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N

NCICD
DFUN
NDING
GSTRA
ATEG
GY
|TECHNICCALREPORTT|

PMUASSISTANCCE|NATIO
ONALCAPITALINTEG
GRATEDCO
OASTALDEVELOPME
E
ENT
DRAFT|29AU
UGUST2014

Document Titel | PMU Asssistance | Nation


nal Capital Integrated Coastall Development
Draft Septe
ember 2014

COORDINATINGGMINISTRYFORECONOMICAFFAAIRS|MINISTRYOFPUBLICWORRKS|
NAATIONALDEVELOPPMENTPLANNIN
NGAGENCY|SPECIALCAPITALREGIONOFJAKAR
RTA|
GOVERNMENTOF
O
THENETHERLANDS |

Documenttitlee NCICDFUN
NDINGSTRATTEGY

Statuss Draft
Datee 29August2014
Projectt PMUAssisstance|Natio
onalCapitalInttegratedCoasstalDevelopment
P
Projectnumberr TX2921001100
Referencee

Author(s)) LouisBraam
m
P
Projectmanagerr A.SannenMSc(RoyalHasskoningDHV)
Datee Septemberr2014
Authorisation
n M.vanElsw
wijkMSc(RoyallHaskoningDHV
V)
Datee Septemberr2014
Initialss

Document Titel | PMU Asssistance | Nation


nal Capital Integrated Coastall Development
Draft Septe
ember 2014

Document Titel | PMU Asssistance | Nation


nal Capital Integrated Coastall Development
Draft Septe
ember 2014

Conten
nts
1

In
ntroduction .............................................................................................................................5

N
NCICDFundin
ngRequirem
ments..................................................................................................6
2.1 NCICD
N
investm
ment program
m ..................................................................................... 6
2.2 Funding requiirements to p
provide Wate
er / Flood Sa
afety .................................................. 7

2
2.2.1

Fundingrequireementsofsta
ageAandPrreConditionss................................................7

2
2.2.2

Fundingrequireementsofsta
ageB................................................................................8

2
2.2.3

InteegratedDeveelopment............................................................................................9

D
Developingth
heNCICDFundingAppro
oach...............................................................................12
3.1 Economic and
d Financial An
nalysis of NC
CICD ................................................................. 12
erences and Budget / Debt limitation
ns .................................................... 14
3.2 Political Prefe
d market con
ntext ................................................................ 14
3.3 Private sectorr interest and
t implemen
nt flood safetty .................................................................... 16
3.4 Critical path to
3.5 Guiding
G
princiiples for the NCICD fundiing strategy ........................................................ 16

FFundingStrattegy.....................................................................................................................17
4.1 Funding of Sta
age A ............................................................................................... 17
ages B(C) ........................................................................................... 18
4.2 Funding of sta

4
4.2.1

OpttimizedPubliicFundingoffNCICDsafetycomponen
nts...........................................18

4
4.2.2

PrivvatefundingoptionsofN
NCICDcompo
onents.........................................................20

4
4.2.3

Refeerencecalcu
ulationofsta
ageBfinancin
ngundertheeDevelopmeentCompanyy.......23

4.3 The
T Funding o
of Operation and Mainten
nance ............................................................... 25

C
ConclusionsaandRecomm
mendations.......................................................................................27
5.1 Comparison of the two fun
nding strateggies.................................................................. 27
R
tion and nexxt steps ............................................................................. 28
5.2 Recommenda

ANNEX1
1

ANALYSIISOFFUNDIN
NGSOURCESS....................................................................................31

ANNEX2
2 FISCALIM
MPACTCOM
MPARISON.........................................................................................34

Document Titel | PMU Asssistance | Nation


nal Capital Integrated Coastall Development
Draft Septe
ember 2014

INTRODUCTION

One of Indonesias constraints in infrastruccture develo


opment is fu
unding. Ind
donesias infrastructure
spendinggforthepastttenyearsissconsideredtobelow,around3%offGDPwhilettheneedisaabout7.5%.
Muchof theneededinfrastructu
uredevelopm
mentisnew (greenfield) andrequiresheavyupfrrontcapital
nstructionwo
ork.
tounderrtakethecon

biggestgreen
nfieldinfrasttructureprojectsinIndon
nesia.Witheestimatedco
ostsranging
NCICDisamongtheb
n (cost of fllood safety measures o
only), US$ 22,4 billion (including the required
from USS$ 6.4 billion
investmeentinPreCo
onditions:WSSSandPiped
dWaterSupply)evenup
ptoUS$37.6
6billionwhenincluding
additionaal investmen
nts in transp
port infrastru
ucture and land reclamations, it neeeds a specific funding
strategythatwouldffulfiltheachiievementofNCICDtargettsandperforrmance.

Theimpllementation oftheNCICDprogramccreateslarge fundingrequirementsoveralongtimeperiod.


Effectivefundingarraangementsm
mustbeput inplacetoeensureatimelyandsustainabledelivveryonthe
d environmental objectivves and to foster its laarge socioeeconomic deevelopment
projectss safety and
potential. Hereafter the fundingg requiremen
nts and the approachess the GOI caan choose to
owards the
oftheintegraatedcompon
nentsandsubsequentstaagesoftheN
NCICDprograamareelaborated.
fundingo

ortdoesnot standaloneebutshould bereadinrrelationtoth


heMasterPllanandotheertechnical
Therepo
Reportsaandbackgrou
unddocumeentsprepared
dbythePMU
Uconsultant(seetable1)).
Table1

PMUReportStructture

MainRepo
ort

NCICDDeliveryStrategy
1. N
2. Implementation
nPlan(withMP
Pconsultant)
TechnicalR
Reports

onofNCICD
1. TTheOrganizatio
2. N
NCICDLegalBassis(includingdrraftPERPU,drafftPERPRES
ffortheacceptan
nceofthemastterPlan,anddraaftPERPRES
ffortheestablish
hmentoftheAu
uthority)
3. N
NCICDFundingStrategy
4. P
PPPRoadmapandprocuremen
ntstrategy
5. FFinancingModeelandBusinesscases
6. K
KCDstrategy
7. C
Communication
nStrategy
8. A
AssetManagem
mentStrategy

Backgroundd
documents
1.
2.
3.
4.
5.
6.
7.
8.
9.

Intern
nationalbestprractices
Indon
nesianbestpracctices(institutio
onally)
Reportpremarketssounding
PPPccaseMaasvlaktee2
PMUAssistanceThin
nktankreport
Learn
ningweekreporrtTheNetherlands
Koreaavisitreport
Intern
nationalSeminaarReport
USAvvisitreport

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5|

NCICDFUN
NDINGREQUIR
REMENTS

Theimpllementation oftheNCICD
DMasterPlaancallsforco
ombinedinvvestmentsin floodsafetyymeasures,
land recllamations an
nd related (ttransport) in
nfrastructuree development. The integrated deveelopment is
shownin
nfigure1,theedetailsofw
whichcanbefoundintheeMasterPlan
n.

FFigure1|NCICDintegrateeddevelopment
2.1

NC
CICDINVESTM
MENTPROGRAM
M

Fromafu
undingpersp
pectivethereequiredinvestmentsofN
NCICDcanbeedividedinto
o:

PublicInvestmentsinFloodSafetymeeasuresthatdonotgenerateanydireectfinancialrreturns
1. P
((althoughcon
nsiderableso
ocioeconom
micbenefits);
2. Investmentsin(Public)TrransportInfrastructureth
hatsupporttthespatialecconomicdevvelopments
hatcangenerratedirectreevenuesfrom
muserfees;
intheMasterPlanandth
Privateinvestmentsinlan
ndreclamationsandrealestatedevelopmentthatgeneratepotentially
3. P
largedirectfinancialreturnsandcouldbeconsideeredcommerrciallyviable.
onditionsW
WaterQualityyImprovemeentandPiped
dWaterSupplyin
4. Investmentsinkeypreco
N
NorthJakartaawhichareeindispensab
bleforasustaainableNCIC
CDdevelopment.

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6|

Severalo
otherinvestm
mentcategoriesarenot includedbecausedesign
nsandcosteestimatesweerenotyet
developeedindetail:
M
Movingandrredevelopmeentofkeyecconomiclocattions,suchaastheOceaniicFishingPorrtandPLN
P
PowerPlantss.
B
Buildingwith
hnatureactivvities,suchasmangroveredevelopmeent,wetland
dsrestoration
n
U
UrbanrevitallizationandrredevelopmeentofNorthJakarta
C
Communityd
developmenttandempow
wermentproggram.

n the Master Plan, the ffour categoriies have the following in


nvestments iin stages A, B and C of
Based on
NCICD.
Table2|investmentspercategoryforstagessA,BandC
NCICDIn
nvestments
inbillion
nUS$

PhaseA

PhaseB

PhaseC

Tottal

1. SafetyMeasures

~2.1

~4.34.7
7

p.m.

6.46.8

2. (Tran
nsport)
Infrasstructure

n.aa.

~5.0

p.m.

5..0

3. Land
Development

n.aa.

~8.9

~0.9

9..8

16
6.0

4. Precconditions

2.2

~16.0
0

To
otalInvestm
mentNCICD(eexcludingprreconditionss)

21
1.6

TTotalInvestm
mentNCICD((includingprreconditionss)

37
7.6

FU
UNDINGREQUIR
REMENTSTOPR
ROVIDEWATER
R/FLOODSAFFETY

Provision
nofFloodSafetyfromtheeseaistheccorepublicobjectiveofN
NCICDrequiringinvestmentsof6.4
US$Billio
onupto2022.Thedetailssoftherequiredinvestm
mentsinflood
dsafetyarep
providedhereafter.

undingrequirrementsofstageAandP
PreCondition
ns
2.2.1 Fu
In stage A, GOI has to fund and
d deliver imm
minent safetty measuress, costing up
p to US$ 2.1
1 billion, to
ensureeelementaryflloodsafetyintheshorttterm.Itconccernsthestrrengthening oftheexistin
ngseawall
(US$582
2million),rivverdikes(USS$476million),pumpinggcapacity(USS$294millio
on)andextensiveand
thereforeecostlyressettlements (US$725miillion).Theb
breakdownissprovidedin
nfigure2,inccludingthe
potentialsourceoffu
unding.

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7|


Figgure2|invesstmentinsaffetymeasureesstageAan
ndPreCondittions
The costts of strengthening the eexisting seaw
wall will be charged larggely to private land own
ners on the
coast.Attthemomentofdraftingthisreport,tthedetailsofthisarenottyetknown.

nt(sanitation
nandseweraage)toclean
ntheriverdischargesinJJakartaBay
Investingginecologic improvemen
andpipeedwatersup
pplytoreduccetheneedfforgroundw
waterextracttionandhen
nceslowdow
wntheland
subsiden
nce,areaddittionalcostly measuresto
obestarted inordertod
deliversustaiinableflood safety.The
expansio
on of piped w
water supplyy, in order to
o reduce lan
nd subsidencce, has an esstimated cosst of US$ 4
billionbu
utthisisnotbasedondesigns.
Improvin
ng water qu
uality (cleaniing water discharged in
nto Jakarta Bay) requirees the acceleration of
sewerageeandsanitattionprogram
msproviding forwastew
watertreatmeentwithabrroadcoveragge.Itscosts
areestim
mateduptoU
US$12billioninthecom
ming20years.Japan(JICA
A)issupportingtheGOIw
withMaster
planninggandactualimplementationoftwozo
ones.

undingrequirrementsofstageB
2.2.2 Fu
Basedon
ntheJCDSsttrategy,theM
MasterPlaneelaboratedtheconcepto
ofanOuterSSeaWall(OSW)withan
off shoree retention lake and pum
mpingcapacity. The loweest costoption isestimaated US$ 4.3
3 blnup to
2022/202
udespumpin
ngcapacityaandtwoshiplocksforthepassingof vessels,butnofurther
23.Thisinclu
developm
ment.Theco
ostestimatessandfundinggsourcefor eachcompo
onentarepreesentedinfiggure3.The
graphalssoshowstheeexpectedO&
&Mcostsup
pto2050.
NCICD FUNDING STRATEGY | PMU Asssistance | Nation
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egrated Coastal Development
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8|

Figure3||InvestmenttsandcashfllowofsafetyymeasuressttageB
2.2.3 InttegratedDevvelopment
The integgrated development opttion the G
Great Garudaa developmeent presentted in the Master
M
Plan
organicaallycombineestheimplem
mentationoffthesafetym
measuresof stageBwith
haniconicseeafrontcity
developm
ment, new eeconomic and
d port zoness and key inffrastructure arteries at aa national an
nd regional
level.Thiisintegrated
ddevelopmeentoptionco
onsistsofmanycomponeentsthatin1250hectarresversion,
NCICD FUNDING STRATEGY | PMU Asssistance | Nation
nal Capital Inte
egrated Coastal Development
Draft Septe
ember 2014

9|

requires atotalestim
matedinvesttmentofUS$
$19.5billion
nandpotenttiallyproduccesrevenuessofUS$29
nd potentiall funding so
ources of th
he developm
ment compo
onents are
billion. TThe costs, revenues an
presenteedinfigures4
4aand4b.

Figure4aa|Investmen
nts,revenuessandfundinggsourcesiniintegratedN
NCICDDevelo
opmentstageesBandC

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10|

Figure5b
b|CashflowofNCICDDeevelopmentsstagesBandC

NCICD FUNDING STRATEGY | PMU Asssistance | Nation


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11|

DEVELOPINGTTHENCICDFUNDINGAPPRROACH

The threee most com


mmon fundingg methods to
t develop in
nfrastructuree are Public Funding, Pub
blic Private
Partnership(PPP)and
dPrivateFun
nding.
InIndoneesia,anotherimportant sourceoffundingisthe deliveryofinfrastructureethroughStateOwned
Enterprisses (SOE). An
nnex 1 provides a more detailed overview of th
hese fundingg sources and
d discusses
theirpro
osandconsd
delivery.

UpartieshavveexpressedastrongpreferenceforaacompleteP
PPP/privatefundingsolu
utionfor
ThePMU
NCICD.H
Howeverthisisnotabeattenpathinthefieldofflo
oodsafetyin
nfrastructure.Beingtypicalpublic
goods,floodsafetyin
nfrastructureeisusuallyfu
undedfromp
publicbudgetts1.Inpioneeeringadiverggent
odsafetycom
mponents,seeveralfactorrshavetobetakenintoaaccount:
fundingaapproachforrNCICDsfloo

TTheeconomiicandfinancialviabilityo
oftheNCICDcomponentssinitself;
P
Politicalandpolicypreferrenceswithrregardtotheefundingapp
proachintheecontextofG
GOIs
b
budgetaryheeadroomand
ddebtceilingg;
P
Privatesecto
orappetitean
ndmarketco
ontext;
C
Criticaltimelinesinrelatio
ontopreparrationrequireements.
3.1

ECONOMICAND
DFINANCIALANALYSISOFNCICD

Economic analysis o
of the propo
osed safety measures, in
nfrastructuraal and land developmen
nts suggest
dinvestmentts.
positiveeeconomicretturnsonallttheproposed

Investmeent in the prroposed watter safety meeasures can therefore be justified frrom the perspective of
both maaintaining pu
ublic safety as
a well as ecconomic ben
nefits in term
ms of avoideed damages, prevented
productio
onlossesandincreasedvvalueofland
dandrealesttateinNorth
hJakarta.Ho
owever,from
mafinancial
perspecttive these m
measures (saffety stages A
A and B) do not generatte direct financial reven
nues out of
which(partial)fundin
ngcouldtakeeplace.

Ddevelopmeentwillgenerratesubstantialdirectrevvenuesfrom
mlanddevelo
opmentand
TheinteggratedNCICD
userfeess(transport revenues)frromwhichth
heproposedinvestmentssmaybe(paartially)fund
deddirectly
(feasible business ccases) or crross subsidized. The o
overall cash flow from the integrated NCID
mentisshow
wninfigure5
5below.
developm

Seetheb
backgrounddocumentoninteernationalbest practices,and thebenchmarkkingvisitreporttstotheNetheerlands,Korea
andtheUSSA
NCICD FUNDING STRATEGY | PMU Asssistance | Nation
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egrated Coastal Development
Draft Septe
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12|

Figure6||NetCashFlowofintegrratedNCICDd
development(1250ha)
The main revenues in the NCIC
CD developm
ment are deerived from land sales (both urban
n and port
mentrelated
d).Theotherrcomponenttshavenoorinsufficienttrevenuepo
otentialand needtobe
developm
subsidizeed to becom
me viable. TThe investmeent analysis presented in the MP, adding al iinvestment
componeentstogetheer,produces apositiveNPVfigure.Howevertherreareno(baankable)businesscases
underlyin
ng this overrall investment analysiss. A further perspectivee needs to be developed on the
possibilittytobundlethesecompo
onentsinto(a)marketableandbankaablebusinessscase(s).Tab
ble3shows
aqualificcationofthefinancial/commercialvviabilityoftheNCICDcom
mponentsand
dpotentialfundingand
deliveryapproachesttoeachofth
hemseparateely.

Table3|fiinancialqualificationand
ddelivery/fu
undingappro
oachNCICDccomponentss

NCICD FUNDING STRATEGY | PMU Asssistance | Nation


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13|

The NCIC
CD componeents in the upper row of table 2, land reclamations and port
p
develop
pment, are
commercciallyviable componentssthatcanbeeeitherfully privatelyfun
ndedorunderaPPP(BO
OT)funding
approach
h.
Thecomponentsinthemiddlero
ow,transporttinfrastructu
ureandwateersupplyfaciilities,canbeefundedas
quiringgoverrnmentsupp
portand/orp
privatefinanceschemes thatarelabelledoffbalancesheet
PPPsreq
financingg. The choice between these
t
modalities depend
ds on the m
magnitude an
nd (un)certainty of the
revenuessascompareedtotherequiredinvestm
mentsandoperationalexxpenditures.
Theloweerrowcontaainsthecomp
ponentsthatthavenorevvenuepoten
ntialandthattnormallyreesideinthe
domain of public fu
unding (budgget or fundiing through sovereign loans). Depeending on th
he projects
hemes(DBFM
M(O))2mayd
deliverbestV
ValueforMo
oneytothe
lifecycle characteristics,privateffinancingsch
nburdenthep
publicbudgeets(APBN/D).
taxpayerandcanun

OLITICALPREFEERENCESANDBUDGET/DEBTTLIMITATIONS
3.2 PO
Asalread
dymentioneedthefastneeedformasssiveinfrastru
ucturedevelo
opmentinIn
ndonesiaiscconstrained
by budgget limitation
ns. The opp
portunity co
osts of applyying government funds are consid
dered high.
Howeverr investmentts in flood ssafety are tyypical nonreevenue generating publicc investments that are
mostlyfiinancedfrom
mpublicbudggets.Govern
nmentscanjustifysuchin
nvestments basedonarggumentsof
maintain
ning public ssafety and socioeconomic consideerations. Givven its fiscaal limitationss, the GOI
howeverr prefers to unburden G
GOIs budget from NCICD
D. There are high expectations for the
t private
sectorsiinterestandabilitytoundertaketheNCICDprojecctandthereb
byunburden
ningthegoveernment.

omeinternattionaldevelo
opers(privateeandstate
Howeverrthemajorittyofprivate Indonesian aswellasso
ownedcompanies)th
hatwerecon
nsultedhaveemadeclear thatNCICD cannotyetfulfiltheirreq
quirements
oing down th
he route of aa private led implementaation of NCIC
CD, several
to step in and investt3. Hence go
have to be taken
t
into account: firstt and foremo
ost the timeely investment in the reaalization of
aspects h
safety measures
m
neeeds to be seccured, the p
project scoping and quality of the prroject cash fflows to be
defined, market appetiteand up
ptake potenttial needs to be confirmeed andbankkability aspeccts andthe
nt support to
o render a viiable and baankable busin
ness case for private invvestors and
need forr governmen
lendersn
needtobeclarified.

DMARKETCONTTEXT
3.3 PRRIVATESECTORINTERESTAND
Privateccapitalwillgo
owhereitcaangetarelattivelysecureereturn.Privaateinvestorssandlenderswillavoid
condition
ns where m
market opporrtunities are lacking, or where the risks are to
oo high relattive to the
potentialpayback.Th
heywillgoellsewherewitththeirfinan
ncial,physical,andhuman
ncapital.

mewouldefffectivelyunburdenGOIofthekeyp
problemsund
derlyingNCIC
CDandwas
Afullyprrivateschem
hencefavouredbym
manyNCICDp
partners.Oneprivateinvvestorindeed
dclaimedintteresttound
dertakethe
NCICD scope.. Other inveestors were wary of thee projects sh
heer size, agggressive deevelopment
whole N
he many plan
nning uncerttainties and social risks
assumptions (timing and breakeeven price leevels) and th

2
3

Seetechn
nicalreportonPPPandprocurrementstrategyyforadescriptiionofthepoten
ntialprivatefinaancingschemess
Seebackkgroundreporto
onpreliminaryprivatesectorcconsultation

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thatare stillpresent intheNCICDdevelopmeent.Theyexxpressedinteeresttobein


nvolvedasin
nvestorina
ntainedscop
peandcredib
blebusinessccase.
morecon

CICDsPPPpo
otentialandroadmaptow
wardsprivateesectorinvo
olvement4aswellasthe
OurexplorationofNC
otapplicableforasinglemasterdevelopment
businesscaseanalysis5hastaughtusthattheprojectisno
onawardedtoaprivateinvestor.
concessio

ness case fo
or a private concession teaches uss that NCICD
D is not a
Analysis of the refeerence busin
orward deveelopment project, like th
he other lan
nd reclamatio
ons in Jakarta Bay. The Integrated
straightfo
NCICDdeevelopmentasawholeccannotbequalifiedasaccommerciallyyviableandb
bankablebussinesscase,
dueto:
LLargesizeofthedevelopmentanditsshighupfront,nonscalab
ble,nonphaseableandn
non
rrevenuegeneeratingmultiibillioninvestmentsinflo
oodsafetymeasures;
TTherelativelyyhighproductioncostoffsquaremeteersfortheGaruda(landreclamationin16m
d
deepwater);
H
Highdependenceonland
dsalesrevenuesthatareextremelyseensitivetopriceandvolu
ume
cchangessubjecttoecono
omic,marketandpoliticaldevelopmeents;
M
Majormarkeetuncertaintiiesduetothedevelopmeentofseventteenconcesssionsforland
d
rreclamationssinJakartaBay;
P
Planningunccertaintieswiithregardtothespatial,environmenttalandinfrasstructuralconditions.

n with large developers learned us that they co


onsidered the project too large, its
Informal consultation
ooearly/itsplanningtoiimmaturean
ndtherequireddevelopm
mentvolumesandlandprricesastoo
timingto
aggressivve.Intheiro
opiniontheG
GOIhastoin
nvestfirstto createthen
necessaryprreconditionss,providea
solidplan
nningbasisaandcoassum
mesubstantiaalriskstomaakethedeveelopmenthap
ppen.Thereffore,atthis
momentNCICDcannotyetbecon
nsideredareeadycaseforrthemarkettostepin.
In orderr to get the private secctor to invest, the publlic sector itsself must firrst make a substantial
commitm
ment.When initial publlic investmeents are maade, substan
ntial privatee investmen
nts can be
expected
d.Thisway, governmentswillsavesubstantialco
ostsbyeffecctivelyleveraagingprivateefundsand
byprodu
ucingimprovedeconomiccconditionstthatreduceo
othercostsaandexpandp
publicrevenu
ues.
With reggard to the p
private secto
or perspectivve there are roughly two
o perspectivees on how to
t establish
condition
nsforthepriivatesectorttostepinandinvestinNCICD.Theseare:

Government takes initiall steps for fu


unding the p
public safety measures and preconditions. This
1) G
b
boilsdownto
otheGOIprrovidingtheffundsfortheefloodsafetyycomponen
nts(stagesA andB)and
ttherequired investmentssinwaterqu
ualityimprovvement.The privatesecto
orcanthensstepinand
ccomplementtheeconom
micenhancem
mentcompon
nentsoftheprojectbyin
nvestinginth
helandand
ttransportinfrastructure(MRT,Roads,,Seaportand
dAirportdevvelopment).
2) N
NCICD, including the staage B flood safety comp
ponents, can
n be develop
ped by an SOE
S
and/or
P
Private entityy with adequate government suppo
ort arrangem
ments in term
ms of GOI co
ontribution,
4

TechnicallreportonPPPandprocuremeentstrategy
TechnicalreportonFinaancialModelan
ndbusinesscasees

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gguaranteesaandtargeted financialsup
pport.Thebusinessplanandcasefforthisappro
oachneeds
tto be workeed out by th
he prospectivve implemen
nting entrep
preneurial bo
ody under a
a clear GOI
m
mandateand
dcostrecoveeryarrangem
ment.Basedo
ontheirbusinessplanan
ndcasethegovernment
ssupportrequ
uirementscan
nbefurtherspecifiedand
dagreed.

n4.2thosettwoperspecttivesareelab
boratedfurth
her.
Insection

OIMPLEMENTFFLOODSAFETY
Y
3.4 CRRITICALPATHTO
Although
h already em
mbedded in tthe considerrations preseented in the previous paaragraphs, NCICDs first
priorityistodeliverffloodsafety onatimely andaccounttablebasis.TTheimplemeentationandfundingof
need to be
the most urgent meeasures, the flood measures of stagge A and preeconditions to NCICD, n
dandsecuredwithinaverycriticaltimeframe.TTheabsence ofprivatesectorinteressttoinvest
arranged
andcriticcaltimelinessforimplemeentingtheseecomponentts,warrantth
heirimplemeentationund
derapublic
funding((includingsovereignloans)arrangement.
Alsowith
hregardtottheimplementationarrangementsoffstageB,theetimelyimplementationofthekey
flood saffety compon
nents canno
ot be left to
o a pure priivate sector investment approach. TThe timely
availabiliity of funds to start thee realization of the OSW
W need to bee secured in
ndependentlyy from the
uncertain
nfundingthatcanberaisedonbasisoffuturerrevenuesfromlanddeveelopmentand
dtransport
infrastructure.

3.5

GU
UIDINGPRINCIP
PLESFORTHEN
NCICDFUNDIN
NGSTRATEGY

Takingin
ntoaccounttthefactorsprresentedintthepreviousparagraphs,thefollowin
ngguidingpriinciplesare
recommeendedindeccidinganddeevelopingtheefundingstraategyforNCICD:
TThe funding strategy pro
ovides a robu
ust financingg approach that secures the implemeentation of
tthecriticalsaafetymeasurresonatimeelybasis.Scope,magnitud
deandtiming(criticalpatth)offlood
ssafetymeasu
uresaspreseentedintheM
MPhavetob
beagreedam
mongtheNCICDpartners;;
TThestrategy seekstomin
nimizetheburdentoAPB
BN/DandGO
OIsindebted
dness.Anyalllocationof
b
budget and aassumption of contingen
nt liabilities by GOI shou
uld be justifieed as an invvestment in
p
public safetyy, economic developmen
nt and/or to provide thee preconditio
ons to mobilize private
ffunding;
P
Privatesecto
ortakesaleaadingrolein thedevelopmentofNCICD.PPPs/P
Privateinvesttmentsand
ffinance are tto be used as
a the key m
means to reduce and spread the burd
den to the b
budget and
leveragetheeconomicim
mpactofNCIC
CD.Assumpttionsonprivaatefundingp
potentialareebackedby
ccredible bussiness cases and proveen market appetite.
a
The key techn
nical, comm
mercial and
eeconomicrissksthataffeccttheviabilittyofbusinessscasesand
dhencerobu
ustnessofthefinancing
aapproach mu
ust be analyzed and add
dressed in prreparing the relevant traansactions with
w private
investorsand
dfinanciers.

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FUNDINGSTTRATEGY

Both fro
om the finaancial analyssis, the market appetitte perspectiive and thee current practices in
infrastructure delivery in Indonesia, it becom
mes clear thaat NCICD can
nnot be fund
ded solely th
hroughone
method.Itreequiresacom
mbinationoffgovernmen
ntfundingan
ndsupport,p
privateinvesttment,PPP
fundingm
andprob
bablySOEsin
nvolvement. Thisrequireessplittingasssetsorpackkagingprojeccts,whichmaayresultin
multiple institutionaal windows for implem
mentation. Otherwise
O
aa dedicated NCICD Deevelopment
A Loans), a contracting
c
aagency (for
Companyy, that can play the role of an executing agency (for ODA
PPPs/AvaailabilityPayyments)andaaplatformfo
orblendingfunds(crossssubsidies,eq
quityparticipations,GOI
guaranteeedloans,etcc),shouldbeeconsideredinlinewithttheStrategiccCompanydeeliverymodeel6.
Hereafteerthestrateggicfundingoptionsforthesubsequen
ntstagesAan
ndB/CofNC
CICDaredesccribed.

UNDINGOFSTA
AGEA
4.1 FU
The flood safety measures of stage A are cu
urrently und
der preparatiion and will be implemeented from
2017. There is no revenu
ue potential identified in
n stage A; th
he potential for private
October 2014 until 2
o the privatee landowners on the coaast who are required to
o strengthen their own
funding is limited to
othespecificcationsprovidedbytheG
Government.
segmenttofcoastlineaccordingto

f
of the sea defence works, the GOI can
n use partly APBN funding, and could consider
For the financing
entering intobilaterralormultilateralloanaagreements. Acontributiion(inkindo
orfinanciallyy)fromthe
nereducesthecosttoth
hegovernmeent.Theuse ofbilateral
privatelaandownerslocatedalonggthecoastlin
funding can produce significanttly lower co
ost of financcing and higgher speed of implemeentation as
compareedtomultilaateralfundingg.
Itisnoteed,thatincombinationw
withtheactuaalstrengthen
ningofseadiikes,locallyintegratedso
olutionsare
called fo
or with existting land usse, residentiial areas, infrastructure connections, economicc activities,
recreatio
onal areas and nature. TThe integrattion of those other valu
ues may raisse additionaal financing
requirem
ments,whicharecurrentlynotidentified.Additio
onalplanninggandpreparrationworkiisexpected
inadditio
ontoengineeeringdesign
nsforseadikkes,toarriveeatacceptab
ble,properly integratedttailormade
plansforrlocalsituations.

uired upgrad
de of river dikes
d
may bee integrated with the on
ngoing JEDI // JUFMP pro
ograms and
The requ
hence bee integrated
d with these ongoing projects. This may be a sensible apprroach to speeed up the
implemeentationand totakeadvaantageofpo
otentialefficienciesandsynergiesbettweenNCICD
Dandthese
programs.

pingcapacityyinstageAiisbudgetedw
withintheAPBDofDKIaandthereareealsosome
Theupgrradeofpump
bilateralcofundedsschemes(nottspecified).

ddeliverymo
odelisDesignandBuild
Table4ssummarizestthefundingaanddeliveryofStageA.TTheproposed
(DB).Revvenuesarenotconsidereed.

Table4||FundingofStageA

Medium Term
T
Developme
ent Plan 2015-2019 Background
d Study on Infrastructure, Bapp
penas 2014

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Compon
nents

Cosst(US$
miillions)

Deelivery

Reven
nue
mod
del

Investor

Privvate
Finaance

Seawall

$582

DB

na

GOI

Bilateralloans
(80%)

APBN(20%)

Pumpingsstations

$294

DB

na

GOI/D
DKI

Privvate
contribution
(financialorin
kin
nd)

APBN/D

Riverdikess

$476

DB

na

GOI

Mulltilateralloan
(JEEDI/JUFMP)

APBD

Resettlement

$725

Traaditio
nal

na

GOI

Mulltilateralloan
(JEEDI/JUFMP)

APBD

4.2

PublicFinaance

FU
UNDINGOFSTAGESB(C)

Followinggtheguidinggprinciplesaandfindings fromthebussinesscaseaanalysisandPPPRoadMaap,roughly
twofund
dingstrategieescanbeapp
pliedtodeveelopstagesB/C:

he first strateegic approacch the nonrrevenue floo


od safety meeasures are sstill realized within the
1. In th
publicfinancereealm.Theim
mpacttothe budget(APB
BN/D)canbeereducedbyymakinguseeofprivate
nce schemess (off balancce sheet finaance to spreead investmeent burden and reduce impact on
finan
indebtedness) an
nd bi or mu
ultilateral loaans to spreaad the burdeen to the bu
udget. Over time these
ntsandtherelatedborro
owingcanbee(partially)repaidfromttherevenuessfromland
publicinvestmen
nd profitable infrastruccture concessions. Thiss may requ
uire intergovvernmental
deveelopment an
paym
ments. In addition, GOI ccould develo
op fiscal cost recovery mechanisms
m
(introduction of water
safettyandsewerragecharges)).

2. The second apprroach externalizes the funding of tthe nonreveenue flood ssafety compo
onents and
privatedeveelopment.Th
hecommerciallyviableco
omponents
deveelopstheseaaspartofanintegratedp
could
d be develo
oped on a pure privatee investmen
nt basis, applying recko
oned PPP co
oncepts of
conccessions(recllamationand
dlanddevelo
opment)and
dtransportin
nfrastructureePPPs(BOTswithVGF).
The nonrevenueecomponenttsneedtobecrosssubsidizedthroughbundling ofcommercciallyviable
mponents in one projectt if optimal or by esttablishing otther cross su
ubsidization
and unviable com
hanisms.
mech

ptimizedPub
blicFundingo
ofNCICDsaffetycomponents
4.2.1 Op
The floo
od safety meeasures of stage
s
B and C consist o
of the OSW, Pumping Stations and Locks and
subsequeent lagoon management. Under traaditional bud
dget fundingg it would b
burden the budget for
approxim
mately US$ 4.3
4 4.7 billion (exclud
ding the neccessary invesstments in tthe precond
ditions). Its
resultinggfiscalburdencanbeeffeectivelyredu
ucedthrough
hbilateralfu
undingandofffbalancesh
heetprivate
financesschemessuch
hasDBFM/O
O.

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The OSW
W may be fu
unded by con
ncessional bilateral loan
n(s), provideed by partners like Koreaa, Japan or
China.Th
hiscanspreaadtheburdenover25up
pto30yearsandcancom
mewithasignificantgracceperiodof
58yearss.Offbalancesheetprojeectfinancinggcanalsobeeconsidered fortheOSW
W.Theadvantageofthe
latter sch
heme is thatt it does nott lead to inccreased indebtedness. Th
he disadvanttage is that tthe cost of
financew
will be higheercomparedtoaconcesssionalloan. This would requireavaalueformoneyanalysis
whether life cycle effficiencies an
nd risk transsfer can offset the higheer cost of fin
nancing. Theere is, be it
defence und
der private project finan
ncing schem
mes against
limited, experience with financiing coastal d
ndFloodallevviationschem
mesintheUK
K.
availabiliitypaymentss,e.g.thePevvenseyBayaandBroadlan

nd locks can be delivered


d through avvailability paayment conttracts with p
private pre
Pumpingg stations an
financinggofthepumpingstationssandlocks(D
DBFM/O).Th
helatterscheemes,successsfullyapplieedin(water
managem
ment) infrasttructure devvelopment in
n the Netherrlands, can aalso provide for innovatio
on in asset
managem
mentinterm
msofreliablemaintenanceandoperattionsoveralongtimepeeriodatlowestlifecycle
cost.

ntsunderthiisfundingstrrategyareprresentedintable5.
Theposssiblefundinganddeliveryyarrangemen

ndfundingoffsafetycomponentsstaggeB
Table5||Deliveryan
Components

Cost(US$
milliions)

Delive
ery
mod
del

Revenue
modeel

Investor

PrivvateFinance

OuterSeaWall

3,4400

DB
B

na

GOI

86
63

DBFM
M

Availability
Paymenttsby
GOI

Privatte

Privatee
Equityy
(15%)

36/yr

O&M
M

Servicce
Paymenttsby
GOI

GOI

Pumping
stations
&Locks
Lagoon
Managemeent

PubliccFinance

Bilateral
loan(80%)

APBN
(20%)

Private
Debt
(85%)

doptimizedp
publicfundin
ngrevealed
Acompaarisonofthefiscalimpacttundertradiitionalpubliccfundingand
thattheoptimizedfin
nancingapprroachcouldrreducetheburdentotheebudgetupttoUS$0.6Billion.
The prefference to fu
und NCICD ffrom the revvenues from land develo
opment in Jaakarta Bay m
may still be
feasible under this funding
f
apprroach of the NCICD safety components. It requires intragovvernmental
mark future revenues
r
fro
om land devvelopment in
n Jakarta Bay to be useed for debt
agreemeents to earm
services oravailabilittypayments.Howeverth
heactualpottentialforcrrosssubsidizationisexpeectedtobe
d to an integgrated planning and deveelopment off the safety, land development and
far less aas compared
transportinfrastructu
urecomponeents.

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4.2.2 Prrivatefundingoptionsof
f NCICDcomp
ponents
Basedon
nthecapex, opexandreevenueestim
matesofthe NCICDcomp
ponentsthattwereprovidedbythe
MP Conssultant (Garu
uda 1250 haa development alternativve), the optio
ons for privaate (PPP) fun
nding were
explored
d.Welookedintothreeo
optionstoreaalizeprivateffundingforN
NCICD:

ough PPP scchemes that are currenttly supported by the naational PPP regulations
1. FFunding thro
((PerPres67/2
2005,13/20
010and56/2011);
2. Implementing NCICDs safety, tran
nsport and land devellopment components u
under one
on;
integratedprrivatemasterdevelopmeentconcessio
oughadediccatedNCICD Developmen
ntCompany (SOE)underrtheNCICD
3. ImplementingNCICDthro
A
Authority,thatwillbetaskedwithth
hedeliveryofftheprogram
mandwillengageprivatteinvestors
o
on a value for money baasis either through jointt developmeent agreements, PPP con
ntracts and
P
PrivateFinan
nceSchemeslikeDBFM/O
O.
Regardin
ng the first scheme it was conclu
uded that itt could not deliver NC
CICD as an integrated
developm
ment with reevenue geneerating comp
ponents cross subsidizingg the costs o
of the safety measures.
Thisisdu
ueto:

des for a secctor by sector basis to implement


i
P
PPPs under
1. The Nationaal PPP frameework provid
variationsoffaBOTscheeme,withor withoutgovvernmentsupport.Theccrosssectorb
bundlingof
NCICDcomp
ponentsisno
oteffectivelysupportedb
bythisregulaatoryframew
work;
GOI entities to deliver o
on its PPP prrogram and
2. Limited capaacity and lacck of proven success of G
schemesthu
usfar;
3. Complexityo
ofintergovernmentalandinterinstittutionalorgaanizationand
dcoordinatio
onrequired
(whocanacttastheGCA);
dily availablee mechanism
ms for cross ssubsidization
n and bundliing of projeccts and the
4. Lack of read
political/insstitutionalco
omplexitytocreatethem
m.

onentsinlineewithcurrentPPPregulations
Realizatiionofcompo
newiththeP
PPPregulatio
onsaretheTTollRoad,MR
RTandCity
Thecomponentsthattmaybestructuredinlin
ds (and even
ntually Wateer Supply an
nd Power Su
upply, but th
hese were n
not covered in the MP
Toll road
BusinessCaseDatap
provided).Fin
nancialassesssmentoftheNationalTTollRoadand
dCityTollRo
oadlearned
quire over 50
0% of VGF support
s
to become comm
mercially viaable. This is
us that tthese projectts would req
mainly d
due to the h
high costs off bridges to cross waterss and the reelatively high
h uncertaintyy of future
traffic.
hedeliveryu
underaBOT schemewithVGFisnottfeasibleforrtheseprojeects.TheMR
RTbusiness
Henceth
casedataa,suggeststthataBOT++VGFstructu
uremightbeepossible.Th
hedataprovvidedisvery roughand
didnotaallowforamoredetailedstructuringttovalidateaBOToption.Besidesthiss,thefiguressgoagainst
all odds,, as green field
f
light raail systems are seldom commercially viable an
nd usually require
r
the
governm
menttofundtthebasicinfrrastructureaattheleast.

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Integrateedmasterdeevelopmentconcession
Thescheemeofaninttegratedmassterdevelop
pmentconcesssionwould allowforcro
osssubsidizaationwithin
a single integrated private
p
busin
ness case forr the OSW, Pumping
P
Staations and Lo
ocks and thee transport
onents.From
mafinancialp
pointofview
wweconclud
dedthatthisstructurewo
ouldnotbe
infrastructurecompo
owingmainrreasons:
bankableeforthefollo
T
Theextremelyhighsensittivityoftheb
businesscaseetochanginggmarketcon
nditions(land
dprice
d
developmenttsandmarkeetuptakespeeeds;
T
Thenonscalableandnon
nphaseableeupfrontinveestmentsinttheflooddeffencecompo
onents.
T
Thesheersizze(~US$20b
billionofinveestments);
T
Thehighreliaanceonlanddevelopmen
ntandpoten
ntiallyvolatileerealestatemarkets;
T
Thechallengingunderlyin
ngassumptio
onsonrealizaablelandpriccesandmarkketuptake;
M
MajorIndoneesianland&realestated
developersbothSOEsan
ndlargeprivatedevelopeers,stated
tthatthiscaseewouldnotb
beviablewitthoutthegovvernmentun
ndertakingth
heinvestmen
ntsinthe
ffloodsafetyccomponents.

proach would
d therefore not provide for a robusst funding so
olution that can secure the timely
This app
deliveryofthesafetyycomponentts.

DevelopmentCompaanyapproach
dscheme,th
hatcanbeussedtounburrdenthepub
blicbudgetandthatallow
wsmoreflexxibilitywith
Thethird
regardto
opublicgoveernance,pub
blicandprivaatefinancinggandprocurrementofNC
CICDcomponents,isto
establish
hadedicated
dNCICDStrategic(orDevvelopment)C
Company.Th
hisapproach
hisdescribed
daspartof
theinstittutionalsetupforNCICDintheTechnicalReporto
ontheOrganizationofNC
CICD.

pment and funding


f
of N
NCICD througgh a single
The principle of thiss approach iss the integraated develop
mentcan,throughaDevelopmentAu
uthority,exeertdirectcon
ntrol.Scope
companyyoverwhichthegovernm
optimizationandsyn
nergiesbetw
weenthecom
mmerciallyviableandnonviablefloo
odsafetyand
dtransport
componeents can be addressed through inteegrated (bussiness) plann
ning and cro
oss funding within the
companyy.Theboxtextbelowsum
mmarizestheerationalefo
ortheDevelo
opmentCompanyapproaach.
R
Rationaleford
developingNC
CICDunderaDevelopmenttCompanyAp
pproach

Complexccrossinstitutio
onalaspectsrrequirecoordinationandco
onvergentdrivvetowards
implemen
ntation;
Ensurethatcriticalcom
mponents(safeetyandenviro
onment)beinggrealizedtimeelyandcanbeedirectly
dbyGOI;
monitored
MaximizesynergyinplaanningandprrocurementoffNCICDcompo
onentstoenh
hancerevenueesandvalue
capturing;;
Flexibilityinfuturepackkagingandtraansactingofco
omponentsto
omatchfundin
ngsources,maarket
uptakean
ndprivateinveestorsappetitte;
Allowformultiplefundingschemesttobeimplemeentedundero
onewindow
Efficientm
mobilizationoffundsandusseofcrossfun
ndingpotentiaalfromprojecttcashflows
SecuringG
Governmentp
policyobjectivves:
Protectinggpublicsafetyyandenvironm
mentalsustainability
Ensureno
odisruptionto
otheeconomicactivities
Applyingttransparency,accountabilityandcompettition
FiscalSusttainability(po
ossibilitiestokkeepthefundingofNCICDo
offbalancesheet)
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The com
mpany apprroach poten
ntially increaases revenu
ue optimizattion and heence scope for cross
subsidizaationoftheO
OSW,PumpingStationsaandLocksan
ndtheunviab
blecomponeentsofthep
program.At
thesameetime,dueto(partial)pu
ublicownershipandmandateasperP
PresidentialD
Decree,GOIcanensure
that critiical componeents (safety and environ
nment) are being
b
realized timely witthin an entreepreneurial
settingandwillnotb
besubordinattedtocomm
mercialconsid
derationsonly.Thecomp
panycanberrequiredto
der to add
engage other privatte developers and inveestors in its developmeent undertakkings in ord
ny has flexibility in the p
packaging of components to match
additionaal value and efficiency. TThe compan
fundingssources,timeeframeand privateinterrestsandmaayengagetheeprivatesecctoreitherth
hroughPPP
contractss,B2BorJoin
ntVenturesaagreements.

Thesetu
upoftheNCIICDDevelopmentCompaanyallowsfo
orapplyingm
multiplestrategicfundingschemes,
where bilateral and multilateral funding can
n be channeelled through
h the Develo
opment Com
mpany (and
owstheposssibilitytobleendpublican
ndprivatefin
nancingfacilitieswithin
guaranteeedbyGOI). Figure7sho
theStrattegic/Develop
pmentComp
panyapproacch.

Figuree7|Blended
dfundingopttionsundertheDevelopm
mentCompan
ny(StrategicCompanyM
Modality)
The com
mpanys abilitty to attract funding und
der governm
ment guarantee and to bee capitalized
d with seed
capital(eequityinjectiionbytheGO
OI),allowsittorealizeth
henonscalab
bleandnonphaseableffloodsafety
componeents with cheap low cosst finance. This
T approach provides tthe companyy with longer term and
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cheaperfinancingfaccilitiesascom
mparedtoapureprivatedeveloper.IInthiswayth
hecompanycanbuilda
orerobustbusinesscasewheretherrevenuesofffuturelandd
developmenttscanbeuseedtorepay
muchmo
outstand
ding debt an
nd interest o
obligations rrelated to th
he constructtion of the OSW and o
other initial
investmeents.
4.2.3 ReeferencecalcculationofsttageBfinanccingunderth
heDevelopm
mentCompan
ny
Table6sshowsaposssiblesetupo
ofthecomponentfinancin
ngundertheeNCICDDeveelopmentCompany
approach
h.

6|Componen
ntFundingu
underNCICDDevelopmen
ntCompanyApproach
Table6
Compone
ents

Capex
(US$
bln)

Delivery
Model

Revenue
model
Payment
Mechanism

Investor

Privatefinaance

Dev.CoFinance/
Funding

Public
Finance
ofDev.Co

OuterSe
ea
Wall++
Reclamattion
PhaseI
Pumpin
ng
station
ns
&Lockks

3.8
6.4

DB

LandSales

Dev.Co

Equity
GOI(20%)

0.9

DBFM

Availability
Payments

Private

PrivateDebt/
Equity
(70%/30%
%)

Gu
uaranteed
Bilateeralloan(80%)
andccashflowfrom
landsales
Milestonepayment
from
mDev.Cocash
balances

NatTollR
Road

3.4

DBFM
O

Milestone+
Availability
Payments

Private

PrivateDebt/
Equity
(70%/30%
%)

MRT

1.0

DBFM
O

Milestone+
Availability
Payments

Private

PrivateDeebt
(85%)Privvate
Debt/Equ
uity
(70%/30%
%)

CityRoaad
Networrk

0.6

DBFM
O

Availability
Payments/
RoadChargess

Private

PrivateDebt/
Equity
(70%/30%
%)

Reclamattion
PhaseIII
(Wingss)

1.2

DBSell

LandSales

Dev.Co

Milestonepayment
from
mDev.Cocash
balan
nce(including
collecctedtollfees)
Milestonepayment
from
mDev.Cocash
balanceeandavailability
payymentsfrom
Farebox
Milestonepayment
from
mDev.Cocash
balan
nce(including
collecctedtollfees)
Projecttloans+Dev.Co
o
CaashBalance

Reclamattion
PhaseIII
(Wingss)

1.3

DBSell

LandSales

Dev.Co

Projecttloan+Dev.Co
o
caashbalance

Port

0.8

DBSell

LandSales/
Leases

Dev.Co

Dev.Cocashbalance

dingapproach
hreliesonth
heNCICDDevvelopmentC
Companystyypicalabilityttoattractfin
nance
Thefund
whichisbackedbyth
heGOI.Itisaassumedthatttheinitialin
nvestmentsintheOSWaandthefirst((large)
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trancheo
oflandreclamationsarefundedfrom
macombinationoftheco
ompanysequ
uity(injected
dbythe
GOI)and
dabundleofbilateralloans.

panycanbeffundedouto
ofacombinattionofprojeectfinancean
ndretained
Furtherinvestmentsbythecomp
mthesaleoffreclaimedlaand.Thecom
mpanysfreecashflowisusedtosubssequentlycro
ossfund:
cashfrom

OuterSeaWall(loanrepaayment)+lan
ndreclamationphase
1. O
2. TTransportatio
on:CityToll,MRTandNaationaltoll
3. LLandreclamaationphaseIIandIII
4. O
Others:Pump
pingStationss,LocksandPort
5. D
DividendpayyoutstoGOII
Theresultingcrossfu
undingandkeyfinancingarrangemen
ntswithintheeNCICDDeveelopmentCo
ompanyare
dinfigure8.
reflected

Figure8|FundingmechanismforstageB

nthecostan
ndrevenueaassumptions derivedfrom
mtheinvestmentcases presentedin
ntheMP,a
Basedon
viablefin
nancingstruccturecouldb
bedeveloped
dwithGOIprrovidingseed
dcapital(equ
uityinjection
nofUS$1.6

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24|

billion7)aandguaranteesforbilatteralloansto
otheDevelo
opmentCom
mpany.Inthisswaystage BofNCICD
maybeffinancedouttsidethepub
blicbudgetaandmayeveengeneratessufficientretturnstocrossssubsidize
therepaymentoffin
nancingassumedtorealiizethepreco
onditionsas thedevelop
pmentofsew
werageand
wastewatertreatmeentfacilities atalarge sccale.Figure 9 showsthee cashflowtothe GOIbased onits
bution of US$ 1.6 billio
on. This cash
h flow has a positive N
NPV of US$ 6.1 billion
initial caapital contrib
calculateedatapubliccdiscountratteof10%.

Figure9|CashflowttoGOIStaggeB

4.3

TH
HEFUNDINGOFFOPERATIONA
ANDMAINTENA
ANCE

Theanalysisofthefiinancialfeasibilityandfu
undingstrateegyhasprimarilyfocusseedonthecosstrecovery
nts.Fromfloo
odsafetyperspectiveitisofcritical
oftheinitialinvestmentsinthefflooddefencecomponen
nce to put in place a sustainable arrangemen
nt for the O
O&M aspectts of the flo
ood safety
importan
componeents.

O&M factorrs are the O&M related to the OSW, Pumping Station
ns, Locks an
nd Lagoon
Critical O
Managem
ment.Inthe proposedfu
undingschem
mesfortheP
PumpingStattionsandLoccks,O&Mis contracted
7

The prese
ented figures ha
ave rough indicative value onlyy subject to future optimizatio
on / scoping of the
t underlying business
b
cases
and uncerttainty reduction
n of the cost and
d revenue estim
mates.. Underlying cost and revvenue estimates.
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onalife cyclebasisu
undertheDB
BFM/Odeliveerymodel.Thisisalong termandpeerformanceb
basedO&M
providedbyttheprivateco
ontractor.Assdiscussedaabovesuchamodelcould
dalsobeapp
pliedtothe
servicep
OSW,sub
bjecttoValu
ueforMoneyyTesting.

o be financed
d from the
In the caase of publicc funding the O&M costts and availaability paymeents have to
budget(APBN/D).In
ntheDevelo
opmentCompanyapproaachtheO&M
Mcostsoravvailabilitypayymentsare
m the cash balances in the compan
ny. However to become sustainable it is recomm
mended to
paid from
establish
h a dedicated
d (earmarkeed) revenue or tax sourcce to pay for the ongoin
ng O&M req
quirements.
Such earrmarked reveenue (or taxx) would allo
ow for undissturbed shorrt, medium aand long terrm planned
maintenaance,refurbiishmentandfutureupgraadesofthessystemscom
mponents.

dsavailablefforadequateeO&Mshouldbecomeleessdependeentfromann
nualbudgets,,whichare
Thefund
fluctuatin
ngeveryyeaar,basedonaactualeventss(disasters)andpolitics.Thiscanbeachievedbygenerating
revenuessfromcharggingbeneficiaariesoffloodsafetyorw
watermanaggementservices.Intheccaseofthe
Developm
ment Compaany approacch, the O&M
M function could be po
ositioned with the com
mpany. The
companyymaybeenttitledtolevyychargeswitthbeneficiarriesinitsdevvelopmentarreaforthep
provisionof
water management and flood saafety servicees. If the pow
wer to levy charges cann
not be assiggned to the
he Developm
ment Authorrity can prepare a servvice provision
n agreement with the
companyy directly, th
companyytoprovideorarrangefo
orO&Mofth
hefloodsafeetycomponeentsandpayaservicefeeewhichcan
becoverredoutofearmarkedtaxaationorcharrgesleviedfrrombeneficiaaries.

hepublicfinaancealternattivetheO&M
Mfunctionmayeitherbeassignedtoanexistingaagency(e.g.
Underth
BalaiBessarWilayah)oranewauttonomousseerviceorganizationthatd
dealswithwaatermanagement,such
asPJTfo
ormanaging theBrantas basinandJaatiluhurreseervoir.Itisleegallypossib
bletoestablishapublic
serviceo
organization((PSOorBLU)),whichhasttheauthorityytocollectreevenuesfrom
mbeneficiariesfortheir
services and that caan receive go
overnment subsidies.
s
Allso in the caase of the Development
D
t Company
h, the O&M function off the flood safety
s
system
m may be trransferred to
o an externaal entity as
approach
describedunderthepublicfundin
ngapproach..

ngandfundingtheO&Mfunctionaree:
Thekeyrrequirementtsinorganizin
1)
2)
3)

SSingleandcleearsystemO
O&Mresponssibility;
C
Capabilityan
ndcapacitytoundertaketheO&Mup
ptotherequ
uiredstandarrdsasagreed
duponin
ttheNCICDAsssetManagementStrateggy(seeTechn
nicalReportonAssetMaanagement);
SSecurelongttermfundinggtoallowforrplannedand
dundisturbeedmaintenan
nceandrefurrbishment
o
ofthesystem
m.

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5
5.1

CONCLUSION
NSANDRECOM
MMENDATION
NS
CO
OMPARISONOFFTHETWOFUN
NDINGSTRATEG
GIES

ThetwofundingstrattegiesfortheestageBfloo
odsafetycom
mponentsarresummarizeedintable7..

noftwofundingstrateggies
Table7||Comparison

GOIfinan
nce
(APBN/D))
Debt

Contingen
nt
liabilities

O&Mexp
posure

NPV@10
0%

Optimized
dPublicFundingoffloodsaafety
compone
ents

NCICDDeevelopmentC
Company
USD1.6billio
on
Equityinjection(neutralim
mpactonGOI
BalanceSheeet)
USD 6.4 billion on Devv.Co Balance
Sheet
Sovereignguaranteeb
bilateralloan
toDev.Co
o.
LenderguaranteesDBFM
contractssPumps,lockss,National
tollroad,,CityRoadnetwork,MRT
OuterSeaWallO&M@
@USD46
million/yyr(2014pricess)
Alltransp
portationprojjectsO&M
costsposstDBFMcanb
befunded
fromtollrevenues
Locksand
dpumpsO&M
MpostDBFM
@USD1
14million/yr(2
2014prices)
Lagoono
operations@USD9
million/yyr(2014pricess)
TotalO&
&Mexposurep
post
project:USD69millio
on/yr(2014
prices)

+/+USD6.1b
billion

USD1.2billion
GOIbudgett
USD4.7billiononGOIBaalanceSheet

LenderrguaranteesD
DBFMcontractts
Pumps,,locks

OuterSSeaWallO&M
M@USD46
million//yr(2014prices)
LocksaandpumpsO&
&MpostDBFM
M@
USD14
4million/yr(20
014prices)
Lagoon
noperations@
@USD9millio
on/yr
(2014p
prices)
TotalO
O&Mexposure
epostprojectt:
USD69
9million/yr(2
2014prices)

/ USD4.2billionbeforefinancing
/ USD 3.5 billion after finaancing
optimization

Essentiallly the SC ap
pproach can
n unburden the GOI bud
dget except for an initiaal equity injection and
contingeentliabilities relatedtob
bilateral loan
ns directlylentbythe co
ompanyand eventually payment
ments for pum
mping statio
ons and locks. Based on the MP bussiness case
guaranteees for availaability paym
figuresfo
orstagesBaandC,thisin
nvestmentap
pproachcoulldgenerateaapositiveNP
PVofUS$6.1billion.In
additionmuchadditionaltranspo
ortinfrastructureandland
ddevelopmeentsaredelivvered.

mizedpubliccfinanceapp
proachstillbu
urdenstheb
budget,thougghthisburdeenisspreadoveralong
Theoptim
time perriod. The NP
PV cost to th
he budget am
mounts up tto US$ 3.5 b
billion. This b
burden may be further
reduced by earmarking future reevenues from
m land reclamations and
d other profiitable develo
opments in
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JakartaB
Bayfortherrepaymento
ofoutstandin
ngloansand availability payments.H
However,as mentioned
already,thereisnoreeadilyavailablemechanismorbudgeetaryrulethaatwouldallow
wthiscurren
ntly.

proaches it is the GOI th


hat secures the initial fu
unding to in
nitiate the flood safety
In both funding app
oftheOSW isjeopardizeedbyordep
pendenton
componeentsofstageeB.Inneitheerscenariotthefundingo
uncertain
n revenue sttreams from
m land sales and real esttate develop
pment or subject to purrely private
profitmaaximizationcconcerns.In theDevelop
pmentComp
panyapproacchthePump
pingStationssandLocks
arepartiiallyfunded withlandreevenuesfrom
mlanddevelopments.If theserevenuesturnoutttobeless
thanexp
pected,thep
portionofpro
ojectfinanceeeventualllyunderpaymentguaran
nteefromGO
OIcanbe
increased
d.

ptimizedpublicfundingscchemethepublicsectorw
willstillleadthedevelop
pmentofNCICD.Private
Intheop
investorssmayfollow
wbyinvestingginfurtherlandreclamaationsandevventuallytran
nsportinfrasstructurein
Jakarta Bay. There is no optim
mal integration between
n the flood safety and
d the other profitable
mayleadtoaaleakageofpotentialdevvelopmentvalue.
componeents,whichm

pany approaach a comm


mercial, business approaach is appliied to the
Under the Development Comp
ment of NCIC
CD from the start and hence the revvenue poten
ntial can be optimized.
integrateed developm
Thereforrethisapproachseemsm
mostadequattetounlock thesocioecconomicpoteentialofthe Integrated
Developm
mentapproaachofNCICD.

PPProadmap
p,theNCICDCompanycaanaccommo
odateprivateesectorpartiicipationat
AsdescribedintheP
mpanycanbeeassignedto
o a privatecconsortium.
differentt levels. Esseentiallytherighttomanaagethe com
Alternatiively,aprivaateinvestorm
mayjointventurewithaanexistingSO
OEorSOEsintheNCICD
DCompany.
The proccess of involving privatee partners in
n the compaany may lead
d to a furth
her optimizattion of the
businesscase,which
hcanfurtherrreducethe needforGO
OIseedcapittalandloan guarantees. Allkindof
ntscenariosm
maybedevelopedthrougghthecompaany.
optimizeedinvestmen

nningandinclusionofth
heyetundevveloped17Isslandconcessionsmayveerywellallow
wforcross
Areplan
fundingo
ofthepreco
onditionofw
waterqualityimprovemen
nt.

5.2

REECOMMENDATIIONANDNEXTSTEPS

From a ffunding persspective it iss recommen


nded to set up a NCICD Developmeent Companyy (Strategic
Companyy) under thee envisaged Development Authorityy. This structture allows the develop
pment of a
robust b
business casee in which the investm
ments in floo
od safety co
omponents ccan be secu
ured (initial
mobilisattion of funds under soveereign conditions) and reecovered fro
om developm
ment revenu
ues without
burdenin
ngtheGOIsbudgetandd
debttargets (alsoseeapp
pendix2).

developmenttrightsaward
Dependingonthescopeofthed
dedtosuch acompanyaabusinesscaasemaybe
developeedthatcanaalsorecover thenecessaaryinvestmentsintheprreconditionsslikethewaaterquality
improvem
ment. This m
may becomee viable if th
he NCICD Co
ompany mayy become eentitled to develop the
remainin
ng,yetundevvelopedislan
ndsfromthe 17licensedllandreclamaations.

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nextstepsarre:
Thekeyn

1. TToagreethekeystructurre,objectivessandgovernancemechanismsoftheNCICDDeveelopment
C
CompanytobeconsolidaatedinaPerP
Pres.
2. TTomaketherequiredbud
dgetreservationsfortheesetupandccapitalization
nofthecomp
panyand
ttokickstartitsbusinessp
planningactivvities.
3. TToenterinto
oconsultation
nwithbilateralpartnerstogetinvolvvedinNCICDandtoproviideloans
ttotheNCICD
DDevelopmentCompanydirectly.
4. TToselecttheSOEsandprrivatecompaaniesthatwilllconstitutetthecompanyy.Forthesellectionofa
p
privatepartn
neraPDAten
ndercouldbeeundertaken
n(seePPPreeport).
5. TTodevelopth
hebusinessp
plananddeliiverystrategyoftheNCIC
CDcomponentsinconsulltation
w
withthepoteentialbilateralfundingp
partnersandotherprivatesectorinveestors.Thisw
wouldbe
d
donebytheN
NCICDDevelopmentCom
mpanyoraseecretariatthaatfunctionsasthenucleu
usofthe
N
NCICDDAandDev.Co.

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A EXESS
ANNE

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ANNEX1

ANA
ALYSISOFFU
UNDINGSOURCES

Govern ment/Publ icFunding


ofvariousin
nstrumentsthatisbasedonpublicandGovernm
ment
Thepubllicfundingcoversabroaadcategoryo
actionto
oraisefinanccing.InIndon
nesia,thepub
blicfundingiincludes:
i.
CeentralGovern
nmentBudgeet(APBN):Th
hisisthebassisofpublicinfrastructureedevelopmeentfunding. Itis
allocatedonannualbasisaandsomeprrojectsalsorreceivemultiyearsallocaationbased ontheMediium
works(MTEF) ofthreeyeaars.Howeverr,thissourceealonewilln
notbesufficiient
TeermExpendittureFramew
givvenIndonesiasmassiverrequirementfornewinfrrastructuredevelopment.
ii.
So
overeignLoan
norODA Lo
oan:Foreign loan provideedfrominteernational aid
dagencies (d
donor).Amo
ount
willbelimited towithingo
overnments policyondeebtceiling(w
whichiscurreentlyaround
d22.5%ofGDP)
DAhastheb
benefitofvarriousknowleedgetransferrandcapacittybuildingin
ntechnologyy,managemeent,
OD
go
overnance an
nd other advvanced skills.. On the oth
her hand, it h
has limitations in terms of funding lead
tim
meandflexib
bility.
iii.
Co
ountryBond:Bondisissu
uedbasedon
ncountrysccreditrating.Thecostof
f bondwillbeecomeloweras
country impro
oves its cred
dit rating, w
which is a function
f
of the countryys developm
ment stage. For
donesia,costtofbondis stillhighertthanODALo
oan.However,fundingfrombondmaarketissimp
pler,
Ind
fassterandhasmoreflexibility.
iv.
ReegionalGovernmentBudgget(APBD):R
Regionalbud
dgetisalsoth
hebasisofpublicinfrastrructurefunding.
Sectors such aas water supply would be under the responsibility of local government. However, m
most
defacto subsidized by the central governmentt budget an
nd we canno
ot expect much
reggions are d
inccrementalfunding.Perhaaps,DKIJakartawouldbeetheonlyexcception.
v.
Mu
unicipalBond:Municipalbondsareisssuedbytheeprovinceordistrictgoveernmentforfinancingpu
ublic
utiilitiesprojectts.Thishasb
beendiscusssedforseverralyearsbuttnotyetbeeenrealized.R
Realistically, the
on
nlyregionalggovernmentw
withahealth
hyenoughfisscalstaturew
wouldbeDKIIJakarta.
Inadditio
ontotheabo
ove,thefollo
owingpublicbasedfundin
ngsourcesarebeingdevvelopedbyth
heGovernmeent:
Asset Liquidation
n: The government mayy have assetts that could
d be liquidatted to proviide a sourcee of
nue generating asset controlled by the
funding. IPOs off some SOEss would be an examplee. Any reven
goveernmentcoulldhavevalueeintheeyesofaprivateinvestor.
Regio
onalDirectLLoans:Loansprovideddirectlytoreggionalgovern
nmentsbaseedonfiscalccapacityand the
credibility of reggional govern
nment. Whilee these are theoreticallyy possible, reealistically no
ot much can
n be
hissource.
expeectedfromth
Off Balance Sheeet Funding: Off balance sheet item
ms comprisee contingentt liabilities aand conditio
onal
mentcommittments.Thessecanbeleveragedtogeeneratenewsourcesoffu
unding.Therearetwoforms
paym
beinggdeveloped:
o Availabiliity Paymentts: A commo
only used scheme in many
m
countries is to remove user pay
demand riskfromprivateinvestm
mentsininfrrastructure.Instead,the privateinvesstorcommitssto
ntermsofavailability(ii.e.theassettisinastateethatisavaillableforusagge).
assetperrformancein
Oncepreeagreedconditionsforavvailabilityareefulfilled,th
hegovernmentpaysanavvailabilityfeeeto
theprivaatepartysub
bjecttoassetperforman
nce.Thisann
nuityamounttissetata leveltoprovvide
investorss with a reassonable equity IRR and robust debt service. Nowadays this kind of privvate
projectfiinanceininfrrastructureissconsideredaformofPP
PPinmanycountries.

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SOEdirectloanswith
hsovereign guarantees: Thismethod
dissometim
mesusedwheenanSOEd
does
marketcredibility.Itusestthecontingentliabilitypo
ocketoftheggovernment.
nothavesufficientm

PPPFun
nding
PPPs atttract equity from privatte investors and commeercial bank loans, based
d on the prrofit potentiaal /
commerccialviability oftheproject.Thesetraansactionsallsoseektoim
mprovevalu
ueformoneyybyintroduccing
privatesectorexperttise,technolo
ogyandmanagement.

Howeverr,inmostseectors,theprojectisofteennotbankaablewithouttgovernmentsupport.Basicpatternssof
governm
mentsupport arelandacq
quisition,viabilitygapfun
nding(capexxsubsidies)aandgovernmentguaranteees.
It is not easy to enssure that projects becom
me bankablee (or ready ffor tender) and we should set realiistic
wmanyPPPp
projectscanrreachfinanciialclose.
expectattionsforhow

PPP funding is presented


d in the Tech
hnical Reporrt on PPP an
nd Procurem
ment
A more detailed disccussion on P
Strategy..

Private Funding
Privateffundingcoveersawidevaarietyofsources,suchassfoundation
ns,corporatio
ons,voluntaryagencies and
commun
nitygroups.FForNCICD,ho
owever,discussionislimiitedonlytotthefundingo
originatedbyycorporation
ns.
Virtually unlimited amounts of p
private funding, in term of loan capittal and privaate equity arre available aand
noshortage ofcapitalinprinciple.Ho
owever,thattdoesnotneecessarilyressultinreadilyyto
thereappearstoben
he required fund. Investtment criteriia differ betw
ween various sources off finance, such as investors,
supply th
lendersaandequityprroviders.

nvestorsarelookingfor afavourableefinancialrateofreturn,,technicalcrriteriaandcrreditworthiness,
Privatein
whilepublicpolicyco
onsiderationsareonlyoffsecondary importance. Commerciallbankshaveebeenrelativvely
ndcomplexittyrelatedtotheproject.
slowtoeenterthemarketunlessttheyarefullyyfamiliarwiththerisksan
SOEFun
nding
State Ow
wned Enterp
prises are an
nother sourcce of fundingg. In Indoneesia, SOEs arre key players in almostt all
economicsectorsand
damongtheehighlyresourcedinstitu
utions.SourceesofSOEfun
ndingincludeecashreservves,
hflowandSO
OEdirectloans.
freecash

marketablessecurities)thatSOEshaveein
i.
CaashReserves:Cashorcasshequivalentliquidassets(suchasm
theeirbalancessheet.Itisno
otexpectedthatmanySO
OEsretainlarrgecashreseervesintheirbalancesheets.
ii.
Op
perationalCaashFlow:Casshflowfrom
mtheirmain businessactivities.EBITD
DAcouldbe usedasarough
esttimate.Again
n,however,itisnotlikelyytobeamaiinsourceofffunding.
iii.
SO
OEDirectLoan/Bond:Thissisaloanbasedonthefiinancialstren
ngthofanSO
OE.DSCRand
dtheDebtto
o
Eq
quityratiopro
ovideanindiicationoftheepotentialfo
orsuchloanss.

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ComparrisonofFun
ndingSourrces
Source o
of Advantagge
Fund
Public
Purpo
oseandamountsetbylegisslation
Focussonfunctionsthatusuallyim
mpactingthe
publiccinterests
Havethemostmon
neyandmorelikelytoawarrd
largecontracts.
Smallriskofdefaultonpayment,highersecurrity
ontractorsorssuppliers
forco
Thew
wholeprocesseesarestandarrdizedandverry
firm.
Private
Onlyffocusonspecificintereststhatyield
financcialprofit
Often
nwillingtopoo
olresourcesw
withother
fundeersorinvestorrs
Widerangeinsizeofavailablefin
me,
nancingschem
somecanmakeverrylargeamount
Morewillingtotakerisksonnew
wideaand
mizeprojectco
osts
higherrisksapproaachestooptim
Ablettoavoidbureaaucraticrequirementshencce
shorteenthedecisio
onprocess
PPP
Focussonpublicutilitiesorpubliccservicesthatt
oftennotcommercciallyviable
Profittabilityissuesccompensatedthrough
goverrnmentsupport(subsidies,ffacilitiesand
guaraantees)
Possib
bilitytocombinevariousso
ourcesoffund
d
(publiic,private,SOEs)withfinan
ncingscheme
Expecctedtobringp
privatesectorefficiencyinto
o
publiccservice
SOE
Morelikelytofocusoncommercciallyviablebu
ut
dertakedevelopmental
oftenwillingtound
investtmentifassign
nedbyGovern
nment
Havin
ngadvantageintermofraissingfundasit
consid
deredtobequ
uasigovernment
Otherrthanthat,itissimilartoprrivatefundingg

Disadvaantage
Muchmorebureaucratic,lengtthyand
mplexprocedu
ures
com
Ofteenrequireinstitutionalcosttsharingand
mattching.
Diffficulttoacceptnewideasan
ndhighrisk
app
proaches.
Chaangingpoliticaaltrendsaffectt
continuationofp
programsduetochangein
dgetpriority
bud
Inveestment deccision solely based on
com
mmercialviability
High
hly dependent on overaall economic
conditionandsup
pplyofcommercialloans
Varietyofdecisio
onmakingpro
oceduresthat
dep
pending on so
ource of fund, nature of
inveestor, type of project and other
tem
mporalrequireements.

Ofteenaffectedbyychangingpoliticaltrends
High
htransactioncosts
Dep
pendentonovveralleconomiccondition
and
dsupplyofcom
mmercialloan
ns
Lenghtyprocessw
withsophisticcated
tran
nsactionagreeementsthat
requirehighdegrreeofpublicssector
withit
capacitytodealw
Ofteenaffectedbyychangingpoliticaltrends
Percceivedasineffficientoperator,increase
projjectcosts
Dep
pendentonovveralleconomiccondition
and
dsupplyofcom
mmercialloan
ns
Potentiallycrowd
dingoutprivatte
inveestments

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ANN
NEX2 FISCALIMPACTCOMPARISSON

Theffiscalimpactofthefloodsafetycomp
ponentsissummarizedunderthreefu
undingappro
oaches:
1. TTraditionalbudgetfundin
ng
2. O
Optimizedpu
ublicfinancescheme
3. FFundingthro
oughtheNCIC
CDDevelopm
mentCompan
ny
Bud
dgetaryImpacct
Shortt
Medium
(12yyrs)
(35yrs)
directinvestm
mentsfrom
Highd
APBN
NforstageA,O
OSW,
Pump
pingStationsaandLocks

Long
(>5yrs)
Someyears
withongoing
investmenttup
to2025

OSWfund
ded
bybilaterral
loan

Investtmentof
GOIco
funding
obligaation

Investment
ofGOIco
funding
obligation

Pumps&
Locks
Private
Finance

Nopaayments

Funding
applied
Traditionaal
Budget
fundingfrrom
APBN/D

OSW,Pum
mps
andLockss
funded
through
NCICDDeev.Co

MRT,Toll
Road,Porrt
andLand
Developm
ment

StageeA
funding

Debt

Contingent
d
Liabilitiesand
RiskstoGOI

Potenttial
Increasseof
regularr
govern
nmentdebt

Typicalriskof
traditionaldeelivery
model

Debtservicce
bilaterallo
oan
spreadoveer
2030yeaars

Increasseofbi
lateraldebt

N
Nopayments

Availabilityy
paymentsffor
20/25yeaars

Offballancesheet

financing

Equity
in
njection(1.6
Bln)inNCICD
D
Dev.CobyGOI

Dividend
paymentsaand
equity
redemption
byNCICD
Dev.Co

Debtissassumed
directlyybythe
Dev.Co
ooff
balancesheet
GOI
fromG

Dividend
paymentsaand
equity
redemption
byNCICD
Dev.Co

Debtissassumed
bytheDev.Co
offbalaancesheet
fromG
GOI

Provisionof
guaranteeto
ders
bilaterallend
andeventualllyto
privatefinancciers
ofpumpsand
dlocks
createsa
contingentliaability
Contingentliability
ifGOIisto
guaranteethe
availability
paymentbytthe
Dev.Co

NCICDFun
ndingStrategy|PMUAssistancce|NationalCaapitalIntegrateedCoastalDeveelopment
DraftSepteember2014

34|