Public Private Partnership (PPP)

in Indonesia
Ayik Candrawulan Gunadi
- The Big 5 Construct Indonesia Workshops
10 November 2016
 TTTTOPICS
SESSION TOPIC

1 Brief introduction on the PPP program in Indonesia

2 Assessing the role of private sector in achieving development
targets through PPP frameworks
3 Understanding the key characteristics of government projects

4 Overview of common challenges, regulatory discrepancies and

dynamic market factors facing the construction industry

5 Assessing PPP opportunities through a risk-driven approach

www.sitename.com
 Brief introduction on the PPP
program in Indonesia

www.sitename.com
 BRIEF INTRODUCTION

In Indonesia, PPP program is regulated under

Presidential Regulation No. 38 of 2015 concerning
Cooperation between Government and Business
Entities in Procurement of Infrastructure was enacted
(PR 38/2015). The PR 38/2015 revokes the previous
Presidential Regulation on PPP, i.e. Presidential
Regulation No. 67 of 2005 as amended lastly by
Regulation No. 66 of 2013.

www.sitename.com
 BRIEF INTRODUCTION

Types of infrastructure: PR 38/2015 broaden the PPP

infrastructure sector to social infrastructure sector. This is
implemented by adding new types of social infrastructure
such as educational facilities, sports and arts facilities,
health facilities, tourism facilities and public housing
infrastructure. In addition, PR 38/2015 also allows PPP
projects involve activities for the provision of commercial
facilities, which hopefully can increase the feasibility of PPP
projects and/or providing additional benefits to society.

www.sitename.com
 BRIEF INTRODUCTION

Direct appointment: The provision of the business entities

could be done by tendering process or direct appointment.
Under PR 38/2015 direct appointment is expressly
permitted in the event of the following situations: (i)
development of infrastructure that has been built and/or
operated previously by the same developer; (ii) the work
can only be carried with new technologies and there is only
one developer can provide that technology; or (iii) the
developer controls most or all the land required to
implement the PPP.

www.sitename.com
 BRIEF INTRODUCTION

Bundling Project: PR 38/2015 allows bundling two or more

types of infrastructure to be developed using a PPP
arrangement. Further, in the event of cross-sector
infrastructure projects, the Ministers/Heads of
Institutions/Heads of Regions that have the authority over
the cooperated infrastructure sectors based on the
legislation will act together as Government Contract Agency
(GCA). GCAs will sign a Memorandum of Understanding
about the GCAs and choose one coordinating GCA of the
bundled project.

www.sitename.com
 BRIEF INTRODUCTION
Hybrid financing: GCA can finance some part of the PPP project
which is expected can add some funds for the business entity.

Criteria of unsolicited project: PR 38/2015 permits a private sector

initiated proposal, which must be (i) technically integrated to the
master plan of the relevant sector, (ii) economically and financially
feasible, and (iii) the private sector is financially capable to finance
the implementation of the project. Moreover, PR 38/2015
regulates a fixed 10% additional score for the private sector,
beside compensation option requirement (right to match and right
to buy out the initiated project).

www.sitename.com
 BRIEF INTRODUCTION
Land acquisition: Pursuant to PR 38/2015 and in accordance
with the laws applicable in land procurement for public
interest, private entities can now initially fund the land
acquisition on behalf of the government entity. Further, these
funds will be repaid by the government entity through return
of investment pursuant to an agreement. Only after the
stipulation of the location of the project has been completed,
then the procurement process will be implemented. Moreover,
in the event the BUMN/BUMD acts as the authority in charge,
the source of the fund will come from: (i) internal budget of
the said BUMN/BUMD, or (ii) cooperation between the said
BUMN/BUMD with the developer

www.sitename.com
 BRIEF INTRODUCTION

Success fee mechanism: PR 38/2015 provides legal

certainty in PPP processes in terms of the success fee
mechanism. It is stipulated that all or part of project
preparation cost could be imposed to the winning
bidder and it shall include: (a) feasibility study, (b)
transaction process, and (c) success fee for the
privates that prepare the project.

www.sitename.com
 BRIEF INTRODUCTION

Government support: The government supports are given

in the form of viability gap funding and tax incentive.
However, these government supports shall be approved by
the Minister of Finance.

Financial close: PR 38/2015 provides that the maximum

time of the financial close is 12 (twelve) months and can be
extended for maximum another 6 (six) months.

www.sitename.com
 BRIEF INTRODUCTION
Investment return: Based on PR 38/2015, the private sector
partner will receive a return on investment in 3 (three)
forms, namely: (i) tariff scheme, (ii) availability payment, or
(iii) other forms provided by other laws and regulations. In
budgeting the funds for availability payment, the GCA will
take into account the capital and operations costs and
profits of the business entity over a defined period. Further,
the availability payments are payable based on the
availability of the services. However, the exact type of
infrastructure project that may use the availability payment
method remains to be further clarified.

www.sitename.com
 BRIEF INTRODUCTION

Indonesian language: Indonesian language must

be used (i) in PPP contract (English language can
be used for official translations only), and (ii) in
dispute settlement in Indonesian jurisdiction.

www.sitename.com
 Assessing the role of private
sector in achieving development
targets through PPP frameworks

www.sitename.com
 ROLE OF PRIVATE SECTOR

Offer the Government with specific

knowledge in infrastructure projects

Capital / fund provisions

www.sitename.com
 Understanding the key
characteristics of government
projects

www.sitename.com
 GOVERNMENT PROJECTS
Based on the PPP Book 2015, Indonesian
Government prepares the projects based on the
3 criteria:

(i) Potential Project

(ii) Prospective Project
(iii) Ready to Offer Project

www.sitename.com
 GOVERNMENT PROJECTS

www.sitename.com
 Overview of common challenges,
regulatory discrepancies and
dynamic market factors facing the
construction industry

www.sitename.com
 COMMON CHALLENGES

A low relative capital endowment limits Indonesias

efforts to expand its production capacity and
become a principal production hub in the region.

For example, its mining sector requires substantial

capital to finance exploration and extraction. This
applies to other sectors as well, including
manufacturing.

www.sitename.com
 COMMON CHALLENGES
Indonesia lacks adequate physical infrastructure
railways, airports, ports, and roads to facilitate
substantial trade flows. It is one of the countries in
ASEAN with the highest costs for exporting goods.
Similarly, its regulatory framework restricts
development in trade and investment. For example,
restrictions on foreign investors exist in logistics
services and maritime transportation in the form of
joint-venture requirements and a maximum foreign
ownership allowance of 49%.

www.sitename.com
 COMMON CHALLENGES
Corruption has long been recognized as an endemic
problem in Indonesia, as exemplified by the establishment
of the Indonesian Corruption Eradication Commission (KPK)
a decade ago. In recent years, the fight against corruption
has intensified as evidenced by the unprecedented number
of judges, government officials, legislative members, and
even police officials who have been brought to justice.
However, this has not improved Indonesias ranking in the
Corruption
Perception Index, which slipped 14 places in 2013 to 118th
compared to its rank in 2011.

www.sitename.com
 COMMON CHALLENGES

Conflicting Laws and Regulations in Indonesia

between Central Governments and Regional
Governments.

www.sitename.com
 Assessing PPP opportunities
through a risk-driven approach

www.sitename.com
 RISK ASSESSMENTS
Site risk is the risk that the project land will be unavailable
or unable to be used at the required time, in the manner or
at the cost anticipated, or that the site will generate
unanticipated liabilities.

Design, construction and commissioning risk is the risk that

the design, construction or commissioning of the facility or
certain elements of each of these processes, are carried out
in a way which results in adverse cost and/or project
delivery consequences.

www.sitename.com
 RISK ASSESSMENTS
Sponsor risk is the risk where the project company and/or its sub-
contractors are unable to fulfill their contractual obligations to the
contracting agency.
Financial risk is the risks related to financial viability aspects of the
project.
Operating risk is the risk that the process for delivering the
contracted services or an element of that process (including the
inputs used within or as part of that process) will be affected in a
way which prevents the project company from delivering the
contracted services according to the agreed specifications and/or
within the projected costs.
.

www.sitename.com
 RISK ASSESSMENTS
Revenue risk is the risk that the project revenue is unable to meet the
projected level of financial viability, due to the unexpected changes to
either the project demand or the agreed tariff or combination of both.

Political Risk is the risk of unforeseeable action/inaction by the

contracting agency or any other government authority that materially
and adversely affects the expected return on equity, debt service or
otherwise results in increased costs to the project company.

Force majeure risk is the risk that a specified event entirely outside
the control of either party (e.g. act of god, man-made catastrophic
event) occur and will result in a delay or default by the project
company in the performance of its contractual obligations.

www.sitename.com
 Q&A
Thank you
- The Big 5 Construct Indonesia Workshops
10 November 2016

Ayik Candrawulan Gunadi

agunadi@abnrlaw.com
+62 8111 55 45 20

www.sitename.com