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Ministries told to hunt for private suitors
Jakarta Post - June 14, 2016
The government wants to change that paradigm and urges ministries to hunt for private suitors to work on infrastructure projects using the public-private partnership (PPP) scheme, said Bambang.
The revival of PPP comes as President Joko "Jokowi" Widodo" pushes for ambitious infrastructure projects – from railways, toll roads and ports to electricity – to stoke growth, while the state budget is struggling to fund projects, with huge tax income shortfall expected amid a weak domestic economy.
PPP has been touted as a scheme that could aid many important government projects, as it bridges the gap between state budget limitations to finance national development projects and provide security for private sector investment. However, PPP projects have been moving at a snail's pace because the government has not been offering attractive deals for the private sector.
Bambang put the blame on the mindset of ministries and institutions that rely too much on the comfort of being funded by the state budget and owning the projects themselves, making them too complacent to hunt for private investors.
The Transportation Ministry, for example, could have engaged more with private investors in constructing their projects, including railways, seaports and airports, which Bambang deemed as lucrative for private investors.
"The ministry is still happy to use the state budget [to fund its projects] while I have a headache looking for the money," the finance minister, who was previously dean of University of Indonesia's School of Economics, which schools many thinkers behind the nation's economic policies, told The Jakarta Post in an interview.
Indonesia has allocated around Rp 313.5 trillion (US$23.5 billion) for infrastructure projects in this year's state budget, including for toll roads and railways connecting Sumatra, Sulawesi, Kalimantan, Java and Papua and a 35,000 megawatt (MW) electricity procurement program until 2019.
Bambang ensured the amount would be unchanged in the draft revision of the state budget under deliberation at the House of Representatives, although the government is looking to slash Rp 40.6 trillion in spending for ministries and institutions due to an expected shortfall in state income. As of May, the government's cash-strapped state budget saw only 27.2 percent of state revenues collected.
Amid difficulties in raising funds for the state budget, he said ministries must be creative in finding ways to fund their infrastructure projects instead of solely relying on the state budget.
Elsewhere in Asia, which is expected to be the largest market for infrastructure development over the next decade, nations have high hopes for PPP but start-up has been slow and many countries are looking to multilateral agencies such as the Asian Development Bank (ADB) instead, according to a 2015 report on PPP by global audit and advisory agency EY.
"Some ministries, such as the Communications and Information Ministry and the Public Works and Public Housing Ministry, have got used to it [the PPP scheme]," said Bambang, 49, who also served as the ministry's fiscal policy office (BKF) chief and deputy finance minister prior to his current post.
The Finance Ministry will appeal to the ministries by supporting facilities such as financing from state financing company PT Sarana Multi Infrastruktur (SMI) and guarantee from state-owned guarantee firm PT Penjaminan Infrastruktur Indonesia (PII).
"Batang's financial closure proves that infrastructure projects with the PPP scheme can work with international investors," he said, referring to the mega 2,000 MW power plant project in Batang, Central Java, touted as Southeast Asia's largest power plant.
PII guaranteed the $2.05 billion power plant project, which last week secured financial closure with the Japan Bank for International Cooperation (JBIC).
The firm has also signed guarantee agreements for other projects, namely Palapa Ring western and central packages, as well as toll road projects connecting Batang-Semarang in Central Java, Pandaan-Malang in East Java, Balikpapan-Samarinda in East Kalimantan and Manado-Bitung in North Sulawesi, said PII chief financial officer Armand Hermawan.
"We will also sign a guarantee agreement for the Palapa Ring eastern package in August, while the financial close will probably occur in December," Armand said recently.
Source: http://www.thejakartapost.com/news/2016/06/14/ministries-told-hunt-private-suitors.html.
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