Local government PPP landscape

  • Overview

    Low cost housing village

    Number of SNGs

    • Municipalities
    • Intermediate
    • Regional/State
    • Total Number of SNGs

    SNG Expenditure (% of GDP)

    • Total SNG Expenditure
      6.8 %
    • SNG Current Expenditure
      5.5 %
    • SNG Staff Expenditure
      3.0 %
    • SNG Investment
      1.3 %

    SNG Expenditure (% of govt. expenditure)

    • SNG Expenditure
      36.4 %
    • SNG Current Expenditure
    • SNG Staff Expenditure
      56.4 %
    • SNG Investment
      40.8 %

    SNG Revenue (% of GDP)

    • SNG Revenue
      7.2 %
    • SNG Tax Revenue
      1.2 %
    • SNG Grants
      5.4 %
    • Other SNG Revenue
      0.6 %

    SNG Revenue

    • SNG Revenue (% of govt. revenue)
      42.6 %
    • SNG Tax Revenue (% of govt. tax revenue)
      9.7 %
    • SNG Grants (% of govt. grants)
    • Other SNG Revenue (% of other govt. revenue)

    SNG Debt Profile

    • SNG Debt (% of GDP)
      0.2 %
    • SNG Debt (% of govt. debt)
      0.8 %

    Transfers to SNGs from National Government

    • SNG Transfers Score
    • Score for Transfer Allocation System
    • Score for Info Transfer Timeliness
    • Score for Collection and Reporting of Fiscal Data

    GDP = gross domestic product, Govt. = government, N/A = not applicable, SNG = subnational government.

    Note: The Public Financial Management and Accountability Assessment report, developed by the World Bank and other development partners, comprised scoring of various indicators by rating them from A to D. These ratings, as per criteria stated in the Public Expenditure and Financial Accountability (PEFA) framework, are broadly interpreted as follows:
    A = good performance that meets international standards (i.e., the criteria for the indicator are met in a complete, orderly, accurate, timely, and coordinated way);
    B = a level of performance ranging from good to medium by international standards;
    C = a level of performance ranging from medium to poor; and
    D = a process or procedure that is either nonexistent or not functioning effectively.

    Sources: Organisation for Economic Co-operation and Development (OECD), United Cities and Local Governments (UCLG), Agence Française de Développement (AFD). 2016. Subnational Governments Around the World: Structure and Finance; Part III – Country Profiles. Paris and Barcelona. http://www.uclg-localfinance.org/observatory; World Bank. 2018. Indonesia Public Expenditure and Financial Accountability (PEFA): Assessment Report 2017. Jakarta and Washington, DC. https://www.pefa.org/sites/pefa/files/assessments/reports/ID-May18-PFMPR-Public-with-PEFA-Check.pdf.

  • Local Governance System in Indonesia

    Indonesia is a unitary republic and is divided into five layers of government: central (or national), provinces (or regions), kabupaten (districts) and kota (municipalities), kecamatan (subdistricts), and kelurahan or desa (villages). The term pemerintah daerah (local government) refers to both Indonesia’s provincial governments and to regency and municipal governments. Indonesia consists of 34 provinsi (provinces) and 508 local governments (regencies and cities).

    Laws No. 22 of 1999 and No. 32 of 2004 gave the provinces and regions the authority to execute a wide range of responsibilities in areas such as health, education, public works, environment, communications, transportation, agriculture, manufacturing industry and trade, capital investment, land, cooperatives, labor force, and infrastructure services. Law No. 23 of 2014 and revised Law No. 32 of 2004 itemize the responsibilities of the subnational governments.

    Source: A. Nasution. 2016. Government Decentralization Program in Indonesia. ADBI Working Paper Series. No. 601. Tokyo: Asian Development Bank Institute. https://www.adb.org/sites/default/files/publication/201116/adbi-wp601.pdf.

  • Infrastructure Development Plan of Local Governments

    With regard to infrastructure development, subnational governments are involved in the planning, preparation, transaction, and implementation of PPP projects. They can plan and undertake projects and issue regulations for specific developments, as long as those regulations do not contravene or conflict with the national government’s regulations.

    Subnational governments undergo a process defined under regulations for undertaking projects under a PPP. However, the overall process of approvals for subnational government projects is not very clear. According to Presidential Regulation No. 38 of 2015 and Ministry of Home Affairs (MOHA) Regulation No. 96 of 2016, the MOHA is mandated to administer the process of approving proposals for availability payments for projects. Subnational governments may, after the planning stage is approved, undertake further steps through a project development facility (PDF) or appoint transaction advisors.

    Government Regulation No. 28 of 2018 permits provincial and regional governments to cooperate with other provincial and regional governments, third parties, and/or foreign regional governments and agencies. The regulation also provides for cooperation between regional or provincial governments and third-party business entities, thereby constituting PPPs.

    Further, Government Regulation No. 27 of 2014 provides for the utilization of central, regional, and provincial government assets for the provision of infrastructure in partnership with business entities. Article 39 of this regulation stipulates that the selection of a private partner shall follow the applicable regulations, and that the partnership could last up to 50 years, subject to other provisions.1

    Currently, the infrastructure procurement cooperation (KSPI) procedure for state assets falls under Ministry of Finance (MOF) Regulation No. 164 of 2014, as amended by MOF Regulation number 65 of 2016 on the Implementation Procedures for the Utilization of State-Owned Property for Infrastructure Procurement. According to Article 14 of MOF Regulation No. 65 of 2016, the parties that may partner with the government to utilize state-owned property are (i) business or legal entities allowed by the prevailing laws to be lessors of state-owned property; (ii) all parties allowed by the prevailing laws to engage in utilization cooperation (KSP); and (iii) state-owned enterprises (SOEs), regionally owned enterprises (ROEs), private limited liability companies, foreign legal entities, and cooperatives engaging in KSPI.2 These provisions allow several ways for regional governments to engage in KSPI with the private sector, including with foreign entities.

  • Sectors for Potential PPPs with Local Government Projects

    Subnational governments have been active in implementing infrastructure projects, often with the support of the PPP unit and PT Sarana Multi Infrastruktur (PT SMI).

    PPPƒ Projects Being Implemented by Subnational Governments, 2019

    GCA Preparation Agency Project Title Estimated Project Cost Estimated Concession Period Status
    ($) (Rp)
    Municipal government of Surakarta (i) Municipal Government of Surakarta Surakarta Street Lighting  28.40 million (10 years) 394 billion (10 years) 10 years Preparation
    (ii) Ministry of National Development Planning    45.90 million (20 years) 637 billion (20 years) 20 years  
    (iii) PT SMI through a PDF under the Ministry of Finance          
    Regional Development Planning Agency of the city of Medan PT SMI through a PDF under the Ministry of Finance Pirngadi Hospital 50.0 million  694 billion 12–17 years Preparation
    Regional government of Nangroe Aceh Darussalam IIGF through a PDF under the Ministry of Finance Zainoel Abidin General Hospital  142.8 million (estimated)  1.38 trillion (estimated)   Planning
    Government of West Java Province   Nambo Regional Waste Management 4.8 million 67 billion 25 years Construction
    City Development Planning Agency of Medan PT SMI through a PDF under the Ministry of Finance Medan Municipal Transport (development of BRT and LRT)

    LRT: 824.80 million

    BRT: 66.33 million

    LRT: 11.5 trillion

    BRT: 921 billion

    34 years

    34 years

    City of Semarang Municipal Government of Semarang Development of LRT in Semarang 1.0 billion 14.5 trillion 50 years Preliminary study
    Directorate General of Railway, Ministry of Transportation          
    Municipal government of South Tangerang Industry and Trade Department Development/ Revitalization of Ciputat Market 17.24 million 239 billion 20 years Preparation

    BRT = Bus Rapid Transit, GCA = governing contracting agency, IIGF = Indonesia Infrastructure Guarantee Fund, LRT = Light Rail Transport, PDF = project development facility, PT SMI = PT Sarana Multi Infrastruktur, Rp = Indonesian rupiah (national currency).

    Note: An empty cell indicates that the column head does not apply.

  • Revenues for Local Governments

    The Regional Revenue and Expenditure Budget (APBD) is an annual financial plan approved by the People’s Representative Council. 

    The APBD consists of:

    • regional government income, including:
      • the Original Regional Revenue (PAD), which includes local taxes, regional levies, the profits from regional wealth management, and other acceptance;
      • the Balance Fund, which includes the yield fund or the revenue share fund, comprising a percentage allocation from the central government’s income in order to implement decentralization;
      • the General Allocation Fund (DAU) comprising allocations from the central government;
      • the Special Allocation Fund, comprising allocations to specific provinces for special activities; and
      • other legitimate sources of income, such as grants, emergency funds, provincial and regional tax revenues, special adjustments and autonomy funds, and financial assistance from provincial or regional governments;
    • regional government expenditure, for funding all provincial and regional obligations and activities; and
    • financing, including any loans to be paid back and/or expenses, both in the year of the relevant budget and in the subsequent fiscal years.

    The key sources of local revenue include:

    • user charges and levies that are, in accordance with Law No. 28 of 2009 on Local Taxes and Charges, provincial and regional levies as payment for certain services or permits provided by local governments for personal or agency use (e.g., charges for public services, business services, and licensing);
    • property taxes—on land and buildings;
    • excise taxes; and
    • personal income taxes.
  • Borrowings by Local Governments

    Subnational governments may raise funds based on a feasibility assessment, which is itself based on (i) the opinion of the Audit Board, (ii) an absence of debt arrears, and (iii) the debt-service coverage ratio. Loans by subnational governments are an alternative to the usual sources of APBD funding, and can be used to cover APBD deficits, finance expenditures, and cash-flow shortages. As of May 2019, 57 municipal, regency, and district governments have utilized regional loans, out of the 476 such governments that are eligible to take out loans.

    Loans to Subnational Governments, 2015–2019

    Parameter 2015 2016 2017 2018 2019 (up to May 2019)
    Total provincial and regional loan realization (Rp)  478.4 billion 373.1 billion  2.09 trillion 6.07 trillion 1.1 billion
    Total provincial and regional loan realization ($ billion) 34.4 26.9 150.5 437.1 72.7
    Regions (number) 7 3 11 29 7
    Utilization Roads Hospitals Roads Hospitals Market Roads Hospitals Roads Hospitals Markets SPAM Roads Hospitals Markets

    Rp = Indonesian rupiah (national currency), SPAM = Drinking Water Supply System.

    Source: Government of Indonesia, Ministry of Finance, Directorate General of Fiscal Balance. 2019. Fiscal Decentralization: Indonesia’s Experience. Bangkok, Thailand. https://www.unescap.org/sites/default/files/Day%201_Session%202_Indonesia_%20Fiscal%20Decentralization%20In%20Indonesia.pdf.

  • Budgetary Allocation to Local Governments

    To ensure that the provincial, regional, and local governments have sufficient resources to undertake expanded responsibilities under the decentralization program, a new system for intergovernmental funding transfers was introduced, guaranteeing at least 26% of net domestic revenues to provincial, regional, and local governments (with 90% for districts and municipalities), plus a share of natural resource revenues in the form of intergovernmental transfers.

    In addition to the budgetary allocations, to support the capacity of subnational governments to undertake infrastructure projects, the government has set up the Rural Infrastructure Development Fund, with the support of the World Bank and the Asian Infrastructure Investment Bank (AIIB).1 The fund is managed by the Indonesia State-Owned Infrastructure Financing Company (PT-SMI) on behalf of the Government of Indonesia, and is disbursed to those subnational governments that meet certain predefined eligibility criteria.

  • Credit Rating of Local Governments

    PEFINDO is the largest credit rating agency in Indonesia by market share, and it also offers municipality ratings. The Special Capital Region (DKI) of Jakarta was given a credit rating of “idAA+” by PEFINDO in 2012, and there have been no known changes since then.

    DKI Jakarta’s rating reflected a strong financial and budget performance, with a “stable” outlook.1