RI to reveal roadmap in Infrastructure Summit

Head of the Government's Special Infrastructure Team Raden Pardede spoke with The Jakarta Post's Rendi A. Witular about the two-day Infrastructure Summit, which will start on Monday.

Questions: What does the government expect from the summit?

Answer: The event should be a turning point for the government to be more focused on developing the country's much-needed infrastructure, as the sector has been neglected for many years, especially so since the financial crisis in 1998.

Nearly all of facilities are now insufficient to support business, given the fact of low investment expenditure in the sector by the government and the private sector.

If we don't immediately settle the problems, it will exacerbate our overall investment climate, which is already poor, and increase the country's burden to fund the infrastructure projects as the problems will pile up and get harder to solve.

All types of infrastructure will be improved gradually in the next five years, but the most expensive will be the construction of roads, electric lines and gas pipelines. This will become the government's short-term priority.

President Susilo Bambang Yudhoyono has repeatedly conveyed to leaders of foreign countries that for the next five years the government would make the infrastructure sector and the agricultural sector high priorities to help drive the country's economic growth and absorb employment.

During the summit, the government will present the roadmap for developing the infrastructure, and disclose its plan to issue new regulations to help eliminate barriers that are unattractive to private sector investors (domestic and foreign).

The government is expecting investors to give their input regarding the various regulations, as well as to suggest ways to improve legal certainty when making contracts for infrastructure projects. We will also come up with the summary of the projects, which will be offered to investors directly during the summit.

How does the government plan to improve investor confidence so private firms are eager to get involved in the projects?

We cannot raise the confidence just with words. Confidence can be measured if the projects can run smoothly and can be completed on time. We are planning to set up a number of projects as a pilot project in the short term, so that all investors can judge how the government is doing in facilitating them and protecting their business.

In the pilot project, first of all, we will ensure that the tender process for the projects is transparent and fair for all players; the private companies and state enterprises. We must give them equal treatment and even playing fields.

Second, we must prevent brokers or companies linked with state officials or politicians from winning the tenders as was regularly done in the past.

Third, the government must keep its words in providing all the promised facilities to the investors, including promises to issue regulations in ensuring earnings from the project and certainty in land acquisition.

Numerous infrastructure projects in the country have run aground due to land-related problems, with investors often facing widespread protests and rejections from landowners due to unclear regulations.

We should start from a few projects to ensure that we can do it properly. This is important to gain the confidence of other investors in the future to get involved in the infrastructure projects.

How does the government expect the private sector to finance the infrastructure projects?

It is estimated that the government will need up to Rp 1.3 quadrillion (US$130 billion) to finance infrastructure-related projects for the next five years. About Rp 556 trillion of the funds are to be provided domestically, while the remaining Rp 744 trillion will be from foreign funds in the form of direct investment or loans from donor countries and agencies.

Of the total however, state coffers will only contribute about 20 percent, meaning that private participation is the key to the success of the ambitious plans.

Aside from inviting investors, we are also seeking participation of the public through a number of capital market instruments such as bonds and stocks issued by companies involved.

Investors need to issue securities papers to ensure their long-term financing for the project, since the break-even point for such business may span to between 10 years and 15 years. The institutions that should have the ability to purchase the papers are pension funds and insurance firms because their investment portfolio is of a long-term nature.

At present, managed funds in local pension funds and insurance firms are still small, reaching some Rp 100 trillion or 5 percent of the gross domestic products (GDP). This is still insufficient to help finance the projects. The funds should amount to at least 70 percent of our GDP to sufficiently fund the projects.

In order to achieve that, the government is planning to reform the sectors and also the whole capital market industry to comply with the government's policy in helping to boost the capacity of the country's infrastructure.