The government has made substantial progress in establishing a policy framework for the Public-Private Partnership (PPP) initiative, but is not doing enough to advance it, an EU-Indonesia Infrastructure Forum has concluded.
"The government has made substantial progress in establishing the foundations for a PPP policy, institutional and regulatory framework," said the head of the European Chamber of Commerce's Indonesia Small Project Facility (SPF) program, Francois Cherer.
"What's next? The system needs to be made to work!" Cherer said in a presentation to the infrastructure forum, which was held Tuesday in Jakarta by Eurocham in collaboration with the Indonesian Chamber of Commerce and Industry (Kadin).
The PPP initiative refers to long-term agreements between the government and private promoters and their financiers that are aimed to ensure the funding, construction, management and maintenance of public infrastructure and the provision of public services.
The PPP initiative is designed to remedy problems associated with cost overruns and inefficiency, lack of funding and excessive public borrowing under a government-centric system that is focused solely on the role of the state, with funding coming from the state budget, multilateral aid and foreign borrowing.
Cherer said that Indonesia needed to catch up with its regional counterparts in infrastructure development, and make up for lost time due to the steep decline in overall development spending, particularly infrastructure spending, following the Asian financial crisis.
Presenting figures showing the cumulative value of PPP projects from 1990 until 2005, Credit Risk International chairman Jean Louis Terrier said that Indonesia had only managed to attract total PPP investment of $32.6 billion, while Malaysia, with a smaller population, had attracted a total of $47.5 billion and the Philippines $36.2 billion.
The $32.6 billion invested in PPP projects in Indonesia was divided between four sectors, with 52 percent going to telecommunications, 38 percent to energy, seven percent to transportation and three percent to water projects. Meanwhile, in Malaysia, 17 percent of PPP investment went to the telecommunications sector, 30 percent to energy, 32 percent to transportation and 21 percent to water projects.
Total PPP investment in East Asia over that period, excluding China, Terrier added, amounted to some $224 billion.
The government estimates that Indonesia will require total investment in infrastructure of $65 billion over the next five years, with the state providing $25 billion of this, the domestic financial system $14 billion, international financial firms $10 billion and private investors $16 billion.
In its effort to push the PPP agenda forward, the government has to date established a National Committee for the Acceleration of Infrastructure Provision (KKPPI), put key regulations in place for the granting of tax incentives and to ease land acquisition, established guarantee and land acquisition funds, and instituted financial sector reforms.
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