Indonesia May Set Up Infrastructure Guarantee Fund
JAKARTA -(Dow Jones)- The Indonesian government may by June set up a guarantee fund as part of ongoing efforts to draw more private investment into infrastructure, a senior government official said Wednesday.
While several aspects over the operation of the fund remain under discussion, the government has earmarked IDR1 trillion as "seed" capital to attract private- sector funds into infrastructure projects, Bastary Pandji Indra, director for public-private partnerships at the National Planning and Development Committee, or Bappenas, said.
Indonesia will also seek loans from multilateral agencies to boost the fund, which will "help the government fulfill their commitment in providing guarantees" for infrastructure projects, Bastary told the Jakarta Foreign Correspondents Association, without further elaboration.
Officials have previously told local media the fund will provide a guarantee to private-sector investors that they will be provided with financial recompense should policy changes by the Indonesian government affect their investments.
The proposed guarantee fund is yet another tool in the government's arsenal to attract much-needed funds from the private sector to shore up tepid infrastructure investment in Indonesia.
In April the government secured a commitment from the Asian Development Bank to provide up to $140 million funding for its Indonesian Infrastructure Funding Facility, which will provide long-dated debt and equity to infrastructure investors who find such funding difficult to obtain on the commercial market. The facility, known by the acronym IIFF, aims to leverage the funds it provides to increase private-sector capital flowing into Indonesia by six or sevenfold.
Bastary said that Indonesia between 2010 and 2014 needs in total infrastructure investment of around IDR1,429 trillion ($138.1 billion), of which the government is likely able to provide only IDR451 trillion from its budget, with the remaining 69%, or IDR978 trillion, to be sourced from the private sector.
He said infrastructure investment in Indonesia between 2004 and this year averaged around 2.2% of gross domestic product, far lower than in China where it was around 12% of GDP over the same period and less than half of the approximately 5% of GDP invested in infrastructure in Indonesia prior to the 1997-98 Asian financial crisis.
"We will not achieve the (Millennium Development Goals) target by 2015 if we don't double our investment in infrastructure," he said.
In order to smooth land acquisition processes for projects such as toll roads, Bastary said the government's land management agency is considering devolving jurisdiction over eminent domain decisions "to the ministerial or directorate- general level." At present, only Indonesia's president can rule in eminent domain cases where a property owner refuses to sell to an infrastructure developer, he said.
Bastary said infrastructure developers may now proceed with a project after acquiring only 75% of the necessary land whereas previously they were legally required to buy 100% of the land before starting the project, and said that the land management agency may introduce an independent appraisal system for property values to obtain better prices for owners of disputed land.
He added that despite these measures, the current unavailability of long-term capital means that Bappenas and the government "for about the next two years" may have to focus on small-scale projects worth hundreds of millions of dollars, such as water supply projects, rather than larger projects worth billions of dollars, such as electricity-generating plants.
-By Reuben Carder, Dow Jones Newswires; 62 21 3983 1277; Reuben.Carder@ dowjones.com
While several aspects over the operation of the fund remain under discussion, the government has earmarked IDR1 trillion as "seed" capital to attract private- sector funds into infrastructure projects, Bastary Pandji Indra, director for public-private partnerships at the National Planning and Development Committee, or Bappenas, said.
Indonesia will also seek loans from multilateral agencies to boost the fund, which will "help the government fulfill their commitment in providing guarantees" for infrastructure projects, Bastary told the Jakarta Foreign Correspondents Association, without further elaboration.
Officials have previously told local media the fund will provide a guarantee to private-sector investors that they will be provided with financial recompense should policy changes by the Indonesian government affect their investments.
The proposed guarantee fund is yet another tool in the government's arsenal to attract much-needed funds from the private sector to shore up tepid infrastructure investment in Indonesia.
In April the government secured a commitment from the Asian Development Bank to provide up to $140 million funding for its Indonesian Infrastructure Funding Facility, which will provide long-dated debt and equity to infrastructure investors who find such funding difficult to obtain on the commercial market. The facility, known by the acronym IIFF, aims to leverage the funds it provides to increase private-sector capital flowing into Indonesia by six or sevenfold.
Bastary said that Indonesia between 2010 and 2014 needs in total infrastructure investment of around IDR1,429 trillion ($138.1 billion), of which the government is likely able to provide only IDR451 trillion from its budget, with the remaining 69%, or IDR978 trillion, to be sourced from the private sector.
He said infrastructure investment in Indonesia between 2004 and this year averaged around 2.2% of gross domestic product, far lower than in China where it was around 12% of GDP over the same period and less than half of the approximately 5% of GDP invested in infrastructure in Indonesia prior to the 1997-98 Asian financial crisis.
"We will not achieve the (Millennium Development Goals) target by 2015 if we don't double our investment in infrastructure," he said.
In order to smooth land acquisition processes for projects such as toll roads, Bastary said the government's land management agency is considering devolving jurisdiction over eminent domain decisions "to the ministerial or directorate- general level." At present, only Indonesia's president can rule in eminent domain cases where a property owner refuses to sell to an infrastructure developer, he said.
Bastary said infrastructure developers may now proceed with a project after acquiring only 75% of the necessary land whereas previously they were legally required to buy 100% of the land before starting the project, and said that the land management agency may introduce an independent appraisal system for property values to obtain better prices for owners of disputed land.
He added that despite these measures, the current unavailability of long-term capital means that Bappenas and the government "for about the next two years" may have to focus on small-scale projects worth hundreds of millions of dollars, such as water supply projects, rather than larger projects worth billions of dollars, such as electricity-generating plants.
-By Reuben Carder, Dow Jones Newswires; 62 21 3983 1277; Reuben.Carder@ dowjones.com