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.