The Business Year

Search
Close this search box.
Dr. Bambang Brodjonegoro

INDONESIA - Energy & Mining

Backlog of 90 PPP projects

Minister of National Development Planning (Bappenas), Indonesia

Bio

Dr. Bambang Brodjonegoro took office as the Minister of Bappenas in 2016, and previously served as the Minister of Finance from 2014-2016 in the cabinet of Joko Widodo. Under the administration of Susilo Bambang Yudhoyono, he was the deputy Minister of Finance starting in 2011. Prior to his political career, he served as the Director at the Islamic Development Bank from 2009-2011, and as Dean of Faculty in the Economics Department at Indonesia University from 2005-2009. He graduated from the faculty of economics, University of Indonesia, with a master’s degree in urban planning. He holds a doctoral degree in regional planning from the University of Illinois.

“We still have around 5% unemployment, equivalent to 8 million people.“

To what extent will public-private partnerships (PPPs) be utilized in the infrastructure sector moving forward?

Our main duty is to support the government in accelerating infrastructure development and the source of financing for the development could be from the budget, state-owned enterprises (SOEs), or the private sector. In our five-year plan until 2019, we have laid out that the budget might contribute a maximum of 40%. In our estimation, SOEs will contribute around 23%, which means there is still 37% left that has to be fulfilled by the private sector. Our role is to select the infrastructure projects that are eligible for one of these schemes of financing, with the objective to involve the private sector more. We have two schemes to do so: PPPs and equity financing. For both, our task is to promote these projects domestically and internationally, and we actively go on roadshows to meet with potential investors. In the past, FDI in Indonesia was mostly in manufacturing; however, we now have infrastructure as a real opportunity. For PPPs, we have a strong backlog of 90 projects, including social infrastructure such as hospitals, correction facilities, and educational institutions. For equity financing, which is pure private sector, we promote projects such as toll roads, power plants, airports, seaports, and oil and gas infrastructure.

How can you make private sector involvement more attractive?

For equity financing and PPP, we have concessions for the private sector. For PPPs, the idea is that this is private sector money; it has a certain period of concessions, depending on the project type, and if the project is not that viable for the private sector then the government can step in with a guarantee or a viability care fund. For equity financing, it is even more attractive as the private sector does not participate as an active developer but a shareholder. We can support project recycling so it does not have to be on a greenfield site but can be brownfield or operating site. If there is a profitable power plant or toll road in Indonesia that is already operational, private investors can still come in, creating a win-win situation, where the previous developer will receive funding for new projects and where the investors get their returns. We target long-term fund managers such as pension funds, welfare funds, and life insurance, offering better returns than bank deposits—at least 13%.

What is the potential for geothermal in the energy sector?

We need to promote more renewable energy in our energy mix. Currently, it is less than 10% and we have a target of reaching 23% by 2025. From our potential resources, hydro could be number one, geothermal second, and bio-energy third. The challenge is always the price. Solar has become a cheap solution in the Middle East and wind in Europe; however, our weather conditions are different. In hydro, the focus will primarily be on medium and mini-sized power plants. Geothermal offers great potential returns; however, there remains a risk of drilling and not getting enough steam; therefore, we have to concentrate on proven fields. Bio-energy is great for smaller off-grid systems that are not directly connected to the national transmission. For all renewables, we need to find a compromise between investors and the government as renewables are still more expensive than coal or diesel-fueled power plants.

What unique opportunities for growth are in the SME sector and how can you capitalize on entrepreneurship?

As an emerging country and member of the G20, we have aspirations to be a developed country, not just with a large GDP but also with a sizable GDP per capita. One critical oversight of our development strategy is the lack of entrepreneurship, both in terms of quality and quantity. Without significant entrepreneurship, we cannot be a developed country, a lesson learned from South Korea, who was in the same starting position in the 1950s. The problem in Indonesia is that we are targeting the number of SMEs without checking if they are active in productive or value-adding sectors, or mostly working as traders or retail. These professions are harder to scale into larger business models and our challenge is to have our micro-entrepreneurs be more productive, either in agriculture, manufacturing, or services. We have always treated farmers and fishermen as though they are not entrepreneurs though they hold the greatest potential, and one strategy is to empower them more. Another strategy is to improve and promote vocational schooling. For this, we need to shift the mindset by promoting the importance and the prospects of these skills, especially to graduates that have the potential to become new entrepreneurs, applying their skills directly—for example a cook that can become a restaurant owner and perhaps open a chain.

How do you follow trends and strategize on the development of the economy?

Our economy has to be adaptive to any new innovation, while also monitoring closely the impact of the digital economy for job creation. We still have around 5% unemployment, equivalent to 8 million people, meaning we still need to find 8 million job opportunities. With a more dominant digital economy, we need to be more creative in finding these opportunities. GO-JEK is a good example of how a technological innovation can increase rather than reduce job opportunities via formalizing the informal sector: the traditional motorcycle taxi. From a job security point of view, drivers are now in a much better position, and because they are now in the formal sector, there is a tax collection and we have accurate statistics. For future innovation, we would like to have job opportunities consider rather than just sophistication of IT. From now to 2030, Indonesia has a demographic bonus that we should utilize. Therefore, we should adapt the digital economy while absorbing unemployment.

What is the strategic advantage of moving the capital to a less urbanized part of the country, and how could the private sector potentially benefit from this?

This project is in the study stage, and in fact many countries have moved their capitals in the last 100 years—sometimes to great success and sometimes not so much. Greater Jakarta has already become a large and congested metropolitan area, and it is now an option to just move the administrative district away from the city center. Of the 10 most populated cities in Indonesia, five are based in Greater Jakarta. Furthermore, we have regional disparity between Java and outside Java. Java contributes around 60% of our economy and if we combine Java and Sumatra, then the other regions contribute only 17%. If we want to create more balance, we need to create new economic activities outside Java and Sumatra. The new location should be safe from a non-economic and security perspective, given the possibilities of volcanoes, earthquakes, tsunamis, or flooding. Kalimantan is an excellent option and relatively free of disaster. The idea is not just moving the capital but rather building a new city as the new capital, so political support is extremely important. With regards to financing, we will utilize PPPs as much as we can, as property development has always had strong investor appetite from the private sector.

ADVERTISEMENT

ADVERTISEMENT

You may also be interested in...

Maurits Klavert

INDONESIA - Agriculture

The Milk of Life

Interview

President Director, PT Frisian Flag Indonesia

Endang W. Hoyaranda

INDONESIA - Health & Education

Superior Quality Test Control

Interview

President Director, Prodia Group

Rahmad Pribadi

INDONESIA - Real Estate & Construction

Filling the Niche

Interview

CEO, PT Semen Baturaja

View All interviews

Countries

Countries

Become a sponsor