Public-Private Partnership Projects in Indonesia Remain Troublesome
The realization of infrastructure projects through the Indonesian government's public-private partnership (PPP) scheme is yet to bear fruit. Up to this day, PPP infrastructure projects in Indonesia are still constrained by the difficulty of land acquisition, regulatory uncertainties and lack of funding. These investments projects are not among the most popular investment projects of private investors because they usually involve expensive (and risky) investments as well as patience while waiting for return of investment.
In 2011, the Indonesian government unveiled its Masterplan for Acceleration and Expansion of Indonesia's Economic Development (MP3EI). Through this masterplan, the government targets an economic growth rate of seven to eight percent per year after 2013 and aims to turn Indonesia into one of the world's largest economies by 2025. It includes USD $470 billion in investment that - to a large extent - is envisaged to be supplied by the private sector through public-private partnership projects. However, the masterplan has not picked up speed yet. Due to weak global and internal conditions, Indonesia's GDP growth cannot amount to 7 or 8 percent in the near future yet.
Land acquisition in Indonesia is a problem that can take a very long time as well as costs to resolve. Many infrastructure projects in Indonesia are delayed or abandoned altogether because of issues involving land acquisition. In late-2011, the government and parliament approved the new Land Acquisition Law (UU No. 2/2012) which is regarded to speed up the land acquisition process notably as it deals with the revocation of land rights to serve public interest, puts time limits on each procedural phase and ensures safeguards for land-right holders. However, this bill is still in an infancy state while Indonesia is also characterized by a big discrepancy between written law and common practice.
A quick solution to Indonesia's lack of quality and quantity of infrastructure is therefore not easy to be found. Private investors want to see more commitment from the central government. Since the start of the country's decentralization process in the late 1990s (after the fall of the authoritarian state of Suharto), there has been a lack of regulatory cohesion between various regions. For projects that stretch across more than one region this is a major bottleneck.
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