Wed, 12 May 2010

From: The Jakarta Globe

By Irvan Tisnabudi& Dion Bisara
State-owned PT Penjaminan Infrastructure Indonesia, which protects infrastructure investors against losses caused by bad policy, can guarantee up to Rp 26 trillion ($2.9 billion) of projects after it secured $500 million of support from the World Bank on Tuesday.

The government injected Rp 1 trillion of initial capital into PII in January but the company needed further financial backing from international financial agencies.

The World Bank on Tuesday announced a commitment to guarantee up to $500 million worth of projects supported by the company.

Joachim von Amsberg, the World Bank’s country director for Indonesia, said that PII would fill the “key puzzle piece for infrastructure development in Indonesia.”

PII will compensate infrastructure investors who lose out because of problems such as abortive land acquisitions, unfavorable changes in the law or government failure to prevent illegal activity.

“The World Bank has provided technical support for the development of the PII for better infrastructure in the nation and now we will provide financial support for the development of the nation’s infrastructure,” von Amsberg said.

He added that PII would determine if an investor was worthy of receiving such support and the World Bank would then provide the guarantee.

“With the establishment of PII, the management of infrastructure projects will be undertaken in a more transparent, consistent and credible process, so it will improve the creditworthiness of the projects and government contingent liabilities on guarantee provisions,” Finance Minister Sri Mulyani Indrawati said.

Sinthya Roesly, president director of PII, said: “With [guarantees] we could cover risk exposure up to five times [of the $500 million] to $2.5 billion, or around Rp 25 trillion, plus our initial capital from the government of Rp 1 trillion.”

She said that investors could drive down commercial bank loan interest rates by up to 150 basis points if they could prove that their projects were guaranteed by PII.

“The guarantee from the World Bank can usually bring down loan interest between 200 bps and 500 bps. We are confident that with this fund, we can decrease it at least by 150 bps,” Sinthya said.

She said that there were three projects likely to get guarantees from PII: a Rp 300 billion steam power plant in Central Java, the Soekarno-Hatta International Airport railway and a waste energy management project in West Java.

PII will also act as a “single window” for the government in appraising projects, structuring guarantees and processing claims,” she said.

“All guarantees for projects from the government, state-owned enterprises and public-private partnerships will go through us,” Sinthya said.

According to a press release from the Ministry of Finance on Tuesday, Indonesia needs nearly Rp 1,429 trillion ($157 billion) in investment every year to revamp ailing infrastructure over the next five years.

However, the government is only able to finance about Rp 511 trillion, prompting it to turn to the private sector.