Dedy S. Priatna Ph.D Deputy for Infrastructure Affairs - BAPPENAS

1. REPUBLIC OF INDONESIA STRATEGY FOR DEVELOPING INFRASTRUCTURE PPP IN INDONESIA Dedy S. Priatna Ph.D Deputy for Infrastructure Affairs - BAPPENAS 42nd Annual Meeting Board of Governors – Asian Development Bank Bali, 5 May 2009

2. Presentation Outline • Indonesia Infrastructure Development Target 2010 - 2014; • Development of Indonesia Infrastructure PPP Strategy; • PPP Projects Achievement; • Challenges Ahead.

3. Indonesia Infrastructure Development Target 2010 - 2014

4. Infrastructure Development Target 2010 - 2014 • Direction: • RPJPN 2005-2025 • Vision-mission & program of elected president of 2009 • Continuation of un-finished RPJMN 2005-2009 • MDG Target • Sector Strategic Plan • World Rating of Infrastructure Competitiveness Target for 2014 Existing Condition (2009)

5. Basis for Calculation of Infrastructure Investment Requirement 2010-2014 • Un-finished National Medium Term Development Plan (RPJMN) 2005 – 2009; • Un-finished Strategic Plan of Ministry 2005-2009; • Un-finished Blue Book Proposal 2006-2009; • MDG Target; • Project Readiness; • Interregional Equality; • Target on infrastructure services at the end of 2014; • Infrastructure Financing Needs 2010-2014 based on targeted goal = Rp. 1,429 T.

6. Rationale for PPP in Indonesia Rp. 1,429 Trillion (USD 120 Billion) • Huge investment required, in average, the infrastructure investment will require US$ 24 billions/year during 2010 - 2014. • As government budget is not sufficient to meet Indonesia’s investment requirements, large-scale private sector participation is essential to fill the gap. • This provides good opportunities for private sector to participate in the implementation of the project especially through PPP modality. Financing Gap: expected to be covered through PPP, CSR, community participation Estimated GOI Financing Capacity

7. 8.0 Private 6.0 Government 4.0 2.0 0.0 Indonesia Albania Russia Kazakhstan Cambodia Source: World Bank Cross Country Comparison on Infrastructure Investment 7 Infrastructure Financing of Other Countries (%from GDP)

8. Development of Indonesia PPP Strategy

9. Development of Indonesia PPP Strategy in Infrastructure • Up to 1997: introducing PPP in infrastructure. • 1998 - 2004: consolidation period following Asian financial crisis and changes in the Indonesian political system. • 2005 – 2009: • Laying foundation for PPP project implementation through policy and regulatory reform to adopt international best practices; • Setting up PPP institutions, PPP network and PPP campaigns; • Identification of potential PPP projects and implementation of PPP model projects. • 2009 onwards: • Strenghtening PPP institutions; • Improve the quality of project preparation and transaction; • Extensive development of PPP scheme.

10. Indonesia’s PPP Evolution 2005 - 2009 Up to 1990 1990 - 1997 1998 - 2004 • Regulations • Enabling PPP: • Law 15/1985 • on Electricity • Law 13/1987 • on Road • PP 8/1990 on • Toll Road • PP 10/1989 • on Electricity • Sector: • Toll Road • IPP (proposal) Presidential Decree (Keppres 7/1998) Cross-sector • Asian Financial • Crisis • Major changes: • Global economy • Political system • Decentralization • Government • Institutions • Several New Laws on • infrastructure passed • Renegotiation on IPPs • KKPPI formed • Infrastructure Summit 2005 • Perpres 36/2005 on land acquisition • Perpres 42/2005 on KKPPI • CIIF • Perpres67/2005 • IICE 2006 • PMK 38/2006 • Reform ofSector Laws • Establishment of RMU • Land RevolvingFund • PT. SMI, IIFF • P3CU • PPP Book • Regulations • Enabling PPP: • Keppres 37/1992 on Private Electricity • Keppres 55/1993 on land acquisition • Sector: • Toll road • Water • Electricity • Port

11. Regulatory Framework -1 • PPP Regulations: • Presidential Regulation (Perpres) No. 67/2007 on Cooperation between the Government and business entity in the provision of Infrastructure; • Minister of Finance Regulation (Permenkeu) No. 38/2006 on Risk Management Guidelines for PPP in Infrastructure; • Minister of National Development Planning/ / Chairman of Bappenas Regulation No 3/2009 on Procedure for Formulation of PPP Book. • Sector Laws and Regulations: • Toll Roads: Law 38/2004 and PP15/2005; • Railways: Law 23/2007; • Air Transport: Law 1/2009 and PP 70/2001 (airport); • Sea Transport: Law 17/2008 and PP69/2001 (seaport), PP 82/1999; • Water Supply & Sanitation: Law 7/2004 and PP16/2005; • Telecommunications: Law 36/1999 and PP 52/2000 and PP 53/2000 • Oil & Gas: Law 22/2001 and PP 42/2002 (upstream), PP 67/2002 (downstream), PP 37/1994 (PGN), PP 31/2003 (Pertamina); • Electricity (Power): Law 15/1985, PP 3/2005

12. Regulatory Framework -2 • Cross-Sector Laws and Regulations: • State Finance: Law 17/2003; • National Development Planning: Law 25/2004 and PP 20/2004, PP 21/2004; • Regional Governance: Law 32/2004 and PP 25/2000; • Fiscal Decentralization: Law 33/2004 and PP 105/2000, PP 107/2000, PP 65/2001, PP66/2001; • State-Owned Enterprise: Law 19/2003; • Investment: Law 1/1967 (Foreign) and Law 6/1968 (Domestic); • Environmental Management: Law 23/1997 and PP 27/1999; • Construction Services: Law 18/1999 and PP 29/2000; • Government Procurement: Keppres 80/2003, Keppres 61/2004 (Amendment 1), Perpres 32/2005 (Amendment 2); • Land Acquisition: Perpres 65/2006 and Law 20/1961.

13. KKPPI CMEA, Bappenas MSOE Infrastructure Sector Ministries (MPW, MOT, MEMR, MCI) MOHA MOF Secretariat/P3CU Policy Analysis, Developmentand Planning & Coord. Monitoring & Quality Ctrl Identify Projects requiring Government Support Resolving cross-sector issues PPP Nodes (PPP Units) Project Identification, Preparation, Monitoring & Quality Control: -- Screening -- Due Diligence -- Bid Documents -- Transaction & Post-transaction Process Risk Mgt Unit Assess GS Issue & Manage Guarantee SOEs Project Dev’t Project Impl. & Monitoring Local Gov’t & ROEs Project Development Project Impl. & Monitor Project Dev.Fac. Guaran- tee Fund IIFF, Land Fund, etc. Indonesia PPP Institutional Framework • The Committee on the Policy for the Acceleration of Infrastructure Provision (KKPPI) established under Perpres 42/2005 • A Risk Management Unit on Fiscal Support already up and running since 2006 in the Ministry of Finance • PT. SMI/Indonesia Infrastructure Financing Facility (IIFF) established in February 2009 • PPP Nodes established in the (MEMR, MPW and MOT) • PPP Units in various Local Governments • P3CU in Bappenas • Infrastructure Guarantee Fund (under preparation)

14. Project Development Facilities • Project Development Facilities (WB-PPITA, ADB-IRSDP, AusAid, METI Japan) are in place to assist relevant PPP units in institutional development and project preparation to ensure better transaction mechanism i.e. financial closure and project execution; • ADB – IRSDP, closing date September 2012

15. Government Support • Direct support: • Provision of land • Part of investment cost • Operating subsidy (under PSO scheme) • Non-fiscal support (license, permits, regulations, etc.) • Contingent support (Guarantee): • Political Risk; • Project Performance Risk: • location risk • operational risk • Demand Risk: • Allocation of government budget to support PPP projects in the annual budget: • 2006; Rp 2 trillion was allocated for land acquisition; • 2007; Rp 1 trillion allocated for establishment of the Indonesia Infrastructure Fund and another Rp 1 trillion allocated for the Guarantee Fund; • 2008 – 2010; Rp 4.9 trillion has been allocated as government support for land capping; • Budget allocation in the APBN for direct support.

16. PPP Central Unit (P3CU) • Established in Bappenas and performed by the Directorate of PPP Development; • The roles including: • Take a lead role in facilitating PPP promotion and in providing quality control of the PPP process; • Standardize procurement rules and review bidding documents; • Facilitate screening of projects subject to government support/financial assistance; • Monitor PPP results and facilitate a dialogue with potential investors/financiers; • Develop and implement communication strategy to the different stakeholders and know how to stakeholders; • Updating the PPP Book.

17. Indonesia Infrastructure Financing Facility GOI (MoF) Subsidiary Debt ADB US$ 100 M Subsidiary Debt WB US$ 100 M On-lending GOI Equity Rp 1 T PT SMI (GOI wholly owned) Sub-loan Equity PT SMI Rp 0,60 T Equity ADB US $ 40 M Equity IFC US $ 40 M PT IIFF (Subsidiary) Public Fund (capital market) Equity IDB, KFW, JBIC dll Product Mix PPP Infrastructure Projects

18. Guarantee Fund • Currently in the finalisation stage, expected to be established in June 2009; • One of the key objectives of the guarantee program is to reduce the cost of finance to infrastructure projects in Indonesia; • Current Guarantee Scheme under PMK 38/2006 does not provide sustainability in term of provision of guarantee fund;

19. Land Revolving Fund MoF MPW Handover of Acquired LAnd Local Gov’t Bina Marga Feasibility Consideration BPJT Other Sources BLU DB Acquisition Report Repayment Order Acquisition Report Repayment Payment Order P2T Investor Land Owner Land Acquired

20. Indonesia Infrastructure Forum (IIF) • IIF will act as a neutral, independent and inter-stakeholders Forum addressing a wide range of emerging policy issues relating to infrastructure, its development and growth. • IIF will design a cohesive, decisive, and committed Forum to consolidate the views of the stakeholders (private sectors, associations, user-groups, NGOs, academicians, public-at-large etc…), to build-up consensus and to come-up with recommendations on policies related to infrastructure development. • IIF will provide on a regular basis these recommendations to the Government of Indonesia, as inputs to the governmental process in setting-up policies on infrastructure development in Indonesia

21. PPP Projects Achievement

22. PPP Projects Achievement • PPP projects in operation: • Toll roads: 20 sections (607 km) • Power sector (IPPs): 12 (est. 4,000 MW) • Port: 4 ports (2 in Jakarta, 1 in Surabaya, 1 in Batam) • Water sector: 27 projects • PPP projects under construction: • Toll road: 4 sections • IPP: 13 projects • Water supply: 2 projects • PPP Concession awarded: • Toll road: 17 sections • IPP: 29 projects • Water: 1 projects • Projects in the PPP Book: total 87 projects • Project Ready to Offer : 8 projects • Priority Projects : 18 projects • Potential projects : 61 projects • PPP modality commonly used: BOT, BOO, ROT, O&M

23. PPP Book • Based on Presidential Instruction (Inpres) No. 5/2008 on Economic Development Focus 2008-2009; • To confirm list of PPP Projects in the Government pipeline; • To ensure that the PPP project planning is transparent and preparations are done properly; • As an instrument to monitor the progress of PPP implementation; • As a mean for cross-sector and inter-region synchronization and coordination for PPP project preparation; • As a mean for Public Consultation on PPP projects.

24. PPP BOOK – CRITERIA POTENTIAL PROJECTS PRIORITY PROJECTS PROJECTS READY FOR OFFER Conformity with the National/Regional Medium Term Development Plan and the infrastructure sector’s strategi plan; Conformity of the project’s location with the spatial plan; Linkage between the infrastructure sector and regioanl area; Cost recovery potential Included in the list of PPP Potential projects or proposed by the contracting agency as unsolicited project; Pre-FS shows that the project is feasible (legal, technical, economic and financial); Project risks identified and allocated properly; PPP Modality defined; Government support identified; Bidding documents completed; PPP Procurement Team formed and capable to transact project; Procurement schedule defined and agreed upon; Government support (if applicable) has been approved and allocated

25. PPP PROJECT READY TO OFFER

26. Summary of PPP Projects in the PPP Book

27. Summary of PPP Projects by Sector and Region

28. Challenges ahead in PPP Development

29. Internal • Harmonization of conflicting regulations within sector as well as cross-sector pertaining to PPP projects implementation; • Acceleration of land acquisition process, particularly for toll road projects; • Clarifying the provision of Government Support; • Mobilizing the potential of domestic capital resources; • Implementation of PPP projects listed in PPP Book.

30. External BNP Paribas RBS UBS • Global financial meltdown reducing the availability and capacity of private financing; • Competition with other countries in attracting PPP project developers; Deutsche Bank Credit Agricole Societe Generale Barclays Unicredit 120 116 Morgan Stanley 108 93 91 80 76 67 49 4.6 16 10.3 26 7.4 32.5 26 35 17 Citigroup HSBC 215 255 JP Morgan 165 Goldman Sachs Santander Credit Suisse 116 100 75 27 64 85 97 35 19 Market capitalization per Jan 2009 in USD Billion Market capitalization per Q2 2007 in USD Billion

31. Concluding Remark • Government has engaged into a comprehensive reform and will continue to expedite PPP project implementation in Indonesia; • In this global financial difficulties, Government will seek the optimal combination of financing options to accelerate PPP development; • We invite all stakeholders to support the development of infrastructure in Indonesia through PPP scheme.

32. THANK YOU