The Government of Indonesia has been showing a strong commitment to accelerating private sector participation in infrastructure development and investment. Given the massive infrastructure needs associated with economic growth, it is believed that relying solely on the government budget for infrastructure funding may not achieve the desired results.
The Government of Indonesia has been showing a strong commitment to accelerating private sector participation in infrastructure development and investment. Given the massive infrastructure needs associated with economic growth, it is believed that relying solely on the government budget for infrastructure funding may not achieve the desired results.
The government’s National Medium-Term Development Plan (RPJMN), 2015–2019 estimated that the total investment needed for infrastructure development during those years reached Rp4,796.2 trillion (around $345.4 billion), and is expected to grow to Rp5,957.7 trillion ($429 billion) during 2020–2024. The government expects that around 59% of the investment value will be provided by state-owned enterprises (SOEs) and the private sector. However, private sector involvement in infrastructure investment from 2015 to 2018 was still lower than the target, reaching only 21%. Given the funding limitations, private sector participation through a public–private partnership (PPP) scheme will be pivotal for the provision of infrastructure in Indonesia.
The development of PPPs in Indonesia started in early 1990s, when the initial set of projects with private sector participation in the toll road and energy sectors were implemented. After the introduction of PPPs as a formal mode for funding infrastructure development, in 2005, the government has made continuous efforts to institutionalize and promote PPP arrangements by enhancing the PPP regulatory framework. Indonesia now has in place several PPP-facilitating mechanisms and government-support mechanisms, such as the project development facility (PDF), guarantee facility, viability gap fund (VGF), availability payment mechanism, and a land acquisition financing mechanism. In addition, there are companies that play an active role in facilitating PPPs in the country, such as PT Infrastructure Finance Facility (PT IFF), a private nonbanking finance corporation; Indonesia Infrastructure Guarantee Fund (IIGF), or PT Penjaminan Infrastruktur Indonesia, an SOE under the Ministry of Finance (MOF) that is responsible for providing government guarantees for infrastructure projects developed under the PPP scheme; and the PT Sarana Multi Infrastruktur (PT SMI),
an SOE that provides long-term financing and advisory services for infrastructure development in Indonesia. From an institutional perspective, PPPs in Indonesia have been driven by the Ministry of National Development Planning/National Development Planning Agency (BAPPENAS); the PPP Unit, under the MOF; and the PPP Joint Office.
Though the PPP market in Indonesia is relatively mature, there have been various challenges to PPP implementation in the country.
One of the major impediments has been the land acquisition process, which stalled quite a few PPP projects in the past. To speed up the land acquisition process, in 2012 the government adopted a new law on land acquisition in the public interest, and followed up with the implementation of a series of rules and regulations. In 2015, the government issued the fourth revision of the land acquisition law under the Presidential Regulation No. 148 of 2015. The law limits the land acquisition procedure to approximately 512 days and allows for the revocation of land rights in the public interest. To further speed up the process, the regulations enable private sector entities to acquire land on behalf of a government contracting agency (GCA), and to seek subsequent reimbursement from the government.
Another challenge faced by PPPs in Indonesia is the limited capacity of GCAs to properly prepare and procure projects on a par with international standards. The government is addressing this issue in various ways, such as providing more active support to the GCAs through the MOF's PPP Unit and the Committee on Acceleration of Priority Infrastructure, which employs qualified advisers to ensure quality project preparation.
The public sector in Indonesia is decentralized and characterized by multiple levels of government agencies. The lack of coordination among multiple government stakeholders and the lack of clarity regarding the responsibilities of each agency during PPP project preparation and approval have often caused project delays, particularly in relation to decision-making.
