Govt provides incentives for infrastructure investments

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.