RISK MANAGEMENT IN TRANSPORT PPP PROJECT IN INDONESIA

MINISTRY OF TRANSPORTATION

REPUBLIC OF INDONESIAANKARA, 3 OCTOBER 2019

FINANCING INFRASTRUCTURE DEVELOPMENT 2020-2024

444.564.054,55 USD

164.512.842,53USD

93.327.411,30 USD

186.723.800,72USD

1. Makassar Pare-pare Railway

1. Komodo, Airport

1. The Development of Ferry Port in West Papua Province

1.TOD Poris Plawad, Tangerang (unsolicited)

2.Bau Bau Port3.Proving

Ground BPLJSKB Bekasi

Preliminary study

Outline Business Case(OBC)

Final Business Case(FBC)

PQ Request forProposal

Bid AwardPPP Agreement

SigningFinancial Close

TenderPreparation

1. The Development of Ferry Port in West Papua Province

2. Motor Vehicles Weighing Facilities in Sumatera and Java Island

3. Development of Mengwi Terminal Type A

4. Anggrek Port 5. Wanci Port 6. Banggai Port 7. Belang-belang Port 8. Kaimana Port 9. Serui Port 10. Saumlaki Port 11. Labuan Bajo Port 12. Namlea Port 13. Tahuna Port 14. Tobelo Port 15. Dobo Port 16. Pomako Port 17. Siantar-Parapat Railway18. Tanjung-Banjarmasin Railway19. Bandung City Railway20. Kertajati Airport Railway21. Maminasata Railway22. Lahat-Tarahan Railway23. Cibungur - Tanjung Rasa Railway24. Mengwitani – Singaraja Railway 25. Medan – Binjai – Deli Serdang

Railway26. LRT Cibubur – Bogor 27. MRT Service Extension28. Jakarta Elevated Loop Line 29. TOD JatiJajar30. TOD Baranangsiang 31. TOD Pondok Cabe 32. New Bali Airport 33. Singkawang Airport 34. Juwata Tarakan Airport

PLANNING PREPARATION TRANSACTION CONSTRUCTION OPERATION

PPP PROJECT IN TRANSPORTATION SECTOR

4 Projects

14 Projects

8 Projects

13 Projects

Airport

Port

LAND & BPTJ

Railway

36

TOTAL 40 PROJECTS

THE IIGF’s ROLE IN INFRASTRUCTURE PROJECT DEVELOPMENTThroughout PPP Process

TYPICAL RISK ALLOCATION COVERED BY IIGF

SCOPE OF ACTIVITIES IN RISK MANAGEMENT

RISK IDENTIFICATION• Project risk is any event that might occur that could

cause Project losses and / or project stakeholders• Every project has project risks, both those that are

undertaken by the Government itself or Cooperated with business entities

• The risk identification process is carried out in all aspects: legal, technical, financial, economic, social cultural, environmental and political

Risk Identification

Risk Assessment / Evaluation

Risk Allocation

Risk Mitigation Plan

The main activities of

risk management

RISK IDENTIFICATIONPlanning

Preparation

Transaction

Construction

Operational

There are risks at every stage of the project, so it needs to be identified from the beginning so that they can be managed according to each stages

• Location risk• Design, construction

and operation test risks

• Sponsor risk• Financial risk• Surgical risk• Income risk

• Network connectivity risk

• Interface / interface risk

• Political risk• Force majeure risk• Asset risk

Risk categories based on the results of project identification can be grouped as

follows:

a. The value or amount of risk depends on twofactors:• The frequency or probability or

possibility of occurrence of risk.• Impact or amount of loss if risk occurs.

b. Assessment can be done in a qualitative orquantitative way.

c. The results can be plotted into the RiskImpact Matrix.

RISK ASSESSMENT / EVALUATION

Possibility

The Consequences

Not important

Light Medium Big Serious

Almost certain

Medium Medium High High Highest

Very likely Low Medium Medium High Highest

Likely Low Medium Medium High High

Rare Low Low Medium Medium High

Unlikely Low Low Low Medium Medium

RISK ALLOCATION

The purpose of risk allocation:Provide incentives for the party (Government or Business Entity) who is most efficient at managing risk.The result is that project risk costs will fall.

The principle of risk allocation:Every risk must be allocated to those who:Have a better ability to control the possibility of riskHave a better ability to manage the impact of the riskHave the ability to bear the risk with the lowest risk cost

The result of the risk allocation analysis is the risk allocation matrix.

The process of determining the risk allocation:

First study Consultation PJPK stipulated

Consideration:

a. Matrix Simulation Of Risk Allocation b. Continuity of a projectc. Generate a lower risk premium and lower project costs so that it has a positive impact on the project stakeholders

Example of a mitigation and risk management plan table in a project.

Mitigation and Risk Management Plan

Risk Categories and Risk Events

Description Public Private TogetherMitigation

Strategies According to Best Practice

Location RiskDelay and increase in land acquisition costs

Delay and increase in costs due to the prolonged land acquisition process

√

The government provides project land before the procurement process

Land cannot be acquired

The failure to obtain the project land location because of the prolonged land acquisition

√

Clear legal status and procedures for project land acquisition

Difficulties in unexpected location conditions

Delay due to uncertainty of location conditions

√

Historical data on land use and land investigations

RISK, DESIGN, CONSTRUCTION, AND OPERATION TESTConstruction completion is too late

include delayed access to location √

Reliable contractor and standard contract clauses

Increase in construction costs

√

Agreement on certain price escalation factors in the contract

SPONSOR RISKPoor sub-contractor performance √

Credible sub-contractor selection process

Business entity default

Business entity default that leads to termination / step in by financier

√

The consortium is supported by credible and solid sponsors

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MINISTRY OF TRANSPORTATIONREPUBLIC OF INDONESIA

Jl. Medan Merdeka Barat 8 N0. 8, Jakarta Pusat 10110Tlp : +6213504601

Fax : +621 3504601