||Asean Affairs 27 June 2013
Govt told to properly prepare projects to attract investors
Indonesia:While endorsing the viability gap funding (VGF) scheme, the Asian Development Bank (ADB) has told the government to prepare infrastructure projects more carefully to attract private investors.
ADB country director Jon Lindborg said public private partnership (PPP) projects need to be designed properly to win financial support.
“One needs to be selective in developing projects through PPP. Projects need to be well-structured and bankable,” Lindborg said at the Future Transport Asia 2013 conference on Tuesday.
Former finance minister Agus Martowardojo’s VGF scheme provides financing through a maximum of 40 percent grants for public-private partnerships to make them more commercially viable.
Conference chairman Chua Wee Phong said in his opening address, that so far in 2013 the government had suggested 17 PPP valued at US$ 10.63 billion, with many now under construction.
Infrastructure development is part of the Masterplan for the Acceleration and Expansion of Indonesian Economic Growth (MP3EI).
Aside from funding issues, other obstacles such as land acquisitions and high logistics costs need government attention.
“It is important to reduce the cost of logistics. Indonesia has a high logistic cost, about 15 percent of sales, revenues, are based on the cost of logistics. Compare that to 5 percent in Japan and 6-7 percent in the US,” said Lindborg.
The government expects that 51 percent of around $470 billion needed in infrastructure investment before 2025 will come from private sources. Lindborg believes that 51 percent is a hard target to hit.
“If you look at the developed markets, whether it’s Australia, UK, at the height of the private finance initiative in the UK, I think they had 16 percent of infrastructure through PPP,” he said.
Despite the obstacles, Lindborg is optimistic about public-private partnerships believing most of the pieces are in place, with VGF an important component.
Deputy Public Works Minister Hermanto Dardak believes the government will try to increase support for MP3EI, especially through VGF incentives.
“We have to push forward. We have the VGF. We have a new law on land acquisition. Now is up to consistent implementation of them,” said Dardak.
The Solo-Kertosono toll road project is cited as a perfect example: 30 percent was government funded while the rest came from private investors.
Another project under the scheme is a toll road to link the newly built Kuala Namu International Airport in North Sumatra with the provincial capital, due to become operational by August.
At the end of his speech, Lindborg called on investors to remember yet another PPP: presence, persistence and patience.
“For those who are new, I remind you of another PPP: Presence, you need to understand the unique
business climate in Indonesia. It’s not easy. The decentralization efforts by the government can make the local level messy. You need to be here to understand the market,” he said.
“Persistence: Many projects here take a long time, you have to invest that time and effort to understand the dynamics. And of course patience,” he added.