Rising Momentum for Indonesia's Public-Private Partnership Projects?
During the Susilo Bambang Yudhoyono administration (2004-2014) the Indonesian government presented public-private partnerships (PPPs) as solution to infrastructure development in Indonesia. However, there was limited enthusiasm as investors remained hesitant due to the nation's complex investment climate (including the difficult land acquisition process, regulatory uncertainty and doubts about the economic feasibility of certain projects).
During the Joko Widodo administration, which is regarded a more investor-friendly administration, there seems to come some life into these PPP infrastructure projects.
For example, on 6 June 2016 the Batang Power Plant project in Central Java reached the financial close (and is targeted to become operational by 2020). This USD $4 billion power plant facility is being developed by a consortium named Bhimasena Power Indonesia (BPI) under a build-operate-transfer scheme with a 25-year concession period. It is the first PPP infrastructure project to be accomplished with a co-guarantee facility by the Indonesia Infrastructure Guarantee Fund (IIGF) and the Indonesian government (Finance Ministry).
Another example of a mega-project developed under the PPP scheme is the Palapa Ring project that actually consists of three projects (the central package, the western package and the eastern package). Target of the project is to distribute broadband services to end users with a transfer speed of at least 10 Mbps in rural areas and 20 Mbps in urban areas.
The Palapa Ring project is the first PPP project in Indonesia's telecommunication sector using the availability payment scheme. This scheme was initiated by Indonesia's Finance Ministry with the source of fund being derived from the Universal Service Obligation (USO).
However, most private investors involved in PPP projects with the Indonesian government opt for toll road projects. So far in 2017 a total of four toll road projects reached the financial close. Investors' enthusiasm to develop toll roads is because these projects are regarded as most bankable.
It is important for the Indonesian government to build a good track-record in terms of PPP projects because that will convince the many investors that are currently still hesitant to team up with the Indonesian government.
Recently, Indonesian Minister of Public Works and Housings Basoeki Hadimoeljono said there are three basic challenges for infrastructure development in Indonesia, namely (1) land acquisition, (2) regulations, and (3) funding. Therefore, the government needs to find innovative solutions to overcome these challenges.
Read also: Analysis of Infrastructure Development in Indonesia