Linking Cities to Finance – Shanghai September 27-28, 2010

1. Urban Infrastructure PPP –an Indonesian Perspective By Bastary Pandji Indra Director for Public-Private Partnership Development National Development Planning Agency (BAPPENAS) - Indonesia Linking Cities to Finance – Shanghai September 27-28, 2010

2. Indonesia’s Outlook & Infrastructure PPPs • Standard & Poor’s raised Indonesia’s sovereign credit rating to BB from BB- on 12 March 2010, with a positive outlook. S&P and Moody’s 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)

3. Infrastructure financing gap ?? 323,67T TOTAL Rp1.923,7 T SOE 340,85T Local Gov 355,07T Investment Needs 2010-2014 Estimated Financing Capacity Gap Central Gov 559,54T 7% growth target requires: Rp 1.923,7 Trillion (about US$ 161.8 billion) of investments during 2010-2014. • Central Government budget can only cover 29.1 % of total investment need. • Big opportunity for private investment through PPP (Rp 668,34 Trillion or 34.7%). 3

4. Problematic Cycle in infrastructure & investment

5. The Strategy on infrastructure development in National Medium Term Development Plan 2010-2014 Enhancing 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, and Encouraging industrialization program through regional centers development.

6. Infrastructure Resource Allocation GOVERNMENT PLAN • Public Private Partnership (PPP) • Planned by Government • Financed by private • Executed by private Central Government Financing (APBN) External Loans/Grants (PHLN) Government Guarantee For SOEs’ Projects Government Revenue (Rupiah) Blue Book PPP Book

7. Alternative PPP Financing Scheme

8. System of Government Support in Indonesia • 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 government’s 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.

9. Nature of Urban Infrastructure PPPs in Indonesia • Urban infrastructure projects tend to have immediate & direct impact on the achievement of the MDGs, hence on people’s 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.

10. Issues Confronting Urban Infrastructure PPPs in Indonesia • Certain 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 & 13/2010 • Grant-in-Kind => Pres reg 54/2010 (Pres int 80/2003 amended)

11. Examples of Urban Infrastructure PPP Models in Indonesia

12. Soekarno-Hatta Airport Railway • Estimated Project Cost: US$ 1.1 Billion. • Private sector is invited to develop the Project on a Build-Own-Operate-Transfer basis. • Government support of US$ 355 million (32%) for land and part of construction • Scope: • 35 Km double track (fully elevated and dedicated for Soekarno-Hata Airport). • 6 stations proposed. • RFP will be issued at the end of 2010 to pre-qualified investors. + 30% Government Support State Budget Ministry of Finance MoT Recourse Agreement Provision of Land & Part of Construction Indonesia Guarantee Fund Shareholder - Equity Provision of Facility, O & M PPP Project Agreement SPV Guarantee Lenders - Debt

13. Bandung Waste to Energy • Treat a minimum of 700 ton per day of waste by waste to energy facility. • Estimated Project Cost: USD 100 million • Local Government will pay an appropriate tipping fee and facilitate the Power Purchase Agreement (PPA) with Electricity State Owned Company (PLN). • Issuance of EOI: End of September 2010. Government Investment Center / IIFF Loan for Gate Fee Ministry of Finance Bandung City Recourse Agreement Tipping Fee Payment Indonesia Guarantee Fund Provision of Facility & Waste Treatment Shareholder - Equity PPP Project Agreement SPV Lenders - Debt Guarantee Supply of Power PPA PLN Power Purchase Payment

14. T H A N K Y O U Bastary Pandji Indra bastary@bappenas.go.id +6221 31934175