Roads that link Indonesians: A new partnership

Roads that link Indonesians: A new partnership

"I speak of 'new partnership' as a concept that underscores my
personal commitment and my Government's determination to promote
a strong environment for business and entrepreneurship in
Indonesia..", declared President of the Republic of Indonesia,
Susilo Bambang Yudhoyono to the delegates gathered for the first
national summit on infrastructure development and public private
partnerships, held Jan. 17-18, 2005 in Jakarta, Indonesia.

Infrastructure is essential if Indonesia is to be able to
generate the kind of growth to create jobs and reduce poverty for
millions of poor Indonesians...and yet it is more than that -- it
is creating roads that not only link factories to markets but
that can also take doctors and teachers to remote villages.

It is providing electricity that can not only power companies
to generate much-needed employment and revenues but that will
also bring lights to schoolchildren and parents so that their
days are not dictated by the rising and falling of the sun. It is
creating telecommunications links that will help people
communicate not just with each other but with other nations and
neighbors; it is providing clean water so that communicable
diseases do not strike down children and prevent them from
leading productive, fulfilling lives. Infrastructure is one of
the key challenges of our generation and we must all work
together to ensure that we are able to build and invest today for
tomorrow's generations.

These sentiments were echoed by the more than 700 delegates
from government, private sector, development partners, civil
society, and the media, who gathered in Jakarta for two days to
discuss the crucial role infrastructure plays in promoting
economic growth and reducing poverty.

The Government of Indonesia, along with its partners in
development, including the private sector, affirmed its
commitment to improving infrastructure services and the
investment climate, and reiterated its determination to expand
the coverage and quality of infrastructure to the 35 million poor
who suffer the most from the lack of it. Ensuring equity by
narrowing the gap between urban and rural areas' infrastructure
provision, and the service imbalance between the eastern and
western regions of the country will be equally important, the
Government vowed.

Delegates were unanimous in their agreement that investment in
infrastructure must increase if Indonesia is both to achieve the
6-8 percent growth target and meet its ambitious goals of halving
poverty by 2015.

For a country of Indonesia's stature, the Government asserted,
the quality of infrastructure services was poor and needs
immediate attention from the public sector and private sector
alike. While the challenges are enormous, the Government felt
confident that needs could be met, but only if the public and
private sectors come together now in a strengthened partnership
and reaffirm their commitment to work together to address the
obstacles to infrastructure provision.

To this end, the Government underscored their commitment to
implementing the necessary reforms that will boost the private
sector's involvement in infrastructure in Indonesia -- including
reforms to level the playing field and improve the regulatory
frameworks and create a climate of predictability. The private
sector pledged to behave responsibly, operate transparently, and
use their knowledge and expertise to improve the quality of
infrastructure investment in Indonesia.

Delegates from 22 countries representing key industries
involved in infrastructure development came together for two days
of intense discussion with Government and other stakeholders. The
Summit was organized by the Coordinating Ministry for Economic
Affairs, BAPPENAS, and KADIN, and was addressed by President
Susilo Bambang Yudhoyono, the Vice President Jusuf Kalla, 10
Government ministers and official delegates from all key
investing countries.

Timed to coincide with the first 100 days of the new
administration, the Summit was held to discuss strategies and
policies to improve infrastructure provision and services for the
public, to prioritize reforms to facilitate infrastructure
development, to demonstrate the government's increased commitment
to create a healthy environment for public private partnerships,
and to communicate the Government's strategy and launch their
short-term initiatives and future plans for infrastructure
service delivery. The critical role that infrastructure will play
in the reconstruction of Aceh following the tsunami emerged as a
key theme of the conference.

Indonesia's Vision for Infrastructure Development

For Indonesia to reach a 6-8 percent medium-term growth
target, the Government asserted, infrastructure investments of
US$30 billion annually are required. The Government committed to
spending around 20 percent from their own budget, but needs the
international and domestic private sector to fill the gap. The
time has come for all of us, the Government asserted, to work
together, to form new, strengthened partnerships and bridge this
funding gap, so that the high quality infrastructure services can
be provided to the people of Indonesia, and the private sector
can have an increasingly important role to play in offering
investment, expertise, fostering competition, and improving
competition.

The Government announced that it is fully committed to
reinvigorating infrastructure investment and quality with a new
operating and governance environment. Government ministers
representing all of the major sectors recognized the clear
impediments to infrastructure growth and laid out a three pronged
approach designed to tackle these issues comprehensively.

o First, tire Government will focus its own resources
increasingly or sectors which are not commercially viable or will
not attract private investment

o Second, the Government will focus on sectoral reforms that
will ensure a continually larger portion of infrastructure
services are commercially viable and allow sustainable private
sector participation in infrastructure investment and provision.

o Third, more immediately, the Government will enact programs
to support greater private sector involvement in infrastructure
investment and provision through creating and maintaining public-
private partnerships in infrastructure services and by removing
all bureaucratic bottlenecks which currently inhibit private
sector involvement.

To demonstrate their resolve, the Government has moved
aggressively in recent weeks to issue a number of regulations
designed to ease restrictions and pave the way for greater
private sector participation in infrastructure investment. These
include actions to pass regulations on toll roads, vehicles and
drivers inspections, and new licensing and safety procedures; new
regulations on development of the water supply system; new law on
land acquisition; interim regulations on the provision and
utilization of electricity; actions to expand railway
infrastructure; and new regulations on water-related
transportation, ports, and aviation safety, security and
airports.

Removing Bureaucratic Hurdles for Private Investment

Given that many of these reforms proposed by Government will
take some time to implement, the Government has outlined a number
of immediate policy actions which they will take over the next
six month period in order to move swiftly to ease some of tile
obstacles which limit great private sector involvement and
provide greater clarity, security, and comfort to investors in
the near-term.

1. All contractual commitments made by the Government of
Indonesia to the private sector will be honored.

2. Develop clearly articulated strategies and sectoral plans
for enabling private investment -- especially for power, roads
and water. This will give private investors the clarity and
certainty they need to manage risks in their investments.

3. Invite investors to participate in upcoming fast-track
infrastructure investments -- these 91 projects worth up to $22
billion have been carefully selected, are critically important
for the economy and allow investors to make an adequate return.
These transactions will be managed by a senior-level government
committee that will ensure an efficient, fair, transparent, and
rapid selection of suitable investors.

4. Interim regulation that addresses the issue of private
participation in the electricity sector in order to address the
annulment of the previous law has been issued. This will be a
transition measure until a more comprehensive law is passed.

5. Issue a regulation that will serve as the basis for private
participation on the ports sector, and eliminate the conflict of
interest of PELINDO as operator and regulator, which discourages
private investments.

6. Committed to revise law 36/1999 for Telecommunication, to
strengthen the legal basis for independent regulation.

6. Develop a pragmatic and effective risk management framework
for private investments in infrastructure. This framework will
include a clear policy on public support for private investments
in infrastructure. The Government will consider providing credit
enhancements addressing specific policy-based and Government
performance risks after taking into account the contingent
liabilities that such enhancements imply and their fiscal impact.
The government will also explore market-based credit enhancements
that may be available -- including those from multilateral
agencies.

8. Develop local financial and capital markets for
infrastructure financing and risk management. As a further step
to mitigate risks for private investments in infrastructure and
to mobilize long-term domestic resources for infrastructure, the
Government will focus on developing local financial and capital
markets. Reforms will be undertaken aimed at enabling insurance
firms, pension funds, and capital markets to finance
infrastructure, development of debt markets, and establishing new
institutional investors such as infrastructure funds to pool
resources.

9. Revise and issue KEPPRES 7, originally issued to establish
some basic 'rules of the game' for private participation in
infrastructure but found inadequate in its application, hence the
need for immediate revision.

10. Develop an action plan for independent tariff setting
mechanisms for power and toll roads, recognizing that tariffs
should rely on competition wherever possible and should be
regulated for all monopolistic segments of infrastructure. In
order to convey greater income certainty to investors, the
Government will commit to greater policy predictability, with a
transfer of pricing responsibilities to independent regulatory
agencies, as per agreed and tendered contracts.

11. Strengthen regulatory agencies by providing budget and
staff to give them a high degree of autonomy and transparency and
also to provide them with adequate human and financial resources
to undertake their functions.

Forging a New Era of Partnership in Indonesia

The international community, including bilateral donors and
the major development banks commended the Government's
determination and commitment to accelerate ongoing policy reform
in key sectors to foster a new generation of infrastructure
development in Indonesia -- one in which the private sector will
be an integral and long term partner. Together they are expected
to contribute between $10-15 billion to support infrastructure
development over the next five years.

Delegates applauded the Government's announcement of
immediate steps to systematically remove bureaucratic hurdles to
ensure smooth private sector participation. The World Bank and
the Asian Development Bank announced their readiness to catalyze
private investment and provide between $3-4 billion for
infrastructure development in the next three years.

As an immediate follow-up of the summit, Japan will announce
in the upcoming CGI meeting the commitment of approximately $1
billion for infrastructure development for the year 2005, and
Japan will continue to play a major role in the coming years.
Similarly, European and other countries expressed strong support
for the government's program.

The private sector representatives enthusiastically endorsed
the Government's vision for infrastructure development and
especially welcomed the Government's determination to make
private sector a trusted and long term partner. The private
sector investors agreed that this partnership with Government was
the key to sustainable infrastructure development in Indonesia,
and one which they committed to operate with transparency,
predictability, openness, and through fair competition.

Private sector delegates confirmed strong interest in
participating in all 91 key infrastructure projects announced by
the Government during the Summit. Numerous private companies
announced plans to open offices in Indonesia to develop and
expand their operations here. They shared their hope that these
projects are just the first phase of a broader spectrum of
projects in every sector that they are eager to participate in
the years ahead.

The article is the complete text of the Jakarta Infrastructure
Summit, 2005 Declaration of Action on Developing Infrastructure
and Public Private Partnerships, on Jan. 17-18, 2005, in Jakarta.