PUPR and Transportation Ministries propose PPP regulation revision
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 - PUPR dan Kemenhub usulkan revisi aturan KPBU
3 March 2023
By: Amrozi Amenan
Jakarta - Public Works and Housing (PUPR) Minister Basuki Hadimuljono and Transportation Minister Budi Karya Sumadi is proposing to revise the public-private partnership (PPP) infrastructure project financing regulation so that projects can be carried out immediately. They agree that the regulation makes it too long for a project’s preparation to reach financial close, so it must be revised.
“I noted that the process for a PPP project to reach financial close takes too long, up to one year. I have repeatedly stated that it takes too long. So, sometimes, we are frustrated as we do not know when the financial close will be achieved,” the Transportation Minister said at the Innovation Financing in Unity event that was held online on Wednesday (1/3/2023).
The Transportation Minister said that his agency was rebuked by President Joko Widodo (Jokowi) as one of the PPP projects took too long to be carried out.
“I was rebuked by the President. Why has the project not started yet? Sir, [the project] has not achieved financial close. I answered like that. Then, when [is the financial close]?” Budi said imitating Jokowi’s statement.
In the PPP scheme, there is a process before financial close, which is the facility provided by the Finance Ministry to help the PJPK prepare the feasibility study and the document tender. It also accompanies PJPKs in making PPP project transactions to achieve financial close.
“So, it is an introspection for us. The Finance Minister is usually heard. Please forward what I said about the process [of PPP projects],” the Transportation Minister said to Finance Minister Sri Mulyani who attended with PUPR Minister Basuki Hadimuljono.
The Transportation Minister said that the number of PPP projects in the Transportation Ministry is increasing. Until now, there are 17 PPP projects that consist of two projects in the air transportation sector, four projects in the sea transportation sector, nine projects in the land and urban transportation sector, and two projects in the railway sector.
The 17 projects include the constructions of Makassar-Parepare railway that spans 142 km with an investment value of US$67.89 million, Patimban Port worth US$1.98 billion, Anggrek Port worth US$71.49 million, vehicle roadworthiness testing and certification facility (BPLJSKB) with an investment value of US$119.22 million, and Kediri Airport by PT Gudang Garam Tbk with an investment value of US$600 million.
“Yes, we are only doing a few things. However, in the future, we will increase PPP projects in the transportation sector. We will utilise existing assets, such as terminals, stations, airports, ports, and other assets to be collaborated with investors so that the assets will be more productive and produce optimum benefits for the people,” the Transportation Minister said.
The Transportation Minister appreciates the Finance Minister and PT Penjaminan Infrastruktur Indonesia (PT PII) as the Finance Ministry’s special mission vehicle (SMV). PII has provided guarantees for three PPP projects in the transportation sector worth RP3.9 trillion. One of the projects is Makassar-Parepare railway project.
“When we were tasked by the Finance Minister to construct Makassar-Parepare railway. The funding was locked below Rp10 trillion, so we lacked Rp2 trillion,” Budi Karya said.
Due to the lack of funding, the Transportation Minister said that his agency with PT sarana Multi Infrastruktur (PT SMI) and PT PII must look for investors to construct the Makassar-Parepare railway route.
“With SMI and PII, we are looking for a partner where SMI and PII will provide a guarantee for domestic and foreign investors to cover the Rp12 trillion,” he said.
The Transportation Minister stated that the interest of business entities in participating in PPP projects is high, especially in transit-oriented development (TOD). Projects related with TOD has a high economic value, so they attract the private sector.
The Transportation Minister added that his agency will continue to boost creative financing in national transportation infrastructure construction through various cooperation schemes with domestic and foreign parties.
Non-state budget creative financing through the PPP scheme is continuously carried out to accelerate transportation facilities and infrastructure construction. Currently, there is still a significant gap between the transportation infrastructure investment requirement and the state budget’s funding capability. Based on the 2020-2024 National Medium-Term Development Plan (RPJMN), the requirement reaches Rp1,288 trillion, and there is still a gap with the state budget that can only cover around 40%-65% annually.
Accelerate the process
During the occasion, PUPR Minister Basuki Hadimuljono also said that the PPP regulation must be revised to accelerate project construction that uses the PPP scheme.
“How do we accelerate the process? There are some things that we can do,” Minister Basuki said.
First, the PPP regulation must be reviewed to accelerate the process, but it must still uphold caution.
“Maybe this is also related to the regulation. So, the guarantee provided can decrease the interest rate in the market. We must think about it together,” Minister Basuki said.
Next, the prequalification process and the request for proposal process must be merged, which is reckoned to shorten the process by several months.
“If it is linear, prequalification comes before request for proposal, which takes time. So, I agree with [Transportation Minister] Budi [who said that the process for a PPP project to achieve financial close is too long as it can reach one year],” he added.
Then, Basuki also suggests that an infrastructure project preparation does not need to use the state budget, but it can also be funded by a third party.
“Maybe [it can be funded] by a third party so that we do not have to wait for the state budget. These are several things that we can do to accelerate the PPP process,” Minister Basuki stated.
Meanwhile, Finance Minister Sri Mulyani appreciates the proposal of the Transportation Ministry and the PUPR Ministry to review the process of PPP projects to achieve financial close that is said to take too long.
“I think that what they said as users [of PPP] is great feedback. The process is too long. We will work together with users to handle the issues fairly, quickly, and prudently,” the Finance Minister said.
