas Gajah Mada, Jakarta.
Journals, Research and Working Papers
Agustiyanti, 2011, MP3EI Infrastructure Support: Private Sector to Contribute Rp 100 Trillion per Year, Indonesia Infrastructure Initiative, 24 November 2011 in Strategic Asia for the UK Foreign Commonwealth Office, “PPP (Public-Private Partnerships) in Indonesia: Opportunities from the Economic Masterplan”, presented in June 2012, p 9.
Duffield, Colin, 2015, A New Multi Partner Indonesia Centre for Infrastructure: Commitment Survey Finding, IndII, Jakarta.
Edi Can, 2012, Govt to launch 84 projects worth Rp 536 trillion, Kontan in Strategic Asia for the UK Foreign Commonwealth Office, “PPP (Public-Private Partnerships) in Indonesia: Opportunities from the Economic Masterplan”, presented in June 2012, p 10.
Hadjar Seti Adji, Mendorong Investasi Infrastruktur di Indonesia, Investor Daily, 9 March 2012 in Strategic Asia for the UK Foreign Commonwealth Office, “PPP (Public-Private
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Partnerships) in Indonesia: Opportunities from the Economic Masterplan”, presented in June 2012, p 8.
Parikesit, Danang, Purwo Santoso, Harya Setyaka, and Restu Novitarini, 2008, WP07 Indonesian Local Government Perspectives On Public Private Partnership and the Needs of Capacity Building, PUSTRAL UGM for AIGRP Funded Project, ANU.
Oxford Business Group, 2012, At the Center of Attention, The Report Indonesia 2012, p. 35 in Strategic Asia for the UK Foreign Commonwealth Office, “PPP (Public-Private Partnerships) in Indonesia: Opportunities from the Economic Masterplan”, presented in June 2012, p 10.
Presentation
Strategic Asia for the UK Foreign Commonwealth Office, 2012, PPP (Public-Private Partnerships) in Indonesia: Opportunities from the Economic Masterplan, presented in June 2012.
Strategic Asia for the UK Foreign Commonwealth Office, 2012Indonesia’s Structural Reform Priorities, paper presented in APEC Residential Workshop Training on Structural Reform, Singapore, August 2011 in Strategic Asia for the UK Foreign
Commonwealth Office, “PPP (Public-Private Partnerships) in Indonesia: Opportunities from the Economic Masterplan”, presented in June 2012.
Internet
http://www.antaranews.com/en/news/96567/jokowi-leads-cabinet-meeting-focuses oninfrastructure-development
http://www.establishmentpost.com/jokowis---nine---priorities---agenda---nawa---cita
http://www.ptsmi.co.id/content/frequently---asked---questions/
http://www.fiskal.depkeu.go.id/webbkf/kolom/detailkolom.asp?NewsID=N119258959
http://repository.ugm.ac.id/97161/1/Alokasi%20Risiko%20Dalam%20Proyek%20KPS.pdf
http://www.iigf.co.id
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ANNEX 1: PPP Regulations prevail in Indonesia until 2015
No non PPPCross Sectoral Other Relevant
1No. 38 of 2015 concerning
Government and Business
of Infrastructure that
No.56 of 2011, and
No.66 of 2013 concerning
Government and Business
of Infrastructure
Toll Road:Law No. 38 of 2004 concerning Road -
No. 15 of 2005, No. 44 of 2009, No. 43 of 2013 concerning Toll Road
of Public Works No. 13 of 2010 concerning Guidelines for Procurement Concession of Toll Road
Law No. 2 of 2012 concerning Land Procurement for
Development for Public Interest
Law No. 17 of 2008 regarding State Monetary
2No. 75 of 2014 on
Provision of Priority Infrastructure
Energy:Law No. 27/2003 concerning Geothermal Energy.Government
59/2007 concerning Geothermal Business
No. 30 of 2015 concerning Amendment
2012 on Organizing Land Procurement for the Public Interest
Law No. 25 of 2007 regarding Capital Investment
3No.78 of 2010 concerning Guarantee of Infrastructure in
Project with Business
done through Infrastructure Guarantee Agency
Waste:Law No. 18/2008 regarding Waste ManagementGovernment
2012 regarding
of 2010 regarding Guidelines for Waste Management
No.38 of 2008 concerning Amendment of
No 6 of 2006 concerning State Owned Enterprises / Regional Owned Enterprises Assets Management
No. 70 of 2012 which
concerning Government Goods/Service Procurement
85
No non PPPCross Sectoral Other Relevant
4No. 12 of 2011 concerning Amendment
No. 42 of 2005
of Infrastructure
Electricity:Law No. 30 of 2009 concerning ElectricityLaw No. 15 of 1985 concerning ElectricityGovernment
2012 regarding Electric Power Supply Business
No. 1 of 2008 regarding Government Investment
80 of 2003 concerning Government Goods/Service Procurement
5
Development Planning/
Development Planning Agency No. 3 of 2012 on General Guidelines
Government and Business
Infrastructure"
Oil and Gas:Law No. 22 of 2001 concerning Oil and Natural GasGovernment
2004, 30 of 2009 concerning Downstream Oil and Natural Gas Business
Government
of 2004, 55 of 2009 concerning Upstream Oil and Natural Gas
No. 50 of 2007 concerning
Procedures of Regional
6
Development Planning/
Development Planning Agency No. 6 of 2012 on
List Infrastructure Project Plan
Law No. 36 of 1999 concerning
No. 38 of 2007 regarding
86
No non PPPCross Sectoral Other Relevant
7Minister of Finance No.223/PMK.011/2012 concerning Support
Between The Government
Infrastructure Provision
Airport: Law No. 1 of 2009 on
Government
2012 regarding Airport
Environment
No. 65 of 2006 regarding Land Procurement for The
Development for Public Interest
8Minister of Finance No.260/PMK.011/2010 concerning The
of Infrastructure Guarantee PPPs"
Railway:Law No. 23/2007 regarding railwaysGovernment
No.56 of 2009 regarding Railway Provision
of 2009 regarding Guidelines on Procedure for Regional
9
2010 regarding Guidelines Manuals for PPPin
Drinking-Water:Law No. 7 of 2004 concerning Water ResourcesGovernment
2005 regarding Development of Drinking-water Supply System
of Public Works No.12/PRT/M/2010 regarding Guidelines of
Development of Drinking-water Supply System
10 Sea Transport and Port:Law No. 17 of 2008Government
2009 regarding Port
87
ANNEX 2: List of PPP Portfolio in 2013 (The latest book of PPP)
No. List of projects Project value (USD) User fee GovernmentMix of User
Fee andGovernment
Leasing
1 Integrated of Gedebage
(Railway), Bandung, West Java
133.00 million
2
of Malioboro, DI Yogyakarta
828.63 million
3 Consolidated Urban Development, Banda Aceh
1.60 million
4 Strategic Infrastructure and Regional Development of Sunda Strait
25,000.00 million
5 Manado-Bitung Toll Road, North Sulawesi
353.00 million
6 Tanjung Priok Acces Toll Road, DKI Jakarta
612.50 million
7 Balikpapan-Samarinda Toll Road, East Kalimantan
1,200.00 million
8 Kayu Agung –Palembang – Betung Toll Road, South Sumatera
836.15 million
9 Pondok Gede Water Supply, Bekasi, West Java
20.00 million
10 Southern Bali Water Supply, Bali
218.84 million
11 Solid WasteTreatment and Final Disposal – Bogor & Depok Area, West Java
40.00 million
12 Solid WasteTreatment and Final Disposal – Surakarta, Central Java
30.00 million
13 Karama Hydro Power Plant, West Sulawesi
1,335.00 million
88
No. List of projects Project value (USD) User fee GovernmentMix of User
Fee andGovernment
Leasing
1 Development of Maloy
Kalimantan
1,780.00 million
2 Expansion of Tanjung Priok, Port, Cilamaya, Karawang, West Java
1,135.59 million
3 Expansion of Tanjung Sauh Port, Batam, Riau Island
805.8 million
4 Development of New Bali, Airport, Bali
510 million
5 Kulon Progo
DI Yogyakarta
500.00 million
6 Development of South Sumatera Monorail
550.00 million
7 Mass Rapid Transport Surabaya, East Java
1,170.00 million
8 Bandung Monorail Project, West Java
2,868,040,000
9 Cileunyi- Sumedang – Dawuan Toll Road, West Java
1,015.80 million
10 Pandaan-Malang Toll Road, East Java
420.00 million
11 Pasirkoja-Soreang Toll Road, West Java
210.00 million
12 DKI Jakarta Sewage Treatment Plant
173.5 million
89
ANNEX 3: Summary of Public Private Partnerships Projects byContracting Agency in 2012
No. Sector/Sub-sector Project Cost (USD Million)1
Central Government 2 664.00
Local Government 1 100.00
2 Priority Projects
Central Government 13 32,159.53
Local Government 10 2,788.17
3
Central Government 10 6,597.12
Local Government 22 8,897.15
Total 58 51,205.97
90
ANNEX 4: List of PPP Portfolio Projecs Already Tendered in 2013
No. Project Name Status Per October 20131 Central Java Coal Fired Power
PlantDevelopment of power plant in
Central Java approximately 2,000 MW.
The Government has established
the project development
Guarantee agreement has been completed
6 October 2014
2 Umbulan Water Supply, East Java
Development of bulk water supply system (4,000I/s) and
transmission pipeline (106 km).
biddersGovernment Support and Guarantee are being prepared
3 Puruk Cahu – Bangkuang Coal Railway
Development of a dedicated
Central Kalimantan Province from Puruk Cahu to Bangkuang and eventually onwards to the
Coal Port in Lupak Dalam
4 Bandar Lampung, Water Supply, Lampung
Development of bulk water and
Sekampung River; water treatment to achieve the required quality
standard; and bulk supply of 500I/sprocessed water to the point of
PQ has been implemented on
biddersIn the process of obtaining Viability Gap Fund and Government Guarantee
5 Maros Regency Water Supply, South Sulawesi
Development of bulk water and provision of water supply
services to Regency of Maros. This project entails the development
of an intake of 280 I/s, raw water transmission for 200 m, WTP with a capacity of 250 I/s, service reservoir of 1,500 m3,
and Industrial Area Moncongloe, with a capacity of 3,000 m3.
PQ has been implemented twice
raw water source issues.
6 Kemayoran – Kampung Melayu Toal Road
Development of toll road in DKI Jakarta from Kemayoran
to Kampung Melayu (9.65 km)
Preferred bidder announced on 26 September 2012 with
Development as the winner.
91
No. Project Name Status Per October 20137 Sunter – Rawa Buaya – Batu
Ceper Toll RoadDevelopment of toll road in DKI Jakarta from Sunter to
Batuceper (22.92 km)
Preferred bidder announced on 26 September 2012 with
Development as the winner.
8 Ulujami – Tanah Abang Toll Road Development of toll road in DKI Jakarta from Ulujami to
Tanah Abang (8.27 km)
Preferred bidder announced on 26 September 2012 with
Development as the winner.
9 Pasar Minggu – Casablanca Toll Road
Development of toll road in DKI Jakarta from Pasar Minggu to Cassablanca (22.92 km)
Preferred bidder announced on 26 September 2012 with
Development as the winner
10 Sunter – Pulo Gebang – Tambelang Toll Road
Development of toll road in DKI Jakarta from Sunter to
Tambelang (25.73 km)
Preferred bidder announced on 26 September 2012 with
Development as the winner.
D19
11 Duri Pulo – Kampung Melayu Toll Road
Development of toll road in DKI Jakarta from Duri Pulo to Kampung Melayu (11.38 km)
Preferred bidder announced on 26 September 2012 with
Development as the winner.
D19
12 Nusa Dua – Ngurah Rai – Benoa Toll Road
Development of toll road in Bali Province from Nusa Dua to
Benoa (11.38 km)
PT Jasamarga Bali Tol as SPV
2013
13 Tanah Ampo Terminal Cruiseterminal to accomodate 2 large
to accomodate cruise ship up to 300m length
Re-announcement of PQ on May 6 2013 with document submission deadline on July 1, 2013
14 Medan – Kualanamu – Tebing Tinggi Toll Road
Development of toll road in North Sumatera from Medan –Kualanamu
– Tebing Tinggi (61.30 km)government support started on December 2012PQ has been implemented in February 13 2013 with four
Bidding document and Government Guarantee are being prepared
92
No. Project Name Status Per October 201315 Solid Waste Management
Improvement Project, Bandung Municipal
Development of waste treatment
output as electricity
Preferred bidder announced on August 14, 2013 with
Indah Lestari and Hangzou Boiler Co. as the winner.Contract signing upcoming H19.
16 Serpong – Balaraja Toll Road Development of Serpong- Balaraja for 36.30 km that will connect
Jakarta – Serpong Toll Road and Tangerang – Merak Toll Road
PQ has been implemented with
February 13, 2013)Bidding document is being prepared
17 South Sumatera 9 Mine Mouth Coal Fired Steam Power Plant
Development of Coal Fired Power Plants 2x600 MW in South Sumatera province.
PQ has been implemented with
Preparing for Guarantee
to BUPIRFP has been issued on August 1, 2013
18 South Sumatera 10 Mine Mouth Coal Fired Steam Power Plant
Development of Coal Fired Power Plants 1 x 600 MW in South Sumatera province.
PQ has been implemented with
Preparing for Guarantee
to BUPIRFP has been issued on August 1, 2013"
19 West Semarang Municipal Water Supply, Central Java
Development of new water supply system in Western area
new WTP with capacity of
EOI announced on July, 2013
prepared
20 Lamongan Regency Water Supply, East Java
Development of water supply system to serve the northern area
of Lamongan Regency, or the PANTURA
EOI announced on August 19,
prepared
21 Batam Solid Waste, Riau Island Reducing the solid waate September 5, 2013
93
ANNEX 5: PPP List of Unsolicited Projects within 2010-2015
No. Projects Project CostYear of
Contract Signing
1 Tanjung Enim – Tanjung Api-Api Railway, South Sumatera
USD 1.67 billion 2010Tanjung Enim and Tanjung Api port in South Sumatra (270 kms track) The track and terminal would have a capacity to transport up to 35 million tons of coal a year from PT Bukit Asam’s Tanjung Enim Apart from the railway track and coal terminal, the project would also include the development of a port worth 8 trillion IDR and an industrial zone worth 54.27 trillion IDR
2 Southern Bali Water Supply, Bali USD 218.84 million
2013 This project will be located in
at Denpasar Municipal, Badung Regency, Klungkung Regency, and Gianyar Regency. To supply water in Southern Bali, there will be three water sources, Tukad Unda, Tukad Penet, and Tukad Petanu. This project will provide raw water supply with capacity 1,000 I/s to meet
The Southern Bali Water Supply Project will cover:
Water Treatment PlantReservoir
and Maintenance of WTP
94
No. Projects Project CostYear of
Contract Signing
3 Pekanbaru Water Supply, Riau
USD 33.53 million
2015 Water supply in Pekanbaru
Pekanbaru, is provided by the PDAM. However, rapid
Pekanbaru Municipality and Kampar Regency has outstripped the availability of drinking water. The project will extract raw water from the Kampar river, to be treated in a water treatment plant to meet water demand in South Pekanbaru and a part of Kampar.Scope of Works:
Intake and raw water transmission lineWater Treatment Plant 1,000 I/sReservoir and main
95
ANNEX 6: List of Infrastructure Investment, by sector (1990 – 2014)
Year of vestment
Energy Telecom Transport Water and Sewage
Total NumberNumber of
Projects
Amount of investment in Projects by Primary Sector (USD Million)
Number of Projects
Amount of investment in Projects by Primary Sector (USD Million)
Number of Projects
Amount of Investment in Projects by Primary Sector (USD Million)
Number of Projects
Amount of Investment in Projects by Primary Sector (USD Million)
1990 0 0 0 0 1 116 0 0 1161991 0 0 0 0 2 11 0 0 111992 1 137 0 0 2 115 0 0 2521993 0 0 1 250 2 352 0 0 6021994 2 596 1 1,249 6 27 0 0 1,8711995 1 2,470 4 1,804 5 503 1 200 4,9771996 6 3,204 8 3,694 0 0 0 0 6,8981997 4 2,725 0 1,511 0 0 3 123 4,3591998 1 330 0 579 0 0 2 632 1,5411999 0 125 0 1,260 2 1,028 0 0 2,4132000 0 0 0 642 0 0 0 0 6422001 0 0 1 1,421 0 0 1 37 1,4582002 1 188 0 1,322 0 0 1 0 1,5092003 3 829 2 940 1 0 0 0 1,7692004 2 158 0 895 2 159 1 8 1,2202005 1 32 0 1,538 0 0 0 0 1,5702006 6 662 0 1,476 1 372 0 20 2,5302007 0 423 0 3,517 5 1,140 1 0 5,0792008 4 2,885 0 2,876 0 0 0 0 5,6712009 0 0 0 2,976 1 220 0 0 3,1962010 2 2,300 0 1,846 0 0 0 0 4,1462011 2 366 0 2,102 0 0 0 0 2,4682012 3 288 0 2,664 4 1,989 1 15 4,9552013 3 1,931 1 1,772 0 0 1 140 3,8422014 2 1,651 0 0 0 0 0 0 1,651Total 44 21,299 18 36,331 34 6,030 12 1,175 64,835
96
ANNEX 7: Infrastructure Investment by Sub-sector (1990 – 2014)
Sector Sub-sector Number of Projects
Total Investment(USD Million)
Energy Electricity 42 20,580
Natural Gas 2 719
Total Energy 44 21,299
Telecom Telecom 18 36,331
Total Telecom 18 36,331
Transport Roads 27 4,510
Seaports 7 1,519
Total Transport 34 6,030
Water and sewage Treatment plant 7 286
5 889
Total Water and sewerage 12 1,175
Total 108 64,835
