The Infrastructure Fund - which would provide alternative financing for development projects - may be up and running as early as March.
The World Bank and the Asian Development Bank (ADB) will contribute around Rp 2 trillion (US$170 million) to help fund the country's infrastructural development, which would be placed with the new Infrastructure Fund.
Finance Ministry housing development assistant deputy Wahyu Utomo said Tuesday the government was currently developing a new financial institution called the Infrastructure Fund, which would be the beneficiary.
"The Infrastructure Fund will be finalized by the end of February and will begin in full operation in the first semester of 2009," he said after delivering a speech in a ministry seminar on Infrastructure Development Acceleration During the Global Crisis, in Jakarta.
He said the ministry had already allocated Rp 1 trillion from the state budget for the new institution while another 2 trillion would be received from the World Bank and the ADB.
"In total we will have around Rp 3 trillion for the Infrastructure Fund, but there is a possibility that we can allocate up to Rp 4 trillion for the fund," he said.
The aim of the Infrastructure Fund, according to him, was to provide the nation with an alternative source of funds for business development for infrastructure.
"Nowadays it is very hard for the national banks to provide loans for infrastructural development and most bank loans are short term. But with the Infrastructure Fund, there is an alternative for long term loans and hopefully this will make things easier for investors," Utomo said.
However, even with the aid of the World Bank and ADB, the available fund is still far lower than the country's target for the Infrastructure Fund in the next five years. The country estimated a need of around Rp 20 trillion for the Infrastucture Fund during that period.
"Learning from India, we can use the Infrastructure Fund to attract the private sector to take part in the institution and in the end to reach the targeted budget," Utomo said.
The government is intensifying its infrastructure projects this year, and beyond, in part to help stimulate an economy hampered by the global economic slowdown.
In a broader context, the National Development Planning Agency (Bappenas) estimated the need for investment in infrastructure development for the next five years would be around Rp 1,429 trillion.
On the other hand, the government capacity to finance is only a mere Rp 451 trillion, or about 31 percent of the needed investment.
Bappenas deputy chairman for infrastructure Dedy Priatna, who also gave a presentation in the seminar, said the government would try to cover the gap of Rp 978 trillion by proposing public private partnership (PPP) programs to investors.
"But Bappenas also estimated that with the current conditions, the total investment that can be gathered through PPP would only be around Rp 365 trillion," Priatna said.
Priatna said that investors were reluctant to take part in the program because of lack of consistency in regulations as well as the country's uncertain conditions in both the political and security sectors.
"That is why we need to focus on how to improve our regulations, institutions, and security and provide investors more access to funding sources," he said.
Bappenas recently submitted a proposal on the revision of a presidential regulation to the Finance Ministry.
The revision proposes a clause to allow a bid to go ahead even if it has fewer than three participants, while also allowing transfer of tender winners' awards under certain circumstances. Both are prohibited under the existing presidential regulations.
The latest development on the revision revealed that the Finance Ministry proposed a compensation system called the Swiss Challenge in compensating investors.
"Swiss Challenge is like this, when an investor proposes a tender on a project at a price, others are able to challenge with a more competitive price," Priatna explained.
Dedy said both the Finance Ministry and Bappenas hoped the revision would be completed as soon as possible. (hdt)