INFRASTRUCTURE DEVELOPMENT

Indonesia 2018 | TRANSPORT & INFRASTRUCTURE | B2B

The government has taken huge initiatives in teaming up with private sector giants to spur responsible infrastructure development across multiple transport modals.

Wahyu Utomo
WAHYU UTOMO
Head of Implementation Team
Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)
Raj Kannan
RAJ KANNAN
Founder & CEO
Tusk Advisory

How did you get started, and what are your goals?

WAHYU UTOMO As mandated in the presidential regulation, KPPIP was established to accelerate infrastructural development. The committee is chaired by the Coordinating Minister of Economic Affairs with the Coordinating Minister of Maritime Affairs as the Vice Chairman. The committee consists of four members: the Minister of Finance, the Minister of National Development Planning (BAPPENAS), the Minister of Agrarian and Spatial Planning, and the Minister of Environment and Forestry. The tasks of this committee are to establish policy to accelerate infrastructure development, determine priority projects, improve project preparation through Outline Business Case facility, and coordinate efforts to resolve project hindrances and accelerate project implementation. We have other tasks related to other institutions as well, including project prioritization for land acquisition fund allocation by the State Asset Management Agency (LMAN) and National Strategic Projects (PSN) monitoring. In 2017, we have revised the PSN list to include 245 projects and two programs (Electricity Program and Airplane Program). We are currently working to monitor and speed up the implementation and construction of these projects by mid-2019.

RAJ KANNAN Over the last decade, the government has come up with a series of programs and plans all geared toward making infrastructure work for the country. We were hired by BAPPENAS in 2013 to develop the National Long Term Development Plan for 2015-2019 and focus on eight sectors of infrastructure, such as roads, rail, seaports, and airports. One of the key factors that hinders the delivery of infrastructure is permits. We found that 33% of the time the issues relate to land acquisition while other times it is the fundamental bankability of the project, where the private sector will not take on a project if it does not make sense, business wise. The other gap is that many government-contracting agencies tend to avoid PPPs because they assume that PPPs are laborious, time consuming, and so on. There is a third component, which is state-owned enterprises (SOEs); we have over 140 such enterprises here and they are extremely capable. However, the capacity to finance or take on projects needs to be supported with solid private-sector support. We recommend bringing in the private sector, not because SOEs are incapable, but to harness the capacity of the private sector.

What kind of reforms do you sense on the horizon?

WU Change and reform are still required, but it needs to be a step-by-step process. Take hydropower, for example: if a micro-hydro project is somewhere far away and has to be connected to the grid, from a technical point of view, the cost of transmission could be as high as the cost of building the plant. If the feed-in tariff is not adaptable for that sort of project, it is not feasible. However, the feed-in tariffs for renewables seem to be working now. All these sub sectors have different needs, and it is difficult for regulations to benefit every sector to the same extent.

RK In the next 12 months, there will be a significant amount of soul searching within the government—which every other country is currently doing—on harnessing private sector capability to deliver infrastructure. That is happening right now; it is not easy, and we have been in the thick of it, briefing ministers, thought leaders, and businesses to get them to understand that these are the things we have to do. The private sector also has to play a proactive role, though not necessarily related to regulations. Financing is another component; Indonesia has a unique banking system unlike any other in the region. We are not unleashing the private sector like in other countries such as Malaysia, Thailand, Singapore, or Australia, where the private sector is able to do much more as the banking and financing regulations are far less restrictive. The banking sector should be able to calculate and take risks. If their colleagues across the bay can take on 21-year, zero-coupon project finance bonds, then we should be able to do the same, even if it is only for 10-year project bonds. This is the mindset change that we believe will happen in the next 12 months, and we are hopeful that there will be some directive to pursue something that is international and meets global standards. There is also a need to harness Official Development Assistance (ODA) funding for key projects that are not bankable to start with, like the Jakarta MRT project. Over the next few years, projects such as MRT Jakarta will come online and change people's perceptions about the efficacy of ODA. When we were working on the MRT project, the largest opposition was the fact that it was funded by Japan. The reality is that, when it comes to infrastructure, we have to take the cheapest fund and best technology from wherever we can.