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Dedy S. Priatna Ph.DDeputy for Infrastructure Affairs - BAPPENAS

REPUBLIC OF INDONESIA

STRATEGY FOR DEVELOPING STRATEGY FOR DEVELOPING INFRASTRUCTURE INFRASTRUCTURE PPP PPP

IN IN INDONESIAINDONESIA

42nd Annual Meeting Board of Governors – Asian Development Bank

Bali, 5 May 2009

Presentation OutlineIndonesia Infrastructure Development Target 2010 - 2014;Development of Indonesia Infrastructure PPP Strategy;PPP Projects Achievement;Challenges Ahead.

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Infrastructure Development Target 2010 -2014

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ExistingCondition

(2009)

Direction:• RPJPN 2005-2025• Vision-mission &

program of elected president of 2009

• Continuation of un-finished RPJMN 2005-2009

• MDG Target• Sector Strategic Plan• World Rating of

Infrastructure Competitiveness

Targetfor 2014

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o Un-finished National Medium Term Development Plan (RPJMN) 2005 – 2009;

o Un-finished Strategic Plan of Ministry 2005-2009;o Un-finished Blue Book Proposal 2006-2009;o MDG Target;o Project Readiness;o Interregional Equality;o Target on infrastructure services at the end of 2014;o Infrastructure Financing Needs 2010-2014 based on

targeted goal = Rp. 1,429 T.

Basis for Calculation of Infrastructure Investment Requirement 2010-2014

Rationale for PPP in Indonesia

Huge investment required, in average, the infrastructure investment will require US$ 24billions/year during 2010 - 2014. As government budget is not sufficient to meet Indonesia’s investment requirements, large-scale private sector participation is essential to fill the gap.This provides good opportunities for private sector to participate in the implementation of the project especially through PPP modality.

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Rp. 1,429 Trillion(USD 120 Billion)

Financing Gap: expected to be covered through PPP, CSR, community participation

Estimated GOI Financing Capacity

Infrastructure Financing of Other Countries (%from GDP)

Cross Country Comparison on Infrastructure Investment

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7

0.0

2.0

4.0

6.0

8.0

Indonesia Albania Russia Cambodia Kazakhstan

Private

Government

Source: World Bank

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Development of Indonesia PPP Strategy in Infrastructure

Up to 1997: introducing PPP in infrastructure.1998 - 2004: consolidation period following Asian financial crisis and changes in the Indonesian political system.2005 – 2009:

Laying foundation for PPP project implementation through policy and regulatory reform to adopt international best practices;Setting up PPP institutions, PPP network and PPP campaigns; Identification of potential PPP projects and implementation of PPP model projects.

2009 onwards:Strenghtening PPP institutions;Improve the quality of project preparation and transaction;Extensive development of PPP scheme.

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Indonesia’s PPP Evolution

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Regulations Enabling PPP:• Law 15/1985

on Electricity• Law 13/1987

on Road• PP 8/1990 on

Toll Road• PP 10/1989

on Electricity

Sector:• Toll Road • IPP (proposal)

Up to 1990 1990 - 1997

Presid

ential D

ecree (Kep

pres

7/1

998)

Cro

ss-sector

Asian Financial Crisis

Major changes:•Global economy•Political system•Decentralization•Government

Institutions

•Several New Laws oninfrastructure passed

•Renegotiation on IPPs•KKPPI formed

1998 - 2004 2005 - 2009

Regulations Enabling PPP:• Keppres 37/1992

on Private Electricity

• Keppres 55/1993 on land acquisition

Sector:• Toll road

•Water•Electricity•Port

• Infrastructure Summit 2005

• Perpres 36/2005 on land acquisition

• Perpres 42/2005 on KKPPI

• CIIF• Perpres 67/2005• IICE 2006• PMK 38/2006• Reform of Sector

Laws• Establishment of

RMU • Land Revolving

Fund • PT. SMI, IIFF• P3CU• PPP Book

Regulatory Framework -1PPP Regulations:

Presidential Regulation (Perpres) No. 67/2007 on Cooperation between the Government and business entity in the provision of Infrastructure;Minister of Finance Regulation (Permenkeu) No. 38/2006 on Risk Management Guidelines for PPP in Infrastructure;Minister of National Development Planning/ / Chairman of Bappenas Regulation No 3/2009 on Procedure for Formulation of PPP Book.

Sector Laws and Regulations:Toll Roads: Law 38/2004 and PP15/2005;Railways: Law 23/2007;Air Transport: Law 1/2009 and PP 70/2001 (airport);Sea Transport: Law 17/2008 and PP69/2001 (seaport), PP 82/1999;Water Supply & Sanitation: Law 7/2004 and PP16/2005;Telecommunications: Law 36/1999 and PP 52/2000 and PP 53/2000Oil & Gas: Law 22/2001 and PP 42/2002 (upstream), PP 67/2002 (downstream), PP 37/1994 (PGN), PP 31/2003 (Pertamina);Electricity (Power): Law 15/1985, PP 3/2005

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Regulatory Framework -2

Cross-Sector Laws and Regulations:State Finance: Law 17/2003;National Development Planning: Law 25/2004 and PP 20/2004, PP 21/2004;Regional Governance: Law 32/2004 and PP 25/2000;Fiscal Decentralization: Law 33/2004 and PP 105/2000, PP 107/2000, PP 65/2001, PP66/2001; State-Owned Enterprise: Law 19/2003;Investment: Law 1/1967 (Foreign) and Law 6/1968 (Domestic);Environmental Management: Law 23/1997 and PP 27/1999;Construction Services: Law 18/1999 and PP 29/2000;Government Procurement: Keppres 80/2003, Keppres 61/2004 (Amendment 1), Perpres 32/2005 (Amendment 2);Land Acquisition: Perpres 65/2006 and Law 20/1961.

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Indonesia PPP Institutional Framework

The Committee on the Policy for the Acceleration of Infrastructure Provision (KKPPI) established under Perpres 42/2005A Risk Management Unit on Fiscal Support already up and running since 2006 in the Ministry of FinancePT. SMI/Indonesia Infrastructure Financing Facility (IIFF) established in February 2009PPP Nodes established in the (MEMR, MPW and MOT)PPP Units in various Local GovernmentsP3CU in BappenasInfrastructure Guarantee Fund (under preparation)

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InfrastructureSector

Ministries(MPW, MOT, MEMR, MCI)

KKPPICMEA,

BappenasMOF

PPP Nodes (PPP Units)Project Identification, Preparation,

Monitoring & Quality Control:-- Screening-- Due Diligence-- Bid Documents-- Transaction & Post-transaction

Process

Secretariat/P3CUPolicy Analysis, Development and Planning & Coord.Monitoring & Quality CtrlIdentify Projects requiring

Government SupportResolving cross-sector issues

Risk Mgt UnitAssess GSIssue &Manage

Guarantee

Guaran-tee Fund

ProjectDev.Fac.

IIFF, Land Fund, etc.

MOHAMSOE

SOEsProject Dev’tProject Impl. &

Monitoring

Local Gov’t & ROEs

Project DevelopmentProject Impl. & Monitor

Project Development FacilitiesProject Development Facilities (WB-PPITA, ADB-IRSDP, AusAid, METI Japan) are in place to assist relevant PPP units in institutional development and project preparation to ensure better transaction mechanism i.e. financial closure and project execution;ADB – IRSDP, closing date September 2012

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GOI; 4,726,696 ;

12%

Dutch Grant; 7,562,348 ;

20%

A DB Loan; 26,482,969 ;

68%

Government Support Direct support:

Provision of landPart of investment costOperating subsidy (under PSO scheme)Non-fiscal support (license, permits, regulations, etc.)

Contingent support (Guarantee):Political Risk;Project Performance Risk:

location riskoperational risk

Demand Risk:Allocation of government budget to support PPP projects in the annual budget:• 2006; Rp 2 trillion was allocated for land acquisition; • 2007; Rp 1 trillion allocated for establishment of the Indonesia Infrastructure Fund and

another Rp 1 trillion allocated for the Guarantee Fund; • 2008 – 2010; Rp 4.9 trillion has been allocated as government support for land capping;• Budget allocation in the APBN for direct support.

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PPP Central Unit (P3CU)Established in Bappenas and performed by the Directorate of PPP Development; The roles including:

Take a lead role in facilitating PPP promotion and in providing quality control of the PPP process;Standardize procurement rules and review bidding documents;Facilitate screening of projects subject to government support/financial assistance;Monitor PPP results and facilitate a dialogue with potential investors/financiers;Develop and implement communication strategy to the different stakeholders and know how to stakeholders;Updating the PPP Book.

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Indonesia Infrastructure Financing FacilityGOI

(MoF)

PT SMI

(GOI wholly owned)

PT IIFF (Subsidiary)

Subsidiary Debt ADB US$ 100 M

Subsidiary Debt WB US$ 100 M

On-lending

Sub-loan

GOI Equity Rp 1 T

Equity PT SMI Rp 0,60 T

Equity ADB US $ 40 M

Equity IFC US $ 40 M

Public Fund (capital market)

Equity IDB, KFW, JBIC dll

PPP Infrastructure Projects17

Product Mix

Guarantee FundCurrently in the finalisation stage, expected to be established in June 2009;One of the key objectives of the guarantee program is to reduce the cost of finance to infrastructure projects in Indonesia;Current Guarantee Scheme under PMK 38/2006 does not provide sustainability in term of provision of guarantee fund;

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Land Owner

Land Acquired

BLU DB

BPJT

MoF

Bina Marga

Payment OrderInvestor

Other Sources

Feasibility Consideration

Repayment

Repayment Order

MPW

P2T

Local Gov’t

AcquisitionReport

Handover of Acquired LAnd

Land Revolving Fund

AcquisitionReport

Indonesia Infrastructure Forum (IIF)

IIF will act as a neutral, independent and inter-stakeholders Forum addressing a wide range of emerging policy issues relatingto infrastructure, its development and growth.IIF will design a cohesive, decisive, and committed Forum to consolidate the views of the stakeholders (private sectors, associations, user-groups, NGOs, academicians, public-at-large etc…), to build-up consensus and to come-up with recommendations on policies related to infrastructure development.IIF will provide on a regular basis these recommendations to theGovernment of Indonesia, as inputs to the governmental process in setting-up policies on infrastructure development in Indonesia

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PPP Projects AchievementPPP projects in operation:

Toll roads: 20 sections (607 km)Power sector (IPPs): 12 (est. 4,000 MW) Port: 4 ports (2 in Jakarta, 1 in Surabaya, 1 in Batam)Water sector: 27 projects

PPP projects under construction:Toll road: 4 sectionsIPP: 13 projectsWater supply: 2 projects

PPP Concession awarded:Toll road: 17 sectionsIPP: 29 projectsWater: 1 projects

Projects in the PPP Book: total 87 projectsProject Ready to Offer : 8 projectsPriority Projects : 18 projectsPotential projects : 61 projects

PPP modality commonly used: BOT, BOO, ROT, O&M

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PPP BookBased on Presidential Instruction (Inpres) No. 5/2008 on Economic Development Focus 2008-2009;To confirm list of PPP Projects in the Government pipeline;To ensure that the PPP project planning is transparent and preparations are done properly; As an instrument to monitor the progress of PPP implementation;As a mean for cross-sector and inter-region synchronization and coordination for PPP project preparation;As a mean for Public Consultation on PPP projects.

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PPP BOOK – CRITERIA

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POTENTIAL PROJECTS

PRIORITY PROJECTS

PROJECTS READY FOR OFFER

1. Conformity with the National/Regional Medium Term Development Plan and the infrastructure sector’s strategi plan;

2. Conformity of the project’s location with the spatial plan;3. Linkage between the infrastructure sector and regioanl area;4. Cost recovery potential

1. Included in the list of PPP Potential projects or proposed by the contracting agency as unsolicited project;

2. Pre-FS shows that the project is feasible (legal, technical, economic and financial);

3. Project risks identified and allocated properly;4. PPP Modality defined; 5. Government support identified;

1. Bidding documents completed;2. PPP Procurement Team formed and capable to transact

project;3. Procurement schedule defined and agreed upon;4. Government support (if applicable) has been approved and

allocated

PPP PROJECT READY TO OFFERN0 PPP Project Location Project Cost (US $ )1 Medan - Binjai Toll Road North Sumatera 129 Million2 Medan – Kualanamu – Tebing

Tinggi Toll RoadNorth Sumatera 476 Million

3 Cileunyi – Sumedang – Dawuan Toll Road

West Java 395 Million

4 Tanah Ampo Cruise Terminal Bali 24 Million5 Palaci - Bangkuang Railway Central Kalimantan 740 Million6 Soekarno Hatta Airport -

Manggarai Railway Development

Jakarta and Banten 700 Million

7 Bandung Municipal Water Supply

West Java 54 Million

8 Central Java Power Plant Central Java 2,000 Million

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Summary of PPP Projects in the PPP Book

Summary of PPP Projects by Sector and Region

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InternalHarmonization of conflicting regulations within sector as well as cross-sector pertaining to PPP projects implementation; Acceleration of land acquisition process, particularly for toll road projects;Clarifying the provision of Government Support;Mobilizing the potential of domestic capital resources;Implementation of PPP projects listed in PPP Book.

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Global financial meltdown reducing the availability and capacity of private financing;Competition with other countries in attracting PPP project developers;

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Morgan Morgan StanleyStanley

RBSRBSDeutscheDeutscheBankBank

Credit Credit AgricoleAgricole

SocieteSocieteGeneraleGenerale

BarclaysBarclaysBNP BNP ParibasParibas UnicreditUnicredit

UBUBSS

Goldman Goldman SachsSachs

SantanderSantander

CitigroupCitigroup

JP MorganJP Morgan

HSBCHSBC

Credit SuisseCredit Suisse

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120

76 67 80 91108

93116

75100

116

255

165

215

16 4.6 10.3 17 26 7.4 32.5 26 35

27 35 64 19 85 97

Market capitalization per Jan 2009 in USD Billion

Market capitalization per Q2 2007 in USD Billion

External

Concluding RemarkGovernment has engaged into a comprehensive reform and will continue to expedite PPP project implementation in Indonesia;In this global financial difficulties, Government will seek the optimal combination of financing options to accelerate PPP development;We invite all stakeholders to support the development of infrastructure in Indonesia through PPP scheme.

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THANK YOUTHANK YOU