Report and Recommendation of the President to the Board of Directors

Project Number: 48134-001 September 2014

Proposed Programmatic Approach and Policy-Based Loan for Subprogram 1 Republic of Indonesia: Stepping Up Investments for Growth Acceleration Program Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS (as of 3 September 2014)

Currency unit – rupiah (Rp)

Rp1.00 = $0.00008

$1.00 = Rp11,726

ABBREVIATIONS ADB – Asian Development Bank BKPM – Badan Koordinasi Penanaman Modal (Indonesia Investment

Coordinating Board) BPN – Badan Pertanahan Nasional (National Land Agency) GCA – government contracting agency GDP – gross domestic product MOF – Ministry of Finance NPPA – National Public Procurement Agency PPP – public–private partnership PSU – Procurement service unit RIDF – Regional infrastructure development fund TA – technical assistance

NOTE

In this report, "$" refers to US dollars

Vice-President S. Groff, Operations 2 Director General J. Nugent, Southeast Asia Department (SERD) Director S. Hattori, Public Management, Financial Sector and Trade Division,

SERD Team leader R. Hattari, Public Management Economist, SERD Team members P. Aji, Senior Economics Officer, Indonesia Resident Mission (IRM),

SERD A. Gill, Senior Country Specialist, IRM, SERD

A. Haydarov, Public–Private Partnership Specialist, SERD R. Lacson, Operations Assistant, SERD N. Mardiniah, Safeguards Officer (Resettlement), IRM, SERD A. Musa, Financial Management Specialist, SERD

C. Roos, Operations Assistant, IRM, SERD D. Simanjuntak, Project Officer, IRM, SERD O. Suyatmo, Procurement Officer, IRM,SERD

S. Zaidansyah, Senior Counsel, Office of the General Counsel Peer reviewers R. O’Sullivan, Lead Financial Sector Specialist, South Asia Department

S. Sampath, Principal Urban Development Specialist, Regional and Sustainable Development Department

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

PROGRAM AT A GLANCE

I. THE PROPOSAL 1

II. THE PROGRAM 1

A. Rationale 1 B. Impact and Outcome 4 C. Outputs 4 D. Development Financing Needs 8 E. Implementation Arrangements 8

III. DUE DILIGENCE 9

A. Economic 9 B. Governance 9 C. Poverty and Social 9 D. Safeguards 9 E. Risks and Mitigating Measures 10

IV. ASSURANCES 10

V. RECOMMENDATION 10 APPENDIXES

1. Design and Monitoring Framework 11

2. List of Linked Documents 14

3. Development Policy Letter 15

4. Policy Matrix 19

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on (i) a proposed programmatic approach for the Stepping Up Investments for Growth Acceleration Program, and (ii) a proposed policy-based loan to the Republic of Indonesia for subprogram 1 of the Stepping Up Investments for Growth Acceleration Program.1 2. The program will support the Government of Indonesia’s key reform priorities aimed at accelerating domestic and foreign direct investment to enable the country to reach its average medium-term economic growth target of 7%–9% per annum for the next 10 years. The reform priorities include a more predictable and open business environment, diversified modalities of infrastructure financing, and faster and more transparent public procurement. The program reflects the government’s bottom-up and lessons-learned approach in reform design and implementation to ensure policy coherence among agencies and different tiers of government.

II. THE PROGRAM A. Rationale 3. Indonesia has a large investment requirement. Given the country’s robust annual growth of 6.2% during 2010–2013 and the increasing magnitude of the middle class, total direct investments grew from $23 billion, or 3.2% of gross domestic product (GDP), in 2010 to $41 billion, or 4.7% of GDP, in 2013, with 75% of these investments from foreign sources.2 Surveys of the private sector entities also confirm the robust attitude toward investment in Indonesia. Internationally, for the first time since 1992, Indonesia is considered one of the most promising countries to do business.3 The potential for future growth in local markets, low labor cost, a steady supply of assemblers, and concentration of industry contribute to the private sector’s positive view of investing in Indonesia. However, challenges remain in unleashing Indonesia’s investment potential. 4. Increasing investment is needed for Indonesia to achieve its long-term growth objectives, including becoming one of the world’s 10 largest economies by 2025, as outlined in the economic master plan.4 Attaining these objectives requires the gross investment ratio to rise above Indonesia’s average gross investment to GDP ratio of 26% achieved during 2002–2012. To support achieving this higher investment ratio, the government, in 2012, introduced a long-term general plan for direct investments that aims at accelerating domestic and foreign capital investments and promotes more sustainable investments that are inclusive. 5 Increased sustainable investments will be achieved through improving the investment climate, promoting more investments in lagging regions, promoting investments that have positive externalities on the environment, developing infrastructure, and providing fiscal incentives. For the plan to be

1 The design and monitoring framework is in Appendix 1.

2 Direct investments refer to investments in machine, equipment, and transportation. The data source for direct

investments is Indonesia Investment Coordinating Board or BKPM Compared with other members of the Association of Southeast Asian Nations, Indonesia has much room for improvement in foreign direct investment. During 2009–2012, net foreign direct investment inflows averaged 1.8% of GDP while during the same period, in Thailand it was 2.6% of GDP, 3.2% in Malaysia, and 6.2% in Viet Nam.

3 Japan Bank for International Cooperation. 2013. Survey Report on Overseas Business Operations by Japanese

Manufacturing Companies for 2013. Tokyo; and United Nations Conference on Trade and Development. 2013. World Investment Prospects Survey, 2013–2015. New York and Geneva: United Nations.

4 Republic of Indonesia, Coordinating Ministry for Economic Affairs. 2011. Masterplan for Acceleration and

Expansion of Indonesia Economic Development 2011–2025. Jakarta. 5 Presidential Decree No. 16 Year 2012.

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successful, the government needs to increase public and private participation, ensure that private investments generate employment and prepare Indonesia to enter the Association of Southeast Asian Nations Economic Community in 2015. 5. Indonesia’s business environment is still plagued by weak institutions. One of the biggest constraints of doing business in Indonesia is inefficient government bureaucracy. 6 Excessive bureaucracy and a lack of coordination have undermined the country’s business environment. As such, the 2014 World Bank’s Doing Business ranks Indonesia at 120 out of 189 economies (behind Malaysia, Thailand, Vietnam, and Philippines).7 The biggest factor that causes the low rank is the length period to start a new business – 48 days. 6. The government’s lead role in infrastructure development needs to be reflected in commensurately significant infrastructure investments. In this context, the central government increased public infrastructure investment from Rp26.0 trillion (0.9% of GDP) in 2005 to Rp188.4 trillion (2.0% of GDP) in 2013, despite its limited fiscal space. However, this investment is relatively low when compared with Malaysia (9.0% of GDP) and Thailand (7.0% of GDP). Public investments in infrastructure are also hampered by complex land acquisition processes. Although the land acquisition law was introduced in 2012, proper implementation of the law requires better coordination and collaboration among central government agencies utilizing the land, provincial governments, and the National Land Agency (BPN). 7. Local governments increased their contribution to infrastructure investments from close to 0.4% of GDP in 2000 to 1.3% of GDP in 2013, reflecting the impact of fiscal decentralization, which transferred spending assignments and financing to local governments. In effect, 65% of infrastructure investments are now provided by local governments, up from 20% prior to decentralization. Most of the spending on infrastructure, however, is financed by transfers from the central government. To promote more local infrastructure investments, the central government has allowed local governments to tap into other funding sources such as capital markets. However, progress has been slow due to local governments’ creditworthiness, lack of central government’s cofinancing mechanisms, and unclear responsibility for infrastructure investment by local governments. 8. Private investment in infrastructure has remained low. During 2008–2011, the average annual private sector investment in infrastructure remained at 0.4% of GDP, compared to the 2.3% that occurred during 1995–1997. The central government has encouraged the private sector to invest in infrastructure through participation in public–private partnerships (PPPs). However, out of 31 PPPs financially closed during 2005–2012, only one project used the 2005 PPP framework, while all other projects used other relevant sector frameworks, 8 primarily because the legal framework for PPPs has remained fragmented. The PPP program has also been affected by ineffective government decision-making mechanisms, the lack of a central PPP office to drive the overall PPP program within the government, and limited support to government contracting agencies (GCAs) throughout the project cycle (including through engaging reputable transaction advisors to prepare projects for tender and investment).9 9. The complex public procurement process also negatively impacts public investments. Lack of capacity and the weak institutional set-up in public procurement within both the central

6 World Economic Forum. 2013. The Global Competitiveness Report 2013–2014. Geneva.

7 The World Bank and the International Finance Cooperation. 2013. Doing Business 2014. Washington D.C.

8 Total investment under these 31 PPP projects amounted to about $26 billion, or $3.25 billion per year on average.

9 Government of Indonesia, National Development Planning Agency. 2013. Public–Private Partnerships

Infrastructure Projects Plan in Indonesia, 2013. Jakarta.

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and local governments, inadequate alignment with budget execution policies, and frequent abuse of the objection and appeal process further contribute to the slow procurement process. This situation leads to a 20% underutilization of capital expenditure budgets and uneven spending during the year (approximately 50% of project disbursements are done during the last 2 months of the year). 10. Lessons from past Asian Development Bank support. The design of the program takes lessons from past Asian Development Bank (ADB) supports in infrastructure, fiscal decentralization, investment climate, public procurement, and connectivity. 10 The extensive dialogue between the Government and ADB helped in ensuring a strong ownership. Some accomplishments are adoption of a land acquisition law in 2012, establishment of regulatory framework for municipal bonds, adoption of the PPP framework in 2005 and the subsequent establishment of facilitating financing facilities, and the adoption of a legal framework for public procurement. However, the performance of past ADB-supported reforms has been affected by (i) challenges in coordination among major central government agencies, (ii) delays in decision making due to concerns to avoid corruption allegations, (iii) challenges with harmonizing the fragmented legal frameworks, (iv) cumbersome land acquisition systems, (v) weak capacity of local governments, and (vi) policy incoherence between the central and local governments. 11. Value addition of the program. Continuity of past programs supported by ADB is an important element in the program design. One good example is the work on PPP. The program’s focus on institutional improvement for PPP is a continuing reform agenda under ADB’s infrastructure reform program (please see footnote 9). The program also aims to ensure strong ownership also happens at local levels by pilot-testing reforms in selected local government before adopting them nationally and to include local governments in any public–private dialogue that address subsector- and region-specific problems. 12. The programmatic approach adopted for the program will allow the new administration—building on thrusts, achievements, and lessons from past reform efforts—to chart the next phase of policy reforms. The program will comprise two subprograms: subprogram 1 is expected to be submitted to the ADB Board of Directors for consideration on or before 30 September 2014, with subprogram 2 expected to be submitted in September 2016. Subprogram 1 targets on the regulatory and strategic frameworks reforms to accelerate public and private investments while subprogram 2 focuses on institutional capacity development for accelerating investments. The program also reflects discussions with multilateral and bilateral development partners, and leverages their ongoing and programmed support to the reform areas covered by the program.11

10

ADB. 2005. Report and Recommendation of the President to the Board of Directors: Proposed Program Loans to the Republic of Indonesia for the Development Policy Support Program. Manila (Loan 2223-INO, for $700 million, approved on 21 December); ADB. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Program Cluster, Loans, Technical Assistance Grant, and Administration of Grant from the Government of the Netherlands to the Republic of Indonesia for the Infrastructure Reform Sector Development Program. Manila (Loan 2263-INO, for $400 million; Loan 2264-INO, for $18.025 million; TA 4872, for $2 million; Grant 0064-INO for $7.56 million approved on 27 October); ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Program Cluster and Loan Republic of Indonesia for the Second Local Government Finance and Governance Reform Program. Manila. (Loan 38264-INO, for $350 million, approved on 24 October); ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic Approach, Policy-Based Loan for Subprogram 1, and Technical Assistance Grant to the Republic of Indonesia for the Inclusive Growth through Improved Connectivity Program. Manila. (Loan 2942-INO for $300 million; TA 8215-INO

for $1.5 million approved on 24 October). 11

Development Coordination (accessible from the list of linked documents in Appendix 2)

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B. Impact and Outcome

13. The program’s impact will be increased investment as a share of GDP. The outcome will be private and public sector investments increased. This outcome will be achieved through supporting reforms presented in section C.

C. Outputs

14. The program aims to (i) create a more predictable and open business environment by attracting more foreign and domestic investments and reducing the cost of doing business, (ii) diversify modalities for infrastructure financing by piloting new public sector modalities for infrastructure financing, and creating a conducive environment for private financing of infrastructure projects, and (iii) develop faster and more transparent public procurement to increase budget utilization.

15. The policy matrix (Appendix 4) covers seven key reform areas, with subprogram 1 consisting of 21 policy measures and subprogram 2 consisting of 22 policy measures. All policy actions under subprogram 1 have been completed.

1. Output 1: More Predictable and Open Business Environment

16. Attract more foreign direct investment and increase domestic investment. To attract more foreign direct investment and increase domestic investments, the government has enacted four policy reforms to further ease restrictions for foreign investment, simplify procedures for foreign investment, expand tax allowance for investment, and increase predictability of fixed cost for investment.

17. To help ease foreign investment restrictions, the government has issued a new negative investment list that reduces the amount of closed and restricted industries from 276 to 220. The new list also brings consistency with the prevailing sector laws, harmonizes and simplifies foreign capital ownership, and promotes foreign investments in PPP. The key improvement of the new list is that it enables foreigners to own up to 49% (from 0%) of land transportation management and operation facilities, and up to 95% (from 49%) of seaports’ management undertaken as a PPP.

18. The Indonesian Investment Coordinating Board has also simplified procedures to get business licenses for foreign investors. The new regulation has improved consistency in methods, procedures, and timelines of assessment of applications and issuance of investment licenses, and has introduced uniformity for the issuance of licenses at the central, provincial, regional, and municipal investment licensing offices.

19. To improve the quality of investments and to incentivize the private sector to invest in less-developed regions, the government plans to provide more income tax incentives to the manufacturing industry. The new regulation aims to expand the coverage of businesses eligible for income tax benefits to promote investment outside of Java and increase the economic well-being of the population in less-developed regions. Currently, close to 60% of private sector investments are in Java. The draft government regulation was approved at the interministerial level and submitted to the President for signing and issuance.

20. Under subprogram 2, the government will evaluate the effectiveness of the new investment lists and review the existing regulatory framework for direct investments. The government will also improve the public–private dialogue mechanism and introduce guidelines

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for income tax incentives to contribute to investment promotion.

21. Reduce the cost of doing business. The government has accelerated efforts to improve aspects of the business environment to help stabilize the economy. To improve the ease of doing business, the government announced 17 major actions in October 2013. 12 Subprogram 1 focuses on reforms related to the reduction of red tape and ease of access to finance. The red tape-related reforms are (i) issuing a business trading license and company registration certificate simultaneously through a one-stop service that reduces processing time to 3 days, (ii) streamlining the establishment of an online business entity by reducing the number of related procedures from four to one and improving the processing time from 16 days to 1 day, (iii) expediting settlement of commercial disputes in contract enforcement, (iv) expediting transfer of land rights to a maximum of 5 days post submission, and (v) initiating online facilities for taxpayer registration and pilot testing of electronic invoicing for business-to-business value-added tax transactions. To improve access to finance for small and medium-sized enterprises, the government, through Bank Indonesia, permitted the establishment of private credit information bureaus.

22. Under subprogram 2, the government will continue to implement, monitor, and evaluate the ease of doing business reform. To ensure investment policy coherence between central and local governments, the central government will assist one provincial government in establishing a one-stop service for investment licenses.

2. Output 2: Diversification of Modalities for Infrastructure Financing

23. Pilot new public sector modalities for infrastructure financing. The government has continued focusing on addressing its infrastructure deficit by facilitating access by local governments to capital markets for infrastructure projects, motivating local governments to use available budget resources on more infrastructure spending, and introducing new instruments to finance infrastructure projects.

24. The government has issued a regulatory framework to support the local governments to issue subnational bonds. The regulations put in place strict fiscal conditions, such as total debt of no more than 75% of the previous year’s local revenue and a debt service coverage ratio not exceeding 2.5. Further, the MOF requires local governments to set up a debt management unit before issuing a bond. To help diversify modalities and support the local implementation of these measures, the MOF, with the assistance of ADB, is building the capacity of local governments to strengthen their debt management and to conduct due diligence for the issuance of subnational bonds for large infrastructure projects. A pilot study is currently underway in one large province, which includes assistance for due diligence covering shadow rating and issuance, a review of the financial viability of the underlying project, and an assessment of the debt management capacity of the provincial government.

25. The government has also introduced project-based sukuk (Islamic bonds) as new instruments to finance national infrastructure projects through the capital market. Total outstanding project-based sukuk issuance as of 17 April 2014 was close to Rp29 trillion. Project-based sukuk have been used to finance two national infrastructure projects that will improve connectivity. The issuance of the sukuk also helps implementation because it requires the Debt Management Office of the MOF to monitor project development.

12

There are eight key target areas: starting a business, getting electricity, paying taxes and insurance premiums, enforcing legal contracts, resolving insolvency, registering property, obtaining construction permits, and getting credit. As of April 2014, 15 out of the 17 actions had been implemented by the government.

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26. The government is also considering introducing a new financing intermediary to fund basic local infrastructure projects. The MOF currently provides a venue for local governments to finance their local infrastructure projects by accessing a fund that is managed by the government investment agency. However, convoluted processes to borrow funds—borrowing requires local parliament approval and much higher funding costs (Bank Indonesia prime rate plus 250 basis points)—allows only 12 out of 458 local governments to access the facility, with disbursements close to $156 million. To improve local government infrastructure financing for basic infrastructure, the MOF’s institution transformational blueprint establishes a regional infrastructure development fund (RIDF) to cofinance local government infrastructure projects in line with public accounting standards and the public budget system.

27. Under subprogram 2, the government will continue strengthening the capacity of local governments in debt and risk management by upgrading the local finance courses offered by the MOF. The MOF will also provide adequate resources to the RIDF, adopt and disclose its institutional and operating procedures, and conduct an awareness campaign on the RIDF among local governments. The MOF will also review the framework for the issuance of region-based project sukuk, and conduct an awareness campaign on region-based project sukuk financing among local governments.

28. Create a conducive environment for private financing of infrastructure projects. In 2013–2014, the government continued to improve the enabling environment for PPPs through (i) amending the 2005 PPP framework to allow for several extensions to financial close of PPP projects (maximum of 1 year each); (ii) adopting harmonized principles and procedures on the use of state assets in PPP projects as part of a new government regulation on state or regional asset management; and (iii) initiating consultations on the draft law on land to address the underground and overground terms of land use and ownership. As the next step in the implementation of the new land acquisition framework, BPN established a dedicated office to lead the formulation of policies on land acquisition, determination of ownership of land rights, and land valuation under infrastructure projects.

29. The government also established a framework for accelerated delivery of priority infrastructure projects by (i) assigning an interagency committee with decision-making authority over the preparation and implementation of priority infrastructure projects; (ii) assigning clear responsibilities to the National Development Planning Agency, the Coordinating Ministry of Economic Affairs, and the MOF in supporting GCAs with priority project delivery; and (iii) giving the MOF the mandate to set up a project development fund to cover the cost of preparing feasibility studies for and transaction support to PPP projects. The development of the new framework was informed by lessons learned from the experience of the National Committee on Acceleration of Infrastructure Development.13

30. Measures were also taken to ensure PPP projects arising both from the 2005 PPP framework and sector frameworks are rolled out. These included (i) gaining approval by expansion of the scope of business viability guarantees in support of the performance of Perusahaan Listrik Negara (Indonesia’s state-owned electricity company) under power purchase agreements with independent power producers, (ii) regulating ownership of assets under a joint operating contract of a geothermal PPP project, (iii) increasing the threshold for direct purchase of land from 1 to 5 hectares, and (iv) addressing the sources of funding for land acquisition in the national and local budgets. One critical action that will promote PPP is the

13

Sector Assessment (Summary): Public–Private Partnerships in Infrastructure (accessible from the list of linked documents in Appendix 2).

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operationalization of viability gap funding; two GCAs have submitted applications to the MOF for provision of viability gap funding for their PPP projects.

31. Under subprogram 2, the government will continue improving the PPP framework through the introduction of availability-type PPPs, allowing PPPs in social sectors, the explicit recognition of state-owned enterprises as GCAs and qualifying state-owned enterprises’ participation in PPPs as a business entity to mitigate conflict of interest, and enabling PPP projects with existing state assets to avail themselves of government support schemes. The government will also complete the establishment and operationalization of the PPP unit at the MOF—as a first step towards a separate central PPP office—to lead the country’s PPP program and be the core facilitator in the preparation of bankable PPP infrastructure projects. As a strategic issue and reflecting on lessons learned in subprogram 1, the government will initiate the preparation of an integrated framework for private provision of public infrastructure and services. The government plans to develop an academic paper on PPP law and a high-level infrastructure-focused government mechanism to address cooperation and accountability issues among central and local governments.

32. The government will also continue ensuring smooth processing and rollout of PPP projects through budget allocation and approval of viability gap funding, and it will continue carrying out action-oriented assessments of the effectiveness of the geothermal fund and business viability guarantees for energy-generation projects. As part of strengthening the capacity of BPN’s office on land acquisition, operational manuals on the land acquisition process will be developed for GCAs. To draw initial lessons from the new land acquisition framework, BPN will conduct an action-oriented assessment of the implementation of the new land acquisition law.

3. Output 3: Faster and More Transparent Public Procurement

33. The government, through the National Public Procurement Agency (NPPA), has taken steps to increase budget utilization through automating the public procurement process (particularly for procuring goods and services in the eastern part of Indonesia, where access to vendors is limited), and enforcing usage of e-catalogs for e-purchasing to expedite the procurement process and budget absorption. With ADB’s TA, the NPPA is assisting one large local government to establish its own e-catalogs.14

34. In enhancing procurement capacity, the NPPA is working with 29 procurement service units (PSUs) at the national and local government levels to be the subjects of a pilot study in an effort to professionalize PSUs. This pilot program will be replicated with other PSUs nationwide. The NPPA has also initiated reforms in the procurement process for large, complex construction contracts through the finalization of a draft international competitive bidding document that is available for discussion with stakeholders. In coordination with the MOF and the National Development Planning Agency, the NPPA has also begun preparing standard bidding documents for PPPs in the education and health sectors for pilot testing purposes.

35. Under subprogram 2, the government will adopt a new public procurement framework that will strengthen the function of PSUs, institutionalize e-procurement, and ensure full synchronization with the investment selection process under the PPP framework. The reforms will also cover the introduction of a benchmarking system for (i) assessing the capacity of procuring entities in public procurement, and (ii) ensuring adequate budget funding for

14

ADB. 2008. Regional Technical Assistance for Support for Implementation of the Second Governance and Anticorruption Action Plan. Manila (RETA 6445, for $3 million, approved on 19 Februay).

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information technology aspects of the e-procurement system.

D. Development Financing Needs

36. The loan size of subprogram 1 takes in account Indonesia’s increased overall development financing needs and specific elements of the government’s development expenditure programs. The economic slowdown in 2013 and the first quarter of 2014 caused the government to reduce the 2014 GDP growth target from 5.8%–6.0% to 5.5%, resulting in the reduction of the estimated budget revenue from $145 billion to $139 billion, with the expenditure actually having increased by $600 million in the revised 2014 budget. This caused the 2014 fiscal deficit to increase from the budgeted 1.7% to 2.5 % of GDP, to be financed through the larger government borrowing plan, which has increased from the originally planned $16 billion to $23 billion in the revised 2014 budget. In light of this, the government has increased the development policy share of its ODA borrowing from $339 million to $1.5 billion. The estimated administrative and implementation cost of reforms under subprogram 1 is $493 million;15 the loss of budget revenues due to tax allowance reforms is estimated at $333 million.

37. Given the increased fiscal space constraints and budgeted development expenditure programs, the government has requested a loan of $400 million from ADB’s ordinary capital resources to help finance subprogram 1. The loan will have a 15-year term, including a grace period of 3 years, an annual interest rate determined in accordance with ADB’s London interbank offered rate-based lending facility, a commitment charge of 0.15% per year, and such other terms and conditions set forth in the draft loan agreement. Based on this, the average loan maturity is 9.25 years, and there is no maturity premium payable to ADB. The financing for subprogram 2 is currently planned to be $200 million. The loan proceeds will be used to finance the full exchange cost (excluding local taxes and duties) of items produced and procured in ADB members, excluding ineligible items and imports financed by other bilateral and multilateral sources. The proceeds of the policy-based loan will be disbursed to Indonesia in accordance with ADB’s guidelines on simplifying disbursement requirements for program loans. 16 Subprogram 1 will receive parallel cofinancing of $200 million from German development cooperation through KfW.17

E. Implementation Arrangements

38. The Coordinating Ministry of Economic Affairs will be the executing agency. The MOF, Indonesia Investment Coordinating Board (BKPM), BPN, and the NPPA will be the implementing agencies. The implementation of program policy actions will be monitored through (i) a steering committee that will be chaired by a deputy minister of the executing agency and consist of director-level officials of implementing agencies and relevant local governments that are affected by the program, and (ii) regular meetings of technical working groups set up for each output or sub-output, as the case may be, to discuss interim progress in the reform agenda. These working groups will consist of echelon two of the implementing agencies and will operationalize the program’s approach on establishing an effective dialogue between national and local governments and the business community. The implementation period is January 2013–September 2014 for subprogram 1, and October 2014–September 2016 for subprogram 2, reflecting the government’s phasing of investment reforms. The policy-based loans will be disbursed upon accomplishment of agreed policy actions.

15

Brief Assessment of Reform Program Cost (accessible from the list of linked documents in Appendix 2). 16

ADB. 2012. Loan Disbursement Handbook, Manila. 17

Negotiations with the Ministry of Finance on the cofinancing agreement were being finalized at the time of Board circulation.

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III. DUE DILIGENCE

A. Economic

39. The policy actions of the program are derived from the government’s medium-term reform priorities, which are crucial in achieving the government’s strategy of higher and more inclusive growth. Currently, with exports still slow to recover, investment will need to play a larger role in supporting growth. The proposed reforms are expected to stimulate more foreign direct investment, encourage more businesses to open, and increase infrastructure investment, which could generate additional economic growth of up to 1 percentage point annually over the medium term. 18 The proposed reforms will also help improve the quality of employment by increasing employment opportunities in the formal sector, and reduce poverty in lagging regions, e.g., Eastern Indonesia, where poverty incidence is much higher. Improved connectivity will also lead to improvement in access to and delivery of services in Eastern Indonesia. Combined, these will help reduce inequality over the medium term.

B. Governance

40. The government has made considerable progress in improving the legal and regulatory framework for public financial management. Since the enactment of laws on state finance, state treasury, and state audit in 2003–2004, most of the regulations underpinning these laws have been promulgated. In 2012, the number of government agencies that received unqualified audit opinion from the external audit agency increased to 65%, from about 40% in 2009. ADB has reinforced this momentum with continuing support to improve technical capacity and controls. Building on previous programs, ADB’s TA to strengthen public procurement has been committed to boosting transparency and efficiency in public procurement processes. As a result of the government’s continuing commitment to reduce corruption, the capacity of the Corruption Eradication Commission has improved markedly. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government.

C. Poverty and Social

41. The reforms supported under the program are likely to reduce poverty through improvements in the investment climate and improved infrastructure. A more conducive investment climate will lead to more and better investment that would generate more productive jobs, which are keys to inclusive growth. Better infrastructure will contribute to poverty reduction through higher growth caused by increased infrastructure investments. For example, if the infrastructure stock had grown during 2001–2011 by 10% per year instead of the actual 3%, GDP could have grown by 7.0% per year rather than the actual 5.3%. This in turn could have reduced the national poverty rate to 6.9% in 2011 instead of the actual 11.4%.19 Another poverty impact relates to facilitation of PPPs in the health and education sectors likely to positively affect non-income poverty through improved access and use of education and health facilities. The cross-cutting nature of the program’s reforms suggests it is not amenable to gender designs.

D. Safeguards

42. The program does not trigger ADB’s safeguard policies and is classified under category C for impacts on the environment, involuntary resettlement, and indigenous peoples.

18

ADB. 2011. Technical Assistance to Republic of Indonesia for Strengthening National Public Procurement Processes. Manila (TA 7653, for $1 million, approved on 19 November).

19 World Bank. 2013. Indonesia Economic Quarterly: Continuing Adjustment. Jakarta.

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E. Risks and Mitigating Measures

43. The program design will mitigate all risks by providing a strong broad-based governance framework, a better coordination mechanism, and a bottom-up approach to reforms adopted under the program.20 The program has three potential risks (Table 1).

Table 1: Summary of Risks and Mitigating Measures Risks Mitigating measures

Poor governance and corruption This risk has been mitigated with the enactment of a new CFT Law, an increased capacity of the Corruption Eradication Commission, procurement reforms, and the implementation of a new integrated financial management information system in MOF.

Inefficient policy coordination between central and local governments

This risk has been mitigated by the participation of key stakeholders in ease-of-doing business reform, the leadership role played by BKPM in policy coordination, and the participation of local governments in annual national development planning meetings, and pilot-based testing in selected local government.

Weakened commitment by the government in infrastructure

This risk will be mitigated with introduction of creative financing scheme to finance infrastructure projects, promoting public–private partnership scheme, increasing budget allocation for national infrastructure projects, and allowing multi-year budget and procurement schedule

BKPM = Badan Koordinasi Penanaman Modal (Indonesia Investment Coordinating Board), CFT = combating the financing of terrorism, MOF = Ministry of Finance.

IV. ASSURANCES

44. The government has assured ADB that implementation of subprogram 1 shall conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the loan documents.

V. RECOMMENDATION

45. I am satisfied that the proposed programmatic approach and policy-based loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve

(i) the programmatic approach for the Stepping Up Investments for Growth Acceleration Program; and

(ii) the loan of $400,000,000 to the Republic of Indonesia for subprogram 1 of the Stepping Up Investments for Growth Acceleration Program, from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; for a term of 15 years, including a grace period of 3 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board.

Takehiko Nakao President

3 September 2014

20

Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets and Indicators with Baselines

Data Sources and Reporting

Mechanisms Assumptions and

Risks

Impact Increased investment as a share of GDP

By 2019: Gross capital formation is at least 38% of GDP (2013 baseline: 35.6%)

Central Bureau of Statistics

Assumption Global economy improves

Risk Politically motivated actions affect reform implementation

Outcome Private and public sector investments increased

By 2017: Ratio of total direct investment to GDP increased to at least 5.5% of GDP (2012 baseline: 3.9%)

Public sector infrastructure investments increased to at least 3.3% of GDP (baseline: annual average in 2008–2011 was 2.4%) Foreign ownership increased to 49% in management and operation of airports, land transportation utilities, water utilities, and toll road facilities (2010 baseline: 0%)

Starting 2017: Total amount of financially closed PPP infrastructure projects every year is at least $4 billion (baseline: average in 1990–2012 was $2.4 billion)

BKPM

Central Bureau of Statistics and development partner reports

BKPM

The World Bank’s private participation in infrastructure database

Assumption Economic growth in Indonesia remains robust

Risks Sharp economic slowed down in one of the major trading countries Bureaucratic reforms are halted

Outputs 1. More predictable and open business environment

By 2016: The number of restricted industries for foreign investors is reduced by 25% (2010 baseline: 20 industries are closed to foreign investments)

Number of licenses issued by one-stop shops increased to at least 50% of all required investment licenses (2012 baseline: 20%)

Framework on private credit information bureaus established (2013 baseline: 0)

40% of individual registered tax payers submit their tax return online (2013 baseline: 0)

Frameworks for income tax allowance to promote investments adopted (2013 baseline: 0)

At least three sector- or region-specific public–private working groups established (2013 baseline: 0)

BKPM

BKPM

Bank Indonesia

MOF

MOF

Coordinating Ministry of Economic Affairs, BKPM

Assumptions Human capital is improved Bureaucracy reform is continued Usage of information communication technology in government’s works increased Risks New elected officials halted the reform agenda Increased number of non-investor friendly local regulations Decreased spending of local government in

2.Diversification of modalities for infrastructure

By 2016: Presidential regulation on acceleration of delivery of priority infrastructure projects

Coordinating Ministry of Economic Affairs

12 Appendix 1

Design Summary

Performance Targets and Indicators with Baselines

Data Sources and Reporting

Mechanisms Assumptions and

Risks

financing adopted

MOF’s PPP unit and project development fund set up and adequately funded Office for land acquisition established and operational at BPN (2013 baseline: 0)

At least two PPP projects received final approval for viability gap funding

Following consultation with stakeholders, academic paper on a PPP law developed (2013 baseline: 0)

Sovereign sukuk (Islamic term for bonds) issued to finance at least four infrastructure projects (2010 baseline: 0)

Frameworks adopted on infrastructure sukuk issuance by local governments (2013 baseline: 0)

MOF BPN

MOF

National Development Planning Agency

MOF

MOF

infrastructure

3. Faster and more transparent public procurement

By 2016: Government regulation on public procurement amended to strengthen role of procurement units and mainstream e-procurement

Absorption of state budget for public investment increased by 15.0% (2012 baseline: 76.5%)

All government agencies have public procurement units (2013 baseline: 230)

Number of appeal and objection cases reduced by at least 30% from 422 in 2012

Number of e-catalogued public investment commodities increased by at least 15 (2011 baseline: 2)

NPPA

MOF

NPPA

NPPA

NPPA

Activities with Milestones Inputs

1. More predictable and open business environment 1.1 Issue new regulation on revised negative investment list (Q2 2014) 1.2 Issue new regulation on licensing and non-licensing of domestic and foreign capital

investments (Q4 2013) 1.3 Set up a joint interagency group to monitor implementation of reforms on ease of doing

business (Q1 2014) 1.4 Issue regulation on simultaneous issuance of permanent business trading license and

company registration certificate within 3 days (Q1 2014) 1.5 Issue regulation on credit information bureau establishment (Q4 2013) 1.6 Pilot online individual taxpayer registration and business-to-business value-added tax

transactions (Q3 2013) 1.7 Expand scope of income tax allowance as investment incentive (Q1 2014) 1.8 Issue evaluation report on status of implementation of the general plan for direct investments,

2012–2015 (Q2 2016)

Asian Development Bank: Amount Item ($ million)

Subprogram 1 $400 Subprogram 2 $200

Appendix 1 13

1.9 Establish sector- or region-focused public–private working groups (Q3 2015) 1.10 Issue implementing regulations and standard operating procedures for one-stop shop in a

major local government (Q4 2015) 1.11 Expand online facilities for tax registration and value-added tax invoicing (Q4 2015) 1.12 Develop guidelines for income tax incentives to promote investments (Q4 2015) 2. Diversification of modalities for infrastructure financing

2.1 Provide expert advice to local governments on municipal bond issuance (Q2 2014) 2.2 Adopt plan on capacity building of local governments in debt and risk management for

municipal bond issuance (Q2 2015) 2.3 Review applications for municipal bond issuance (starting Q4 2015) 2.4 Develop a proposal to establish a financial intermediary mechanism to co-finance local

government infrastructure projects in line with public accounting standards and budget system (Q2 2014)

2.5 Study on option financial intermediary mechanism to co-finance local government infrastructure projects is produced. (Q4 2015)

2.6 Issue sukuk for two infrastructure projects (Q2 2014) 2.7 Develop framework for issuance of infrastructure project sukuk by local governments (Q4

2015) 2.8 Complete approval of viability gap funding for two PPP projects (Q2 2014) 2.9 Issue decree on ownership of assets in geothermal PPPs (Q1 2014) 2.10 Issue government regulation on state asset management (Q1 2014) 2.11 Establish office at BPN for land acquisition for the development in the public interest (Q1

2014) 2.12 Develop manual on land acquisition in the public interest (Q2 2015) 2.13 Finalize the draft land law that covers dimensional land rights and is synchronized with the

Land Acquisition Law No.2/2012 (Q2 2015) 2.14 Conduct assessment of the implementation of law on land acquisition (Q2 2015) 2.15 Submit draft presidential decree on Committee for Acceleration of Priority Infrastructure

Projects for approval (Q1 2014) 2.16 Allocate funds and resources for Committee for Acceleration of Priority Infrastructure Projects

coordination work (Q1 2014) 2.17 Establish PPP unit at MOF and adopt operating guidelines (Q1 2015) 2.18 Conduct capacity building for PPP unit’s staff (Q2 2015) 2.19 Develop amendments to the 2005 PPP framework (Q2 2015) 2.20 Develop academic papers on PPP law and government decision-making body on

infrastructure (Q4 2015) 3. Faster and more transparent public procurement

3.1 Strengthen procurement service units as formal government structure to conduct public procurement and inform budget and procurement planning (Q1 2014)

3.2 Draft amendments to public procurement regulation to strengthen procurement service units, expand use of e-procurement, and streamline appeal and objection process (Q2 2015)

3.3 Issue instruction on usage of e-procurement and e-catalog in central government public investments (Q1 2014)

3.4 Issue regulation on introduction of e-catalog for public investments at local government level (Q2 2014)

3.5 Pilot e-catalog in local government for a selected number of commodities (Q4 2014) 3.6 Submit budget requests to adequately cover information technology costs related to rollout of

e-procurement and e-purchasing systems (Q3 2014 and onward) 3.7 Develop for approval a proposal on professionalization of public procurement work in the

government (Q2 2016)

3.8 Assess capacity of line ministries, agencies, and local governments, and benchmark their performance in public procurement (Q4 2015)

BKPM = Badan Koordinasi Penanaman Modal (Indonesia Investment Coordinating Board), BPN = Badan Pertanahan Nasional (National Land Agency), GDP = gross domestic product, MOF = Ministry of Finance, NPPA = National Public Procurement Agency, PPP = public–private partnership, RIDF = regional infrastructure development fund. Source: Asian Development Bank.

14 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=48134-001-3

1. Loan Agreement

2. Sector Assessment (Summary): Investment Climate

3. Contribution to the ADB Results Framework

4. Development Coordination

5. Country Economic Indicators

6. International Monetary Fund Assessment Letter

7. Summary Poverty Reduction and Social Strategy

8. Risk Assessment and Risk Management Plan

9. List of Ineligible Items

Supplementary Documents

10. Sector Assessment (Summary): Public Procurement

11. Sector Assessment (Summary): Public–Private Partnerships in Infrastructure

12. Sector Assessment (Summary): Government Mechanisms for Financing Public Infrastructure

13. Brief Assessment of Reform Program Cost

Appendix 3 15

DEVELOPMENT POLICY LETTER

16 Appendix 3

Appendix 3 17

18 Appendix 3

Appendix 4 19

POLICY MATRIX

Reform Aim Policy Actions of the 1st sub-program (January 2013 – September 2014)

Indicative Policy Actions of the 2nd sub-program

(October 2014 – September 2016)

Pillar 1: More predictable and open business environment

Attract more foreign direct investment and increase domestic investment

1. The Government raised foreign ownership in the management and operation of: (i) land transportation facilities from 0% to 49%; and (ii) sea transportation and ports undertaken as public-private partnerships from 49% to 95%. (Presidential Regulation

no. 39/2014 on the revised negative investment list)

1. BKPM will evaluate the implementation of the General Plan for Direct Investments for 2012-2025 which includes an assessment of its effectiveness and recommendations on next steps on the (i) revised negative investment list and (ii) regulatory framework for direct investments. (Evaluation Report)

2. BKPM improved consistency in methods, procedures, and timelines of assessment of applications and issuance of investment licenses and non-licenses at the central, provincial, regional and city investment offices. (BKPM Chairman Regulation no. 5/2013 as amended through BKPM Chairman Regulation no. 12/2013).

2. The Government will (i) establish working groups that will comprise representatives of the national and local government offices as well as the private sector, (ii) hold regular meetings of the working groups as a pilot mechanism to ensure regular discussion on issues affecting business activities; and, (iii) review the recommendation of the working groups.

(Ministerial Decree and minutes-of-meetings)

3. The Government finalized draft Government Regulation to expand coverage of businesses eligible for income tax allowance to incentivize businesses to invest outside Java region. (Draft Government Regulation)

3. MOF will introduce guidelines for income tax incentives to contribute to investment promotion. (MOF decree)

Reduce cost for doing business

4. (a) Government (i) introduced measures to issue

simultaneously the business trading license and company registration certificates through one-stop services to maximum 3 days; (MOT

Regulation Number 77/2013) (ii) initiated online facilities for taxpayer

registration and the use of electronic invoice for VAT transactions; (MOF Regulation no.

151/2013, DG Tax Regulation no. 20/2013).

(iii) streamlined online business entity establishment by reducing procedures and processing time; and (Ministry of Law and Human

Rights Regulation no. 4 Year 2014) (iv) Expedited transfer of land rights to

a maximum of 5 days from the date of submission. (Chairman of National

Land Agency Instruction No. 2 Year 2014)

4. Government will continue improving the business environment by: (i) assisting a provincial

government to draft implementing regulations and standard operating procedures for establishment of a one-stop-service for investment licenses. (BKPM letter)

(ii) expanding tax online facilities by introducing electronic filing for corporate and business taxpayers, and scaling up electronic invoicing for business-to-business VAT transactions. (MOF decree)

20 Appendix 4

(b) Bank Indonesia issued regulation to permit the establishment of private credit information bureaus. (Bank Indonesia

Regulation Number 15/I/PBI/2013) (c) The Supreme Court expedited settlement of commercial disputes, including contract enforcement, in court.

(Supreme Court Circular Letter No 2 Year 2014)

Pillar 2: Diversification of modalities for infrastructure financing

2.1. Piloting new public sector modalities for infrastructure financing

Facilitate access of local governments to capital markets for infrastructure projects

5. MOF developed the capacity of a provincial government on conducting due diligence for the issuance of municipal bonds for an infrastructure project. These included (i) shadow rating and issuance, (ii) review of the financial viability of the project, and (iii) assessment of the debt management capacity of the provincial government.

(MOF training materials for the provincial government)

5. MOF will upgrade local government’s staff capacity in debt and risk management for local governments that propose to issue municipal bonds for infrastructure financing. (MOF training materials for the local governments)

Motivate more infrastructure spending from local governments’ available budget resources

6. MOF developed a proposal to establish a financial intermediary mechanism to co-finance local government infrastructure projects in line with public accounting standards and budget system. (Blue print of Institutional Transformation of DG Fiscal Balance, March 2014)

6. MOF will assess options for the operationalization of financial intermediary mechanism to co-finance local government infrastructure projects. (assessment report)

7. MOF will conduct assessment for other innovative financing mechanism for local governments, such as through Islamic financing, to finance their local infrastructures projects following consultation with relevant stakeholder at central and local levels. (assessment report)

Introduce new instruments to finance infrastructure projects

7. MOF clarified the procedures for the issuance, fund flow and reporting on national government’s Sharia compliant securities for infrastructure project financing. (Minister of Finance regulations

nos. 113/PMK.08/2013, 24/PMK.05/2014, and 44/PMK.08/2014)

8. The Government issued project based sukuk to finance construction of two infrastructure projects. (MOF Press

Release No. 149/KLI/2013, dated 27 November 2013)

8. MOF will (i) enhance staff capacity to select projects that will be financed by project based sukuk, and (ii) conduct awareness campaign to line ministries on project based sukuk financing. (MOF training materials and proof of awareness campaign)

2.2. Creating conducive environment for private financing of infrastructure projects

Support bankability and proper preparation of PPP projects

9. GCAs submitted application to MOF for provision of viability gap funding for their PPP

projects. (Application letter from GCAs)

9. MOF will propose budget for VGF and if approved, MOF will allocate VGF to PPP projects.

(State budgets 2015 and 2016;

MOF letter)

Appendix 4 21

10. MOF expanded the scope of business viability guarantees to support of PLN’s performance under power purchase agreements with independent power producers to cover both electricity purchase payment and termination and buy-out payment obligations of PLN. (MOF Regulation No. 225 Year 2013)

11. The Government regulated ownership of assets under a joint operating contract between the owner of development rights for the geothermal site and the private concessionaire. (Joint decree of MEMR, MOF, MSOEs No. 14 Year 2013).

10. The Government will conduct an assessment on the impact of the revised scope of business viability guarantees with proposals on next steps. (Assessment report)

11. The Government will conduct an assessment on the effectiveness of the geothermal fund facility to support delivery of geothermal PPP projects. (Assessment report)

12. National Land Agency (NLA) established a dedicated office, headed by a Deputy to (i) lead formulation of policies on land acquisition, (ii) acquire land for public purposes, and (iii) conduct land valuation under infrastructure projects. (Presidential

Regulation No 63 Year 2013 and Head of BPN Regulation No. 1 Year 2014).

13. The Government deliberated the draft Land Law, including provision for usage on dimensional land rights (above, below, and surface of the land) to facilitate delivery of PPP projects. (Draft Land Law and National Parliament website)

12. NLA will (i) develop a manual on land acquisition process and requirements throughout the PPP project cycle, and (ii) conduct capacity building among relevant stakeholders and a public awareness campaign. (NLA Manual and proof of awareness campaign)

14. The Government increased threshold for direct purchase of land from 1 hectare to 5 hectares, and addressed the sources of funding for land acquisition in the national and local budgets. (Presidential Regulation No. 40/2014 amending Presidential Regulation No. 71/2012)

13. NLA will conduct an assessment on the implementation of the new land acquisition law and its implementing regulations, with proposals on next steps (Assessment Report).

15. The Government allowed for several extensions (maximum of 1 year each) of the financial close of PPP projects if delays are not caused by private party negligence. (Presidential regulation 66/2013 amending Presidential regulation 67/2005 on cooperation between government and business entity in infrastructure provision).

16. The Government clarified the principles and procedures for the utilization of state/regional assets in PPP projects.

(Government Regulation 27/2014 replacing Government Regulation no. 6/2006 on state/regional asset management).

14. Government will improve PPP framework through (i) introduction of availability-based PPPs, (ii) expansion of the scope of PPPs to include social sectors, (iii) recognition of state-owned enterprises (SOE) as government contracting authorities to improve transparency and bankability of SOE PPPs through government support schemes, (iv) qualification of SOE participation in PPPs as business entity to mitigate distortion of competition and adverse fiscal impact, and (v) enable PPP projects with existing state assets to avail of government support schemes.

22 Appendix 4

(Presidential regulation)

15. Government will prepare academic paper on a (i) PPP law as an integrated cross-sectoral policy, legal, institutional, and procedural framework for private investment in provision of public infrastructure and services, and (ii) government institutional mechanism to decide on integrated infrastructure planning and implementation to ensure cooperation and accountability among national government agencies and subnational governments, following consultation with relevant stakeholders. (Draft academic paper)

17. The Government adopted Presidential Regulation on acceleration of delivery of priority infrastructure projects by: (i) setting up an inter-agency committee

with decision-making authority over priority infrastructure projects;

(ii) assigning clear responsibilities to Bappenas, CMEA, MOF, and National Land Agency to support GCAs to expedite priority project delivery; and

(iii) giving MOF the mandate to set up a project development fund to cover cost of preparation of feasibility studies and transaction support to PPP priority projects.

(Presidential Regulation no. 75 dated 21 July 2014).

16. MOF will establish and adequately staff a PPP unit to facilitate preparation of bankable PPP infrastructure projects by: (i) managing a project

development fund to cover the cost of internationally recruited transaction advisors;

(ii) ensuring optimal allocation of risks between government and investors in the proposed PPP contracts;

(iii) evaluating project documents for approving government support to enhance credit worthiness of projects;

(iv) developing standard documents and templates for PPP project purposes for use by GCAs;

(v) monitoring implementation of PPP projects after award to ensure timely financial close and start of implementation.

(MOF Decree)

Pillar 3: Faster and more transparent public procurement

Increase utilization of budget through more efficient and automated public procurement

18. National Public Procurement Agency (NPPA) issued guidelines to conduct e-purchasing using e-catalogues.

(NPPA official circular no.1/2013)

17. The Government will issue a regulation on public procurement that will, among others, require procurement of goods and works to be undertaken only through e-procurement.

(Presidential Regulation)

18. NPPA, in their Strategic Plan for

Appendix 4 23

Note: The Policy Actions in bold are the core policy actions for the policy-based loan, whereas the remaining actions are considered as milestones to support the core actions. BKPM = Badan Koordinasi Penanaman Modal (Investment Coordinating Board), Bappenas = Badan Perencanaan Pembangunan Nasional (National Development Planning Agency), CMEA = Coordinating Minister of Economic Affairs, GCAs = Government Contracting Agencies, ICB = International Competitive Bidding, ICT = Information, Communication, and Technology, KKD = Kursus Keuangan Daerah (Local Finance Course), LKD = Latihan Keuangan Daerah (Local Finance Practice), MEMR = Ministry of Energy, Mines, and Resources, MSOE = Ministry of State Enterprises, MOF = Ministry of Finance, MOT = Ministry of Trade, MOUs = Memorandum of Understandings, NLA = National Land Agency, Perpres = Peraturan Presiden (Presidential Decree), PPP = Public Private Partnerships, PSU = Procurement Service Units, SBDs = Standard Bidding Documents, SOEs = State Owned Enterprises, VGF = Viability Gap Funding. Source: Asian Development Bank

2015-2019, will increase ICT related programs associated with the expansion of e-purchasing and e-procurement.

(NPPA Strategic Plan 2015-2019)

19. NPPA signed MoUs with 3 line agencies, 6 provincial governments, 19 regencies, and 1 public university for their Procurement Service Units (PSUs) to be piloted as procurement services professionalism that will be replicated in the other PSUs nationwide.

(MOUs)

19. NPPA will issue a capacity building program roadmap on public procurement that will strengthen ULPs’ capacity in carrying out procurement process for large and complex infrastructure projects. (Road map)

20. NPPA will set up a national public procurement performance benchmark based on international standard that will assess the capacity of government agencies in conducting their procurement process.

(NPPA Circular)

20. NPPA finalized draft International Competitive Bidding (ICB) document for procurement of goods that is available for discussion with stakeholders. (Copy of draft ICB)

21. NPPA, in coordination with MOF and Bappenas, initiated drafting of Standard Bidding Documents (SBDs) for PPPs in social sector (Copy of draft SBDs)

21. NPPA will develop standard ICB documents for procurement of goods and works to support large and complex infrastructure projects.

(NPPA Decree and ICB document)

22. The Government will pilot SBDs

in social sector PPP projects

(NPPA Decree and ICB document)