Afiff outlines framework for infrastructure investment

JAKARTA (JP): Coordinating Minister for Finance and Economy Saleh Afiff highlighted yesterday the importance of a credible framework in attracting the private sector to participate in infrastructure development.

According to Afiff, the framework is important to determine the profitability and risks of private investment in infrastructure development.

"The framework is also necessary to ensure that a project will generate a level of profit, commensurate with the project's risk, sufficient to attract private investors," he said in his speech to close the World Bank-sponsored conference on infrastructure development.

The legal and institutional framework of the private sector's involvement in infrastructure projects should also provide sufficient incentives for private investors to produce infrastructure for the lowest cost and pass on the savings to consumers, he said.

The bottom line is that the framework should ensure a good return to investors while providing services efficiently and addressing social concerns, he said.

Afiff said the most important element of the framework is that private investors are selected through a competitive and transparent process.

"Where competitive bidding is not possible, every effort should be made to ensure that bids are solicited in an open manner," he stressed.

Afiff said the more open and transparent the selection and negotiation process is, the less likely it is that the contract will subsequently become a political issue.

In addition, he said, a clear dispute settlement process must be in place and allowances must be made for future negotiation of contracts should it become necessary.

He said a transparent bidding process is one of the most important elements in the framework to attract the private sector to infrastructure projects.

According to the minister, the second key element is competition.

Investors' interests may be maximized through monopolies but consumers will suffer and technical changes will translate more slowly into lower prices, he said.

Finance Minister Mar'ie Muhammad told the same forum that effective private sector ventures into infrastructure projects must be firmly grounded in clear and proper regulations to ensure that the interests of the public and private sectors are well protected.

"If necessary, the government is ready to further change its regulations both to protect the national interest and to ensure that the private sector earns a sufficient rate of return.

He also echoed the importance of a competitive bidding process in attracting private companies to infrastructure projects.

Rahadi Ramelan, the deputy chairman of the National Development Planning Agency (Bappenas), said the Indonesian government would soon establish a cross-sectoral framework to support private involvement in infrastructure projects.

"We have been instructed by Coordinating Minister Saleh Afiff to prepare the framework," he told reporters after the end of the three-day conference.

He said he expected that the formulation of the framework to oversee, regulate and standardize all issues relating to private sector involvement in infrastructure development could be completed by the end of this year.

Rahadi said the framework was necessary to ensure transparency while privatizing infrastructure projects.

Russell Cheetham, the vice president of the World Bank for East Asia and Pacific Region, cited the involvement of the private sector in Indonesia's infrastructure development as one of the most successful models in the region.

He, however, conceded that Indonesia, like most other countries in Asia, was yet to apply an adequate framework to support private involvement in infrastructure.

"If I could say, I think, the production sharing contract adopted by state-owned oil company Pertamina is an example of the best framework in involving the private sector," he said.

Cheetham acknowledged that the privatization of infrastructure services was still relatively new to most Asian countries and that it was understandable if those countries did not yet have a strong framework to support it. (hen)

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