Afiff outlines framework for infrastructure investment

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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