Indonesia's Time to Implement is ! NOW
    Category: Column By : Raj Kannan Read : 1499 Date : Wednesday, January 13, 2016 - 07:47:08

    Senior government ministers rarely agree among themselves that Indonesia needs foreign investors to help end the current malaise. At the recent Indonesia Economic Forum, however, National Planning Minister Sofyan Djalil announced the creation of a $150 million fund to make the myriad projects awaiting implementation structurally bankable to investors, both local and foreign. The State Owned Enterprises (SOE) Minister Rini Soemarno also stated Indonesia needs to attract foreign infrastructure investments—at last!

    The key reason foreign investors have avoided Indonesian infrastructure is the previous government’s perception that the private sector could absorb both demand and delivery risks on projects. Previously, the compensation offered in a possible government default lacked the debt service cover ratio expected by lenders. These criteria were lacking in previously offered projects because the Finance Ministry (MOF) often stayed on the sidelines. 

    My hope is that Indonesia is finally ready to unlock the delivery of myriad projects due to several new measures: 
    1. The creation of the new PPP Unit within the MOF;
    2. New regulations to implement multiyear payments via funding schemes such as Availability Payment Scheme (APS) and Performance Based Annuity Schemes (PBAS), and
    3. The new project development fund just announced. 

    The newfound government pragmatism will facilitate foreign investment in infrastructure to bear fruit. I also hope the government will use all available funding options for delivery, particularly for those needing government financial support, such as urban and intercity public transport, strategic but unviable highways, and rural electricity and rural power transmissions. For these projects, the government could use APS, PBAS plus ODAs. While APS and PBAS concepts are new here, ODA has a track record: the Jakarta MRT (JMRT). For this project, the government got a 40-year ODA loan from Japan at a 0.4% interest rate. At the time, some objected to the loan, including some senior government ministers in the previous administration, but common sense prevailed and the loan was signed. 

    The detractors were wrong. The project was not entirely build by the Japanese, as feared, without local talent and content. In reality, local SOEs Wijaya Karya, Jaya Konstruksi and Hutama Karya are building the tunnel, alongside Japanese companies. The work is being done by these local contractors, with local consultants, suppliers and manufacturers. One veteran engineer with an engineering consulting firm in Jakarta was very proud following a recent visit to JMRT tunnel under construction. He saw tunnel construction and the precast concrete casings manufactured and installed by local contractors that was world class—right under Jalan Sudirman.

    Thus I am optimistic 2016 will be a watershed year for infrastructure delivery-led growth. To ensure delivery of important projects, I urge the speedy disbursement of project development funds to prepare each project and to accept that projects need different financing schemes. The days of Build Operate Transfer (BOT) for every project are long gone. Going forward, I am confident the government will be more open to using various financing schemes, including government guaranteed projects bonds, APS, PBAS, ODA or combination of these.