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FEBRUARY 2011

INVESTMENT CLIMATE AND PUBLIC PRIVATE PARTNERSHIP (PPP) IN INFRASTRUCTURE DEVELOPMENT. INDONESIA INVESTMENT COORDINATING BOARD. FEBRUARY 2011. Outline. INVESTMENT CLIMATE IN INDONESIA PRIVATE DIRECT INVESTMENT INTRODUCTION TO PPP ROLE OF BKPM IN ACCELERATING PPP IMPLEMENTATION

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FEBRUARY 2011

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  1. INVESTMENT CLIMATE AND PUBLIC PRIVATE PARTNERSHIP (PPP) IN INFRASTRUCTURE DEVELOPMENT INDONESIA INVESTMENT COORDINATING BOARD FEBRUARY 2011

  2. Outline • INVESTMENT CLIMATE IN INDONESIA • PRIVATE DIRECT INVESTMENT • INTRODUCTION TO PPP • ROLE OF BKPM IN ACCELERATING PPP IMPLEMENTATION • PPP SHOWCASE PROJECTS

  3. INVESTMENT CLIMATE IN INDONESIA

  4. INDONESIA’S RANKING BASED ON INTERNATIONAL RATING ORGANIZATIONS (1) World Economic Forum(WEF) Global Competitiveness Index (GCI) 2010–2011 and 2009–2010 • This year, GCI survey was followed by 133 countries. There are about 100 indicators used in the survey,which are reflected in the 12 pillars of competitiveness, namely: institutions, infrastructure, macroeconomic stability, health and basic education, higher education and training, goods market efficiency, labor market efficiency, market size, business efficiency, and innovation. • Indonesia's ranking in the GCI is still better than Brazil, Russia and India, with the exception of China, known as group of BRIC. Source: The Global Competitiveness Report 2009–2010, World Economic Forum Geneva, Switzerland 2010 3

  5. World Investment Prospects Survey 2008 - 2012 as “the most attractive economies for the location of FDI” conducted by the United Nations Conference on Trade and Development (UNCTAD) INDONESIA’S RANKING BASED ON INTERNATIONAL RATING ORGANIZATIONS (2) Indonesia was ranked 9th asmajor destination for FDI. This result was based on UNCTAD survey whose respondents are company executives of Transnational Corporation (TNC) from developed and/or developing countries. UNCTAD consists of 193 member economies or countries. 4 Source: World Investment Prospects Survey 2010 – 2012, UNCTAD

  6. INDONESIA’S RANKING BASED ON INTERNATIONAL RATING ORGANIZATIONS (4) International Rating Agencies • international rating agencies like Moody's Investors Service has revised the outlook for Indonesia's foreign debt rating from Ba2 to Ba1, one level below 'investment grade'. • Citibank Analyst estimates that Moody's will conclude Indonesia as investment grade in second semester of 2011. Sumber: www.surabayapost.co.id, detikfinance Source : Fitch, S&P and Moody’s, note : *) S&P (BB for long term foreign currency, BB+ for long term local currency), **) the Japan Credit Rating Agency upgraded Indonesia to investment grade – proper to invest (BBB ), the first time in 13 years . 5

  7. EFFORTS TO IMPROVING INVESTMENT CLIMATE • Negative List of Investment (Presidential Degree No.39/2010): more open • BKPM provides one-stop service (OSS) to allow investors to process business licenses faster, by streamlining and consolidating the number of steps and places an investor must go for business permit issuances (Presidential Decree 27/2009). • Regioinal Championships • 2010: 7 Provinces(Riau, South Sumatera, West Jawa, East Jawa, East Kalimantan, West Nusa tenggara, Papua) • Incentives for Investment: • Income tax allowance for investments in certain sectors and /orcertain regions (GR No.62/2008) -- being reviewed • Reduction/exemption of import duties for raw materials, equipment, machineries • Tax Holiday : regulatory framework is being completed • Law on land acquisition /procurement for public infrastructure development: draft already submitted to the Parliament • A number of regulations related to public private partnership (PPP) in infrastructure development are being revised.

  8. STARTING A BUSINESS Based on the Joint Regulation, the 4 Ministers (Minister of Home Affairs, Minister of Trade, Minister of Manpower & Transmigration and Minister of Law & Human Rights) and the Chairman of BKPM are committed to expedite the license and non license of starting business. 7

  9. NEGATIVE INVESTMENT LIST (NIL) • The latest NIL enacted based on the Presidential Regulation Number 36 Year 2010 Regarding the List of Business Fields Closed to Investment and Business Fields Open, With Conditions, to Investment. • The NIL improves the clarity of regulations and business field related to investment, increase the attractiveness of investment in Indonesia, and new attachment format so that will be more easily known and understood by investors/stakeholders. √ 8

  10. CHANGES BUSINESS FIELD IN ATTACHMENT I AND II OF NIL *) Including business field open with condition for ASEAN Investors

  11. Private Direct INVESTMENT in indonesia

  12. INVESTMENT TARGET & REALIZATION 2010: Investment as an important source of economic growth • Target : IDR 160.1 Trillion (USD 17.6 Bln) • Realization : IDR 208,5 Trillion (USD 22.9 Bln) = 130.2% of target ,↑ 54.2% from last year. • Gross Fixed Kapital Formulation (Total Investment) : IDR 2,065 Trillion (USD 225 Billion) or 32.2% of GDP  contributing 2.0% of the 6.1% growth of GDP in 2010. • Contribution of private direct investment in Kapital Formulation: ↑ from 7.8% to 10.1% 2011: • Initial Target : IDR 203.7 Trillion (USD 22.3 Bln) • Adjusted Target : IDR 240 Trillion (26.3 Bln) 2010-2014: OPTIMISTIC • Target of DI : IDR 1,481.5 Trillion (USD 162.4 Bln) • Target of Capital Formation (Total Investment): IDR 10,000 – 12,500 Trillion (USD 1 - 1.3 Trillion) • Need for Investment for infrastructure development: IDR 1.900 Trillion (USD 0.2 Trillion) 2010-2030: • Need for DI : USD 1.7 Trillion  FDI USD 1.02 Trillion • Need for Capital Formation (Total Investment): USD 11.5 Trillion • Need for Investment in Infrastructure: USD 2.6 Trilion

  13. INVESTMENT ROADMAP 2010-2025 The Investment Roadmap is implemented simultaneously from short-term toward long-term strategies. • Increasing natural resources’ competitiveness through value–added creation • Oil refinery • Production: 970 thousands barrel per day • Consumption: 1.4 millionbarrel per day • Plan: add 500 thousands – 1 million barrel/day (2010-2014) • Investment: US$15-30 billion • Technology and innovation-based economy • Become one of global main players • Building supporting infrastructures as a catalyst (e.g. Silicon Valley or other centers of excellence) • Strengthening industrial structure to improve value-added • Steel • Production: 14.6 kg/capita (2009) • Consumption: 30.1kg/ capita (2009) • Plan: 500 kg/ capita~ need to add another 120 million tonsof production capacity • Investment: US$120 billion • Cement • Production:158.3kg/capita • Consumption:160 kg/capita • Plan: 270-280 kg/capita ~need to add another 65-68 million tons of production capacity • Investment: US$15-20 billion • Hard and Soft Infrastructures • Road • Plan: 20,000 km (2010 - 2014) • Investment: US$100-200 billion • Electricity • Plan: 15,000 MW (2010-2014) • Investment: US$15 – 30 billion • Sea Ports • Investment: IDR 23 trillion/US$ 2.5 billion (State Budget)) • Education • Need: 75,000 – 100,000 PhDs (2010 – 2029) • Specialists/Skilled Labors

  14. INTRODUCTION TO PPP

  15. WHY PUBLIC-PRIVATE PARNERSHIP (PPP) ? • In 2005, the government of Indonesia (GoI) introduced public-private partnership (PPP) program to promote infrastructure development, but the progress has been slow due to a number of constraints in its implementation(among others: land procurement issues,complicated business process). • It is estimated that around IDR 1,923trillion (USD 200 bln) of investments is needed for financing infrastructure development in Indonesia in the 2010-2014 period. • The government can only allocate Rp559 trillion (around 29%) from its state budget. • The rest isexpected to come from private sectors, local government, and state owned enterprises. • Accordingly, the government encourages private sector participation in infrastructure developmentthrough public private partnership (PPP) scheme. • The PPP Book of 2010 -2014 (prepared by BAPPENAS) has identified 100 PPP infrastructure projects which are worth around US$47.3 billion. • The success of PPP-infratructure implementation is critical to the success of Indonesia’s economic development program under the Vision 2025 .

  16. PPP’S INSTITUTIONAL STRUCTURE BASED ON PRESIDENTIAL REGULATION NO. 67 OF 2005 AS AMENDED BY PRESIDENTIAL REGULATION NO. 13 OF2010 The PPP’s Institution has not been completely established and PPP’s authority is still dispersed in line ministries and local governments -> “coordination is difficult” • The Committee for the Acceleration of Infrastructure Provision (KKPPI) was established based on Presidential Regulation No. 42 of 2005 • Risk Management Unit (RMU) was established based on Minister of Finance Regulation Nr. 518/KMK.01 of 2005 • PT. Sarana Multi Infrastruktur was established on February 2009 • PT. Indonesia Infrastructure Guarantee Fund (PT IIGF) was established on 30 December 2009. • PT. Indonesia Infrastructure Finance (PT IIF) was established on 5 January 2010 • The PPP Nodes is expected to involve the line ministries and local government. • The PPP Team is expected to involve the local government. • PPP Center is in The Ministry of National Development Planning (Bappenas) The Committee for the Acceleration of Infrastructure Provision (KKPPI) State Min.of State Owned Agen-cies Min.of Home Affairs Line Ministries (Sector): MoPW, MoT, Min.of Energy& Natural Resources (KKPPI) : Bappenas & Coordinating Ministry of Economic Affairs MoF PPP’s project Proposals PPP Nodes* Project identification and preparation Monitoring & quality control: -- Screening -- Final Examination -- Tender docs -- Transaction & post transaction process PPP Center Unit (P3CU) ** Policy, projects planning, developing, and coordinating analysis, monitoring that need government support, cross sector facilitation. RMU Develop the govt support policies IIGF/ PT.PII Assessing and Managing goverrnment support IIF/ PT.SMI Landacqui-sitionFund, etc Project Develop-ment Facility (PDF) Line Ministry Project development and monitoring State Owned Enterprise Project development and implementation Local Govt (TKKSD) Project development and monitoring Project Support Govt’ Contracting Agency (GCA) Project Facilitation * The PPP Node has not been established yet. ** PPP Center Unit has not been established, while its role is currently performed by Center for Public-Private Partnership (PKPS)-Bappenas Source: Bappenas

  17. PROBLEMS AND CONSTRAINTS IN PPP PROJECT IMPLEMENTATION IN INDONESIA PREPARATION PROJECT FINANCING AND TRANSACTION IMPLEMENTATION Source: BKPM, compiled from various resources

  18. NEED TO RETHINK – OUT OF THE BOX & GAME CHANGER REFORMS PROCESS REGULATORY FRAMEWORK GOVERNMENT SUPPORTAND ROLES ENTREPRE-NEURSHIP

  19. Role of BKPM in accelerating ppp implementation

  20. BKPM AS THE FRONT OFFICE  OSS & CLEARING HOUSE OFFICE FRONT OFFICE BACK OFFICE GENERAL INVESTORS PROJECT SPECIFIC INVESTORS BAPPENAS (RPJMN) 2 3 Ministry of Finance (MoF) BKPM 1 • PIP • PT IIGF • PT SMI, PT IIF Government Contracting Agency (GCA) 4 5 Work Unit for President on Supervisionand Control of Development (UKP-PPP) LEGEND Project Preparation by GCA, National Development Planning Agency (Bappenas), and MoF. Preparation of PPP Book and finalization of “ready to offer projects” by National Development Planning Agency , MoF, and BKPM Market Sounding by BKPM Feedback (input) is gathered from market sounding, potential investor is identified, and transaction process is facilitated. Project Tender Process by GCA includes the recommendation of technical and financial feasibility by The Committee for the Acceleration of Infrastructure Provision (KKPPI ) and PT IIGF (if any project guarantee were available) .

  21. ROLE AND FUCTIONS OF BKPM • EXPERT ADVISERS • FINANCIAL • LEGAL, etc INVESTTMENT BOARD (BKPM) MARKETING SERVICE FACILITATION PACKAGING • GOVT CONTRACTING AGENCY • CENTRAL GOVT • REGIONAL GOVT • PROPOSER: • CENTRAL GOVT • REGIONAL GOVT OVERSEAS LICENSING DOMESTIC CLEARING HOUSE • SECTORS: • TRANSPORTATION • TELECOMMUNICA-TION • ELECTRICITY • OIL & GAS • ROAD • SANITATION • SOLID WASTE • WATER SUPPLY • OTHERS • CENTRAL AGENCIES • BAPPENAS • MoF • FINANCIAL INSTITUTION • CENTER FOR GOVT INVESTMENT (PIP) • PT IIGF • PT IIF and PT SMI • BANKS • NON BANKING FINANCIAL INSTITUTION INFORMATION PROVIDER • RELATED INSTITUTION • NATIONAL LAND AGENCY (BPN) • MINISTRY OF FORESTRY • MINISTRY OF ENVIRONMENTAL AFFAIRS • OTHERS

  22. Ppp SHOWCASE PROJECTS

  23. 2X1000MW CENTRAL JAVA COAL FIRED POWER PLANT, CENTRAL JAVA

  24. UMBULAN SPRING WATER PROJECT, EAST JAVA

  25. SOEKARNO-HATTA AIRPORT – MANGGARAI RAILWAY, BANTEN AND DKI JAKARTA

  26. MEDAN – KUALA NAMU – TEBING TINGGI TOLL ROAD, NORTH SUMATRA

  27. TANAH AMPO CRUISE TERMINAL, BALI

  28. Invest in THANK YOU

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