Indonesia PPP: time to take off

President Joko Widodo’s administration has been pushing to prepare Indonesia’s public private partnership (PPP) programme. As his second term starts in earnest, tentative hopes that PPP procurement may be set to accelerate have been reignited. Airport privatisations are already underway and look set to lead the PPP pipeline.

“There is great political will and strong indications of interest,” an Indonesian lawyer at an international firm told IJGlobal.

Historically, funding and liquidity in the domestic market have slowed down the roll out of PPPs but the government is now determined to attract foreign investment to accelerate procurement, the lawyer said.

The most promising sectors are airports, ports, and power, including waste to energy, he added.

Projects in the pipeline

In the airport space, the Government of Indonesia in December (2018) requested pre-qualification documents for a Rp3 trillion ($215 million) Komodo Airport PPP and is understood to be preparing to launch the Kualanamu International Airport privatisation before the end of 2019.

However, airports remain in “early development” and the government has yet to draw up a bid package for Komodo Airport, one Jakarta-based lawyer told IJGlobal.

For the $500 million Kualanamu International Airport privatisation, state airport operator Angkasa Pura II (Persero) is rebooting the procurement process and plans to launch the tender later in 2019.

Advisers to Angkasa Pura II include:

  • Danerska – financial
  • HSBC – financial
  • Pinsent Masons – legal

Progress on procuring ports has been slower, although the National Development Planning Agency (Bappenas) has a long list of greenfield port PPPs in preparation.

Amongst them are:

  • Bitung International Hub in North Sulawesi
  • Kabil Port in Batam
  • Kuala Tanjung International Hub in North Sumatra
  • Makassar New Port in South Sulawesi
  • Patimban Port in West Java

For waste to energy, President Widodo, referred to as Jokowi, issued on 17 July (2019) a statement to kick-start procurement of waste to energy projects following a cabinet meeting on the issue.

Jokowi will personally oversee project procurement in cities and provinces deemed to be priorities, in Bali, Bekasi, Jakarta, Solo and Surabaya. He has also directed leaders in seven other regions to submit proposals for waste to energy projects.

More broadly, the president is seeking to roll out a wide range of infrastructure projects during his second five-year term.

“We will accelerate development and connect the infrastructure projects, such as toll roads, railways, seaports and airports,” Jokowi said at a rally in West Java earlier in July.

Long and winding road

While optimistic, Indonesia infrastructure veterans remain cautious about the pace of PPP rollouts because of the country’s record of slow procurement.

Indonesia’s history of attempting to build infrastructure through PPPs goes back decades. The first PPP laws, for power and road projects, were enacted in the mid- to late-1980s, according to the Organisation for Economic Co-operation and Development (OECD).

After his first election in 2014, Jokowi promised a $400 billion infrastructure spending programme for 2015-2019.

As part of the infrastructure build out plan, the administration has been promoting the use of PPPs as a vehicle for a number of years now but foreign investors have shied away from the format for a number of reasons. 

One reason has been the fact that PPPs were rarely structured to be bankable. As a result, Indonesia’s numerous and ubiquitous state-owned enterprises (SOE) won many PPPs, mostly in toll roads.

Some progress has been made on toll road PPPs, but local SOEs have dominated the sector and foreign investors have stayed away from the unbankable structures. State-owned Jasa Marga operates nearly 75% of Indonesia’s only 1,000km of toll roads, despite the government’s ambition to expand the network to over 6,000km, according to a report by the World Bank’s Global Infrastructure Facility.  

Structuring remains a hurdle for most PPPs, according to an Indonesian lawyer, and bidders are often forced to engage in a drawn out back-and-forth process to renegotiate risk allocation with procurement agencies.

Another reason has been the ownership structure. After years of vacillating, the government has now settled on only offering a minority equity stake – of 49% - to foreign investors in any PPPs.

After a couple of years of balking at being minority shareholders, foreign investors are now said to have resigned themselves to the ownership restriction and are now actively considering bidding for at least some of the upcoming PPPs, particularly in the airport sector.

 


 

 

 

IJGlobal – the financial information provider to global energy and infrastructure markets – provides decision-makers with compelling insights from Asia Pacific during H1 2019. 

Packed with key stats and insights from industry leaders, this report contains

  • Analyses range from Taiwan’s burgeoning offshore wind market to increasing long-term debt financing options for Australia’s PPPs.
  • All discern the driving forces behind projects which have reached financial close and explore industry trends, enabling you to gain market intelligence for your next board or investment committee meeting.

Download your report here

 

Asset SnapshotMakassar New Port

Est. Value:
IDR 2,999,999.95m (USD 209.97m)
Full Details

Asset SnapshotKomodo Airport Expansion

Value:
IDR 2,999,999.93m (USD 205.15m)
Full Details

Asset SnapshotKualanamu International Airport

Value:
N/A
Full Details

Asset SnapshotKabil Port

Value:
N/A
Full Details

Transaction SnapshotMakassar SeaPort PPP

Value:
$624.75m USD
PPP:
Yes
Full Details

Transaction SnapshotKualanamu International Airport Expansion

Value:
$775.99m USD
Full Details

Transaction SnapshotPatimban Deep Sea Port Phase I PPP

Value:
$10.08m USD
Equity:
$0.00m
Debt:
$10.08m
Debt/Equity Ratio:
100:0
PPP:
Yes
Full Details

Transaction SnapshotKomodo Airport Expansion PPP

Value:
$214.99m USD
Concession Period:
25.00 years
PPP:
Yes
Full Details