Opportunities in Indonesia's PPP sector

Singapore, April 2015

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Indonesia Infrastructure Development

MINISTRY OF FINANCE THE REPUBLIC OF INDONESIA

Presented by: Freddy R. Saragih

Director of Government Support and Infrastructure Financing Management Ministry of Finance

The Republic of Indonesia

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PPP Projects Development

Non-PPP Infrastructure Projects and Policies

PPP Project Development

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Gov’t and Local

Budget

Financing Gap

SOE (22.23%)

Private (36.52%)

+ USD 145.92 billion

Alternative

Financing

Scheme

Strategic

Infrastructure

Investment

USD 399.97

billion

+ USD 88.83 billion

Gov’t and Local

Budget

(41.25%)

+ USD 164.83 billion

GOI needs alternative financing scheme for infrastructure development. PPP offers a reasonable answer.

Estimated Funding Source for Infrastructure Development (2015-2019)

*) source : Ministry of Planning, 2015

Click to edit Master title style PPP in Indonesia

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• The Government of Indonesia (GoI) considers PPP as an option to support infrastructure development;

• To support such PPP policy, the GoI has made certain facilities for PPP Projects and established PPP Unit within Ministry of Finance.

• Currently, GoI has a new PPP regulation, called Presidential Regulation (PR) number 38/2015, which accommodate some main issues on government’s infrastructure development policies , such as :

Broaden the PPP infrastructure sector to social infrastructure sector

Provide availability payment scheme to ensure the availability of infrastructure services

• On the other hand, the new business process is defined for infrastructure priority projects regulating in Presidential Regulation (PR) number 75/2014.

Click to edit Master title style PPP Unit Business Process

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KPPIP/IAC

OBC FBC

Pre-Qualification

PPP Unit

Strategic Funding Decision

Preparing Tender Document

*Note: OBC= Outline Business Case FBC= Final Business Case IAC = Infrastructure Acceleration Committee

Contract Signing

Project Prioritization

• Identifying the PPP Project Proposal

• Analysing VfM and PSC • Analysing the need of VGF

and guarantee • Analysing the need of

project preparation • Setting up the standard

document for PPP Co. procurement process

Providing Project Development Fund (PDF) for PPP Project Preparation

Processing Guarantee Application

Processing VGF Application

Providing PDF for Transaction Advisory

Controlling, Evaluating, and Documenting the Implementation of Government Support

RFP

Click to edit Master title style The Establishment of PPP Unit

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Become the champion for project preparation and enabling

environment to accelerate the PPP Agenda Broad Objective

Additional

mandates

Provide Input for PPP Policy Devt. and Regulations

Core Mandates

Improve quality of project selection under KKPPI – OBC

criteria

Support the Project Preparation through PDF support use a

high quality Transaction Advisor

coordinate all public finance instruments so project has a

single financing/ guarantee support package from VGF,

IIGF, SMI, PIP

Act on behalf Minister of Finance in providing Govt support

approvals for projects in particular stages in bidding

process. Monitor contract implementation for VGF

Implement capacity building program to GCA

One stop shop for PPP promotion & Information

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Project Development Facility (PDF): To enhance project bankability (implemented by PT SMI assignment);

Viability Gap Fund (VGF): To increase the financial viability of PPP project ;

Indonesia Infrastructure Guarantee Fund (IIGF): To guarantee for infrastructure risks;

Infrastructure Fund: To offer long term financing for infrastructure projects;

Availability Payment (AP) : Currently, MOF structuring the operationalization of this scheme to ensure the

availability of infrastructure service that provided by PPP Co.

Fiscal Supports for PPP Infrastructure Project

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MOF

PDF Guarantee (IIGF)

Infrastructure Fund (SMI/IIF)

Preparation Bidding Construction Operation

Viability Gap Fund AP

Project Preparation Demand Risk

Project Financing

Policy Risk Construction Cost

Contribution

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Objectives of VGF (MOF Regulation Number 223/2012 ):

1. To increase the financial viability of the project;

2. To increase certainty of infrastructure project provision in accordance to the designed quality and timing; 3. To enhance the public services provision through the infrastructure with affordable tariff.

“VGF is the government fiscal policy to support the infrastructure provision through the PPP scheme”

Viability Gap Fund

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Legal Context

Presidential Regulation (PR) No. 56/2011 as a second revision of PR No. 67/2005

concerning the Infrastructure Provision through Public-Private Partnership

In PR No.56/2011, Government is allowed to provide government support and guarantee

Section 17A (4) PR No. 56/2011: Minister of Finance may approve the provision of Government

support in the form of tax incentives and/or financial contribution based on the proposal from the

Government Contracting Agency (Minister/Head of Institution/Head of Local Government)

Minister of Finance Regulation Number 223/2012 concerning Construction Cost

Contribution for PPP Project.

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NOTE : B exists on if A exists, i.e. if A is part of the guarantee structure provides to the Investor/Lenders

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List of PPP Project PROJECT TOTAL PROJECT (IDR) UPDATED STATUS

POWER SECTOR

Central Java Power Plant 40 trillion Finalizing the rest of land acquisition (handled by PLN)

Mine Mouth 9-10, South Sumatera 54 trillion Final tender documents has been issued on Des 2014 and GCA

will hold Bid submission on Mei 2015

Oil Refinery, Bontang Approx. 60 trillion Minister of MEMR has informally pointed Pertamina as CA

WATER SECTOR

Umbulan Water Supply 2 trillion Processing VGF proposal

Lampung Water Supply 1 trillion Waiting for VGF nominal approval from MOF

West Semarang Water Supply 765 billion Waiting for VGF “in principle” approval from MOF

TRANSPORTATION

Airport Railway-Soekarno Hatta International Airport

24 trillion

Completing PQ’s documents (VGF proposal)

Manado-Bitung Toll Road 4.3 trillion Determined as PPP Project

Balikpapan-Samarinda Toll Road 11.4 trillion Determined as PPP Project

List of PPP Project

Non-PPP Infrastructure Projects and Policies

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Click to edit Master title style Trans Sumatera

• Trans Sumatera Toll Road is MP3EI priority project with high strategic and economic importance. However, the project is financially not bankable, thus private sector involvement is considered to be not a feasible solution.

• As mandated by Government Regulations No.43/2013, in the event that the toll road is economically feasible but not financially feasible, the government funding for toll road concession is limited, and to accelerate regional development, GoI may appoint SOE (wholly state-owned) to deliver the toll road project.

• Hutama Karya (HK) is assigned by Government to develop the Trans Sumatera project. To deliver the project, HK sees that timing is crucial, thus the commencement of Phase I construction and land acquisition must be kick start in 2014.

• HK will transform itself from Construction SOE into BUJT (Badan Usaha Jalan Tol). HK will then transfer all its existing assets to its subsidiary HK Konstruksi.

• On financing strategy, HK will leverage the equity injection by GoI through PMN. In addition, HK is expected in utilizing cheap funding sources that is eligible backed up by GoI guarantee and bringing equity partners to share the risks.

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Click to edit Master title style Direct Lending to SOE

• GoI has committed to accelerate infrastructure development and stipulated this agenda as a national priority development agenda in 2015-2019.

• To enable this agenda, GoI support direct financing from Multilateral Development Banks (MDBs) to SOE.

• This strategy has been considered to speed up the decision making process and it relatively has lower risk than SLA mechanism because the lender could directly scrutinize the SOE’s disbursement planning.

• GoI through MoF will provide guarantee for SOE with some certain eligible criteria.

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Click to edit Master title style Government Guarantee on Power Sector

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According to the Presidential Decree Number 4/2010, the Government through the Ministry of Finance provides Business Viability Guarantee to PT PLN (Persero) in developing the 2nd Fast Track Programs.

The guarantee states a commitment of the Government that is stipulated in MoF Regulation Number 173/2014 to ensure that PT PLN (Persero) will be able to fulfill its financial obligations under related PPA.

The guarantee is eligible only to the projects as listed in the Ministry of Energy and Mineral Resource Regulation No. 15/2010 jo. Ministry of Energy and Mineral Resource Regulation No. 01/2012.

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Thank You

DIRECTORATE OF GOVERNMENT SUPPORT AND INFRASTRUCTURE FINANCING MANAGEMENT DIRECTORAT GENERAL OF FINANCING AND RISK MANAGEMENT MINISTRY OF FINANCE , GOVERNMENT OF INDONESIA

Frans Seda building 1st floor Dr. Wahidin 1, Jakarta 10710 Phone (+6221) 3510722; Fax (+6221) 3447386 www.risiko.fiskal.depkeu.go.id