Public Private Partnership in Indonesia

One of the elements in the development of the economy is where the government and private sector jointly work together to achieve public prosperity. Initiatives to join as a team between government and private sector can be defined as Public Private Partnerships (PPP). In other words, A PPP infrastructure project involves both the public and private sector. Government of Indonesia (GOI) targeted growth of 7% for the economy field, and PPPs is expected can be an important tool to achieve the goal, specifically in the improvement of the Indonesia’s Infrastructure which in some areas is considered sorely lacking. The further improvement of infrastructure may contributed significantly to the economic growth of the country and resulted to greater economic success in the future as it will creates more job opportunities and increase the domestic consumption.

Recently, the government has set the development plan which includes time frame and investment rate of the infrastructure projects in Indonesia for the year 2010 – 2014. The infrastructure investment is aimed to meet the basic needs and improve the competitiveness of Indonesian products. Government encourages the participation of the private sector to inject greater efficiency in the projects and related services. Under the Public Private Partnerships Infrastructure Project Plans 2010 – 2014, Indonesia Infrastructure financing requirement is Rp. 1,429 trillion (about USD 140 billion). Meanwhile, government funding capacity is only about one-third of that amount. Therefore, the remaining 69% or Rp. 978 trillion is expected to be covered by the private sector through PPP.

Realizing the importance to cover the financing gap, Central Government through Presidential Regulation No. 67 of 2005 which further revised by the New Presidential Regulation No. 13 of 2010 to regulate the Infrastructure Development process through PPP. Aside from the President Regulation, Government has also established several element of legal foundation for its PPP projects to promote investment in infrastructure, including laws for specific business sectors (Railway, Shipping, Waste Management, Aviation, Mineral and Coal Mining, Land Transportation and Electricity); establishment of the Indonesia Infrastructure Financing Facility (IIFF) and the Indonesian Infrastructure Guarantee Fund (PT Penjaminan Infrastruktur Indonesia (Persero) or “IIGF”), the IIGF is established and mandated by Ministry of Finance to provide guarantees for PPP infrastructure projects; the establishment of Project Development Facility under supervision of Bappenas; and also the issuance of a PPP Book for the period 2010 – 2014 that contains highlight of PPP preparation and also to attract prospective investors.

Despite the Government has decorated PPP with a captivating insurance, in various cases of infrastructure projects, there are some uncertainties remain in the evolving regulatory framework for the projects. According to Minister of Finance, Agus Martowardjojo, the infrastructure projects under the PPP scheme have not run well as expected. One example of the project with a good progress is Central Java Power Plant, but the other developments have been very slow. In the PPP Infrastructure Projects Plan in Indonesia, there are 33 Project that were in PPP Book 2010 – 2014 eliminated due to lack of progress made by the Contracting Agency. After 2005, there are eleven projects under PPP scheme that mostly in status of delay. There are only five PPP Projects which has been offered in 2011, which are Tanah Ampo Cruise Terminal Bali, Medan to Kualanamu Toll Road North Sumatra, Soekarno-Hatta International Airport Railway Jakarta, Umbulan Spring Water East Java. There are some arguments that considered as the reasons of the projects’ delay such as insufficient policy framework, negotiation process that takes more than two year long lasting period of time, but land acquisition issue remains a fundamental problem of the projects under PPP scheme.

The process of acquiring land for the sake of infrastructure projects is, however, not an easy process. The lack of clear regulation set in regard of acquiring land for public use and the provision of land compensation to the owner caused the projects’ delay from its being realized. There are numerous government bodies that needed to be consulted with and also a long history for acquiring an informal land ownership that gives rise to any number of individuals to claim the rights of the land. The coordination between ministries also cause the delay of the project, i.e., the “land in question” requires the approval from Ministry of Religious Affairs to make sure that the land is not been used as religious purposes, however Ministry of Forest also regulate that the land should it contravene laws on protected forest. The coordination of various ministries, local and central government and also public resistance has delayed various cases of infrastructure projects for more than 5 years. This condition addressed the need to resolve the problem arose within land acquisition. The long bureaucracy of acquiring public land for infrastructure is actually has been cut through Presidential Delivery Unit in 2009.  Despite this regulation, another problem that related to land compensation may rise. The land owner is trying to hold on their land as long as possible to appreciate the value of the land while the project progresses. And, this led to the unexpected land cost escalation. These conditions addressed the needs to eliminate all constraints in development of infrastructure, particularly the unfriendly regulations.