$64b needed for infrastructure projects

$64b needed for infrastructure projects

JAKARTA (JP): Indonesia needs at least US$64 billion in new investment in the next five years to develop its infrastructure, according to Peregrine Investments Holdings Limited.

The international investment bank's estimate is far higher than the $52 billion projected by the government in its current five-year development plan.

Peregrine's chairman, Philip L. Tose, said yesterday that of the total investments, around $25 billion will be needed for the development of new power plants, $7 billion for telecommunications facilities, $3 billion for air and sea transportation, $8 billion for new toll roads and another $13 billion for other roads.

"Indonesia, like any other nation undergoing rapid changes cannot go it alone," he told the Indonesia Summit.

Foreign participation in the infrastructure projects is needed because the domestic market alone cannot supply such massive investments, he said.

"When it comes to infrastructure development, or indeed to the needs of highly capital-intensive industries with long pay-back periods, financing structures become more complex," he said.

At the business forum, which ends today, Tose said that public listing is a key part of the process in raising investment funds but other financing alternatives, such as foreign direct investments and fixed income or bond markets, are also essential.

"Properly balanced, the triumvirate of listed equity, foreign direct investment and fixed incomes can provide essential fuel for Indonesia's future," he said.

Tose said that a series of deregulatory measures introduced by the Indonesian government in the past five years have encouraged both domestic and foreign investment.

He said, however, that the process of deregulation, particularly when it goes hand-in-hand with privatization, should not be simply removing old structures, and then stepping back.

"In their place there often needs to be new simpler structures and clear, efficient regulatory structures," he said.

For example, Tose said, at the moment, the framework for approval of toll road rates is quite complex.

Without a simplified regulatory structure, new operators may be reluctant to enter, given the fact that there is a global capital shortage for the infrastructure development in the world.

Tose also called on the government to issue substantial incentives to encourage more local investors to take part in capital market activities, which are almost universally dominated by foreign investors.

"One way is to offer advantages to local investors, such as bonuses for holding their shares for long terms, and initially offering price discounts for retail investors," he said. "Also, the pricing of new issues should not be too aggressive."

Peregrine has operated in a number of key areas of financing in Indonesia, from equity underwriting and project financing to the issuance of debt instruments.

The bank has established Peregrine Indonesia Fund with $83 million in funds, the largest available for private equity and venture capital in Indonesia. Out of the funds, 60 percent is now invested in 10 manufacturing and service companies.(hen)