EC issues guidebook on RI investments

EC issues guidebook on RI investments

Zakki P. Hakim, The Jakarta Post, Jakarta

The European Commission (EC) published on Wednesday a guidebook
for European investors to look very closely before investing in
any infrastructure projects in Indonesia, including advising
which sectors were viable and which should be avoided.

The guidebook, entitled Investing in Indonesian
Infrastructure, recommends European firms avoid projects that are
heavily controlled by state-owned enterprises, such as toll
roads, terminals and ports and water supply projects.

It also advises the firms considering that operation
management (such as toll roads, tap water, ports) where revenues
were in rupiah and/or defined by pricing schemes set by third
party agencies, are "high-risk investments".

Nevertheless, it encourages investors to consider the power
and telecommunications sectors, as they had better procedures for
a fair bidding process, reasonable forms of dispute resolution
and a competitive environment -- compared to transportation and
water.

The guidebook emphasized that only European businesses with
financial strength and particularly, with experience in operating
in Indonesia, should take part in the infrastructure projects.

Moreover, it said that the transportation and water sectors
may see foreign investment participation, but more likely in a
packaged development scheme, which would include large local
firms including SOEs.

"Participating in such foreign or foreign-local investment
set-ups may still be beneficial for European companies, as long
as scale-advantages or relatively risk-free sub-contracting
modalities can be ascertained," it said.

It went on to advise that of the special interest would be
future multi-year construction contracts such as gas pipeline
projects and, potentially, railways.

Responding to the guidebook's recommendations, National
Development Planning Board chairwoman Sri Mulyani Indrawati said
the government had addressed such concerns by vowing to guarantee
equal treatment for all players in the respective sectors.

"It is a fact of life, that many, if not all, infrastructure
projects will be dominated by SOEs, as they have a monopolistic
or oligopolistic nature. Such projects historically came from
government initiatives or funding," she explained during a press
conference.

She went on to add that the government was trying to improve
the competition policy and to establish an independent regulatory
body to set prices in a bid to reduce political intervention.

"We have agreed to set prices that reflect more economic or
cost considerations in the longer term, instead of political
considerations. But in the short term, we will still consider
affordability for the lower-income brackets," she said.

She added that if there should be a special pricing scheme
geared toward the lower-income brackets, it must be determined
who would cover the costs of that.

Moreover, she said that the government would provide a
comprehensive infrastructure policy for the private sector by
repackaging the existing Mid-term Development Plan (RPJM) 2004-
2009 and respective sector-wise policies into a clearer and more
user-friendly document.

Regarding the rates-in-rupiah risk, she said Indonesia's
Constitution required that all transactions should be in the
local currency, therefore, the investors should know better that
to hedge their funds against volatile currency fluctuations.

"But it's the government's responsibility to provide a stable
currency," she said.

Also in the press conference, Eurocham chairman Jean-Francois
Fichaux said that European firms had seen a lot of progress in
the investment climate in the last few months and he was
optimistic that more firms would be interested in investing in
the country.

The European firms were generally optimistic about the market
opportunities and investment prospects in Indonesia over a 10-
year horizon, he said.

The existing firms include BP, Shell, Total SA, Ondeo Services
(formerly Lyonnaise des Eaux), Thames Water, France Telecom, KPN,
Deutsche Telekom, Alcatel, Ericsson, Nokia, Pirelli, Siemens, ABB
and Alstom.

The guidebook is the work of Belgium-based consulting firm
SEMA, prepared under contract for the European Commission and
financed by the Asia-Invest Programme of the EuropeAid
Cooperation Office.

The guidebook is a response to the Indonesian Infrastructure
Summit, held in January, in which the government offered 91
projects worth US$22.5 billion in the main sectors of
transportation, power and energy, water and sanitation and
telecommunications.