Govt provides incentives for infrastructure investments

Urip Hudiono, The Jakarta Post, Jakarta

To invite more private participation into public infrastructure development, the government has issued a new regulation providing more incentives and governmental support for the risk management of projects.

The new rules, Presidential Regulation No. 67/2005 on public- private partnerships for infrastructure provision, also provide other incentives such as tax exemptions and public service obligation (PSO) subsidies for tariff-bearing projects.

"This regulation was issued as part of the government's commitment to speed up infrastructure development and create an investment climate that encourages the private sector to participate in this development," State Minister for National Development Planning Sri Mulyani Indrawati said on Thursday. The regulation, which was issued on Nov. 9, will replace Presidential Decree No. 7/1998.

The new rules, Mulyani said, were designed to protect the best interests of consumers, the public and private investors. All infrastructure projects would now be implemented through partnership agreements or operating licenses after passing a proper due diligence process, she said.

"The procurement process of the projects must also adhere to the principles of transparency, competitiveness, efficiency and maintaining a level-playing field," she said.

To protect the interests of private investors and encourage their participation, Mulyani said the government would provide support in covering the risks of the projects, with the finance ministry having already established a Risk Management Committee for Infrastructure Provision for that purpose.

"This committee will facilitate managing the risks of the projects through parties considered the most capable of doing so. But any of the incentives would still be considered with regard to the state budget," she said.

Infrastructure projects covered by the new regulation include those proposed by ministries and regional administrations in the transportation sector, such as the construction and operation of seaports, airports, railways and toll roads.

The private sector can also participate in the development of irrigation facilities, as well as public drinking water and sewage treatment facilities.

Power generation projects and their transmission grids are also open, as well as refineries, storage and the distribution of oil and gas products.

Private investors can propose their own projects, which if approved would still be offered through an open tender, with compensation for the project initiator in the form of a value- added purchase price and the purchasing of intellectual property rights of the projects by the government.

Minister of Public Works Djoko Kirmanto said the governmental risk guarantee in the new regulation would hopefully help investors overcome their difficulties in raising the needed capital from banks, many of which consider multi-year infrastructure projects here too risky.

Meanwhile, Minister of Energy and Mineral Resources Purnomo Yusgiantoro hoped the regulation could help solve the power crunch in several remote areas in the country because private investors could now propose their own projects.

On PSO subsidies, Minister of Transportation Hatta Radjasa said the government would provide a framework on initial tariffs and their adjustments to ensure a competitive return on investments for the private sector, he said.