Taking the Bull by the Horns
    Category: Column By : Raj Kannan Read : 1111 Date : Tuesday, April 16, 2013 - 14:20:21

    In Indonesia's realm of infrastructure, the role of the Ministry of Finance (MoF) in infrastructure delivery has remained somewhat ad hoc. For years, the market has been hoping for a more direct involvement from MoF in infrastructure delivery, in particular to increase the level of certainty of the government's contractual obligations under a concession agreement.

    To its credit, the MoF in recent years had taken some concrete steps to improve the certainty of investment in infrastructure projects by creating institutions and products that included the establishment of Indonesia Infrastructure Guarantee Fund (IIGF), an agency to guarantee the government's contractual obligations under a concession agreement for public private partnership (PPPs) projects and the launch of viability gap funding (VGF) to improve projects' bankability.

    While IIGF is doing a great job in its role as the extended arm of the MoF, the implementation of VGF has somewhat floundered since most projects seeking VGF have been poorly prepared and lacked a risk framework acceptable to the MoF. For these reasons, the MoF is finally taking the proverbial bull by the horns and decided to establish a public private partnership unit directly under its wings.

    This new institutional framework enables the MoF to assess and vet the government's fiscal support much earlier in the project cycle, via its Risk Management Unit (RMU). This step negates the possibility of government agencies going through the tender process that effectively wastes the private sector's time—now projects that would never qualify for government fiscal support will not reach tender stage.

    Part of this new infrastructure delivery paradigm is also the increased recognition that the government must pay for strategic infrastructure projects that are not yet fully financially viable. In my previous column, I alluded to a newly proposed procurement concept called a Performance Based Annuity Scheme (PBAS) that could likely become a defacto procurement method for government funding of infrastructure. I am happy to say PBAS is getting a good hearing.