Gov't Pins Hope on PPPs to Lure the Private Sector Into Infrastructure Initiatives


MAY 06, 2017

Yokohama. Indonesia is now much better prepared to tap into private sector financing to help develop national infrastructure projects, thanks to new initiatives put in place over the last decade to facilitate public-private partnerships, or PPPs.

Those initiatives include the creation of a national land bank in 2015 and established land acquisition frameworks to facilitate investments in infrastructure development projects.

The government also established the Indonesia Infrastructure Guarantee Fund, which is specifically designed to compensate investor loss stemming from a change in national policies.

"These initiatives started 10 years ago when I was first finance minister, and I am back now, and am pleasantly surprised many of these policies have continued to be developed and have already achieved significant results," Finance Minister Sri Mulyani Indrawati said to business leaders and foreign officials at the 50th annual meeting of the Asian Development Bank (ADB) in Yokohama, Japan, on Friday (05/05).

The government also established an infrastructure investment arm in recent years, called Sarana Multi Infrastructure, to develop projects and attract foreign investments to new infrastructure proposals.

"We always talk about our need for more infrastructure projects, but no one has really developed the projects in a way so that they [...] can attract funding from the private sector," the minister said.

Most Asian countries, including Indonesia, have risen to become middle income economies in recent decades, reflecting an increase in public wealth and resulting in greater demands for better infrastructure, said Bambang Susantono, vice president for knowledge management and sustainable development at the Asian Development Bank.

"Many in Indonesia have begun demanding potable water, not just clean water. They also want comfortable transportation systems," he said.

According to Bambang, Indonesia can implement public-private partnerships relatively easier compared with other countries in the region.

President Joko "Jokowi" Widodo previously declared infrastructure development as one of his administration's top priorities in coming years. Under Jokowi's leadership, the government abolished subsidies on gasoline and reduced others on diesel in 2015 to funnel public funds into infrastructure developments.

However, the government can only afford to fund 40 percent of the nearly $400 billion needed to build new power plants, toll roads, airports, sea ports, railways, dams, sanitation and clean water projects across the archipelago by 2019.

Still, only seven public-private partnerships have resulted in infrastructure investments since 2010, including the Umbulan water treatment project and the Batang power plant, both in Central Java.

Minister of National Development Planning Bambang Brodjonegoro said, however, that those partnerships started gaining momentum at the same time the government unveiled flexible financing schemes for private investors. One of those projects is up for tender this year, while 21 others – worth an estimated $8.1 billion – should be ready to accept new investments by the end of the year.

"Now, we determine financial sources in the budgeting planning stage [of infrastructure developments], whether a project plans to utilize public-private partnerships, the state budget or private sector funding," the minister said, adding that he plans to restrict ministries from using state funds to finance projects attractive to the private sector.

Bambang said that multinational development banks like ADB play an important role in conducting feasibility studies for public-private projects in Indonesia and bolster the country's capacity to finance such projects.

Earlier on Thursday, ADB introduced two initiatives to improve public-private partnerships in the Asia-Pacific region.

Under the Infrastructure Referee Program, ADB will settle disagreements between public and private parties that may arise over the course of a development project. The second initiative, known as the PPP Monitor, will provide country-specific information to potential private sector investors.

The Jakarta Globe was in Yokohama on ADB's invitation.