Promoting economic growth through infrastructure development
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Investor Daily - Mendorong pertumbuhan ekonomi lewat Pembangunan infrastruktur
22 July 2024
By Arnoldus Kristianus
Jakarta, ID – Infrastructure development plays a vital role in promoting economic growth. In the 2020-2024 National Medium-term Development Plan (RPJMN), the government is aiming for an investment of Rp6,445 trillion for infrastructure development, necessitating the involvement of the private sector.
This year, the government forecasts economic growth reaching 5.2%. Meanwhile, the economic growth realisation in the first quarter of 2024 reached 5.1%.
The scheme that is expected to boost infrastructure development acceleration is public-private partnership (PPP). According to the data from the Finance Ministry, as of July 2024, there were 36 PPP projects signed, with an estimated investment value of Rp306.13 trillion.
“In preparing PPP projects, we can work together to convince the private sector to support government projects that are meant to serve the public,” Government Support and Infrastructure Financing Management Director of the Finance Ministry Brahmantio Isdijoso said in Semarang recently.
PPP is a long-term collaboration between the government and business entities to provide infrastructure. This arrangement involves transferring risks from the government to the business entities and offering incentives based on their performance. In a PPP, business entities are typically responsible for designing, financing, constructing, operating, and maintaining the infrastructure throughout the cooperation period. At the end of this period, the asset is handed back to the government.
In the 2020-2024 RPJMN, the government is aiming for an investment of Rp6,445 trillion for infrastructure development. From the target, the state budget (APBN) will only accommodate 37% or Rp2,385 trillion. Meanwhile, Rp1,353 trillion (21%) is forecasted to be provided by state-owned enterprises (SOEs) and regional state-owned enterprises (BUMDs) and Rp2,707 trillion (42%) by the private sector.
Brahmantio explained that the government consistently pursued infrastructure development using the PPP scheme. This development is carried out synergistically through collaboration with various relevant ministries and institutions. “So, in PPP, there is a joint office. The lead is Bappenas. The Finance Ministry is the deputy. We are continuously coordinating to see the current portfolio to see which can be boosted or accelerated,” Brahmantio explained.
Furthermore, financing for infrastructure development can be acquired with numerous schemes, not only PPP. Internationally, there are several financing schemes, namely blended financing, green financing, sustainable infrastructure financing, sharia financing, climate change fund, and financing from philanthropists. Besides that, the government also implements variations of infrastructure financing in the form of land value capture, limited management rights, and energy transition mechanism.
He said that these financing schemes were implemented so that, in the future, infrastructure financing could be more anticipative and not be affected by the funding availability in the public sector. “So, no matter the financial condition of the public sector, infrastructure will be continuously developed synergically through collaborations between the private sector and the government,” he stated.
Financing guarantor
Deputy Director III of PT Penjaminan Infrastruktur Indonesia (PII) Muhammad Ridho said that the implementation of the PPP scheme involved many parties, from ministries, institutions, to business players. Regarding this matter, PII acts as the financing guarantor for ongoing infrastructure projects. Therefore, there will be many parties that provide monitoring, reducing the possibility of fraud. “So, the fraud potential will be much smaller as many parties will provide monitoring,” Ridho added.
According to Finance Minister Regulation Number 260/2016, PPP agreements, regress agreements, and sustainability projects that receive a government guarantee must be monitored by a Joint Monitoring Committee (JMC).
Ridho stated that PII monitors project guarantees to mitigate risks. This is achieved through various activities, such as monitoring the implementation of risk mitigation by the person in charge of cooperation projects (PJPK), providing added value to the ecosystem, fostering a good reputation among stakeholders, and delivering early warnings to business entities, PJPKs, and stakeholders. “We delivery early warnings to business entities. If we see something that is not according to plan, we can inform related parties to carry out their obligations,” he said.
On the other hand, PT Sarana Multi Infrastruktur (SMI) Project Development Division Head Delano Dalo said that the PPP scheme would accelerate funding preparations for infrastructure development. This is because the scheme involves many partners and financing sources.
“These partners not only provide funding, but also experience. Experience is important as it will improve the benefits,” Delano said.
The PPP will facilitate knowledge transfer to all relevant stakeholders. Additionally, the implementation of the PPP scheme optimises blended finance governance, which is considered superior to conventional governance.
“This is because there are many stakeholders involved. In addition to public stakeholders, there are ministries, regional governments, and the private sector. With the involvement of public funds merged with private sector funds, there are many eyes overseeing the process,” he explained.
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