PPP in Indonesia as a Fiscal Policy instrument

DG Budget Financing and Risk Management

Ministry of Finance – Republic of Indonesia

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 Topics
Indonesia as Prospective Investment Destination
PPP as a Fiscal Policy instrument to close infrastructure gap
PPP Scheme and Fiscal Facilities
Moving Forward

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 Indonesia as Prospective Investment Destination
increasing investor’s confidence and improving global perception to Indonesia
Continuous Improvement in Indonesia’s Credit Quality The 2018 World Bank Ease of Doing Business Ranking

 Increasingly credible and Vietnam

effective policy framework,
conducive to macroeconomic Indonesia
Ba1 Baa3 Baa2 stability
China
(Stable) (Stable) (Stable)  Increasing financial buffers,
prudent fiscal and monetary
policy
 Improving resilience and
17-Jan-11 18-Jan-12 13-Apr-18 capacity to respond to shocks

 Reduced risks to Indonesia’s India

fiscal metrics
 More realistic revenue targets
BB+ BB+ BBB-  Effective
expediture management
(Stable) (Positive) (Stable) Philippines
 Increased predicability of
economic and financial policy

Brazil
2-May-13 21-May-15 19-May-17

 Stable macro conditions and

resilience to external shocks
has steadily strengthened in
the past few years
BBB- BBB- BBB
 More flexible exchange rate
(Stable) (Positive) (Stable) policy since mid-2013 201 2 201 3 201 4 201 5 201 6 201 7 201 8

 Disciplined monetary policy  Indonesia is now ranked #72 for World Bank’s Ease of Doing Business
Ranking, 2nd highest place when compared against countries of the
15-Dec-11 21-Dec-16 21-Dec-17 fellow emerging markets.

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 PPP as a Fiscal Policy instrument to close infrastructure gap
but the budget is not sufficient, hence private sector participation is needed
Indonesia are behind peers in terms of growth in public However, the financing needs cannot be provided by the
capital stock per capita…… government, leaving the huge gap to be fulfilled
Average annual growth in public stock per capita
2005-15 Infrastructure financing needs 2015 - 2019

Philippines
Indonesia
BRICS Government ~ USD 148 bio
Malaysia budget
China (41.3%)
Vietnam

0% 2% 4% 6% 8% 10% 12%

Total
financing SOEs
Indonesia have been tremendously increasing spending on needs: (22.2%) ~ USD 80 bio
infrastructure and reducing energy subsidy…
Infrastructure and Energy Subsidy Spending 2013-
USD 358 bio
2018
Infrastructure
20%
Δ 2018:2014 130.9%
Financing gap
18%
16%
PPPs
14% (36.5%) ~ USD 131 bio
12%
10%
8% Energy Subsidy
6% Δ 2018:2014 73%
4%
2%
0%
2013 2014 2015 2016 2017 2018
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 PPP Scheme and Fiscal Facilities
Comprehensive supports in terms of regulation and funding to attract private participation

Government Support and

Facilities Return on PPP Investment

Project Development Fund (PDF)

Facility to help GCA in project preparation
and transaction to ensure the preparation User Payment
running properly and transaction process is
fair, transparent and competitive

Viability Gap Fund (VGF)

To improve financial viability of PPP Availability Payment

Projects, provided as fiscal support for parts
of construction

Government Guarantees Periodic payment to private partners by

To support PPP Projects bankability by
provided sovereign guarantees. The
provision mechanism delivered through IIGF
Infrastructure Financing Fund
Provided through PT SMI and IIF
the GCAs based on the availability of
contracted infrastructure services
Regulatory supports in term of procurement,
land acquisition etc.

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 PPP projects reaching financial close and under construction
Showing that PPP scheme is proven & workable and ready to tap more private participation

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 PPP scheme to improve fiscal sustainability
PPP with availability payment scheme to reduce negative primary balance

• It is necessary to maintain a healthy level of budget primary balance to ensure fiscal sustainability.
• Negative primary balance can be reduced by a number of measures including the application of PPP using Availability
Payment scheme as an alternative financing.
 Availability Payment • Projects can be selected using Value for Money
With Traditional Procurement (AP) is periodic (VfM) method.
payment from • VfM method is used to ensure the maximum public
Government to PPP impact of every Rupiah spent.
Company for
IDR

infrastructure services
provided based on
PPP Contract
1 2 3 4 5 6 7 8 9 10  AP payment can be
Year
paid in operation
period
PPP procurement with AP
 AP payment includes
CAPEX, OPEX and
Return
 The PPP Contract has
IDR

to define the expected

of infrastructure
services quality
1 2 3 4 5 6 7 8 9 10
Year

Construction Operation Period

Period

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 Moving Forward
Rooms for improvement and future challenges ahead

 Defining scope of partnerships

 It is necessary to contemplate whether PPP can be applied for different type of services.
 Many things can be considered including the effectiveness of partnership, labour issues etc.
 Developing Service Level Agreement (SLA) for contracted services
 SLA is essential to determine the performance to be contracted with private sector, and the payment as well.
 The enforceability of the SLA
 Ensuring local political supports
 Supports from the local parliament is essential particularly on the approval of using the local budget for AP
 Dissemination of PPP scheme to members of parliament is necessary.
 Developing markets
 Markets (construction, operator, medical equipment, e.t.c.) need to familiarize with PPP procurement to get the most of the transaction.

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 Thank You
DIRECTORAT GENERAL OF FINANCING AND RISK MANAGEMENT
MINISTRY OF FINANCE , GOVERNMENT OF INDONESIA

Frans Seda building 1st floor

Dr. Wahidin 1, Jakarta 10710
Phone (+6221) 3510722; Fax (+6221) 3447386
www.djppr.kemenkeu.go.id/kpbu
Email: pppindonesia@kemenkeu.go.id

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