Linking Cities to Finance Shanghai September 27-28, 2010ByBastary Pandji IndraDirector for Public-Private Partnership DevelopmentNational Development Planning Agency (BAPPENAS) - Indonesia

Standard & Poors raised Indonesias sovereign credit rating to BB from BB- on 12 March 2010, with a positive outlook. S&P and Moodys Investors Service both rank Indonesia two levels below investment grade, while Fitch Ratings on 25 January 2010 raised its rating to one grade below.

PPP is a priority in the National Medium Term Development Plan 2010-2014 to address the financing gap in infrastructure.

Urban Infrastructure PPPs are part of the Indonesian PPP landscape.

However, schools, hospitals & prisons, for example, are not included in the governing PPP regulation, Presidential Regulation 13/2010

Urban Infrastructure PPPs are invariably implemented by local governments in Indonesia.

Urban Infrastructure PPP focus so far:Water Supply & Sanitation, Solid Waste Management, Transport (Monorail, Bus & Rail Terminals and Busway)

Indonesias Outlook & Infrastructure PPPs*

Investment Needs 2010-2014Estimated Financing CapacityGapInfrastructure financing gap *

Problematic Cycle in infrastructure & investment

The Strategy on infrastructure development in National Medium Term Development Plan 2010-2014Enhancing Public Private Partnership:Shifting government role to be facilitator or enabler.Focus on service sustainability through efficient and effective investment.

Dual Track Strategy:Developing infrastructures which accelerate goods and information flow, andEncouraging industrialization program through regional centers development.

*GOVERNMENT PLANCentral Government Financing (APBN)Public Private Partnership (PPP) Planned by Government Financed by private Executed by privateExternal Loans/Grants (PHLN)Government Revenue(Rupiah)Blue BookPPP BookGovernment Guarantee For SOEs ProjectsInfrastructure Resource Allocation

Alternative PPP Financing Scheme

Government support is divided into:Direct/non-contingent support (e.g. fiscal contribution, land provision for viability consideration)Contingent support (Government guarantee for credit enhancement);Project land must be acquired before project is offered to the market;Fiscal contribution is provided through grant-in-kind, as existing MOF regulations do not allow line ministries or local governments to provide a direct grant to a PPP concessionaire;Grant-in-kind involves partial construction of the project by the Government Contracting Agency as the governments contribution to the PPP project (to reduce the investment cost);This approach creates more uncertainty and complications potential construction delays & cost over-runs on the government side;Annuity payments, increasingly being used on urban infrastructure PPPs, are not yet available.

*System of Government Support in Indonesia

Nature of Urban Infrastructure PPPs in IndonesiaUrban infrastructure projects tend to have immediate & direct impact on the achievement of the MDGs, hence on peoples life;Many are strong on social cost-benefits grounds but not financially viable;To attract private investment, direct government support is required;Urban PPPs usually require a component that is commercially viable to support those that are not. *

Issues Confronting Urban Infrastructure PPPs in IndonesiaCertain infrastructure projects not defined in Presidential Regulation 13/2010 for PPP, e.g. schools & hospitals;Viability gap funding through a grant-in-kind approach is cumbersome and not attractive to the private sector, providing a direct grant under the MOF, would be more effective;For schools & hospitals, for example, a PFI approach coupled with annuity payments is an option to be explored;Capacity building particularly for GCAs;Need to harmonize procurement regulations:Brown field => Government Regulations 6/2006 & 50/2007 (Asset Management)Green field => Pres reg 67/2005 & 13/2010Grant-in-Kind => Pres reg 54/2010 (Pres int 80/2003 amended)*

Examples of Urban Infrastructure PPP Models in Indonesia*

Soekarno-Hatta Airport RailwayPPP Project AgreementMoTLenders - DebtIndonesia Guarantee FundGuaranteeProvision of Facility, O & MMinistry of FinanceShareholder - EquitySPVRecourse AgreementProvision of Land & Part of ConstructionState Budget+ 30% Government Support*

Bandung Waste to EnergyPPP Project AgreementBandung CityLenders - DebtIndonesia Guarantee FundGuaranteeProvision of Facility & Waste TreatmentMinistry of FinanceShareholder - EquitySPVRecourse AgreementTipping Fee PaymentGovernment Investment Center / IIFFPLNPPASupply of PowerPower Purchase PaymentLoan for Gate Fee *

T H A N K Y O U*Bastary Pandji Indrabastary@bappenas.go.id+6221 31934175

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