RI needs to set up infrastructure financing agency: Bappenas
The Jakarta Post, Jakarta
The country should start preparing for the establishment of an infrastructure financing agency to help boost private investments in the sector, which has largely been neglected, said a report released on Tuesday by the National Development Planning Board (Bappenas).
As constraints in the state budget will continue to limit the government's spending on infrastructure, the involvement of the private sector is a must, the report said. The report is part of a publication titled Indonesia's Infrastructure: Before, During and After the Crisis.
Private investment is the only means through which the country could expect to bridge the financing gap -- the margin between the real investment needs for the sector and the budget the government can afford to allocate -- according to Suyono Dikun, Bappenas deputy chairman and the author of the book.
The breadth of the gap should serve as further evidence of how badly the country's infrastructure sector needs private investment. Citing a Bappenas study, the report forecasted that in order to support an economic growth of between 5 percent to 7 percent during the 2004-2009 period, some Rp 613 trillion (US$72 billion) in investment would be needed.
The figures are a minimum estimate, as the study only covered investment for the construction of roads, power plants, fixed and mobile phone services, and irrigation and sanitation systems.
With an estimated government spending of Rp 346.5 trillion in the sector, the financing gap will be about Rp 266.5 trillion, which is expected to come from the private sector.
However, with the current adverse investment climate, "It's high time for Indonesia to start preparations to set up an infrastructure financing institution, as both lending provider and guarantor," Suyono said in the report.
The report recommended that Indonesia apply a recent scheme emerging in the international community. "It's called the Private Sector Infrastructure Development Facility (PSIDF)," he said, and that the scheme had been successful in significantly boosting private participation in many countries, including India and Pakistan.
The report confirms the dilapidated state of the nation's infrastructure. The World Bank only recently issued a similar assessment on the issue, saying that Indonesia lagged behind in almost all infrastructure sectors and had one of the poorest infrastructure networks in Asia.
Today, only 1.3 percent of Indonesia's 215 million-strong population have access to a sewage system, the lowest percentage in Asia, while only half of the households in the world's fourth largest country has electricity. By comparison, households with direct access to electricity in the Philippines, Thailand, China and Vietnam reach 80 percent, 82 percent, 98.6 percent and 75.8 percent, respectively.
Roads in and around major cities are heavily congested throughout the day, indicating a lack of road infrastructure and city planning.
Elsewhere, Suyono said that, as a lending provider, the PSIDF was expected to have the capacity to provide complementary lending instruments such as subordinate debts, convertible loans and contingent loans.
"Instruments like these would be beneficial in luring private participation."
More importantly, however, is the institution's function as a guarantor in infrastructure projects, the report pointed out. "Not only do the loans carry reasonable fees, international experience shows that the PSIDF can also extend the loans' repayment period as investors become more certain about their investments."