1 PPP in Indonesia: Risk Allocation Guideline - iigf.co.id · 3 PPP in Indonesia: Risk Allocation Guideline TABLE OF CONTENTS FOREWORD – PRESIDENT DIRECTOR, INDONESIA INFRASTRUCTUREGUARANTEE

1 PPP in Indonesia: Risk Allocation Guideline


FOREWORD

The increasing demand for infrastructure development to support Indonesia’s economic growth has led the Government of Indonesia to provide fiscal support and a

better framework in attracting private investment and participation of a measurable scale. On December 30, 2009 the Government of Indonesia has established

Indonesia Infrastructure Guarantee Fund or IIGF, as a State-Owned Enterprises (SOEs) under the Ministry of Finance which is responsible on providing government

guarantees for infrastructure projects developed under the Public Private Partnership (PPP) scheme. The critical roles of IIGF are:

As the GoI’s contingent support provider through provision of government-related contractual risk guarantees;

Enhancing the quality of the PPP transaction; and

Encouraging standardized and accountable approach for PPP implementation as being the single window processor for guarantee provision.

Through IIGF, the guarantees are made available with the aim of providing more certainty in achieving the necessary financial closing, by way of improving the

creditworthiness or bankability of the PPP projects. IIGF business models heavily relies on the current PPP and guarantee regulatory framework which should

emphasize on :

Project feasibility (technical, legal, economic, financial, social and environmental);

Contracting Agency’s readiness for implementation of PPP scheme; and

Ability of Contracting Agency to manage project risks which properly allocated to them.

With regards to the emphasis on the proper risk allocation, this Risk Allocation Guideline becomes very essential asa key reference in assessing and allocating risks

for the purpose of guarantee provision, as mandated by the regulation. This Risk Allocation Guideline is also intended to be a key reference for:

Contracting Agencies in developing the PPP Contracts as well as the Guarantee Application Package (GAP) to be submitted to IIGF for guarantee provision;

and

Investors and financiers in assessing their potential investment and financing for PPP projects in Indonesia.

Nevertheless, it is important to note that during implementation, some risk allocations may have variations to what have been outlined in this Guideline, as they are

subject to actual project and/or sector specific conditions, or agreed commercial position between the parties.

This Guideline is continuously improved and reviewed periodically, minimum once for every 12 months, by way of gathering feedbacks from key stakeholders as has

been conducted when developing this Guideline, such as: Ministry of Finance, Sectoral Ministries, Investment Coordinating Board, Bappenas, BPPSPAM, BPJT,

Regional Government, Investors and Developers, Banks, Multilateral Development Agencies, as well as Consultants and Experts in infrastructure risk.

Sinthya Roesly

President Director

Indonesia Infrastructure Guarantee Fund


TABLE OF CONTENTS

FOREWORD – PRESIDENT DIRECTOR, INDONESIA INFRASTRUCTUREGUARANTEE FUND ............................................................................................... 2 TABLE OF CONTENTS ..................................................................................................................................................................................................................... 3 LIST OF FIGURES ............................................................................................................................................................................................................................. 5 LIST OF TABLES ............................................................................................................................................................................................................................... 7 DOCUMENT LOG AND REVISION TABLE ...................................................................................................................................................................................... 8 DEFINITIONS AND GENERAL TERMS ............................................................................................................................................................................................ 10 GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT ........................................................................................................................................... 11 1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA ................................................................................................................................. 11 2 PPP STRUCTURES IN INDONESIA ............................................................................................................................................................................................ 12

2.1 GENERAL PPP STRUCTURE ....................................................................................................................................................................................................... 12 2.1.1 Usage-based PPP (Wholesale infrastructure) .................................................................................................................................................................. 13 2.1.2 Availability-based PPP (Retail Infrastructure) ................................................................................................................................................................... 13 2.1.3 Operation and Maintenance (O&M) Contract based PPP ................................................................................................................................................ 14

2.2 SECTORAL PPP STRUCTURE ..................................................................................................................................................................................................... 15 2.2.1 PPP Structure in Water Supply Sector ............................................................................................................................................................................. 15 2.2.2 PPP Structure in Waste Management Sector .................................................................................................................................................................. 16 2.2.3 PPP Structure in Toll Road Sector ................................................................................................................................................................................... 18 2.2.4 PPP Structure in Power Sector ........................................................................................................................................................................................ 20 2.2.5 PPP Structure in Energy Conservation Sector ................................................................................................................................................................. 22 2.2.6 Oil and Gas PPP Sector ................................................................................................................................................................................................... 23 2.2.7 PPP Structure Railway Sector .......................................................................................................................................................................................... 24 2.2.8 PPP Structure in Bus Rapid Transit (BRT) Sector ........................................................................................................................................................... 25 2.2.9 PPP Structure in Seaport Sector ...................................................................................................................................................................................... 25 2.2.10 PPP Structure in Airport Sector .................................................................................................................................................................................... 26 2.2.11 PPP Structure in Telecommunication Sector ................................................................................................................................................................ 28 2.2.12 PPP Structure in Urban Facilities Sector ...................................................................................................................................................................... 29 2.2.13 PPP Structure in Public Housing Sector ....................................................................................................................................................................... 30 2.2.14 PPP Structure in Hospital Sector .................................................................................................................................................................................. 31 2.2.15 PPP Structure in Education Sector ............................................................................................................................................................................... 32 2.2.16 PPP Structure in Sport Sector....................................................................................................................................................................................... 33 2.2.17 PPP Structure in Tourism Sector .................................................................................................................................................................................. 34 2.2.18 PPP Structure in Correctional Sector ............................................................................................................................................................................ 35

3 EVALUATION OF RISK ALLOCATION ASPECT FOR PPP PROJECT AND INFRASTRUCTURE GUARANTEE ROVISION .............................................. 36 3.1 RISK ALLOCATION PRINCIPLE IN THE CONTEXT OF PPP PROJECT IMPLEMENTATION ...................................................................................................................... 36

3.1.1 Risk Allocation Implementation in the Preparation and Transaction of a PPP Project .................................................................................................... 38 3.1.2 Risk Allocation Implementation in the Provision of Guarantee to PPP Project by IIGF ................................................................................................... 39

4 INFRASTRUCTURE RISK ALLOCATION GUIDELINE .............................................................................................................................................................. 40 4.1 PPP RISK CATEGORY ................................................................................................................................................................................................................ 40 4.2 RISK MATRICES BY PPP SECTOR ............................................................................................................................................................................................... 43


4.2.1 Risk Matrix for PPP Water Supply Sector ........................................................................................................................................................................ 43 4.2.2 Risk Matrix for PPP Waste Management ......................................................................................................................................................................... 49 4.2.3 Risk Allocation Matrix in Road Sector .............................................................................................................................................................................. 63 4.2.4 Risk Allocation Matrix in Electricity Sector ........................................................................................................................................................................ 71 4.2.5 Risk Allocation Matrix in Energy Conservation Sector ..................................................................................................................................................... 78 4.2.6 Risk Allocation Matrix in Oil and Gas Sector .................................................................................................................................................................... 82

4.2.7 Risk Allocation Matrix in Railway Transportation Sector ................................................................................................................................. 88 4.2.8 Risk Allocation Matrix in Bus Rapid Transit (BRT) Sector ................................................................................................................................................ 95

4.2.9 Risk Allocation Matrix in Seaport Sector ................................................................................................................................................... 103 4.2.10 Risk Allocation Matrix in Airport Transportation Sector .............................................................................................................................................. 109 4.2.11 Risk Allocation Matrix in Telecommunication Sector .................................................................................................................................................. 116 4.2.12 Risk Allocation Matrix in Urban Facilities Sector......................................................................................................................................................... 122 4.2.13 Risk Allocation Matrix in Health Sector ....................................................................................................................................................................... 128 4.2.14 Risk Allocation Matrix in Public Housing Sector ......................................................................................................................................................... 135 4.2.15 Risk Allocation Matrix in Education Sector ................................................................................................................................................................. 141 4.2.16 Risk Allocation Matrix in Sport Facility Sector............................................................................................................................................................. 147 4.2.17 Risk Allocation Matrix in Tourism Sector .................................................................................................................................................................... 154 4.2.18 Risk Allocation Matrix in Correctional Sector .............................................................................................................................................................. 160

5 SUMMARY .................................................................................................................................................................................................................................. 167


LIST OF FIGURES

Figure 1. Usage-based PPP or Wholesale Infrastructure .......................................................................................................................................... 13

Figure 2. Availability-based PPP or Retail Infrastructure........................................................................................................................................... 14

Figure 3. Water BOT Structure ............................................................................................................................................................................. 16

Figure 4. Waste Water Management BOT/BOOT and AP Structure .......................................................................................................................... 17

Figure 5. PPP Waste Water Management Structure ................................................................................................................................................ 18

Figure 6. Toll Road Full Concession Structure ........................................................................................................................................................ 18

Figure 7. Toll Road O&M Structure ........................................................................................................................................................................ 19

Figure 8. Combination of Toll Road Concession and O&M Structure ......................................................................................................................... 19

Figure 9. Toll Road and Non Toll Road AP Structure ............................................................................................................................................... 20

Figure 10. Electricity BOT Structure ...................................................................................................................................................................... 21

Figure 11. Electricity BOO Structure ...................................................................................................................................................................... 21

Figure 12. Minemouth BOT Stucture ..................................................................................................................................................................... 22

Figure 13. Street Lighting (PJU) or Energy Efficiency .............................................................................................................................................. 23

Figure 14. Oil Refinery BOT Structure ................................................................................................................................................................... 23

Figure 15. Railway Full Concession Structure ......................................................................................................................................................... 24

Figure 16. Railway O&M Structure ........................................................................................................................................................................ 24

Figure 17. BRT BOT Structure .............................................................................................................................................................................. 25

Figure 18. BRT O&M Structure ............................................................................................................................................................................. 25

Figure 19. Seaport Full Concession Structure ......................................................................................................................................................... 26

Figure 20.Airport Full Concession Structure ........................................................................................................................................................... 27

Figure 21. Airport O&M Structure .......................................................................................................................................................................... 28

Figure 22. Fiber Optic Network AP Structure .......................................................................................................................................................... 28

Figure 23. Public Market BOT Structure ................................................................................................................................................................. 29

Figure 24. Public Market AP Structure ................................................................................................................................................................... 30

Figure 25.Public Housing BOT Structure ................................................................................................................................................................ 30

Figure 26. Public Housing AP Structure ................................................................................................................................................................. 31

Figure 27. Hospital AP Structure ........................................................................................................................................................................... 31

Figure 28. School/Colleges AP Structure ............................................................................................................................................................... 32

Figure 29. Indicative structure of AP Payment Scheme of PTN-BH........................................................................................................................... 33


Figure 30. Sport BOT Structure............................................................................................................................................................................. 33

Figure 31. Sport AP Structure ............................................................................................................................................................................... 34

Figure 32. Tourism AP Structure ........................................................................................................................................................................... 35

Figure 33. Prison AP Structure ............................................................................................................................................................................. 35

Figure 34. Prison AP Structure ............................................................................................................................................................................. 36

Figure 35. Sequence of PPP Risk Allocation Logic .................................................................................................................................................. 37

Figure 36. IIGF Risk Allocation Guideline and the Prevailing PPP and Infrastructure Guarantee Framework .................................................................. 40


LIST OF TABLES

Table 1. Features of PPP Structure Options ................................................................................................................................................................................ 14

Table 2. Ilustration of Risk Allocation in the PPP Agreement ...................................................................................................................................................... 39

Table 3. Risk Matrix for Water BOT ............................................................................................................................................................................................. 44

Table 4. Risk Matrix for Solid Waste BOT ................................................................................................................................................................................... 50

Table 5. Risk Matrix for Wastewater Sector ................................................................................................................................................................................. 58

Table 6. Risk Matrix for Toll and Non-Toll Road .......................................................................................................................................................................... 64

Table 7. Risk Matrix for Electricity Sector .................................................................................................................................................................................... 71

Table 8. Risk Matrix for Energy Conservation Sector .................................................................................................................................................................. 78

Table 9. Risk Matrix for Oil and Gas Sector ................................................................................................................................................................................. 82

Table 10. Risk Matrix for Railway Sector ..................................................................................................................................................................................... 89

Table 11. Risk Matrix for BRT Sector........................................................................................................................................................................................... 95

Table 12. Risk Matrix for Seaport Sector ................................................................................................................................................................................... 103

Table 13. Risk Matrix for Airport Sector ..................................................................................................................................................................................... 109

Table 14. Risk Matrix for Telecommunication Sector ................................................................................................................................................................ 116

Table 15. Risk Matrix for Urban Facitilities (Market) Sector....................................................................................................................................................... 123

Table 16. Risk Matrix for Health Sector ..................................................................................................................................................................................... 129

Table 17. Risk Matrix for Public Housing Sector ........................................................................................................................................................................ 135

Table 18. Risk Matrix for Education Sector ................................................................................................................................................................................ 142

Table 19. Risk Matrix for Sport Facility Sector ........................................................................................................................................................................... 148

Table 20. Risk Matrix for Tourism Sector ................................................................................................................................................................................... 154

Table 21. Risk Matrix for Correctional Sector ............................................................................................................................................................................ 161

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DOCUMENT LOG AND REVISION TABLE

Version Description Notes

March 2011 First edition A dedicated workshop for gathering the inputs was conducted on 25-26 February 2011.

April 2012 Second edition A dedicated workshop for gathering the inputs was conducted on 14-15 March 2011. The improvements include: update on the PPP regulation (as enactment of Presidential Regulation 56/2011) update/add diagram describing PPP risk allocation implementation framework in relation to infrastructure

guarantee provision and to basic risk management process update on risk matrices, including additional column on specific conditions related to risk allocation add new PPP structures (and their risk matrices):

o Electricity: BOT minemouth o Toll road: Combination of Concession and O&M o Waste Management: BOT wastewater

April 2013 Third edition Based on inputs gathered thru discussions (e.g. face to face, mail, email and website), the improvements include: additional (and sharpening) risk event and mitigation strategy for the risk matrices, such as:

o land tenure risk (duplication of land ownership) o culture risk o operational risk – failure on project management (by PC) o operational risk – failure on project control & monitoring (by PC or CA)

March 2014 Fourth edition A dedicated workshop for gathering the inputs was conducted on 20-21 March 2014. The improvements include: update on the PPP regulation (as enactment of Presidential Regulation 66/2013 and VGF regulation) update on the description of cooperation scheme for water supply sector, waste management sector, toll

road sector, railway sector, seaport sector and airport sector additional (and sharpening) risk event and mitigation strategy for the risk matrices, such as

o limited workspace risk (for the project that needs lengthwise location) o local culture risk -> social and culture risk o tariff related risk: the needs for regulatory support (regulation for CA regional) o demand and revenue risk: socialization and eligibility support program o Expropriation: that contrasted to the takeover with compensation (nationalization)

March 2015 Fifth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from February 2 to 27, 2015. The improvements to the previous version, include:

Description on the preferences of the PPP scheme in RPJMN 2015-2019, overview of sectors and structures that may be undertaken in cooperation with the PPP scheme as in the just recently updated PPP regulation;

Adjustment of narration about reference on context of the elimination of Law No. 7 of 2004 on Water Resources;

Additions / adjustments of narration about cooperation of port sector and other sectors;

Some adjustments to the specific context and the typo in the matrix

Adjustment of additional risks in the matrix

March 2016 Sixth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from March 1 to 28, 2016. The improvements to the previous version, include:


Version Description Notes

Explanation on the overview of sector and structure that may be undertaken in cooperation with PPP scheme as in the just recently updated PPP regulation;

Improvement in PPP project structure figures;

Additions explanation of the recently updated regulation, particularly related to Availability Payment (AP) and Water Supply sector;

Additions / adjustments of narration about risk management process;

Some adjustments on specific contexts and typo in matrix;

Adjustments of risk category in matrix; and

Simplify the presentation of risk in one sector.

April 2016 Seventh edition Based on inputs gathered from stakeholders, both written and through discussion in the period from April 1-29, 2016. The improvements to the previous version, include:

Improvement of risk allocation matrix for Toll Road concession scheme, especially related to revenue risk during the ramp up period; and

Addition figure for indicative structure of AP Payment Scheme of PTN-BH (State University with Legal Entity status).

March 2017 Eighth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from Februari 8 – March 8, 2017. The improvements to the previous version, include:

Additions definition of BOOT;

Adjustment of PPP scheme definition and scope of works;

Improvement of risk allocation matrix, especially for electricity sector and oil and gas sector;

Additions of structure and risk matrices for bus rapid transit sector and correctional sector;

Additions of narration on project structure explanation in minemouth, water supply sector, and solid waste sector; and

Additional (and sharpening) of risk event and mitigation strategy for risk matrices.


BOO

BOT

PC

Financial Close

IIGF

(Full) Concession

PPP

Off-taker

CA

BOOT

DEFINITIONS AND GENERAL TERMS

Build Operate Own- a PPP contract under which the private party is responsible for the design, construction, operation and transfer of ownership

of the facility upon expiration of the contract period

Build Operate Transfer– a PPP contract under which the private party is responsible for design, financing, construction, operation of the

infrastructure facility and for which it retains ownership during and after the contract period.

Build Operate Own Transfer - a PPP contract under which the private party is responsible for design, financing, construction, operation and own

an infrastructure facility during the contract period and then transfer the ownership at the expiry of the contract.

Project Company; private business entities in the form of a limited liability Company, State-Owned Enterprises (BUMN), Regional-Owned

Enterprise (BUMD), and cooperatives which is the Contracting Agency (CA)’s or Government Contracting Agency (GCA)’s counterparty under

the PPP contract.which is the Contracting Agency (CA)’s counterparty under the PPP contract

The date at which all project contracts and financing documentations have been signed, and conditions precedent to initial drawing of the debt

have been fulfilled.

Indonesia Infrastructure Guarantee Fund a government-owned entity bearing mandate for infrastructure guarantee provision. Also known as PT

Penjaminan Infrastruktur Indonesia (Persero) (PT PII)

a PPP in which the private sector collects revenue for service fees directly from end users, general public in the form of tolls, fares or other

charges for using the facility.

Public Private Partnership or Kerjasama Pemerintah dan Badan Usaha.as stipulate in the current regulation (i.e. Presidential Decree No

38/2015);

Purchaser of infrastructure service in a PPP contract, usually the public utility company as part of the CA.

Contracting Agency – the project owner or the public sector counterparty in a PPP contract (as stipulated by the prevailing regulations). Also

known as Public Authority or Implementing Agency or Penanggung Jawab Proyek Kerjasama (PJPK) or Public Authority (PA) or Implementing

Agency (IA). Based on current regulation, the CA can be a Minister or Chairman of the Institution/Regional Head, or State-Owned Enterprises

(BUMN), Regional-Owned Enterprise (BUMD) in terms of regulation, provision of infrastructure organized or conducted by BUMN/BUMD.


GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT

The infrastructure challenges in Indonesia are imminent. As Government budget has its limitation, hundreds of trillions Rupiah are expected to come from private

sectors within a couple of years to help infrastructure development. Related to this need, the Government of Indonesia (GOI) has provided the regulatory and

institutional framework to attract interests from private sector, including participation in infrastructure projects under Public Private Partnership (PPP) schemes.

Citing the National Medium Term Development Plan 2015-2019, the PPP scheme is expected to be the backbone of development financing is cost-recovery,

especially in areas where people's purchasing power has been able to implement the user pay principle as in urban areas. Public funding will be prioritized to finance

development in areas of low income communities, accelerating the development of regional priorities and the services that are social or non-cost recovery. Policy

funding will also be directed to open up opportunities for hybrid financing that combine the potential of funding from the public sector, private and society. The

combination of the financing will be done in a variety of innovative in an effort to accelerate the development in various fields

In the context of the provision of fiscal support for those infrastructure projects, in December 2009, GOI has established PT Penjaminan Infrastruktur Indonesia

(Persero) (PT PII), or Indonesia Infrastructure Guarantee Fund (IIGF), a state-owned enterprises that are mandated to provide guarantees for private sector’ risks of

not-compliance with the financial obligation of the public or Contracting Agency (CA) under the PPP contract which may be thriggered by breach of contract and

changes in laws and regulations, IIGF and its guarantees are designed to increase investment comfort to private investors and lenders, and to ultimately accelerate

PPP project implementation in Indonesia.

1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA

In order to improve the creditworthiness of infrastructure projects as an effort to encourage private sector participation in the provision of infrastructure, the

government guarantee can be granted to infrastructure projects provided under PPP scheme, as just recently stipulated in Presidential Regulation No. 38 year 2015

on cooperation among Government and private entity in the provision of infrastructure (replace Presidential Regulation No. 67 of 2005 and its amendment) ("PPP

Regulation"). As stated in the regulations, the provision of government guarantees may be given by the Minister of Finance (MoF) through a Government established

entity to provide infrastructure guarantees (Business Entity for Infrastructure Guarantee). Based on Government regulations No. 35 Year 2009, IIGF is established

through state capital injection with the purpose of providing guarantees to infrastructure.

Provision of infrastructure guarantee through IIGF is regulated further through the Presidential Regulation No. 78 of 2010 on Infrastructure Guarantees for Public

Private Partnership Projects through the Infrastructure Guarantee Entity for ("Presidential Regulation 78/2010"), and Minister of Finance Decree No.

260/PMK.011/2010 on Implementation Guidelines for Infrastructure Guarantees in PPP Projects ("MoFD 260/2010"). In this book, these regulations are defined as

“Infrastructure Guarantee Regulation”. Further, the Government through the Minister of Finance Regulation No. 223/PMK.011/2012 has issued regulation about

providing feasibility support (viability gap fund) as a form of Government support for the project that economically viable but has limited financial feasibility. Lastly,

the Government, through the Minister of Finance Regulation No. 190/PMK.08/2015 about the payment of the availability of services in cooperation between the

Government and business entities in the provision of infrastructure.

Clause 11 of MoFD 260/2010 mandates IIGF to develop a guideline on infrastructure risk category and its allocation between the public and private sector (“Guideline

for Risk Category and Risk Allocation” or simply “Risk Guideline”), as a key reference for the CA in developing PPP contracts, as well as preparing and proposing

Guarantee Application Package (GAP) to IIGF, and for investors and financiers in assessing their investment and financing in Indonesia opportunities PPP project.

It is important to note that during implementation, some risk allocations may have variations to what have been outlined in this Guideline, as they are subject to

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actual project and/or sector spesific conditions, the generally accepted practice, sectoral regulatory contexts or agreed commercial position between the parties.

The Risk Guideline is developed through consultation with key stakeholders, e.g. MoF, Bappenas, BKPM, relevant CAs (Ministries, Regional Governments),

investors/developers, banks, multilateral development agencies, and other parties with competencies in the field of infrastructure risk. This guideline is also part of

publication series by IIGF and is complementary to the IIGF Guarantee Provision Guideline. These document serve as key references for IIGF in assessing the

viability of the GAP submitted by the CAs to IIGF.

2 PPP STRUCTURES IN INDONESIA

In developing this Risk Allocation Guideline, relevant PPP structures eligible under prevailing regulation in Indonesia serve as the basis to identify infrastructure

risks. Besides the generic, cross-sectoral PPP structure, specific PPP sectors are identified to be included in this Guideline. Such sectors include:

1. Water supply

2. Waste management

3. Toll road

4. Power supply

5. Energy conservation

6. Oil and gas

7. Railway transport

8. Airport

9. Seaport

10. Telecommunication

11. Urban facilities

12. Public housing

13. Health

14. Education

15. Sports

16. Tourism

17. Bus Rapid Transit

18. Correctional

Some sectors of economic and social infrastructure also has the potential to be applied, such as regional infrastructure, have not been incorporated into the study

on the basis that there is no potential projects that will be prepared in 2017.

2.1 General PPP Structure

Based on PPP Regulation, referring to the respective sector regulationthe CA can be the Minister or Head of Agency or Head of Regional Government, and in

terms of legislation of the public infrastructure provision is carried out by Central SOE or regional SOE, then the CA role is bourne by the said Central/Regional

SOE, thus the CA is the Central/Regional SOE (BUMN/BUMD). The CA along with public institution that affect PPP are stakeholders from government side. In

this Guideline, structure that is presented is a generic form which is a reference only and is not rigid, by considering the regulation dynamic, as wel l as the

situation and condition of projects reviewed.

Furthermore, element of stakeholders from the private sector is generally divided into private, the supporting of construction and operation aspects, and the

supporting financing aspects. Private is a contracting party of PPP and is responsible for the infrastructure and services provided in accordance with the output

specifications which contained in the contract. The supporting of construction and operation aspects, consist of design consultant, contractor, and operator. The

function of design consultants and contractors can be unified by selecting the Company’s Engineering, Procurement, and Construction (Engineering,

Procurement, Construction – EPC). The supporting parties of construction and operation aspects have engagement contract with the private sector aims to

make available infrastructure and the services provided under the PPP contract. The supporting of the financing aspects are the Project Sponsor and the

Lenders. The Project Sponsor are persons/companies individual/consorsium companies/cooperatives that provide private capitalization in accordace with the

requirements of the PPP contract, or also called investor. Generally, the project financing will not be fully sourced from the capital, but there is also financing

from the Lenders. Lenders are financial or banking institution either single or syndication which provides loans for project financing. Private do the loan

agreement with the Lenders that aims to finance project can be fulfilled and Private can be able to repay in accordance with specified requirements. Fulfillment

of project financing (financial close) is a key factor for early and sustainability of a project. Therefore, financial close become one of a


indicator that must be met in Consitions Precedent (CP) prior to the commencement of the contract effectively. The Government could provide various forms of

support such as the viability gap funding (VGF), tax incentives, partial construction support, etc. Beside that, the Government guarantee may also be given to

the projects through IIGF.

For the purpose of developing this Guideline, the PPP structure is classified based on the nature of service and inherent risks transfer inherent in the PPP

contract. The modalities of basic PPP project structure are Usage-based PPP and Availability-based PPP structure, which the application is based on an

assessment on option of cooperation scheme to formulate a business case to the scope of the project.

2.1.1 Usage-based PPP (Wholesale infrastructure)

In this structure, the scope for PPP is basically the entire works that previously be the responsibility of the public sector. As shown in the figure below, Private

directly providing infrastucture services to retail customer/end-users, which the Government act more as a regulator.

This structure has known as Full Consessions model (in Indonesia known as

“Consession” model) and is generally used in the toll road sector, the transport

sector (e.g. railway, seaport) and the utility sector (e.g. waste water). As

shown, the CA contractually agrees to provide the PC a concession right for

delivering the wholesale service during the PPP period. In certain sectors

where exploitation by the private sector is still considered sensitive (e.g. water

supply), the implementation of this scheme needs to be examined more

carefully, especially in the preparation of the concession agreement includes

coverage of a certain area that are not served by the existing services of the

public sector entity.

2.1.2 Availability-based PPP (Retail Infrastructure)

In these structure, the scope of work in this PPP structure only includes portions of entire works that previously be the responsibility of the public sector. Most

of this type of services include business process services as part of the infrastructure. Type of the services provision may include the the provision of generating

units/processors (“facility”), transmission provision of raw materials for the facilities, construction, and operations of major facilities to support services (such as

education and health sectors), or the output distribution facility to the main network to the subscriber.

Figure 1. Usage-based PPP or Wholesale Infrastructure


As shown in the Figure, Private receive periodic payments from Private

during the contract period for the availability of facilities and infrastructure

services. Components include the periodic payments of the return on

investment (CAPEX), operating costs, and Return on Investment (ROI). As

users paid services to the Government and also through work units that

managed by BLU.

The contractual structure in this type of PPP applied in Build Operate

Transfer (BOT) scheme or other scheme which permitted by regulation as

long as the status of ownership of the asste at the end of the concession

belongs to the government. In that scheme, the Private is typically

responsible for design, construction, financing and operation and

maintenance of the facility, of which the result will be utilised/purchased by

the public sector’s CA.

2.1.3 Operation and Maintenance (O&M) Contract based PPP

In addition to the above 2 (two) structures, based on the PPP Regulation as also relevant to the potential applications especially in transport sector, the Operation

and Maintenance (O&M) contract could also be discussed further in this guideline. As it does not include the implementation and financing of construction

facility, O&M contract may refer to a Lease contract which enables the PC to be responsible for the management, operations and specific renewals of the

contracted facility.

During the PPP contract, it is the private sector who is responsible to provide the infrastructure services, but the ownership of the facility is kept by the public

sector as a party to make a capital investment. In other countries, the O&M contract can be shaped as affermage contract and lease contract. Below is the

description of features of the various PPP structures.

Table 1. Features of PPP Structure Options

Activities Availability-based Usage-based O & M

Ownership of asset during contract Private Private (except BTO) Government

Investment / Funding Private Private Government

Construction Private (+ Government, if regional project)

Private (+ Government) Government

Operation & Maintenance Private Private Private

Services and tariff collection to retail consumers / end users

Private/Government (depends on project scope)

Private Private/Government (depends on project scope)

Contract length (typically, by sectors) <20 years 20-50 years 5-15 years

Figure 2. Availability-based PPP or Retail Infrastructure


Activities Availability-based Usage-based O & M

Customers Single customer/CA Retail customer/End-user Single customer/CA or Retail customer/End-user

Source of cash flow Payments by CA Payments from consumers Percentages of revenue from tariff

2.2 Sectoral PPP Structure

2.2.1 PPP Structure in Water Supply Sector

Structure of PPP in water supply sector refers to applicable regulation regarding water supply system and PPP Regulation. Based on

Presidential Regulation No. 122 of 2015 on Water Supply System, Central SOE/Regional SOE (PDAM/PDAB) in water supply is the CA

of SPAM development. In terms of Central SOE/Regional SOE financing capacity to fulfill the needs of SPAM Operation with a piping

network inside and outside the service area is inadequate, Central SOE/Regional SOE can cooperate with PC based on the principles that

covering: Water Intake Permit which is owned by Central SOE/Regional SOE and SPAM Operation by prioritizing low-income communities.

Cooperation with PC can only be done in the form of:

1. Investments of SPAM Development and/or SPAM Management of the raw water and production units;

2. Investments of distribution units which is further operated and managed by related Central SOE/Regional SOE; and/or

3. Investments of operating technology and maintenance in order to provide an effective and efficient of SPAM Operation with performance-based

contracts mechanism.

However, for areas outside of the Central SOE/Regional SOE services, Government or Local Government can establish the Technical Services Unit (UPT) or

Local UPT (UPTD).

In line with the regulations and the current projects implementation, the PPP structure which can be applied only an availability-based structure with BOT

scheme. In terms of inadequate PDAM financing capacity is is and to provide comfort in investment for PC, the Regional Head can be involved in PPP agreement

in accordance with its authority. This because the CA’s credibility play an important role for the successful project implementation.

2.2.1.1. Water BOT

The Private can invest in a one or combination of the build, operate, and maintain the water unit and production unit, build the distribution unit up, and/or

hold, operate, and maintain the operation and maintenance technology system, but not taking the demand risk or retail tariff collection tasks. In the bulk

water sales agreement, the resulted water from process done by the PC then sold to CA where PC will get compensation for the water treatment

services.

Figure 3. is the generic form of Water BOT scheme with PDAM/PDAB as CA. The project structure adopted an Availability Payment scheme. In this

case of services, CA specified in the contract to be able to provide a certain quantity, with the required quality of service, and continuity is assured during

operation period. SPAM development of inter-district/city is the responsibility of the Provincial Government, such as the Umbulan Regional SPAM


Project.Another important thing, the success key of project transaction is the Private sector (particularly lenders) need to be convinced that CA

demonstrate good creditworthiness in fulfilling the periodic payment obligation during the contract period.

2.2.2 PPP Structure in Waste Management Sector

In waste management, the project structure can use an availability-based PPP structure with BOT scheme. As for the solid waste management sector can use

the usage or availability-based PPP structure with BOT or BOOT scheme. The CA in this sector, in accordance with regulation, would be the Central Government

or Regional Government (i.e. city or municipal government or provincial government) depends on scope of of the project.

2.2.2.1. Solid Waste BOT/BOOT

By referring to applicable PPP regulation, one of the scope of cooperation is the downstream side of waste treatment, which is

built dan operate the waste treatment facility at Final Disposal facility. Besides allowed by regulation, the scope of cooperation in

the upstream side of waste management (waste transportation) or downstream side (final disposal) are quiet attractive for investors

(as long as not including the billing collection), due to the public awareness to make payments of waste retribution is still low and

the waste problem not yet considered as important issues.

Figure 3. Water BOT Structure


Figure 4. Waste Water Management BOT/BOOT and AP Structure

The Regional Government as the CA (usually as the waste supplier which collects from the domestic and non-domestic customers) would pay a tipping

fee for the service provided by the PC either in transporting waste and through the Final Disposal facility in form of tipping fee or customs gate. Depending

on the selection of technology applied, the output from the process done by the PC could be utilized or sold to generate additional revenue to the PC

(e.g. the electricity to be sold to PLN-state utility company or sales of processed products such as compost or brick). If adopted the AP payment scheme,

the sales of solid waste management output become Government income. At the end of the BOT/BOOT contract period, the ownership of the Final

Disposal facility shall be handed over to the CA. Nambo Regional TPPAS Project in West Java and Waste to Energy (WTE) of Batam Project are an

example of the PPP projects implementation in this sector.

2.2.2.2. BOT Waste Water Management (Centralized or Local)

Similar to the Solid Waste sector, the project can be done in BOT structure. In this case, PC only responsible build, operate, and

maintain the Wastewater Treatment Plant (IPAL), while the construction, operation, and maintenance of the main pipeline and

collection network including billing to retail customers commonly become Government responsibility. However, this scope can be

change depends on character of customer served (residential industrial).


Government as CA provide payment for services provided by PC. At the end

of the BOT contract period, the ownership of the infrastructure shall be

handed over to CA. Based on an early understanding on the current

regulations, the regional utility company such as PDAM (according to

Presidential Regulation No. 122/2015) or PD PAL in Jakarta can act as the

CA as long there is an assignment from the Head of Region.

In contrast to waste management, the output of waste water is still in the

form of water and sludge. The utilization of waste water can only be used

for the surrounding environment, has not for the commodity that could be

able increase a revenue yet. The PPP project in waste water management

sector that currently running (preparation stage) in Jakarta.

2.2.3 PPP Structure in Toll Road Sector

PPP can be run in toll road sector, as it is currently running and also in non-toll road sector. For toll road sector, so far the PPP is perfomed

through a wholesale infrastructure (usage-based type) scheme. The CA in toll road sector would be Toll Road Authority (BPJT) in Ministry

of Public Works and Housing, in the name of Minister. As for the non-toll road sector, PPP scheme in the form of availability-based

scheme. CA in a non-toll road sector refers to road

classes (national roads, provincial roads,

district/city roads). In the toll road sector there is

also known a Supporting BOT (SBOT) scheme,

which is applicable for toll road projects with BOT scheme that get the

Government support in form of Viability Gap Funding (VGF) or

construction of certain sections of the toll road. This scheme is also called

as Combination of Concessions and O&M scheme (Hybrid).

2.2.3.1. Toll Road BOT

In this structure, the users pay for the toll road services to the PC

as the concession (right) holder which is responsible for the

design, construction, operation and maintenance of the facility

until end of contract period. The concession is typically granted

to the PC with BOT type of structure. Demand risk and tariff-

related risk is most concerned risks for PC. For new roads where

the volume of vehicle users are still limited and uncertain, PC typically require fiscal support to demand risk, either directly or indirectly.

2.2.3.2. Toll Road O&M

Figure 5. PPP Waste Water Management Structure

Figure 6. Toll Road Full Concession Structure


In this scheme, the PPP scope is the operation and maintenance

of the available facilities. Therefore, design, construction and

financing of the toll road which is not included facility as the scope

of PC works. This structure can be chosen on a case:

A toll roads are not able to achieve a good commercial

viability if the investment costs included in the scope of PPP

offered; or

A toll roads infrastructure which has been shifted to the

Government after the end of concession period.

PC as operator (in this type of contract) will maintain the facility

and collect toll fee from users on behalf of the Government (as

the owner of the toll roads). In practice, PC can pay a concession

fee to CA and keep the residual payment from the collected tolls

as the PC income, or revenue sharing scheme between

Government and PC in accordance with agreement as stipulated

in the contract.

2.2.3.3. SBOT (Combination of Full Concession and O&M –

Hybrid)

This combination structure, also known as the hybrid scheme, can

be applied as the solution for a toll road network consisting

sections which are built and financed by various financing

sources. In this scheme, scope of work to be covered as PPP is

separated by different section, but included as one contract. Thus,

the risk profile for each party involved will be distinguished based

on the section being concerned. In this scheme, other than

revenue risk and tariff risk, the interface risk is also need to be

concerned by the PC. Toll road projects such as Cileunyi-

Sumedang-Dawuan (Cisumdawu), Balikpapan-Samarinda, and

Manado-Bitung are kinds of project that applied this scheme.

2.2.3.4. Toll Road and Non-Toll Road - Availability Payment

(AP)

Figure 7. Toll Road O&M Structure

Figure 8. Combination of Toll Road Concession and O&M Structure


This scheme can be applied to the toll road which is not financially viable, but economically viable and non-toll road. The implementation of this scheme

on the toll road is also called as Performance Based Annuity Scheme (PBAS), due to the opening of the toll road access can accelerate the isolated

region development, equitable development, or other strategic issues. The implementation in a non-toll roal intended for the fulfillment of minimum

service standards for non-toll roads, so the comfortness level, security, and safety of users can be improved. In the AP structure, the PC’s income is

only from AP’s payment.

Figure 9. Toll Road and Non Toll Road AP Structure

In a Toll Road case, UPT BLU responsible of payment collection from users, as the PMU in maintain the BU’s performance, and make a AP payments

according to PC’s performance. If E-Toll system has apllied and runs in PPP with AP scheme at the entire toll gates, the revenue of electronical ticket

payment can be deposited to Treasury Funds directly.

In a Non-Toll Road case, the Government appointed the PMU to maintain the PC’s performance, and ake a AP payments according to PC’s performance.

The PC’s scope includes design, build, and maintain the non-toll road or only maintain the roads during a certain period. The selected PC should be a

competent contractor in road development and maintainance so the cost and sub-contractor risk can be minimilize.

2.2.4 PPP Structure in Power Sector

In electricity sector, the PPP has been implemented only in the electricity generation part through the IPP (Independent Power Producer)

scheme, instead of other parts of the infrastructure provision service (e.g. transmission, distribution, tariff collection). Although, can uses

either a BOT or a BOO scheme, Indonesia's PPP project are likely to use BOT scheme which the ownership of assets transferred to the

public sector (PLN) after the expiry of the PPP contract (during the contract period the power plant is owned by the private IPP). The AP

scheme is considered and need further assessment, especially for off-grid electricity infrastructure (outside the network). Currently, this

Guideline only discuss about the BOT and BOO scheme in the electricity sector.


2.2.4.1. Electricity BOT

Contractually, PC or the IPP is responsible for the design,

construction, financing and operation and maintenance of the

electricity generating facility (the plant), then transfer the asset’s

ownership to the Government at the end of concession period. The

electricity generated by the plant is then sold by the PC to the PLN

as the State-Owned Company (BUMN) in an electricity sector and

also as the CA in a Power Purchase Agreement (PPA).

The PLN as the single off-taker pays for the electricity to PC in

periodical basis using a take-or-pay arrangement during PPA

period. Thus, the credibility of the PLN in serving the financial

obligation has always been the most concerned risk. PLTU Batang

Project is the example of IPP or the Electricity PPP which is

currently under preparation for construction.

2.2.4.2. Electricity BOO

Contractually, BOO scheme is not much different with BOT

scheme. The differences lies in the asset ownership status at the

end of the concession, the asset ownership remains at PC. The

electricity that power generated still sold by PC to PLN as the single

buyer (single off-taker) and also as the CA through the PPA.

PLN payments are conducted regularly on the take-or-pay

payment basis during the PPA. Therefore, the risk of fulfillment of

PLN’s financial obligation will remains as a major risk. The project

which is suitable with BOO scheme generally is renewable energy

projects.

2.2.4.3. Minemouth BOT

A minemouth power plan project is basically a coal-fired power

plan with below features:

- it is built with the rationale of minimizing the risks stemming

from supply uncertainty and price escalation of the coal as the fuel;

- coal transport cost component is relatively low due to the proximity of the coal mining location to the plant;

- relatively low quality of the coal as the fuel requires the plant to have an extra facility/technology to improve the coal quality. This will eventually

cause the plant construction and operation cost to be relatively higher than the other plant; and

Figure 10. Electricity BOT Structure

Figure 11. Electricity BOO Structure


- the plant location is typically remote from the main transmission line which requires further cost for extra transmission facility.

Figure 12. Minemouth BOT Stucture

As a PPP project, the variation toward the risk allocation scheme in this minemouth plant is not only depending on the chosen PPP structure. The issues

of ownership of the coal mining and determination of both mining and plant’s location will be very important variables influencing the risk allocation

scheme in the project. As an illustration in developing the risk matrix, the PPP structure for the selected minemouth project option is a BOT (considering

higher technology required by the plant) and where the location of coal mining is determined by (and then owned by) PLN as the CA.

As seen from the above structure, the scope of work as PPP is similar to he typical BOT scheme which is design detail, construction, operation, and

maintenance of generating facilities in order to provide electricity for the purchsed periodically and distributed by PLN to customers. The main distinction

would be on the risk profile to the parties involved, mainly the coal supply uncertainty and the coal price escalation (in addition to the risk related to the

mine acquisition and the mine operation to PLN in this minemouth project option). Beside that, the transmission network connectivity risk should also

be considered. The mitigation to be done is the clarity about who would bear the costs and the risk related to the development of additional transmission

line to be connected with the main transmission network, should be stipulated in the contract between PLN and IPP. The PLTU Sumsel 9 and 10 project

is one of example of the PPP projects that being prepared with this scheme.

2.2.5 PPP Structure in Energy Conservation Sector


In Energy Conservation Sector, the output of PPP

project is the efficiency in energy usage. Energy

efficiency projects, among others can be PJU

electrical efficiency by using LED lights and/or

solar energy use, or energy efficiency of a

building. Generally, PC is making an investments

to provide, operate, and maintain the

infrastructure facilities and services during a certain period. Considers

current regulation, the Availability Payment (AP) scheme be an PPP

scheme option in this sector.

2.2.5.1. Energy Conservation AP – Street Lighting (PJU)

This scheme applied to PPP Public Street Lighting (PJU) by

considering that PJU services is not user charge, although

people pay PJU tax collected by PLN, but the service availability.

PJU collected tax is a retribution which can not be an income for

PC. Therefore, the AP scheme can be an option. PPP project is highly depends on the road status and the assets located there, so it is necessary to

study the legal aspects first.

2.2.6 Oil and Gas PPP Sector

In the Oil and Gas Sector, PPP can be applied for

processing, storage, transportation, and/or

distribution infrastruktur. PPP projects in this sector

is currently none in Indonesia. The Bontang

Refinery PPP Project that was planned to be run as

PPP project is converted into direct assignment to

PT Pertamina (Persero) in accordance with the

Decree of the Minister of Energy and Mineral Resources No. 7935

K/10/MEM/2016 on assigment to PT Pertamina in the Development and

Operation of Oil Refinery in Bontang, East Kalimantan Province, dated

December 2016 .

2.2.6.1. Oil Refinery BOT

Based on the Pre-Feasibility Study results on development of Oil

Refinery in Bontang compiled by KPPIP in 2015, one option of

project structure states that PC scope includes the provision of crude oil supply, build, operate, and maintain facilities and services the oil refinery, sells

an oil product to Pertamina (as a Government representative) , and sells petrochemical products to the market.

Figure 13. Street Lighting (PJU) or Energy Efficiency

Figure 14. Oil Refinery BOT Structure


The main risk of Bontang Refinery project is the low economic of the project. To deal with the low economy needs a low interest loans and long tenor.

The other main risk is the condition of the market, where the domestic market price of gasoline based on import parity price, while the domestic market

price of diesel for export based on export parity price.

2.2.7 PPP Structure Railway Sector

Resembling to other (land) transport sectors, the

infrastructure PPP can be pursued with usage-

based type scheme. In accordance with applicable

regulation, the CA in this sector would be

Directorate General of Railway, Ministry of

Transportation (MoT).

2.2.7.1. Railway Full Concession

In the full concession scheme, the Government can grants the

authority to PC to collect the revenue directly from retail

customers/end-users. The PC is responsible for design,

construction, operation and maintenance of railway facllity and

infrastructure until the end of the contract period. With the

concerns huge investment cost and regulated tariff, experiences

in other countries show that the project will experience difficulties

in achieving the acceptable financial viability level if the scope

includes the facility and infrastructure, except its including the

scope of commercial utiization for area around the station or

transit-oriented developmet (TOD) concept, and availability of

Government support.

2.2.7.2. Railway O&M

Similar to O&M scheme in toll-road project, the PPP is typically

designed for infrastructure projects that have been built, so need

the PC which can operate and maintain the railway facility and

infrastructure.

PC will maintain the facility and infrastructure and collect toll on

behalf of the Government (as the owner of the railway

infrastructure). The revenue is then calculated as portion of the collected toll.

Figure 15. Railway Full Concession Structure

Figure 16. Railway O&M Structure


2.2.8 PPP Structure in Bus Rapid Transit (BRT) Sector

Law No. 22 Year 2009 on Traffic and Road Transport become the basis of bus rapid transit (BRT) system provision. As in the railway

sector, the BRT infrastructure PPP can be run with an usage-based scheme. Accordance with the applicable regulations, the CA of this

sector would be the Directorate General of Land Transportation, Ministry of Transportation/Governor/Regent/Mayor in accordance with

their authority.

2.2.8.1. BRT Full Concession

In full concession scheme, the Government may grants the

authority to the PC to collect the revenue directly from the retail

customers/end-users. The PC is responsible for the design,

construction, operation, and maintenance of the BRT facility until the

end of contract period.

Related to large investement cost and tariff regulated, the

experience of other contries indicates the project would be very

difficult to meet the financial viability when the scope of the

concession only covers the infrastructure facilities, unless the scope

include commercial utilization of the area around the station or the

transit-oriented development (TOD) concept and government

support is available. The Government need to ensure the availability

of required permit.

2.2.8.2. BRT O&M

In this scheme, the PC has the scope to provide, operate, and

maintain the BRT bus in accordance with the regulations issued by

the Government as the manager of the system. The PC accept

payment in form of Rp/km. The Rp/km costs has includes the cost

of leasing bus, OM, and profit. Tariff adjustment also conducted

periodically to reflect the inflation or a spesific formula agreed in the

contract.

2.2.9 PPP Structure in Seaport Sector

Figure 17. BRT BOT Structure

Figure 18. BRT O&M Structure


In this sector, regulatory framework of seaport sector in Indonesia allows PPP structure using usage-based type scheme (or a concession),

where the CA in this sector would be the Port Authority of the Ministry of Transportation (MoT). Full concessions can be made by the

assignment or PPP. Until now, granting the full concession in seaport sector is generally in the form of assignment to Business Entity Ports

(BUP) that already exist. The PPP scheme that already implemented in seaport sector is the West Shipping Channel of Surabaya PPP

Project , Tanjung Perak Port, Surabaya.

2.2.9.1. Seaport Full Concession

In the full concession structure, type of end-users in the project can be retail passengers, shipline companies and/or companies handling goods (i.e.

cargo or container). The CA for projects proposed or designated by the Ministry of Transportation through the Directorate General of Sea Transportation

would be the Ministry of Transportation or the Directorate General of Sea Transportation with the executing agency from Port Operator either the Port

Authority, Airport and Port Authority and the Port Operator Unit.

Refers to a business model that is prevalent as a PPP scheme in this

sector , the scheme that can be the implementation option is LPA

(Landlord Port Authority) which the government can lease the land or get

a concession fee on the control over existing port and related facilities the

PC. In this case , the PC can build or develop the existing port

infrastructure (e.g. warehousing, storing) to improve infrastructure

services in its operation,and obtain payment from users for the port

services.

In this scheme, which generally demand risk will be absorbed by the

private sector, Government (as the 'landlord') may receive lease payments

or concession fees from PC. Thus funds can be used to recover partial or

all of the cost of land acquisition and supporting facilities (e.g. break water,

access roads and other supporting facilities) which be the government's

obligation of PPP scheme. The amount of the lease or concession fee is

usually be a winner determination criteria in PPP auction, in other words, is determined by how much the

interest of investors. In terms of the concession period has expired, port facilities as the result of concession switch or handed over to the organizers of

the port in accordance with the agreement taken into account for a period of concession, then the management of land and port facilities that have

already switched to the organizers of the port can be given to the Business Entity Ports (BUP) for the provision and services of vessel, passengers, and

goods based on the joint use of which is conducted in accordance with the regulation.

This LPA model are still rather difficult to implement, especially for current conditions in Indonesia, because of the limited capacity of the government

budget to finance large investment in basic infrastructure. Another thing to consider is the access to/from the port.

2.2.10 PPP Structure in Airport Sector

Figure 19. Seaport Full Concession Structure


In this sector, so far there has been no projects implemented with the scheme in accordance with PPP regulation. Referring to Law No.

1 of 2009 on Aviation article 235, airport service can be performed by Airport Enterprise (BUBU) based on concession and or other

scheme (including BOT and management contract). The CA in this sector would be the Directorate General of Civil Aviation, Ministry of

Transportation.

As general, the scope of work and its type of infrastructure can be divided into:

Airport infrastructure, consist of:

o Air-side: runway, taxiway, apron, air traffic control (ATC)

o Land-side: terminal

o Commercial area around the airport

Transportation access infrastructure

o Train access

o Road access

Regarding cooperation option through the PPP scheme, because certain

types of infrastructure are not commercial in nature (especially Air-side), is

necessary to evaluate the needs of PC role, both brownfield area (the airport

is already operating) or greenfield areas (airports in new location). For

example, to involve the PC in greenfield areas, the Government should first

provide transportation access infrastructure adequately, including building

anair-side infrastructure through other funding sources.

2.2.10.1. Airport Full Concession

In the full concession structure, PPP in airport sector may include

provision and operation both airport facilities and services. The

Government may grants the authority to PC to collect the revenue

directly from the retail customers/end-users i.e.retail passengers,

shipline companies and/or companies handling goods (i.e. cargo or

container).

Full concession is usually given to the PC using BOT structure,

particularly in the context of expansion in the brownfield area. The

scope of work of the PC, as set out in the regulations, is to develop and operate both airport infrastructure and existing services, so it also possible to

include the scope of the commercial utilization of the airport area to PC. For greenfield area, the PPP scheme is more likely to not include air-side

infrastructure development as the scope of cooperation with PC.

Figure 20.Airport Full Concession Structure


2.2.10.2. Airport O&M

Similar to the O&M structure in other transportation projects, the

PPP is typically for a brownfield project which means that it does

not involve design, construction and financing of the airport facility.

The scope of work of the PC are to operate and maintain the

infrastructure. In other case, PC also assigned to manage the

commercial area at the airport which also can be revenue source

for PC.

The O&M operator as the PC maintains the facility and collects toll

on behalf of the government. The revenue is then calculated as

portion of the collected tolls.

2.2.11 PPP Structure in Telecommunication Sector

PPP in the telecommunication sector can be the

development of fiber optic networks, satelite, or the e-government system. The first PPP project in telecommunication sector is the Palapa

Ring project which is the construction of national fiber-optic backbone network. This project connects the entire archipelago and divides

into three territory packages, there are West, Central, and East. This project uses an Availability Payment (AP) scheme.

In addition, the Ministry of Communication and

Informatics is planning to implement a development

of Government Mulitfunction Satellite (“Satellite”)

project using the PPP scheme. The purpose of this Satellite is to provide the

facilities for Government to address the gaps in information dissemination

in all regions of Indonesia and become the complement of the Palapa Ring

project. Given the characteristic of information and communication

technology sector is quite same, then the project structure of Satellite project

is potentially similar to the Palapa Ring project.

2.2.11.1. Fiber Optic Networks Availability Payment (AP)

AP scheme is applied to this project because its economically

viable, but it is not financially viable if it is fully operated by PC. The

Minister of Communication and Information as CA is fully

responsible for demand risk.

BP3TI as regulatory agencies in telecommunication and information

sector acts as Project Management Unit (PMU) in charge to collect the tariff payment from network users, monitor the PC performances, and make an

Figure 21. Airport O&M Structure

Figure 22. Fiber Optic Network AP Structure


AP payment in accordance to PC performances. The scope of PC includes the design, build, operate, and maintain the telecommunication networks

for a certain period.

2.2.12 PPP Structure in Urban Facilities Sector

PPP in urban facilities sector including the utilities system and public markets. The types of urban infrastructure facilities in this Guideline

is a public market, due to the need for traditional market developmet is quite high. The existence of public market became one of tools to

monitor and stabilize the basic needs prices in the community.

Development and operation of traditional markets is the responsibility of district/city governments in accordance to a regional autonomy

regulation, except Jakarta became the responsibility of Governor. The regulator for market sector is the Ministry of Home Affairs related

to management and empowerment of traditional market, while the Minister of Commerce organize the arrangement of traditional market,

shopping centers, and modern shops.

The CA on this project is the Governor (DKI Jakarta in particular), Regent, or Mayor in line with their authority. BUMD, such as PD Pasar, can be the CA if there

is a delegation from the Regional Head. Cooperation scheme for market development can use the BOT scheme or an Availability Payment. However, the BOT

scheme currently became an option because the PC can have more flexibility to innovate to attract tenants and buyers. In addition, this scheme is quite attractive

to the private sector. AP scheme would be highly appropriate if the Government wants to intervene related to rental tariff for tenants, in order to to achieve the

level of ability and willingness of traders.

2.2.12.1. Public Market BOT

In this scheme, the PC pay a fixed contribution to the government

on the use of assets and concession rights. Specific risks that

related to market management are the location risk, the demand

risk (tenant), and competition risk. The location risk which is

particularly related to broad market affordability and market

accessibility. The demand risk for tenant interests is also became a

concern. In addition, their market competitors around the area will

also affect the traffic level and purchasing power that will impact the

tenant risk. Site conditions becomes an aspects that should be

assessed comprehensively at the beginning of the study as

mitigation. The demand risk becomes the main focus of the PC.

2.2.12.2. Public Market AP

In this scheme, the PC do the construction, operation, and maintenance, as well as the assets diversion after the contract expires. The demand risk

becomes a main focus of Government, so it needs a comprehensive review as mitigation.

Figure 23. Public Market BOT Structure


2.2.13 PPP Structure in Public Housing Sector

An availability of housing for lower middle class society is an issue that must be overcome in order to realize a more humane city. The

PPP implementation in public housing sector can help accelerate the development.

The CA on this project are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme

for public housing development using the BOT or the Availability Payment scheme. However, currently the BOT scheme becomes an

option because the PC can be more flexible to do a

trasaction process with buyers using the more

flexible financing schemes/ residential mortgage

loan.

2.2.13.1. Public Housing BOT

In this scheme, the PC pay a fixed contribution to the

Government for asset usage. Specific risks related to public

housing are location risk, demand risk (occupants or tenants),

and the default risk of the owner/tenant occupancy/room

payments. The location risk especially related to accessibility

(transportation), availability of public and social facilities around

occupancy, or else. The demand risk for tenants interest is also a

concern. In addition, the default risk of the owner/tenant

Figure 24. Public Market AP Structure

Figure 25.Public Housing BOT Structure


occupancy/room on the rent or maintenance costs. Site conditions

becomes an aspects that should be assessed comprehensively at

the beginning of the study as mitigation. The demand and default

risk of the owner/tenant occupancy/room payment become the

focus aspect of the PC.

2.2.13.2. Public Housing AP

In this scheme, the PC does not take the responsibility of demand

risk and payment of owner/tenant occupancy/room default. The

development of rental or owned modest apartment (“rusunawa” or

“rusunami”) with the concept without a down payment or relief on

payments by the residents can be applied so as to accelerate the

government programs in order to provide decent and affordable

housing. Those risks become the main focus of Government.

2.2.14 PPP Structure in Hospital Sector

The health sector is a major concern of Government, particularly related to service levels. The high demand should be offset by an increase

in health care facilities, such as hospitals. Therefore, the PPP in health sector is one of the way to accelerate the development in health

sector. The National BPJS services also support the health services improvement for the community.

The CA of this projects are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme

for health sector using the Availability Payment

scheme.

2.2.14.1. Hospital AP

In this scheme, the PC receive payments for their services

periodically from the Government during the concession period. The

PC scope covers building, provide, operate, and maintain the

facilities and hospital support services, and transfer it to the

Government at the end of the concession period. The Government

is responsible for the entire hospital management, including doctors

and nurses management.

Specific risks that related to the hospital is the delays risk in medical

equipment delivery, medical data risk, IT system and technology

risk, medical treatment risk, and excess patient risk. These risks are Figure 27. Hospital AP Structure

Figure 26. Public Housing AP Structure


the main focus of the PC depends on the scope of project. Pavilion Pirngadi Medan Hospital project may become a PPP pilot project which is being

prepared this year.

2.2.15 PPP Structure in Education Sector

The constitutional mandate that the Government is obliged to educate Indonesian citizen becomes a basis for allocation of 20% of the

government budget to the education sector. Compusory Education Program 9 years and now become 12 year, as well as the School

Operational Assistance (BOS) is a form of Government support in this sector. Educational needs is a primary need of society. The Ministry

who is responsible for national education system is the Ministry of Education and Culture. In addition, the Ministry of Research Technology

Higher Education is responsible for universities, and the Ministry of Religious Affairs is responsible for madrassas, boarding schools, and

Islamic colleges.

The CA on this project are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Under the law, the

primary and junior secondary education is the responsibility of the Regent/Mayor, the senior high school and vocational education are the responsibility of the

Governor, whereas the college is the responsibility of the Minister. At - Legal Entity of State University (PTN-BH) and State University-General Service Agency

(PTN-BLU), the rector is allows to be the CA by first reviewing their legal aspects of flexibility/autonomy . Cooperation scheme for education using the Availability

Payment scheme.

The CA for the frimary and secondary education are the district head as their authority. Cooperation structure for the primary/secondary education generally

use the AP scheme, so it can refer to structure and risk matrices for college. The college PPP Project presented in this Guideline is a generic model for the

provision of teaching and learning facilities. As for the facilities such as hospital or business incubator, need to pay attention to the sectoral condition and

peculiarities of the facility.

2.2.15.1. School/College AP

Scope of the PC covers build, provide, operate, and maintain

facilities and schools/colleges services, and transfer it to the

Government at the end of the concession period. The Government

is responsible for the entire school/colleges management services,

including the curriculum and teachers management. In this

scheme, the CA receive payments for their services periodically

from the Government during the concession period.

Specific risks related to the education sector are the disfunction of

teaching media, delays in the delivery of teaching materials,

student data leakage risk, IT system and technology risk, and

facility performance risk. Those risks are the main focus of CA

which depends on the scope of the project.

Figure 28. School/Colleges AP Structure


Figure 29. Indicative structure of AP Payment Scheme of PTN-BH

2.2.16 PPP Structure in Sport Sector

The availability of sport facilities for the communities

both athletes and the public, are necessary. This highly

affects the achievement of Indonesian sport at the

world level and also have an impact on the public

health quality. The acceleration of the availability of

sport facilities can be done with PPP scheme.

The CA on this project are the Minister, the Governor,

the Regent, or the Mayor in accordance with their authority.

Cooperation scheme for sport sector using the Availability Payment

scheme or Usage-based scheme.

2.2.16.1. Sport Stadium/Facility BOT


facilities and stadium/sport facility services, the shift it to the

Government at the end of the concession period. The PC also Figure 30. Sport BOT Structure


allocate the use of stadium for athlete training needs. In this scheme, revenue of the PC is fully derived from sport facilities rental and from the

supporting buildings, such as hotels.

The specific risk that must be considered by the PC is Non-Event risk, which is the absence of income source when there is no event or after a big event,

such as PON, SEA Games, Asian Games, and Olympics. The stadium operating and maintaining cost are very large, so the income sources only from

events is not enough, it needs other income from support facilities which would be the main income. The stadium operating and maintaining cost are

very large, so the proceeds from the events onlyy is not enough, need revenue from supporting facilities which would be a major sources.

2.2.16.2. Stadium/Sport Facility AP

Scope of the PC covers build, provide, operate, and maintain facilities and stadium/sport facility services, and transfer it to the Government at the end

of the concession period. The PC is also allocate the use of stadium

for athlete training needs. The other utilization of the stadium beyond

the athlete’s needs can be used as a income source for government.

In this scheme, the PC receive payments for their services

periodically from Government during the concession period.

Specific risks that must be considered by Government is Non-Event

Risk, which is the absence of the income source when there is no

event or after a big event, such as PON, SEA Games, Asian Games,

and Olympics. The stadium operating and maintaining cost are very

large, so the income sources only from APBN/APBD is not enough.

Turning on the stadium throughout the year is a major challenge.

Specific risk that must be considered by the PC are the facilities

performance risks, IT system and technology risks, and safety and

security risks (especially when the activities take a place).

2.2.17 PPP Structure in Tourism Sector

The PPP in tourism sector are tourism supporting facilities such as the promotion center and tourism marketing products, tourism

information center, and others. The Minister of Tourism became the regulator of this sector. The CA of this projects are the Minister, the

Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme for tourism sector using the Availability

Payment scheme.

The Tourism Region developed by PPP scheme is a part of the PPP regional infrastructure that has its own risk distinctiveness depends

on how their provision. Some examples of tourism area tobe developed are 10 priority tourism destinations, such as Toba Lake, Mandalika,

and Borobudur. The region development can be done by Joint Use (KSP), Cooperation of Infrastructure Provision (KSPI), or the other

possible scheme.

Figure 31. Sport AP Structure


2.2.17.1. Information and Promotion Center and Tourism

Marketing AP

The PC scope covers build, provide, operate, and maintain the

Information Center facilities and services, and transfer it to the

Government at the end of the concession period. In this scheme,

the PC receive payments for their services periodically from the

Government during the concession period. Revenue from the

successful promotion and marketing product could be an incentive

for the PC. Specific risks that must be considered are the facility

performance risks, IT system and technology risks, and promotion

and marketing risks (depends on the scope of the project). Those

three risks needs to be considered by the PC.

2.2.18 PPP Structure in Correctional Sector

The correctional infrastructure, especially prison or correctional institution (“Lapas”) is the priority needs due to the 470 out of 476 prison

have excess capacity. The function of prison is to provide guidance, so there is training facility for prisoners to get useful skills when

assimilated back in the community. Prison has already experience in cooperation with the third party, but not in the PPP scheme. The CA

of this project would be the Minister of Law and Human Rights in accordance with his authority. Cooperation scheme for prison sector

generally use the Availability Payment scheme, but the full concession is also open to do.

2.2.18.1. Prison BOT


facilities and prison facility services, and transfer it to the

Government at the end of the concession period. The correctional

facilities is also known as industrial prison that combined the

guidance function and production function as a single unit.

Spesific risk that must be considered by PC are security risk from

possible runaway and inherent risk of the production function. The

example of prison is being planned to be developed with BOT

scheme is Nusakambangan prison.

2.2.18.1. Prison AP


facilities and prison facility services, and transfer it to the

Figure 32. Tourism AP Structure

Figure 33. Prison AP Structure


Government at the end of the concession period. In this scheme, PC received payment for their services from the government periodically

during the concession period. Specific risk that must be considered by the PC is security risk from possible runaway and inherent risk of

industrial used.

3 EVALUATION OF RISK ALLOCATION ASPECT FOR PPP PROJECT AND INFRASTRUCTURE GUARANTEE ROVISION

3.1 Risk Allocation Principle in the context of PPP Project Implementation

At the PPP project preparation stage, the suitability of the risk allocation become the substance of risk analysis in the pre-feasibility study. Based on

the context of PPP implementation, definition and formulation of CA obligation to be included in the PPP contract needs to be based on the risk allocation

principle. An optimal contractual risk allocation is proportional to the maximum value for money.

The common principle for risk allocation is that (please also see Error! Reference source not found.), “A risk should be allocated to party which is

relatively able to manage the risk, or having the least cost of absorbing such risk. If this principle is implemented properly, it is expected that the risk

premium and the project cost would be lower leading to positive impact to the project stakeholders.”

Figure 34. Prison AP Structure


Figure 35. Sequence of PPP Risk Allocation Logic

The implementation examples of such principle in the market are as follow (can also use Key Questions as in Text Box 1):

o Risks which have not been managed well in the past by government, should be transferred if cost-effective (contruction, operation), should be borne

by private sector;

o Risks which are outside the control of either party, or equally influenced by both parties (e.g. certain force majeure events) should be shared; and

o Risks that the government can manage well, or is in a more informed position to control than the private sector (e.g. planning approvals, legislation

risks) should be retained;

o There may also be some risks that, while transferred, may possibly remain an exposure for the public sector (e.g. risk of sponsor default). If an event

cannot be resolved satisfactorily, the government steps in and assumes full responsibility for the risk (or the project as a whole). Potential project

case: delivery of critical social infrastructure and associated services.


3.1.1 Risk Allocation Implementation in the Preparation and Transaction of a PPP Project

In general, as in Text Box 2, the application of risk allocation is initiated from the PPP preparation stage, mainly through a project risk analysis as

part of the feasibility study (later to be used as the basis for drafting and negotiating the PPP agreement).

In evaluating the risk allocation, as part of the tender document during the transaction stage, the draft PPP agreement will reflect how the identified and

evaluated risks are allocated between parties (PC and CA) in the form of contractual clauses.

Text Box 1: Key Questions for Deciding which Risks to Allocate

Some questions to be answered from both perspective of the public agency and the private entity, first can be by asking: “To what extent can the public

agency…

Manage the likelihood of this risk occurring?

Manage the impact of this risk?

Absorb the impact of the risk?

Take specific measures to manage the risk?”

Logically, the same questions can be asked on the private entity’s ability in a PPP. Finally then we can answer: “Who is best able to manage and

absorb this risk?”

In addition to the above considerations, checks should be made to answer the following:

Similar contracts: Are there specific reasons to deviate from the risk allocation chosen in earlier transactions and described in the model PPP contracts?

Marketability: Are there any reasons to assume that the private sector will not accept the risk or price the risk at an unreasonably high value?

Incentives: Do any of the potential risk allocation mechanisms create unintended incentives for the private sector? Holistic approach: Do any of the potential risk allocation mechanisms create “gray areas” in terms of responsibility?

Text Box 2: Process, timing, information, and expertise needed for PPP Risk Allocation

Process: Risk allocation is at the core of the structuring of any delivery method, and requires transaction experience and market knowledge.

Timing: The initial risk allocation has to be determined before the drafting of the PPP agreement is completed. In practice, the process of drafting the

agreement often triggers discussions on risk allocation, and this can be facilitated by a sound risk assessment.

Information: Optimal risk allocation in a PPP is by definition project-specific and evolves over time. A good starting point is to look at earlier transactions to

understand the considerations in the risk allocation. Optimal risk allocation in a PPP evolves over time; need to look at more recent contracts.

Expertise: As in all other steps in risk assessment, risk allocation requires input from a range of disciplines:

o Technical, environmental, permitting, and traffic and revenue experts to determine the risk measures and manageability by risk type.

o Costing experts, to determine the costs of risk mitigation measures.

o Insurance experts, to determine insurability of certain risks (facilitating risk transfer to the private sector).

o Legal experts, to provide the risk allocation framework to be defined in the P3 agreement.

o Finance experts, to determine the marketability of certain risks. Preferably these experts have also been involved in project risk identification to ensure a good understanding of the specific risks.


From that contract clause, the risk can be described based o the triggering events, occurrence period and the consequences to each party upon the

risk occurrence, either as financial obligations or as non financial obligations, as depicted in the Table 2:

Table 2. Ilustration of Risk Allocation in the PPP Agreement

Risk Type Risk Allocation in the PPP Agreement

CA Shared PC

Risk A x Risk B* x Risk C x Risk D* x Risk E x Risk F* x *: Risk that leads to certain financial obligation of the bearer

As a note, contractual financial obligation arise from a risk event “compensation event”and not of the nature of 'relief event' (just need time extention,

without financial compensation).

Defining the optimal risk allocation through a discussion together with stakeholders. Participants are asked to jointly answer the key questions as

described in Text Box 1. It is important to jointly determine a convincing argument for a risk allocation for each of the risks.

Next step is to define the mechanisms reflecting this risk allocation. Most mechanisms—like the definition of, compensation for, and supervening

events—are standard, that have been used in most prior PPP transactions. However, project-specific considerations may lead to adjustments in these

mechanisms.

In a PPP contract, the typical allocation of risks between parties are as below:

o PC normally bear the risk related to financing, design, construction, procurement, operation andmaintenance (then transfer some of the risk to other

party, either consultant, designer, contractor, supplier, operator or user);

o CA representing government typically handle political risk, including change of law which the trigger is (relatively or better) controlled by the

government or public sector;

o Both parties are sharing risk related to Force Majeure events.

3.1.2 Risk Allocation Implementation in the Provision of Guarantee to PPP Project by IIGF

Basically, IIGF guarantee covers the financial obligations of the CA under PPP Agreement where the budget allocation of CA and its financial mechanism

need to be established to ensure the fulfillment of their financial obligations.

The IIGF decision in providing guarantee for risks in a PPP project is made after evaluation of, among others the conformity of the draft PPP Agreement

with the risk allocation principles (reflected in this IIGF Risk Allocation Guideline), as depicted below:


Figure 36. IIGF Risk Allocation Guideline and the Prevailing PPP and Infrastructure Guarantee Framework

Against to guarantee infrastructure coverage

by IIGF, Infrastructure Guarantee Fund

Regulation defines that the CA financial

obligations under the PPP contract cause a

rsk due to triggering events following:

a) Action or inaction of the CA or Government

other than the CA in matters which by law

or PPP regulations CA or Government

other than the CA have the authority to take

these actions;

b) The policy of CA or Government other than

the CA;

c) The unilateral decision of CA or

Government other than the CA;

d) The inability of the CA to perform an

obligation assigned to them by PC based

on PPP agreement breach of contract.

4 INFRASTRUCTURE RISK ALLOCATION GUIDELINE

This IIGF Risk Allocation Guideline provides 1) Risk Category and 2) Risk Allocation Matrix to be used as a reference for CA in preparing risk allocations of the PPP

project, which serves as the basis for CA’s preparation for guarantee proposal to IIGF as well as to enhance the implementation of the risk management frameworkfor

PPP project.

4.1 PPP Risk Category

The Risk Category Checklist is developed as a generic list of risk groupings which is expected to be used for generating identified risk events in each

specific PPP project. The identified risk events can be used further for risk assessment stage and developing risk allocation matrix/strategy.

This checklist is not meant to be exhaustive, therefore particular circumstances in each specific PPP project should also be considered.

1. Site risk is the risk that the project land will be unavailable or unable to be used at the required time, in the manner or at the cost anticipated, or that

the site will generate unanticipated liabilities.Thus, risks included into this category are:

a). Land Acquisitionrisk: risks related to the acquisition process of the required land for the project which may include potential cost and time over

run from the prolonged transaction process;


b). Landsite Unsuitability risk: risks that the proposed landsite may not be used for the project which the causes may include contamination,

discovery of artefacts, delays/rejection in achieving planning approvals, native title, etc;

c). Environmental Risk: risk of liability for losses caused by environmental damage arising (i) from construction or operating activities during the

Project Term, or (ii) from pre-transfer activities whether undertaken by the CA to the activities of the PC or the Subcontractors.

d). Risk related to an unexpected location: the risk of difficulties due to a utilization of site soil conditions that can not be detected earlier, including

geological conditions or other matters relating to underground conditions at these locations.

2. Design, construction and commissioning risk is the risk that the design, construction or commissioning of the facility or certain elements of each

of these processes, are carried out in a way which results in adverse cost and/or project delivery consequences. Risks included into this category

are:

a) Planning risk: risk that the proposed use of the project site in terms of the PPP Agreement and, in particular, the construction of the facilities on

the project site will fail to comply with any applicable laws relating to planning, land-use or building or any consent required pursuant thereto, or

that any such consent will be delayed or cannot be obtained or, if obtained, can only be implemented at a greater costs then originally projected;

b) Design risk:the risk that PC’s design may not achieve the required output specifications;

c) Completion risk: risk that the completion of the works required for a project may be (i) delayed so that the delivery of the services cannot

commenceat the scheduled Commercial Operation Date (COD), or (ii) delayed, unless greater costis incurred to keep to Scheduled COD, or (iii)

delayed due to variations;

d) Cost overrun risk: the risk that during the design and construction phase, the actual Project costs will exceed projected costs;

e) Commissioning risk: risk that the commissioning date is delayed or the results do not meet specifications of the CA or other relevant authorities;

3. Sponsor risk is the risk where the PC unable to fulfil their contractual obligations to the CA as a result of the actions of private investors as the

project sponsor, the PC failure to meet the requirements of the lender, or the lender’s failure to provide the loans.

4. Financial risk is ther risk related to financial viability aspects of the project. This may refers to a number of risks including the following:

a) Financing risk: risk that the financiers (debt and equity) will not provide or continue to provide funding to the project;

b) Financial parameter risk:risk that financial parameters e.g. inflation rate, exchange rate, market conditionsafter condition changes prior to the

contractor fully committing to the project, potentially adversely affecting project cost; and

c) Financial structure risk: risk that the financial structure is not sufficiently robust to provide fair returns to debt and equity holders over the life of

the project, and hence calls into question the continuing viability of the project;

d) Insurance risk: any risk that is insurable as at the signing date pursuant to the agreed project insurances but later become remains insurable

however with significant increase of insurance premium.

5. Operating risk is the risk that the process for delivering the contracted services – or an element of that process (including the inputs used within or

as part of that process) – will be affected in a way which prevents the PC from delivering the contracted services according to the agreed

specifications and/or within the projected costs. Risks included into this category are:

a) Maintenance risk: risk that (i) the cost of maintaining assets in the required conditions may vary from the initial projected maintenance costs, or

(ii) adverse input caused by failure to carry out maintenance properly;

b) Latent defect risk: risk of losses or damages arising from latent defects in the facilities included in the project assets;


c) Technology risk: risk that (i) the technology inputs fail to deliver the required output specifications, or (ii) technological improvements may render

technology inputs out-of-date (“technology obsolescence risk”);

d) Utilities risk: risk that (i) the utilities (e.g. water, electricity or gas) required for the operation of a project may not be available, or (ii) the project

will be delayed because of delays due to the removal or relocation of utilities located at the project sites;

e) Resource or input risk: the risk of failure or shortage in the supply of the inputs or resources (for example, coal or other fuels) required for the

operation of a project including in the quality of available supplies;

f) Industrial relations risk: risk of any form of industrial action – including strikes, lockouts, work bans, work-to-rules, blockades, picketing, go-slow

action and stoppages – occurring in a way which, directly or indirectly, adversely affects commissioning, service delivery or the viability of the

project.

6. Revenue risk is the risk that the project revenue is unable to meet the projected level of financial viability, due to the unexpected changes to either

the demand or the agreed tariff or combination of both. In the case, where the PC revenue is derived from service payments by CA (for example,

schemes BOT / Partial Concession, Performance-Based Availability schemes or Availability Payment Scheme), the risk of non-payment can be

included into the category of political risk (sub-sovereign or parastatal risk). Therefore, risks included into this category are:

a) Demand risk: risk that the demand for a service is unexpectedly lower than that initially projected, due to: 1) triggers (actions, decision / policy,

regulation) of the Government, or 2) the mistakes made by private parties either in the estimation of demand volume and the associated decline

in the quality of service; and

b) Tariff risk: risk that the tariff for a service is lower than that initially projected, due to: 1) the periodical tariff adjustment is not performed as

planned or the level of the adjusted tariff is lower than the projection, or 2) miscalculation of the tariff estimates or the standard level for requesting

tariff adjustment is not met.

7. Network connectivity risk is the risk that the government-controlled network(s) needed for the PC to deliver the agreed services are removed, not

adequately maintained or otherwise changed. This may prevent or frustrate the delivery of the contracted services, affect the quality of specified

outputs or affect the viability (value for money) of the project. Risks included into this category are:

a) Connectivity with the existing network risk: the risk that the access to the existing network is not developed as planned;

b) Network development risk: risk that the required additional network is not developed as planned;

c) Competing facility/competitor risk: risk that facility/infrastructure is built which eventualy competes with the delivery of the contracted services.

8. Interface risk is the risk that the method of project implementation by stakeholders or standard of delivery of the contracted services will prevent or

in some way frustrate the delivery of the public sector delivered facilities and infrastructure services or vice versa. The risk includes when the quality

of work done by government do not conform or not suitable with specification which us needed by the PC to produce the specific output according

to PPP contract, or vice versa.

9. Political Risk is the risk of unforeseeable action/inaction by the CA or any other government authority that materially and adversely affects the

expected Return on Equity, debt service or otherwise results in increased costs to the PC. Risks included into this category are:

a) Transferability risk: risk that the revenue/profit from the project could not be converted to the foreign currency and /or repatriated to the investor’s

home country

b) Expropriation risk: risk that the government seizes (including nationalisation of) the project assets either directly or indirectly which may trigger

termination of the project contract. This indirect expropriating action type of risk may overlaps with some financial risks (e.g. tax rate change

risk).


c) Change in Law (legislative and government policy) risk: risk of a change in legislation, which are discriminatory and specific that it can directly

reduce the level of financial feasibility project (can be triggered by the actions of the CA or non-CA);.

d) Sub-sovereign or Parastatal risk: risk that the subsovereign or parastatal entity which act as the CA in the project has failed to perform its

financial or other material obligations in contract triggered by the associated status as a givernment entity, including a legal status changes or

PPP organization refer to the related regulations.

e) Regulatory consent risk: risk that consents required from other government authorities can not be obtained or, if obtained, can only be

implemented at a greater cost than originally projected.

f) Tax rate change risk:risk that changes in applicable tax rates (income tax rate, VAT) or new taxes may decrease the anticipated return on equity.

10. Force majeure risk is the risk that a specified event entirely outside the control of either party (e.g. act of god, man-made catastropic event) occurs

and will result in a delay or default by the PC in the performance of its contractual obligations.

11. Asset ownership risk is the risk that events such as loss events (e.g. contract loss, force majeure), technological change, construction of competing

facilities or premature obsolescence occur, with the result that the economic value of the asset may deteriorate, either during or at the end of the

contract term.

4.2 Risk Matrices by PPP Sector

After the use of the PPP Risk Category, the identified risk events for each risk category is then evaluated using the risk allocation matrix provided for each PPP

sector and structure (“PPP Risk Matrix”). In developing such matrices, risk allocation principles and best practices, including relevant regulatory framework in

Indonesia were used as references. Furthermore, as explained in section 3.2.1, this matrix is only a reference and is not rigid, as the eventual risk allocation

needs to take into account the specific circumstances in the project being evaluated.

4.2.1 Risk Matrix for PPP Water Supply Sector

The risk matrices are refers to a watrer project with BOT (Built, Operate, Transfer) contract as identified in Chapter 2 that covers Transmission or Production or

Operation and Maintenance or Distribution or any combination thereof, excluding the retail Tariff Collection.


Table 3. Risk Matrix for Water BOT

Water BOT

Risk Category and Risk Event

Description [Pre-Construction/Construction/Operation]

Public Private Shared Mitigation Strategy based on Best

Practice Specific Conditions related to

Risk Allocation

1. SITE RISKS

Land acquisition delay and costs overrun

Delay and costs increase due to unclear and then prolonged land acquisition process – [Pre-Construction Stage]

x The Government clears project landsite before PC procurement process through:

Government needs to set the project location and ensure the availability of all the necessary documents;

Government needs to ensure the availability of land acquisition funds;

Government needs to ensure the availability of team that conduct the land acquisition process;

Government needs to ensure that the land acquisition process could be run in accordance to the regulation.

Land requirement for intake location, WTP and transmission network has been identified clearly

The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities

Land acquisition can't be performed entirely

Unable to acquire project land site due to difficult land acquisition process – [Pre-Construction Stage]

x Clear land legal status and procedure in project land clearance

Discrepancy risk in RTRW

Unissued of the location determination or location permit risk by the Local Government

Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk

Land owned by State cannot be purchased

Delay of appraisal result by the National Land Agency (BPN)

Land cannot be used after land acquisition

Difficulties access to the land due to social disruption – [Construction Stage]

x x Including project communication strategy, social issues mapping, and related key figures

Preventive: Government and PC have to socialize the project early on; Corrective: the Government involve in mediation process

Complex resettlement process Costs overrun and delay due to a complicated resettlement process – [Pre-Construction Stage]

x Fair compensation and good communication with those impacted

Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form.

Land requirement for this kind of project is usually not extensively large, social impact is relatively small

Land tenure risk Multiple land ownership certificates were discovered when the project is implemented – [Pre-Construction Stage]

x Implement validation and completion of land tenure;

Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important

Unforeseen difficulties of site conditions

Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change – [Construction Stage]

x x The utility identification at planning stage supported by an adequate data

Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties


Water BOT





Risk Allocation

that impossible to identified at the planning stage will be taken over by the Government

Limitation of construction working space

Related to the provision of land for working space during construction – [Construction Stage]

x Good construction methods; Socialization by government

If there is a public rejection, the Government can help

Damaged of artifacts and antiquates in the site

The destruction of artifacts and antiquates which found in the location during construction – [Construction Stage]

x Land use historical data and land investigation

Contamination/pollution to the site environment

Contamination/pollution to the environments that interfere the project implementation – [All Stage]

x Comply with good environment impact analysis

2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS

Unclear output specifications Time and cost overruns due to unclear output specification – [Pre-Construction Stage]

x Clarification during the tender process;

Capacity of good design

The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project.

CA output specification should refer to best practice

Design faults Technical commissioning leads to discovery of design faults – [Pre-Construction & Construction Stage]

x Good and experienced design consultant or EPC

Usually identified at technical operational test

Fail to maintain security and safety within the location

Highly accidental rates during the construction works – [Construction Stage]

x Implementation of a good work security and safety

Competent and experienced EPC

Delay in completing construction works

May include impact of bad quality of Human Resources expertise, lack of material & tools availability, delay in returning site access – [Construction Stage]

x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damage.

Increase in construction cost Increases due to workload changes or material prices – [Construction Stage]

x Agreement on volume and threshold changes approval procedures

Provide the calculation of price escalation factor on the contract

Good relationship with supplier

Penalty clauses of Liquidity Damages

Contractors/subcontractors bad performances

Contractors/subcontractors cannot fulfill their works as well as the contract – [Construction Stage]

x The selecting process of a credible contractors & subcontractors

Penalty implementation

Default od contractors/subcontractors

Default of contract settlement by contractors/subcontractors due to internal & financial management factors – [Construction Stage]



Commissioning & testing risk Incorrect time/cost estimates of technical commissioning – [Construction Stage]

x

Good communication & coordination

between contractor, testing consultant, and the right operators

Experienced testing and commissioning consultant


Water BOT





Risk Allocation

3. SPONSOR RISKS

Default by the PC PC’s default leading to termination and/or step-in by financiers – [All Stages]

x Consortium is supported by credible and solid sponsors

Default of project sponsor Sponsor (or a member of consortium) ’s default – [All Stages after Financial Close]

x PQ process to select credible sponsors

Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues – [All Stages after Financial Close]

x The selecting process of a credible lenders

PC performances to fulfill the contract

Eligibility lenders

4. FINANCIAL RISKS

Fail to achieve financial close Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal – [Pre-Construction Stage]

x Good coordination and consortium with potential and credible lenders

May be caused by conditions precedence are not fulfilled

VGF disbursement risk VGF partially disbursement cannot be done on time – [Construction Stage]

x Ensure timely budgeting process

Provide the bailout funds that managed by the BLU unit.

Refund of land bailout fund risk

Land bailouts fund disbursement by the Government to the PC is late – [Construction Stage]

x Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold

Foreign exchange rate risk (Non-extreme) fluctuation of foreign exchange rate - [All Stages]

x Financing in Rupiah

Purchase price index taking into accounts currency fluctuation

Hedging instruments; such as future contract and currency options

Can be shared with the Government when extreme fluctuations

Inflation and interest rate risk Increase of inflation rate used for estimating life-cycle costs and interest rate - [All Stages]

x Tariff indexation factor; interest rate hedging


Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages]

x Consult with insurance specialists/brokers

Especially for insurance risk coverage under force majeure conditions

5. OPERATING RISKS

Availability of facilities Due to the facilities cannot be developed – [Construction Stage]

x Competent contractor

Poor performance of services Due to lack of facilities project cannot operate – [Operation Stage]

x Competent operator; Clear output specifications

Industrial action Industrial actions (strike, lockout, go slow, etc) – [Operation Stage]

x Good human resources and industrial relation policies

May be by operator, sub-contractors, or suppliers staff National scale demonstration that led to the national work strikes can be considered in the force majeure category


Water BOT





Risk Allocation

Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]

x Implement people-oriented community engagement program; community empowerment

Failure of project management Failure or inability to manage operational aspect of the Project – [Operation Stage]

x Develop operations management plan and to be performed professionally

Failure of project control and monitoring

Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA – [All Stages]

x x Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness

O&M cost overrun risk Mis-estimation of O& M costs or an unexpected increase – [Operation Stage]

x Competent operator; Contract escalation factor

More frequent of maintenance than expected

Mis-estimation of life cycle expenditure

Mis-estimation of cost due to cannot get fix and current price from the supplier – [Operation Stage]

x Deal/contract with suppliers as earliest as possible

Increase in energy costs - due to inefficient plant

Increases of energy cost due to inefficiency of operation performance – [Operation Stage]

x Good unit specifications and quality

Irregular availability of required utilities

Availability of utilities, such as irregular electricity and internet – [Operation Stage]

x

Anticipation measures: Electricity back-up facilities/other utilities

Usually this should be anticipated as earliest as possible

Shortfall of input quantity Raw water deficit due to reasons under public sector control – [Operation Stage]

x

Sound regulation and good coordination of the agencies

Decrease of input quality Declining water quality due to reasons under public sector control – [Operation Stage]

x


Uncertainty of input continuity Uncertainty of input continuity due to raw water capacity changes – [Operation Stage]

x


Depending on water source location

Shortfall of output quantity Shortfall of output quantity due to operation process performance – [Operation Stage]

x Competent operator; Penalty mechanism

Decrease of output quality Decrease of output quality due to operation process performance – [Operation Stage]


Uncertainty of output continuity

Uncertainty of output continuity due to operation process performance – [Operation Stage]


Losses of water quantity in transmission network

Leakage/contamination in transmission network – [Operation Stage]

x Good standard of work and maintenance

Transmission networks still include production unit system

Losses of water quantity in distribution network

Leakage/contamination in distribution network – [Operation Stage]


PC involvement in downstream can only build and handover, the Government project

6. REVENUE RISKS

Absorb level risk in the initial period

Output is unabsorbed in the initial operational period due to the implementation is under the planning target – [Operation Stage]

x Due to ‘take or pay’ clause in water purchase contract

Decrease in the demand volume on project output

Resulted in a decrease in water sales revenue and the deficit for PC – [Operation Stage]

x Good marketing program; NRW reduction program; PDAM Financial Management

Failure in the initial tariff determination

Due to users’ affordability and willingness are under the feasible rate – [Operation Stage]

x

Feasibility support (VGF);

Regulation related to tariff mechanism and incentive

Supporting legal framework, can be a regional regulation

Delay in periodical tariff adjustment

On tariff indexation to agreed inflation rate – [Operation Stage]

x

Good operational performance; regulation that regulated the rate and adjustment of tariff period



Water BOT





Risk Allocation

Level of the adjusted tariff is lower than initially projected

Especially after tariff indexation and tariff rebasing– [Operation Stage]

x Good operation performance; regulation that regulated the rate and adjustment of tariff period


Miscalculation of the tariff estimates

Tariffs are too optimistic or its above of consumers’ willingness to pay – [Operation Stage]

x Accurate users’ affordability and willingness survey

7. NETWORK CONNECTIVITY RISKS

Network connectivity and connecting facilities risk

Breach of authority’s obligation to build and maintain the required network and build connecting facilities – [Operation Stage]

x

Good contract understanding by public sector

Construction synchronization

Distribution network management risk

Limitations of distribution network management constructed by private – [Operation Stage]

x Increase in the capacity management of distribution networks

Competitors facilities risk Breach of authority’s obligation not to build a competing facilities; or

Law enforcement of underground water utilization (ABT) is not working

[Operation Stage]

x Good contract understanding by public sector

Availability of ABT utilization regulation

Law enforcement team of ABT utilization is formed and works well


Coordination with Indonesian Army, Police, and Attorney in law enforcement process

8. INTERFACE RISKS

Disparity of the time and quality of work risk

Disparity of the time and quality works done by government (as fiscal support) and by PC – [Construction Stage]

x x 5 Coordination and integration of project implementation schedule

Remedial action by party who has lower quality of works

Differences of service standard /method risk

Substantial reworks due to different standard/ method of delivery – [Construction Stage]

x Agreement on the applied

standard/method of delivery in advance

Relation risk Miscommunication of internal and external organization, including cause delays/failures of process due to lack of experience in PPP/Project Financing project – [All Stages]

x x

Communication and coordination system is designed, agreed, and socialized properly to all relevant parties

9. POLITICAL RISKS

Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency – [All Stages]

x Local financing

Off-shore account

Guarantee from central bank

Currency non-transfer Inability to transfer funds in foreign currency to the investor's home country – [All Stages]

x Local financing

Off-shore account


Expropriation risk Nationalization/expropriation without compensation (adequately) – [All Stages]

x Mediation, negotiation

Political risk insurance

Government guarantee

General change in law (include tax)

Can be considered as business risk – [All Stages]

x

Discriminatory or project specific change in law (including tax)

In form of tax policy by the relevant authority (central or regional) – [All Stages]




In addition to having a clear contractual provisions, including compensation


Water BOT





Risk Allocation

Delay in achieving planning approval

Only if it caused by the public sector's unilateral/improper decision– [Pre-Construction & Construction Stage]

x Clear contract provisions including the compensations

The initial planning or design changes due to construction work

Fail or delay in obtaining necessary consents (excl. Planning)

Only if it caused by the public sector's unilateral/improper decision – [All Stages]


Usually related to issues other than planning

Delay in gaining access to the site



Parastatal risk Breach of off taker’s contractual obligations

Due to privatization of the Off taker

x



10. FORCE MAJEURE RISKS

Natural disasters The occurrence of natural disasters and therefore cannot operate normally – [All Stages]

x Insurance, to extent possible Shared together is that the force

majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.

Political force majeure Events of war, riots, civil disturbance – [All Stages]

x Insurance, to extent possible

Extreme weather Due to climate changes or other factors – [All Stages]


Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not exist) – [All Stages]

x Either party should be able to terminate

the contract and trigger an early termination

11. ASSET OWNERSHIP RISK

Asset loss event risk Fire, explosion, etc – [Operation Stage] x Insurance

Asset transfer after the PPP contract ends

The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment – [Operation Stage]

x The making of the contract that governing the matter of transfer of assets

The assessment carried out by mutually agreed independent appraisers

As shown in the matrix, there are some risks which are specific to this structure and sector, while other risks are applicable accross sectors. The specific sectoral

risks in this structure are revenue risk (i.e. Absorb level risk in the initial period), those related to the raw water input to the facility (i.e. quality, quantity and

continuity), the parastatal risks (i.e. breach of offtaker’s contractual obligations and the privatisation of the offtaker) and the demand risk which is basically

minimized through a take or pay clause in the water purchase agreement with the CA.

4.2.2 Risk Matrix for PPP Waste Management

4.2.2.1 Solid Waste BOT


Risk matrix below refers to a BOT contract with the usage-based and AP scheme which the PC is responsible for Production, Operation and Maintenance

(i.e.build and operate the Final Disposal facility), but not taking either the waste collection or the retail Tariff Collection tasks. For the usage-based scheme, as

the reference is income from the selling of a waste processing products.

Table 4. Risk Matrix for Solid Waste BOT

Solid Waste Sector


Description Public Private Shared Mitigation Strategy based on Best


Risk Allocation

1. SITE RISKS



























Solid Waste Sector




Risk Allocation







Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government











Society distress Due to potential discomfort from the process/output – [Operation Stage]

x

Socialization to those impacted

Mature planning of an implementation schedules in order to fulfill the AMDAL requirements

Failure to apply environmental permits

PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL – [Pre-Construction Stage]

x

Competent environment aspects

specialist consultant



Unclear output specifications Time and cost overruns due to unclear output specification – [Pre-Construction Stage]


Capacity of good design;






Failure to maintain security and safety within the location





May include impact of bad quality of Human Resources expertise, lack of material & tools

x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages


Solid Waste Sector




Risk Allocation

availability, delay in returning site access – [Construction Stage]










Default od contractors/subcontractors

Default of contract settlement by contractors/subcontractors due to internal & financial management factors – [Construction Stage]



Commissioning & testing risk Incorrect time/cost estimates of technical commissioning – [Construction Stage]

x Good communication & coordination between contractor, consultant testers, and the right operators


3. SPONSOR RISKS








Eligibility lenders

4. FINANCIAL RISKS






Provide the bailout funds that managed by the BLU unit


Land bailouts disbursement by the Government to the PC is late – [Construction Stage]







Solid Waste Sector




Risk Allocation








5. OPERATING RISKS





















Increase in energy costs - due to inefficient unit





x Anticipation measures: Electricity back-up facilities/other utilities


Disruption of transportation routes and schedules certainty

Route and schedule changes to transport the garbage due to traffic conditions and more – [Operation Stage]

x Good management on waste transportation system

Government can help even the transportation done by PC

Pollution of licit water in transportation

Leaking of licit water/splattered at the time of the process of hauling trash – [Operation Stage]

x Service level criteria;

Procedure transportation systems

In the case of PC have met the service level

Shortfall of input quantity Due to the low ability of hauling trash – [Operation Stage]

x Solid waste guarantee;

Waste management socialization


Solid Waste Sector




Risk Allocation

Decrease of input quality (waste composition)

Decrease of output quality due to waste composition changes – [Operation Stage]

x Restrict the scavenger role against the waste composition

The scavenger role can change the waste composition

Processed output quantity does not fulfill the standard

The resulting output is not in accordance with the plans and specifications in the quantity – [Operation Stage]

x Solid waste guarantee;

Operation running optimally and efficiently

Especially for technology that produce that is sold/distributed

Processed output quality does not fulfill the standard

The resulting output is not in accordance with the plans and specifications in the quantity – [Operation Stage]

x Solid waste supply guarantee;

Operation running optimally and efficiently

Especially for technology that produce that is sold/distributed, except the electricity

Categorization as Waste Residue B3

As a result, needs to the residues processing in particular (B3) – [Operation Stage]

x The 3R implementation (Recycle, Reuse, Reduce)

Labs testing to decide waste categorize at Pre-Construction and Construction Stage

This risk especially for processing solid waste by incinerator

6. REVENUE RISKS

The risk of discrepancies of input supply in the initial period

The input supplied in the operational period does not meet with the feasibility study – [Operation Stage]

x Due to ‘take or pay’ clause in water

purchase contract

Decrease of demand volume of project output

Resulted decreasing of revenue and deficit for the CA – [Operation Stage]

x

Consistency and an in line regulation with the objective of the project

Mis-estimation from previous model

Incorrect parameter inputs and model development so as a estimation result is distorted – [Operation Stage]

x Survey the right and tested heat waste, and cover various climates

Competent consultant and laboratory

If triggered by the Government activities, a guarantee of minimum income can be considered


Tariffs determination of waste processing products are too optimistic – [Operation Stage]

x Market surveys are needed

Revenue Risk below applied to AP schemes

Decrease of demand volume of project output

Resulted decreasing of revenue and deficit for the CA – [Operation Stage]

x Policy is consistent and in line policy with the objective of the project



x Survey the right and tested heat waste, and cover various climates

Competent consultant and laboratory

If triggered by the Government actions, a guarantee of minimum income may be considered


Tariffs determination of waste processing products are too optimistic – [Operation Stage]

x Market surveys are needed

Leakage of tariff payment collection

Due to failure/non-optimality of payment collection system – [Operation Stage]

x x Collection system and good operational performance

Failure of AP’s in time payment

Government cannot make an in time payment – [Operation Stage]

x The escrow account mechanism which combine the revenue of toll tariffs

The IIGF guarantee may be submitted and implemented

Revenue Risk below applied to BOT, BOOT, and AP schemes

Fail in the initial tariff determination


x Feasibility support (VGF);




Solid Waste Sector




Risk Allocation

Failure in submission of tariff adjustment (both tipping fee or AP)

Due to the PC cannot fulfill the agreed minimum standard

x Good operational performance

Supporting legal framework











7. NETWORK CONNECTIVITY RISK

Network connectivity and connecting facilities risk

Breach of authority’s obligation to build and maintain the required utilities network (electricity/gas) and build connecting facilities – [Operation Stage]



Especially for processing technology that produces electricity or gas

Competitors management risk Breach of authority’s obligation not to operates the old facilities or build the new facilities - [Operation Stage]



8. INTERFACE RISKS



x x Coordination and integration of project implementation schedule




x Agreement on the applied standard/method of delivery in advance


x x Communication and coordination system is designed, agreed, and socialized properly to all relevant parties

9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x












Solid Waste Sector




Risk Allocation








Parastatal risk Breach of off taker’s contractual obligations Due to privatization of the Off taker

x Political risk insurance




x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government.






x Either party should be able to terminate the contract and trigger an early termination







In the waste management sector the sector-specific risks are revenue risk (falure of tipping fee payment or selling price of output (electricity, RDF)) environmental

risk (i.e. society distress due to potential discomfort from the process/output, failure to apply EIA (Environment Impact Assessment)/AMDAL), operating risks

(i.e. quantity short fall of waste as input, waste composition risk, incompliance of output quality), network risks (i.e. uncertainty in existing waste collection

network, non-fulfilment of authority’s obligation to maintain required waste collection network and to develop required facilities) and interface risk (i.e. imbalance

between input & treatment capacity in early operating years).

Interesting fact is highlighted as a legitimate action of government to reduce waste production (i.e. 3R programme: Recycle, Reuse, Reduce) may actually

hinder the PC to obtain sufficient volume of waste to be treated. On tha tariff side, the government actually collects 2 types of tariffs, i.e. waste retribution tariff

(i.e. for the waste management service) for operational cost of having waste disposal facility, and a compensation for negative impact to the environment. This

two types of tariff can be supported by an operational subsidy from the local government’s budget as part of the CA’s source for tipping fee to the PC.

4.2.2.2 Wastewater BOT

Below risk matrix refers to a project with BOT contract where PC is repsonsible for construction, operation and maintenance (construct and operate the waste

treatment plant/WTP, may include the transmission network), but not responsible for collecting the wastewater and tariff collection from end users.



Table 5. Risk Matrix for Wastewater Sector

Wastewater Sector




Risk Allocation

1. SITE RISKS
























Coordination with the related parties in determining compensation executor or provider including the compensation scheme and form






Wastewater Sector




Risk Allocation
















x Socialization to those impacted




x Competent environment aspects specialist consultant



Unclear output specifications

Time and cost overruns due to unclear output specification – [Pre-Construction Stage]

x Clarification when the tender process;








The rate of accident during works are going high – [Construction Stage]










Wastewater Sector




Risk Allocation







Default by contractors/subcontractor

Failure of the contract completion by contractors/subcontractors due to internal & financial management factors – [Construction Stage]



Operation & commission testing

Mis-estimation of time/cost in technical operation testing – [Construction Stage]



3. SPONSOR RISKS








Eligibility lenders

4. FINANCIAL RISKS









x Certainty of Land BLU fund availability with the certainty of additional funding from the state budget if reached a certain threshold










Wastewater Sector




Risk Allocation




5. OPERATING RISKS




























Shortfall of input (waste) quantity

The waste volume that channeled does not according to plan – [Operation Stage]

x Waste supply agreement

Waste management socialization

Regulations related to the obligation of having the independent processing system or connection to waste water networks

The quality of processed output did not fulfill the requirement

Decrease in output quality due to the process performance in operation – [Operation Stage]


Leakage/contamination in wastewater networks

Leakage/contamination in the main pipe network and wastewater collectors – [Operation Stage]


6. REVENUE RISKS


Wastewater Sector




Risk Allocation

Absorb level risk in the initial period

Output is unabsorbed in the initial operational period due to the implementation is under the planning target – [Operation Stage]

x Due to ‘take or pay’ clause in water purchase contract



x Feasibility support (VGF);





x Good operational performance; regulation that regulated the rate and adjustment of tariff period










Wastewater network connectivity and connecting facilities risk




Wastewater distribution network management risk

Limitations of wastewater distribution network management by Government – [Operation Stage]


Competitors facilities risk Breach of authority’s obligation not to build a competing facilities - [Operation Stage]



8. INTERFACE RISKS










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account






Wastewater Sector




Risk Allocation




x





































In wastewater management sector, the specific risks are similar to those of waste sector. In this sector, volume and quality of waste supply usually do not vary

very much. Other than that, it is depending on the applied technology and perception of output user candidates (processed clean water), which output is not

commercial in nature.

4.2.3 Risk Allocation Matrix in Road Sector

The risk matrices are provided for the 4 identified PPP structures for toll road and non-toll road sector, namely: (1) Full Concession Toll Road, (2) O&M Toll

Road, (3) Combination of Full Concession and O&M, (4) Availability Payment in Toll and Non-Toll Road. For Full Concession Toll and Non-Toll Road scheme

is a combination of Full Concession Toll Road matrix and O&M Toll Road which is depend on the selected segment.


Risk matrix below refers to a toll and non-toll road project is according to the selected scheme.

Table 6. Risk Matrix for Toll and Non-Toll Road

Toll and Non-Toll Road



Practice

Specific Conditions related to Risk Allocation

1. SITE RISKS

Site Risk below applied to BOT, SBOT, and AP schemes
















Land owned by State- cannot be purchased







x Fair compensation for and good communication with those impacted




Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the


Unavailable of utilities data, which just known during excavation process. Generally at the pipe





Practice


possibility of route change – [Construction Stage]

installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government








Site Risk below applied to BOT, O&M, SBOT, and AP schemes







Disruption of biodiversity of forest/conservation area

Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status – [All Stages]

x Conduct studies of biodiversity for impacts mapping

AMDAL implementation

The CA responsible for conduct studies of biodiversity , and the PC implements the AMDAL

Obstruction of access to the public transportation

Project which cut the residential areas may cause impact of communication access and economic society disruptions – [Construction & Operation Stages]

x Develop a new transportation access that mutually agreed

This condition can be related with cultural aspects in an area where the project is implemented

Disruption of the community conveniences around the project area

Project could cause the disruption of health & convenience, i.e. civilian’s house damaged due to construction activity – [Construction Stage]

x Conduct comprehensive AMDAL studies and implement them well


Design, Construction, and Commissioning Risks below applied to BOT, SBOT, and AP scheme










Good and experienced EPC







Practice













Design, Construction, and Commissioning Risks below applied to BOT, O&M, SBOT, and AP scheme

Design faults Caused design extra/revise which asked by operator – [Pre-Construction & Construction Stage]










3. SPONSOR RISKS








Eligibility lenders

4. FINANCIAL RISKS











Practice







Purchase price index taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options








5. OPERATING RISKS








Social and cultural risk Risks arising from not considering the culture or social condition of local communities during the project implementation – [All Stages]


Failure of project management Failure or inability of the PC to manage operational aspect of the Project – [Operation Stage]





O&M cost overrun Mis-estimation of O&M costs or an unexpected increase – [Operation Stage]

















Practice


Incompetent of toll road services in technology and information systems

The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation – [Operation Stage]

x Choose the competent technology and the right vendor

Traffic accident or safety issues

Highly traffic accident - [Operation Stage] x Third party liability insurance

6. REVENUE RISKS

Revenue Risks below applied to BOT, O&M, and SBOT scheme

Lack of project revenue’s risk in ramp up period

The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation.

x x When risk absorbed by public sector, the Government can provide certain funds if the revenue in the ramp up period is not adequate

Changes in the traffic demand projection

Resulted in a decrease in revenue and the deficit for PC – [Operation Stage]

x Accurate traffic survey

Soft loans in initial operation

If triggered by Government actions, guarantee request may be considered



x

Accurate traffic survey

Soft loan at the initial operation


Toll collecting company fails to collect tolls


x Collection system and good

operational performance

Revenue Risks below is only applied to AP scheme

Changes in demand volume projection

Resulted increase on revenue and deficit for Government












This risk is highly depends on scope of the PC

Failure of AP’s in time payment

Government cannot make an in time payment x The escrow account mechanism which combine the revenue of toll tariffs

Revenue Risks below applied to Full Concession, O&M, Combination of BOT, O&M, SBOT and AP scheme


Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]


Supporting regulation



i.e. on tariff indexation to agreed inflation rate – [Operation Stage]














Practice



Road and transportations network connectivity

Breach of authority’s obligation to build and maintain the required network – [Operation Stage]



Non-Toll networks management risk

Limitations of Government in manage the non-toll traffic which impacts to toll road management performance – [Operation Stage]

x The traffic management with consider pattern of the transport movement through toll and non-toll roads

Competitors facilities risk Breach of authority’s obligation not to build a competing routes - [Operation Stage]



8. INTERFACE RISKS







X xx 4 Agreement on the applied standard/method of delivery in advance



9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x






















Practice















11. ASSET OWNERSHIP RISKS

Asset Ownership Risks below applied to BOT, O&M, SBOT, and AP scheme


Asset Ownership Risks below applied to BOT, SBOT, and AP scheme





Asset Ownership Risks below especially applied to O&M scheme

Transferred business and the existing toll road assets management

Uncertainty of business condition after the transfer from previous operator and an anticipated of existing toll road conditions

x Good and complete pre-feasibility business study

The Full Concession of toll road sector-specific risks are site risks (i.e. land acquisition-related), revenue risks (i.e. traffic demand risk and tariff risk) and network

risk (i.e. connectivity issue, competing route). As a note, the risk events listed above is still limited to at-grade (on ground) type of road and fly-over (above

ground) type (i.e. not include under-ground/ tunnel).

The specific risks in toll road O&M structure (i.e. land acquisition-related), design, construction and comissioning risks and also the toll road business/ asset

transfer risks. On other toll road sector-specific risks (i.e. demand risk, networkand interface risk), they are still main concerns of the PC. Especially for interface

risks, the exposure is relatively higher.

In this combined structure, as there is a minor difference with the previous 2 matrices, the interface risk will be fully borne by the PC. Therefore, the construction

contract to contractor (also for operations) from both public sector and private sector must be aligned in defining the expected quality of the work towards the

whole toll road sections as one integrated network.

As a note, for Availability Payment (AP) scheme, the main specific risk is revenue risks (i.e. payment failure by the Government) due to the AP payment is the

only income sources of PC.


4.2.4 Risk Allocation Matrix in Electricity Sector

The risk matrices are provided for 2 identified PPP structure, namely: Electricity BOT and BOO, and Minemouth Power Plant BOT . Risk matrix below refers to

a BOT contract (Built, Operate, Transfer) of the power plant project. The PC (typical known as the IPP) sell the genereted power to PLN as the off-taker during

the Power Purchase Agreement (PPA) period and shall return the plant to the PLN after the contract ends. As a note, in BOO (Build, Own, Operate) asset

transfer does not occur.

Table 7. Risk Matrix for Electricity Sector

Electricity Sector




Risk Allocation

1. SITE RISKS









Especially for Mine mouth Power Plant, the project land requirement is also depends on the selected mine site


















Especially for Minemouth Power Plant, usually remote


Electricity Sector




Risk Allocation

mine sites so that these issues are relatively manageable






x Good construction methods;

Socialization by government















Site Risks below has a different risk allocation that depends on PPP project types


Electricity BOT, BOO Delay due to uncertainty of geotechnical site condition – [Construction Stage]

x x Land use historical data and land investigation

As land requirement is not extensively large geotechnical risk may relatively be managed. The difficulties that impossible to identified at the planning stage will be taken over by the Government

Minemouth Power Plant BOT

Due to uncertainty of ground conditions, either plant or coal mining – [Construction Stage]


Risk allocation to public sector as mine ownership option is by public sector




x Clarification when the tender process;





Electricity Sector




Risk Allocation


x Competent and experienced design consultant








x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity




Good relationship with supplier Penalty clauses of Liquidity

Damages













3. SPONSORRISKS








Eligibility lenders

4. FINANCIAL RISKS





x Ensure timely the budgeting process


Electricity Sector




Risk Allocation
















5. OPERATING RISKS

























Electricity Sector




Risk Allocation





Operation Risks below has a differences of description and mitigation which depends on PPP project types

Increase in fuel costs

Electricity BOT, BOO This risks may be triggered by fuel price increase in the export market – [Operation Stage]

x Long-term fuel supply contract

Minemouth PLTU BOT This risks may be triggered by coal price increase in the export market – [Operation Stage]


Good mine operator

Coal price regulation

Also under this option mine is owned by public sector, fuel supply risk is closely related to mine operation

Shortfall of supply or decrease of fuel quantity

Electricity BOT, BOO Fuel supply reduced/stopped or decrease of fuel quantity– [Operation Stage]


Minemouth PLTU BOT This risks may be triggered by coal price increase in the export market – [Operation Stage]


Good mine operator



Uncertainty of fuel availability Fuel supply in this context the coal is not available until the end of the concession – [Operation Stage]

x Especially for Minemouth PLTU, feasibility study conducts properly and implementation process is running well

Electricity BOT Uncertainty of continuity in fuel availability – [Operation Stage]


Minemouth PLTU BOT This risks may be triggered by mismatch between production and power plant operational schedules – [Operation Stage]


Good mine operator



6. REVENUE RISKS

Changes in the demand volume on project output

Volume on output demand is increase or decrease – [Operation Stage]

x Understanding the technological capability to produce electricity by the PC

Good contract understanding by both parties


End (retail) consumers does not pay


x Feasibility support (VGF); Supportive regulation.




x Feasibility support (VGF); Regulation related to tariff mechanism and incentive











Electricity Sector




Risk Allocation


Tariffs are too optimistic – [Operation Stage]

x An accurate of Cost Production calculation that consideredvarious aspects


Electricity network connectivity and connecting facilities risk



Competent PMO

Commitment and transmission development budget from PLN


Electricity distribution network management risk

Limitations of electricity distribution network management by Government – [Operation Stage]





8. INTERFACE RISK










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x








Electricity Sector




Risk Allocation













Due to privatization of the Off taker [All Stages]













Asset Ownership Risks below applied to all BOT & BOO scheme


Asset Ownership Risks below applied to Electricity BOT & Minemouth BOT scheme





Generally, in this electricity BOT structure, the specific risks are asset transfer risk at the end of the PPA period. Those risk is distinguishing between BOT and

BOO which is not make asset transfered. In addition to that, the sector-specific risks are parastatal risks (i.e. breach of offtaker’s contractual obligations and the

privatisation of the offtaker).

From the above risk matrix, in relation with the selected minemouth KPS project structure options, it is seen that there are some new risks appeared as a result

of coal mine ownership by PJPK namely land risks (related cost of mine acquisition process and mine geotechnical risks). Other than that, although this structure

is selected to minimize power plant fuel availability risk (subset of operational risks), increased cost and availability of coal supply risks are very much related

to mine operation. Furthermore, fuel supply risk may also be triggered by the disharmony between mine production and power plant operation.


As a mitigation measure, other thanthe involvement of credible mine operator and long-term supply contract, supply and minemouth coal price arrangements

are also required in relation with supply transfer potentials as a result of coal price increase in export or other industry market

4.2.5 Risk Allocation Matrix in Energy Conservation Sector

Risk matrix below is applied to Public Street Lighting (PJU) project and also energy efficiency which is done with AP scheme. Both of prorojects does not need

the massive site (PJU) or in site where owned by the Government (the building which will be applied to energy efficiency), so the location risks that related to

status and land acquisition has a very low risk value, almost none.

Table 8. Risk Matrix for Energy Conservation Sector

Energy Conservation Sector




Risk Allocation

1. SITE RISKS




















x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damaes















Risk Allocation








Experienced testingand commissioning consultant

3. SPONSOR RISKS








Eligibility lenders

4. FINANCIAL RISKS









x Certainty of Land BLU funds availability of funds with the certainty of additional funding from the state budget if reached a certain threshold












5. OPERATING RISKS








Risk Allocation


























Uncertainty of energy source continuity

Electricity source continuity, either from PLN or solar panels are not guaranteed – [Operation Stage]

x

A comprehensive study

Anticipate acts: electricity back up facility/other utilities

Usually should be anticipated as early as possible

6. REVENUE RISKS



x

Understanding the technological capability to produce electricity by the PC


Failure of AP payment in timely manner

The Government cannot make a payment in timely manner – [Operation Stage]

x

The escrow account mechanism which combine the revenue of PJU taxes














Risk Allocation









Electricity network connectivity and connecting facilities risk




Electricity distribution network management risk

Limitations of electricity distribution network management by Government – [Operation Stage]


8. INTERFACE RISK










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x












Risk Allocation













Due to privatization of the Off taker [All Stages]


















Generally, in Public Street Lighting AP and structure, the specific risks are revenue risk (i.e. failure in payment by the Government), the assets transfer risk after the Power Purchase Agreement (PPA) ends. The other sector-specific risks are parastatal risks (i.e. breach of offtaker’s contractual obligations and the privatisation of the offtaker).

4.2.6 Risk Allocation Matrix in Oil and Gas Sector

The risk matrices provided to PPP BOT (Build, Operate, Transfer) structuer. The PC are bulding, operating, maintaning, and selling the oil and gas products.

Table 9. Risk Matrix for Oil and Gas Sector

Oil and Gas Sector




Risk Allocation

1. SITE RISKS


Oil and Gas Sector




Risk Allocation








Land requirement for refinery has been identified clearly




























Oil and Gas Sector




Risk Allocation















Due to uncertainty of geotechnical ground conditions – [Construction Stage]

x x Land use historical data and land investigation

The difficulties that impossible to identified at the planning stage will be taken over by the Government









x Competent and experienced design consultant or EPC











Provide the calculation price escalation factor on the contract








Failure of the contract completion by contractors/subcontractors due to internal &




Oil and Gas Sector




Risk Allocation

financial management factors – [Construction Stage]





3. SPONSOR RISKS








Eligibility lenders

4. FINANCIAL RISKS





















5. OPERATING RISKS

Availability and quality of inputs

Risk that related to difficulties in selection and procurement of a crude oil that affect the quality of refinery products quality – [Operation Stage]

x Planning process and a well-designed of supply chain


Oil and Gas Sector




Risk Allocation




























Prolonged downtime The operation suspended due to technical disorder aspects, maintenance, or other issues related – [Operation Stage]

x Spare part availability ad guarantee from vendors

Safety and health of works risk during the operation

An accident or health disorder of workers – [Operation Stage]

x Properly, good, and integrated of K3 implementation programs

The risk of cessation of operation facilities due to unexpected factors

The operation facilities are stopped due to fire or other aspects

x Insurance

6. REVENUE RISKS



x Good contract understanding by both parties

The PC does not pay in timely manner

Due to bureaucracy process and the PC’s performances – [Operation Stage]

x Good contract understanding by both parties






Oil and Gas Sector




Risk Allocation










Tariffs are too optimistic so it’s beyond the parity price prediction – [Operation Stage]

x The calculation factorial needs to be agreed


Oil pipeline and/or natural gas network connectivity




Oil and/or natural gas network management risk

Limitations of oil and/or natural gas network management by Government – [Operation Stage]

x Increase in the capacity management of oil and/or natural gas networks

Refinery products distribution risk

Unreadiness of refinery products distribution conducted by the Government – [Operation Stage]

x Developing the system of a competent supply chain distribution




8. INTERFACE RISKS










9. POLITICAL RISKS – to all PPP projects scheme and type


x Local financing

Off-shore account



x Local financing

Off-shore account






Oil and Gas Sector




Risk Allocation




x











Fail or delay in obtaining necessary consents











10. FORCE MAJEURE RISKS - to all PPP projects scheme and type










Asset Ownership Risks below applied to all PPP projects scheme and type


Asset Ownership Risks below applied to all PPP project scheme and type, besides BOO





Generally, in Oil Refinery and Natural Gas BOT structure, the specific risks are operational risk (i.e.remember the strategical industries and more concern on

extra management), the network connectivity risk, and parastatal risk (i.e. breach of offtaker’s contractual obligations and the privatisation of the offtaker).

4.2.7 Risk Allocation Matrix in Railway Transportation Sector

The identified risks are more relevant to a railway project providing transportation service for passengers rather than for cargos. Design and construction risks

in this sector are typically higher compared to other transportion modes (i.e. road, bridge) due to the complexity of the applied technology and the required


specification to a specific service level of the output. For risks associated with the cooperation scope with TOD scheme, not be the scope of the principal project

risk.

The PPP scheme in railway sectors, generally used the full concession and O&M. Full concession involves design, construction, financing, operation, and

maintanance of a whole railway transport facility, including the fare collection from end-users. In addition of O&M scheme is only operation and maintenance of

a railway facilities.

Table 10. Risk Matrix for Railway Sector

Railway Sector




Risk Allocation

1. SITE RISKS

Site Risk below applied to all Full Concession scheme
























Coordination with the related parties in determining compensation



Railway Sector




Risk Allocation

executor or provider including the compensation scheme and form












Site Risk below applied to Full Concession and O&M scheme

















Design, Construction and Commissioning Risks below applied to Full Concession scheme












Railway Sector




Risk Allocation














Design, Construction and Commissioning Risks below applied to Full Concession and O&M scheme









x Good communication & coordination between contractor, testing consultant , and the right operators


3. SPONSOR RISKS








Eligibility lenders

4. FINANCIAL RISKS







Railway Sector




Risk Allocation
















5. OPERATING RISKS










Failure of project management Failure or inability of the PC to manage operational of Guarantee Agreement – [Operation Stage]















Railway Sector




Risk Allocation





Incompetent of toll road services in technology and information systems of railway service





6. REVENUE RISKS



x










































8. INTERFACE RISKS


Railway Sector




Risk Allocation



x x Coordination and integration of

project implementation schedule








9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x
























x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not






Railway Sector




Risk Allocation



covered by the insurance, then it taken over by the Government.


Asset Ownership Risk below applied to all Full Concession and O&M scheme


Asset Ownership Risk below applied to Full Concession scheme





Asset Owner Risk below especially applied to O&M scheme

Business transferred and an existing railway assets management and currently built

Uncertainty of conditions upon transfer from earlier operator and unanticipated condition of railway existing condition

x A robust business due to diligence (in PFS)

As seen from the above table, in railway concession there some specific risks embedded (which some are similar to risks in the toll road full concession),

namely: land acquisition risk, demand and tariff risks, and interface risk. The special risks of O&M Railway structure (compared with Railway Full Concession)

are design construction & commissioning risks and the business/asset transfer risks. On the other toll road sector-specific risks (i.e. demand risk, tariff risk,

network risk, and interface risk), they are still main concerns of the PC, albeit of lesser magnitude than that in the concession structure.

4.2.8 Risk Allocation Matrix in Bus Rapid Transit (BRT) Sector

The most specific risk in BRT sector is the interface risk – the transision of the existing transportation to a mass transportation system. Intensive socialization

and communication with all of the stakeholders, especially the drivers and the transportation owners must be done to have a same understanding for a better

public service provisions. A success of transision process will determine the success of procurement and operation in the future.

The PPP scheme in BRT sectors, generally used the full concession and O&M. Full concession covers design, construction, financing, operation, and

maintanance of a whole BRT facility, including the fare collection from end-users. In O&M scheme is only covers operation and maintenance of a BRT facilities,

while the other facilities directly managed and/or cooperate with third party through Non-PPP mechanism.

Table 11. Risk Matrix for BRT Sector

BRT Sector




Risk Allocation

1. SITE RISKS

Site Risk below applied to all Full Concession scheme


BRT Sector




Risk Allocation














Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit (“Izin Pinjam Pakai Kawasan Hutan”) risk




















BRT Sector




Risk Allocation




Site Risk below applied to Full Concession and O&M scheme









































BRT Sector




Risk Allocation














x Good communication & coordination between contractor, testing consultant, and the right operators


3. SPONSOR RISKS








Eligibility lenders

4. FINANCIAL RISKS















BRT Sector




Risk Allocation







5. OPERATING RISKS

































6. REVENUE RISKS

Revenue Risk below applied to Full Concession scheme


BRT Sector




Risk Allocation



x















Revenue Risk below applied to Full Concession and O&M scheme

Fail in the tariff determination Due to PC cannot fulfill the minimum standard that agreed – [Operation Stage]


























8. INTERFACE RISKS

Interface Risk below applied to Full Concession and O&M scheme


BRT Sector




Risk Allocation



x x Coordination and integration of

project implementation schedule








Interface Risk below applied to Full Concession scheme

Public transportation transition risk

Fail in transition of the existing transport process, then it becomes the BRT bus operator – [All Stages]

x x Government prepare a transition plan and milestones that agreed together with the entrepreneur party and the transport drivers

Intensively of Organda involvement in transition process

The drivers moved become BRT driver with payroll system

The entrepreneur had the chance to become bus operator that paid Rp/km

BUP provides a service training of users oriented to operators and all doers

Provision of financing scheme that simplify an existing operator to become a BRT bus operator

A strike of public transportation due to the absence of an agreement on the transition mechanisms.

BUP doesn’t perform the contractual obligations to recruit the an existing driver, then it becomes a risk allocation in PC’s side.

Interface Risk below applied to O&M scheme

Public transportation transition risk

Fail in transition of the existing transport process, then it becomes the BRT bus operator – [All Stages]

x x Government prepare a transition plan and milestones that agreed together between the entrepreneur party and the transport drivers

Intensive Organda involvement in transition process

The drivers moved become BRT driver with payroll system

The entrepreneur had the chance to become bus operator that paid Rp/km

BUP provides a training of users oriented services to operators and all doers

Provision of financing scheme that simplify an existing operator to become a BRT bus operator

A strike of public transportation due to the absence of an agreement on the transition mechanisms.


BRT Sector




Risk Allocation

9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x







































BRT Sector




Risk Allocation






As seen from the above table, a ful concession structure of BRT has some sectoral risks (which similar to risks in the railway full concession), namely: land

acquisition risk, demand risk, tariff risk, and interface risk. The specific risks of O&M Railway structure (compared with Railway Full Concession) are operation

risk, tariff risk, and asset ownership risk. On the other specific sectoral risk (demand risk, network and interface risk ), still become the PC’s attention, but the

exposure may not as large as a full concession projects.

4.2.9 Risk Allocation Matrix in Seaport Sector

Risk matrix below refers to a seaport project with a concession structure that involves design, construction, operation and maintenance of the seaport facility,

including tariff collection from customers.

Table 12. Risk Matrix for Seaport Sector

Seaport Sector



Practice


1. SITE RISK
















Seaport Sector



Practice







































Seaport Sector



Practice




































3. SPONSOR RISKS – All PPP scheme





Default of project lender Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC



Seaport Sector



Practice


or due to an internal issues – [All Stages after Financial Close]


Eligibility lenders

4. FINANCIAL RISKS





















5. OPERATING RISKS




x Competent operator; Clear output specifications; Reward and punishment mechanism.









Seaport Sector



Practice


















Incompetent of toll road services in technology and information systems of seaport service




Highly traffic accident in both land-side or seaside - [Operation Stage]

x Third party liability insurance

6. REVENUE RISKS



x



































Seaport Sector



Practice








8. INTERFACE RISKS

Disparity of the time and quality

of work risk


x X Coordination and integration of project implementation schedule


Differences of service standard

/method risk





9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x



















Due to privatization of the Off taker or default by the PC

[All Stages]




Seaport Sector



Practice












Asset loss event risk Fire, explosion, etc x Insurance





In the seaport full concession structure, similar to the railway full concession, the specific risks are land acquisition risk, certain operating risk (i.e. traffic accident

or public safety concerns), demand and tariff risks, and interface risk (i.e. on standard delivery and technology).

4.2.10 Risk Allocation Matrix in Airport Transportation Sector

Risk matrix below refers to an airport project with a full concession and O&M structure that involves design, construction, operation and maintenance of the

airport facility, including tariff collection from customers.

Table 13. Risk Matrix for Airport Sector

Airport Sector




Risk Allocation

1. SITE RISKS

Site Risk below applied to Full Concession scheme









Airport Sector




Risk Allocation






























Site Risk below applied to Full Concession an O&M scheme




Airport Sector




Risk Allocation












































Airport Sector




Risk Allocation











3. SPONSOR RISKS








Eligibility lenders

4. FINANCIAL RISKS




















5. OPERATING RISKS


Airport Sector




Risk Allocation































Traffic accident or safety issues on air-side

Highly traffic accident on air-side - [Operation Stage]

x Third party liability insurance These depends on causes of the accident and the cope of cooperation agreement, remember that the Government take a control of ATC, while the possibility of operational on field it’s by the PC

6. REVENUE RISKS






Failure in tenant and/or Aeropolis reaps

The PC failed to obtain tenants or buyer – [Operation Stage]

x Comprehensive planning on feasibility study


Airport Sector




Risk Allocation

Strategical and implementation of a competent marketing























Contract synchronization







8. INTERFACE RISKS










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account






Airport Sector




Risk Allocation




x












































Similar to the seaport and railway concessions,the specific risks embedded in airport concession, are land acquisition risk, demand and tariff risks, and interface

risk (i.e. on standard delivery and technology).

Similar to toll road sector, specific risk in O&M Aiport structure (compared to airport full concession) are site risks (i.e. land acquisition-related), design

construction & commissioning risks and the asset ownership/transfer risks. On other sector-specific risks (i.e. demand risk, network risk and interface risk), they

are still main concerns of the PC, albeit of lesser magnitude than that in the full concession structure.

4.2.11 Risk Allocation Matrix in Telecommunication Sector

The risk matrices are provided for AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC are building, operating, maintaining, and selling the

products.

Table 14. Risk Matrix for Telecommunication Sector

Telecommunication Sector



Practice


1. SITE RISKS






















Practice







































2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS – All PPP projects scheme and type





Practice

















x Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity


















3. SPONSOR RISKS












Practice


Eligibility lenders

4. FINANCIAL RISKS









x Certainty of Land BLU fund availability with the certainty of additional funding from the state budget if reached a certain threshold












5. OPERATING RISKS



















Practice















Resource or input risk The risk of failure or shortage in the supply of the inputs or resources (for example, coal or other fuels) required for the operation of a project including in the quality of available supplies – [Operation Stage]

x The PC provide an alternative solution, includes the back up

Prolonged downtime The operation suspended due to technical disorder aspects, maintenance, or other issues related – [Operation Stage]

x Spare part availability ad guarantee from vendors

Latent defect risk The risk of loss or damaged due to latent defect in facilities which include as a project assets – [Operation Stage]

x Strict control to the procurement of project assets and forcing the BUP to replace the damaged

Failure in technology risk The technology used could potentially fail to give the required output specifications – [Operation Stage]

x Before the signing of agreement contract, the bidders already familiar about the consequences of punishment if breaking the deal

Technology obsolescence The development of technology that make the technology used becomes obsolete (technology obsolescence – [Operation Stage]

x Verify for technology used fulfill the current standard

6. REVENUE RISKS



x Understanding the technological capability to produce electricity by the PC





x Feasibility support (VGF); Supportive regulation.





















Practice













8. INTERFACE RISKS










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x






















Practice





















Generally in AP scheme of Telecommunication BOT structure, the obselescence and failure of technology risk becomes a very specific risk in this sector.

Telecommunications and informatics changes very quickly, so it needs to be an understanding on the technology development and also the user needs in order

to avoid the design errors.

4.2.12 Risk Allocation Matrix in Urban Facilities Sector

Risk matrices are provided for BOT (Build, Operate, Transfer) and AP of PPP structure. In both schemes, the PC has the scope of works that includes building,

operating, maintaining, and assets transfer. The differencies of demand risk aspect, due to the AP scheme is not allocated to the PC.


Table 15. Risk Matrix for Urban Facitilities (Market) Sector

Urban Facilities (Market) Sector




Risk Allocation

1. SITE RISK





























Unavailable of utilities data, which just known during excavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage






Risk Allocation

will be taken over by the Government
















































Risk Allocation



















Eligibility lenders

4. FINANCIAL RISKS





















5. OPERATING RISKS






Risk Allocation




























Incompetent of technology and information service systems

The technology used cannot be reliable, so disturbed the operation – [Operation Stage]




6. REVENUE RISKS

Revenue Risk below applied to all BOT scheme








x Accurate traffic survey Soft loan at the initial operation


Tariff collecting company fails to collect





Government cannot make a payment in timely manner – [Operation Stage]


Revenue Risks below applied to Full Concession, O&M, Combination of Full Concession and O&M, and AP scheme






Risk Allocation






















The smoothness of transportation system risk

Limitations of Government in manage the traffic on around the site which impacts to service performances – [Operation Stage]

x The traffic management with consider pattern of the transport movement




8. INTERFACE RISKS










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x






Risk Allocation




















[All Stages]


















Generally in Market BOT structure, the specific risks are asset transfer after the end of contract period and demand risk. In addition of AP scheme, the operatioan

and asset transfer risks gain the special attention by the PC.

4.2.13 Risk Allocation Matrix in Health Sector

Risk matrices are provided for BOT (Build, Operate, Transfer) of AP scheme. The PC responsible of build, operate, and maintain the hospital facilities, also

switched to the end of concession period.


Table 16. Risk Matrix for Health Sector

Health Sector




Risk Allocation

1. SITE RISK









The duration of the issuance of Location Determination (“Penetapan Lokasi”) by authorities s






















Health Sector




Risk Allocation













































May include impact of bad quality of Human Resources expertise, lack of material & tools



Health Sector




Risk Allocation

availability, delay in returning site access – [Construction Stage]




Experienced testing consultant and commissioning









Eligibility lenders

4. FINANCIAL RISKS















x Hedging instruments; financing in Rupiah








5. OPERATING RISKS


Health Sector




Risk Allocation




























Incompetent of technology and information systems of health service



Delay on tools delivery and medical needs

The risk of delay in delivery that becomes PC’s responsibility - [Operation Stage]

x Integrated and competent of planning, communication system, logistic system, and control system

Data leakage and management risk

Patient medical data is not well recorded and leaked - [Operation Stage]

x Integrated, competent, and equipped of tested scurity systems of planning, communication system, logistic system, and control system



Medical treatment risk Accident during the medical treatment x x Implement the medical treatment procedures according to the SOP

Ensure the competency of technology /systems before the medical treatment process is done

This risks are depends on the cause that refers to scope of the cooperation


Health Sector




Risk Allocation

Pollution of medical waste risks that is hazardous toxic material (B3)

The operational activities of hospital/health facility could potentially cause environmental pollution from medical waste produced – [Operation Stage]

x Comprehensive AMDAL studies

Making the medical waste management facility that fulfill the regulatory standards

Medical waste management could be done by certified third party from authorized agency (KLHK)

6. REVENUE RISKS

Decrease in the demand volume projection (patient)

Resulted in a decrease in revenue and the deficit for the Government – [Operation Stage]




Increase in demand volume projection (patient)

Patient visits are beyond the expected on the study and contracts which affect the operating performance, including the costs rises – [Operation Stage]

x x Good contract understanding by public sector

The PC and Government discussion related to contracts

Basically it becomes the PC responsibility, but only when it reaches the upper limit of volumes








































8. INTERFACE RISKS


Health Sector




Risk Allocation










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x




















[All Stages]





x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the






Health Sector




Risk Allocation



insurance, then it taken over by the Government.







Generally in Hospital AP structure, the specific risks are the technology obsolescence risk, work and technology interface risk, medical treatment risk, medical

waste management risk as B3, and data leakage and management risk.

4.2.14 Risk Allocation Matrix in Public Housing Sector

Risk matrices are provided for BOT (Build, Operate, Transfer) PPP structure. The PC scope of work involve building, operating, and inrfastructure maintaining,

also asset transfer after the end of cooperation period.

Table 17. Risk Matrix for Public Housing Sector

Public Housing Sector



Practice


1. SITE RISK



















Practice











































Practice





























Experienced tester consultant and commissioning









Eligibility lenders

4. FINANCIAL RISKS





Practice






















5. OPERATING RISKS






















Practice












Security and safety risk Highly of accident and losses - [Operation Stage] x Good implementation of security and safety systems

Third party liability insurance

6. REVENUE RISKS

Revenue Risk below applied to BOT scheme

Changes in the demand volume projection


x Accurate market survey by experienced consultant











Revenue Risk below only applied to AP scheme

















Revenue Risk below applied to BOT and AP scheme





















Practice












8. INTERFACE RISKS










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x


















Parastatal risk Breach of off taker’s contractual obligations x Political risk insurance






Practice



[All Stages]
















Generally in Public Housing BOT structure, the specific risks are the demand and operation risk. Meanwhile on AP scheme, the demand risk is allocated to the

Government.

4.2.15 Risk Allocation Matrix in Education Sector

Risk matrices are provided for BOT (Buil, Operate, Transfer) PPP structure, the PC is responsible in buil, operate, and maintain the education facilities, also

asset transfer at the ends of cooperation period.


Table 18. Risk Matrix for Education Sector

Education Sector




Risk Allocation

1. SITE RISK































Education Sector




Risk Allocation
















































Education Sector




Risk Allocation













Eligibility lenders

4. FINANCIAL RISKS




















5. OPERATING RISKS







May be by operator, sub-contractors, or suppliers staff


Education Sector




Risk Allocation

National scale demonstration that led to the national work strikes can be considered in the force majeure category





















Incompetent of technology and information systems of education service



Delay on tools delivery and teaching and learning needs

The risk of delay in delivery that becomes PC’s responsibility - [Operation Stage]

x Integrated and competent of planning, communication system, logistic system, and control system

Data leakage and management risk

Students data is not well recorded and leaked - [Operation Stage]

x Integrated, competent, and equipped of tested scurity systems of planning, telecommunication and infromation system, and control system



This is depends on the PC’s scope of cooperation

6. REVENUE RISKS

Decrease in the demand volume projection





Curriculum changes The curriculum changes which affects to the increase in operating cost – [Operation Stage]


The PC and Government discussion related to contracts

Basically it becomes the PC responsibility, but only when it reaches the upper limit of volumes






Education Sector




Risk Allocation


































8. INTERFACE RISKS










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account



Education Sector




Risk Allocation







x




















[All Stages]


















Generally in Education BOT structure, the curriculum risk is quite high due to refers on history that the leadership changes impacts to curriculum changes. In

addition, the students data leakage risk, availability of utilities are the risk that gain a special concern by the PC.

4.2.16 Risk Allocation Matrix in Sport Facility Sector


Risk matrices are provided for full concession and AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC scope of works including building,

operating, and maintaining the infrastructure, also asset transferring at the ends of concession period. The full concession scheme can be implemented if the

commercial facility being built is quite attractive and worth supporting investment and OM cost of sport facility. The selected commercial facility surely has its

own type of risk that need to be further assessed. The risk in commercial facility were not assessed in this guidelines.

Table 19. Risk Matrix for Sport Facility Sector

Sport Facility Sector




Risk Allocation

1. SITE RISK



























Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the


Unavailable of utilities data, which just known during excavation process. Generally






Risk Allocation

possibility of route change – [Construction Stage]

at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government














































Risk Allocation



















Eligibility lenders

4. FINANCIAL RISKS




















5. OPERATING RISKS






Risk Allocation




























Incompetent of technology and information systems of sports facility service



This conditions are depends on the class of the sports facilities that provided

6. REVENUE RISKS

Revenue Risk below applied to Full Concession and AP scheme



x








x Accurate market survey

Experienced model consultant in commercial facility designed




x Collection system and good operational performance






Risk Allocation

















Revenue Risk below applied to AP scheme


















Network Connectivity Risk below applied to Full Concession scheme

Network connectivity of product marketing risk

PC cannot managed the markets – [Operation Stage]


Contract with main buyer since early on


The smoothness of supplier system risk

PC cannot guarantee the supplier system – [Operation Stage]

x Supportive government policies

Contract with measured suppliers

i.e. quota of beef imports

Competitors facilities risk Breach of authority’s obligation not to build a competitor facility that similar to commercial facility - [Operation Stage]



8. INTERFACE RISKS






Risk Allocation










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x




















[All Stages]





x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then










Risk Allocation



it taken over by the Government.







Generally in Sports Facility BOT structure, the specific risks are operational risk and asset transfer risk after the ends of the cooperation period. In addition, the

other specific risks are parastatal risk (i.e. breach of the off-taker’s contractual obligations and privatization of the off-taker).

4.2.17 Risk Allocation Matrix in Tourism Sector

Risk matrices are provided for AP scheme with BOT (Build, Operate, Transfer) structure for the development projects of information centre, service, and tourism

promotion types. The PC is responsible to building, operating, and maintaining the infrastructure, also asset transferring at the ends of concession period.

Table 20. Risk Matrix for Tourism Sector

Tourism Sector




Risk Allocation

1. SITE RISK















Tourism Sector




Risk Allocation



































Tourism Sector




Risk Allocation










































Eligibility lenders


Tourism Sector




Risk Allocation

4. FINANCIAL RISKS





















5. OPERATING RISKS



















Tourism Sector




Risk Allocation











Incompetent of technology and information systems of tourism facility service



This conditions are depends on the class of the tourism facilities that provided

6. REVENUE RISKS

Decrease in the demand volume projection










































8. INTERFACE RISKS


Tourism Sector




Risk Allocation










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account








x




















[All Stages]





x Insurance, to extent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the






Tourism Sector




Risk Allocation



insurance, then it taken over by the Government.







Generally in Tourism BOT structure, the specific risks are operational risk and asset transfer risk after the ends of the cooperation period. In addition, the other

specific risks are parastatal risk (i.e. breach of the off-taker’s contractual obligations and privatization of the off-taker).

4.2.18 Risk Allocation Matrix in Correctional Sector

The correctional institution not only about the prison building but also includecoaching facilities. The coaching facilities that has a commercial aspect can become

a sources of investement return. Risk matrices provided for full concession and AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC is

responsible to building, operating, and maintaining the infrastructure, also asset transferring at the ends of concession period. The selected coaching facility

surely has its own type of risk that need to be assessed. The risk in coaching facility were not assessed in this guidelines.


Table 21. Risk Matrix for Correctional Sector

Correctional Sector




Risk Allocation

1. SITE RISK














Unissued the location determination or location permit risk by the Local Government













Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change– [Construction Stage]




Correctional Sector




Risk Allocation
















































Correctional Sector




Risk Allocation













Eligibility lenders

4. FINANCIAL RISKS




















5. OPERATING RISKS

Security and safety of correctional facility

Breach of security and/or safety, i.e. runaway prisoners

x Integrated and tight security system







May be by operator, sub-contractors, or suppliers staff


Correctional Sector




Risk Allocation

National scale demonstration that led to the national work strikes can be considered in the force majeure category





















Incompetent of technology and information systems of sports facility service



This conditions are depends on the class of the sports facilities that provided

6. REVENUE RISKS

Revenue Risk below applied to Full Concession and AP scheme



x











Revenue Risk below applied to AP scheme











Correctional Sector




Risk Allocation




















Network Connectivity Risk below applied to Full Concession scheme

Network connectivity of product marketing risk

Breach of authority to buy prisoners products or cancellation of the main buyer – [Operation Stage]


Contract with main buyer since early on


The smoothness of supplier system risk

PC cannot guarantee the supplier system – [Operation Stage]

x x Supportive government policies

Contract with measured suppliers

i.e. quota of beef imports

Competitors facilities risk Breach of authority’s obligation not to build a competitor facility that similar to commercial facility - [Operation Stage]



8. INTERFACE RISKS










9. POLITICAL RISKS


x Local financing

Off-shore account



x Local financing

Off-shore account



Correctional Sector




Risk Allocation







x




















[All Stages]


















Generally in Correctional Facility with BOT structure, the specific risks are operational risk and asset transfer risk after the ends of the cooperation period. In

addition, the other specific risks are parastatal risk (i.e. breach of the off-taker’s contractual obligations and privatization of the off-taker). Especially for full

concession, the inherent risk of developed commercial facility needs to be considered.


5 SUMMARY

From the discussions above, especially on each sector and each PPP structure risk allocation, there are some similarities and differences on how the risks

are allocated between the public and private sector, including when the risk should be shared between the two parties. The summary of similarities and

differences is shown in Table 22 below.

Table 22. Risk Matrix Summary for all PPP Sectors

Allocation Similarity Difference

Public Sector Site risk (land acquisition and land status-related)

Political risk

- Currency inconvertibility and Non transferability

- Expropriation

- Discriminatory and Specific Change of Law (incl.Tax)

- Regulatory consent

- Parastatal risks

- Authority’s default

Operational risk

- Input quantity, quality and continuity

Revenue risk

- Tariff adjustment breach

- Project viability

Network connectivity risk

- Competing route & connectivity

Revenue risk

- Demand risk (Water BOT, Solid Waste BOT, Wastewater BOT,

Electricity BOT, Mine-mouth BOT)

Private Sector Site risk (ground conditions-related)

Design, construction and commissioning

- Default by contractors and sub-contractors

Operating risks

- Output quantity and quality

Political risk

- General Change of Law

Revenue risk

Financial risks

Sponsor risks

- Default by the PC

Revenue risk

- Demand risk (Full concession of Airport, Seaport)

Shared Force Majeure risk

Interface risk

- Disparity of the quality of the works

Revenue risk

- Demand risk (Full concession and O&M for toll road, railway,

airport sector) – depends on who triggers the risk


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