To attract manufacturing and services investment immediately

To attract manufacturing and services investment immediately
into the country..., Indonesia clearly needs good infrastructure
to re-kickstart foreign direct and domestic investment.

;JP;
ANPAk..r..

Public-Private Partnerships (PPPs) in the region: Four
JP/6/ERIC

Public-Private Partnerships (PPPs) in the region: Four
rationales, four challenges

Eric Teo Chu Cheow
Singapore

Indonesia achieved an important scoop in organizing the
Infrastructure Summit last week, when more than 600
infrastructure bigwigs and local entrepreneurs assembled in
Jakarta to hear of a "new partnership" in infrastructure
investments, which was proclaimed by President Susilo Bambang
Yudhoyono.

Public-Private Partnerships or PPPs in infrastructure are a
means of "farming out" public sector goods and services to the
private sector to design, build and operate for a specific period
of time (normally 25 to 30 years); different from outright
privatization, PPPs do not involve the state selling the public
assets to private companies, but "leasing" them to the private
sector to deliver public services more efficiently, according to
their best practices in technology, finance and management.

At the Jakarta Infrastructure Summit, it was hoped that the
private sector would massively invest in Indonesia's
infrastructure through the PPP scheme; the government would need
some US$145 billion for infrastructure development in the next
five years.

The first tranche offered consisted of 91 projects worth
$22,5 billion, whereas another Summit in November could release
another $57.5 billion of projects. In fact, the government hopes
to get the private sector financially committed to two-thirds of
the country's infrastructure investment needs (for at least $80
billion), leaving depleting public coffers and local financial
institutions to support the remaining one-third ($30 billion).
Key sectors identified would include power, water and sanitation,
oil and gas facilities, information technology, transport and
logistics (highways, ports and airports).

Indonesia is in dire need to develop and improve its
infrastructure, after years of wanton neglect and political
uncertainties. To attract manufacturing and services investments
urgently into the country (so as to tap its vast natural
resources for growth and development), Indonesia clearly needs
good infrastructure to 're-kick-start' foreign direct investment
(FDI) and local investments.

In fact, Java is facing severe brown-outs, as electricity
production capacity is currently seriously strained; unclean
water and ineffective sanitation threaten big cities such as
Jakarta or Surabaya, whereas IT limitations could "cringe" future
FDIs.

Good infrastructure is the key to development and growth.

Decentralization in Indonesia could however provide both a
boon and formidable challenge to PPPs, as local governments and
bupati lack both the financial resources and technical expertise
to provide basic infrastructure and public services to the
people. But to facilitate FDI flows and the massive
participation in the private sector, the Government must set a
clear, transparent and credible framework for PPPs to be
implemented at both the central and local levels; the bureaucracy
at central and local levels must be equally trained to handle
PPPs honestly. Indonesia's financial plight and huge budget
deficit are therefore at the core of its decision to turn to PPPs
in infrastructure, but its biggest challenge is in its sound
implementation.

But in the region, Singapore, Malaysia and Brunei are also
warming up to the PPP approach, although their goals and
rationale differ. Indonesia should take cognizance of such
regional developments and appreciate their challenges as well,
whilst implementing its own infrastructure PPP scheme.

Singapore launched into Public-Private Partnerships (or PPPs)
in a big way when the government announced in early October a
$1.3 billion package of projects to be "farmed out" to the
private sector over the next three to five years. The rationale
and goal of the government is to use these PPPs to accompany its
creative and entrepreneurial drive in the Republic, thus re-
kindling the Singaporean private sector.

Under the Singapore government's PPP scheme, public sector
non-core projects worth more than $50 million could be out-
sourced to the private sector to operate and maintain for as long
as thirty years. Six big projects have since been identified and
open tenders would be awarded this year; but in fact, Singapore's
first sea-water desalination project was already awarded earlier
to home-grown environmental company, Hyflux, and Keppel
Engineering clinched the first of four new water plants, both
under the PPP in infrastructure scheme too.

Malaysia's interest in PPPs presents another political and
economic dimension. Prime Minister Abdullah Badawi has pledged
to "put some order back" into the private sector, after charges
of cronyism had plagued the last Administration. As part of his
electoral pledge, Abdullah Badawi has also stressed the
importance of making Malaysia's "delivery system" more efficient
and people-friendly. These two political reasons would therefore
form the basis of Malaysia's current interest in PPPs; unlike
Indonesia's financial and technical reasons, Malaysia's
attraction for PPPs appears therefore to be more politically and
socially motivated.

A report on privatization was commissioned by the National
Economic Action Council (or NEAC) last year to re-examine and re-
evaluate Malaysia's privatization process thus far and recommend
measures to improve the present system, especially in corporate
governance and what is deemed a failure of its public goods and
services delivery system.

The balance between financial viability, efficiency and social
benefits is being stressed, especially when the Abdullah
Administration has to deliver on its electoral promises of
cleaning up corporate governance in Malaysia, opening up huge
infrastructure tenders publicly and transparently, and
drastically cutting down wastes, inefficiencies and moral hazards
in both the public and private sectors.

Brunei's greatest problem in adopting PPPs would come from the
dearth of its private sector and its growing fears that the
economy is being kept turning, only thanks to some 70,000 migrant
Indian, Filipino and Indonesian workers, whereas some 8,000
Bruneians are "voluntarily" unemployed.

PPPs in the region's four economies present different
rationales, goals and challenges. Singapore's PPPs stress the
socio-economic imperative of outsourcing to the private sector,
whereas Indonesia needs PPPs for financial and technical reasons.
On the other hand, Malaysia has a politico-social imperative of
corporate governance and efficient "delivery systems", whereas
Brunei's dilemma is undoubtedly social, dovetailing PPPs into its
diversification and employment policies. PPPs in infrastructure
are hence set to affect regional economies in diverse ways, but
challenges remain enormous for their successful implementation in
Southeast Asia.

Dr Eric Teo Chu Cheow, a business consultant and strategist,
is Council Secretary of the Singapore Institute for International
Affairs (SIIA).