Enhancing projects’ bankability under Indonesia’s PPP regime

Indonesia is attracting private investment to deal with a chronic infrastructure shortage. The nation is estimated to need about US$400 billion in infrastructure financing, for which the government could only provide 63%, leaving the private sector to fill the gap. In recent years, Indonesia’s government has made efforts to enhance the bankability of public-private partnership (PPP) projects through fiscal and non-fiscal instruments.

PPP-based infrastructure projects in Indonesia are unique in that the project company is eligible for a number of government support initiatives otherwise unavailable to projects undertaken under other schemes. This article lists the tools and measures at the government’s disposal to offer investors an enhancement of a PPP project’s bankability based on existing regulations.

Presidential regulation No. 38 (2015) allows payment mechanisms for PPP projects in the form of: (1) tariff payment; (2) availability payment; and (3) other legally compliant mechanisms to enable returns on investment. The base tariff rate is set based on an investor being able to obtain return on investment, taking into account capital expenditure, operational expenditure and profit margin. Where such base tariff is deemed too high for end users, the government contracting agency may offer viability gap funding.

ABDUL HARIS RUM is a partner at Lubis Ganie Surowidjojo and INDRA PAMBUDY is an associate at the firm.