Investors have long complained about the numerous obstacles to investing in infrastructure projects in Indonesia. Bambang Susantono, a deputy minister in charge of infrastructure development at the Coordinating Ministry for Economic Affairs, spoke with the Jakarta Globe about plans to attract investors to the neglected sector.
Here are some excerpts from the interview:
Several months ago you said infrastructure development in this country faced a financing challenge because of tight liquidity. Has the situation improved?
The mood for investors to back infrastructure projects has gotten better. I’ve had a couple of talks with foreign investors and, in general, they are showing huge interest. They see Indonesia as a destination for infrastructure investment but they always ask how they can ensure a decent return on their investments.
So what is the government doing to attract investors?
The government is planning several initiatives. We’ve formed a risk-management unit at the Ministry of Finance and we also plan to establish PT Penjaminan Infrastructure Indonesia (PII), a state firm that will operate directly under the finance minister. PII will have initial capital of Rp 1 trillion ($106 million), and should be up and running by next year.
What will PII do?
It will provide guarantee funds, meaning it will help protect members from any policy risks that could hurt their investments. For example, in regards to tariff policy, if a promised tariff hike did not happen, PII could guarantee to compensate investors for any resulting losses. Investors would have to pay premiums but not as high as those charged by traditional insurance firms.
Will PII be compulsory for foreign investors?
Membership won’t be mandatory, but in my opinion investors will definitely want to take advantage of PII because they will feel more secure. This is a common practice in other countries. For example, with the monorail project, the government guaranteed a certain number of passengers to ensure a decent return for investors.
Do you think Rp 1 trillion in initial capital will be enough to launch PII?
The initial Rp 1 trillion is a small amount, but PII will have what is called a “debt-stock facility.” This will take the form of loans from donor countries or organizations such as the World Bank or Asian Development Bank. These loans will be repaid by PII or the government.
What else is the government planning?
The government is looking at a cost-sharing mechanism when it directly participates in public-private partnerships, especially projects deemed to be vital. For example, the Solo-Kertosono toll road project will have marginal returns, according to the feasibility study. But this toll road project is vital because it is in the middle of already completed sections.
Any other plans?
We are planning to offer investors access to special economic zones where we will provide supporting facilities such as docks, road access and train networks. Investors in SEZs will be exempt from some taxes. The response from potential investors has been good. The sooner the better, they say.