Solving the Regulatory Puzzle
    Category: Energy Booster By : Jesus Alcocer Read : 804 Date : Saturday, September 10, 2016 - 07:48:51


    Indonesia’s energy infrastructure remains woefully underdeveloped, and is a drag on the nation’s development, rather than a facilitator of growth. Yet finding a solution to delivering more and better energy infrastructure is a complicated process, according to infrastructure practitioners. The Joko “Jokowi” Widodo administration has made infrastructure delivery, including in energy, one of its priority goals, which is an encouraging step. Now private investors, both local and international, should be encouraged to support the effort. “The task ahead is to promote Indonesia as an investment destination abroad, and show investors that the government is doing what it says,” says Harold Tjitadjaja, chief investment officer of the Indonesia Infrastructure Fund (IIF), an organization set up to promote and finance infrastructure development.

    A recent study from consultancy McKinsey underlines the importance of infrastructure, noting that every dollar spent on infrastructure can return back as much as $20 in economic development. “This is especially true in areas with infrastructure gaps such as Indonesia, in which increasing investment in infrastructure by 1% can generate upwards of 700,000 jobs,” says the June report, entitled Bridging Global Infrastructure Gaps.

    Forbes Indonesia columnist Raj Kannan, managing director of Tusk Advisory, agreed that the policy was moving in the right direction. He applauds recent steps such as the setting up of the Komite Percepetan Penyediaan Infrustrukur Prioritas (KPPIP), an agency to help deliver priority infrastructure projects. “The creation of the KPPIP and IIF plugged two important holes in infrastructure delivery,” he says. The IIF allows governmental agencies to reimburse the private sector under certain circumstances, and opens the door for mechanisms such as Performance Based Annuity Schemes (PBAS), he notes.

    The KPPIP is working towards eliminating inter-agency disputes, which one of the biggest challenges in project delivery, according to Clarinda Tjia-Dharmadi, the Singapore-based Global Co-Chair of law firm Latham Watkin’s power industry group. “The largest stumbling for the development of infrastructure is that the legal system hasn’t caught up with the macro-ambitions of the administration. Although broad laws have been set up, regulations dealing with small details are still a legally grey area,” she says.

    A note of caution comes from Benny Subianto, a Jakarta-based research fellow connected to the Harvard Kennedy School’s Rajawali fellowship. He sees a large gap between regulatory making agencies and the bodies that implement regulations, the lack of proper implementation, and the existence of many overlapping and contradictory regulations on the national, provincial and local levels. A June announcement by Jokowi that the government would scrap 3,000 regional government regulations “within weeks” was seen as an important step towards eliminating excessive red tape that hampered infrastructure development. Yet, Benny cautions that this announcement may be more politics than good policy. “The question is which, not how many, regulations will be cut,” he says.