MINISTER OF FINANCE REGULATION

No. 38/PMK.01/2006

REGARDING

IMPLEMENTATION GUIDELINES OF RISK CONTROL AND MANAGEMENT ON

INFRASTRUCTURE PROVISIONING

CHAPTER I

GENERAL STIPULATION

Article I

In this Minister of Finance Regulation what is referred with:

1. Minister / Head of Region is the leader of Ministry / Institution whose scope,

task and responsibility include infrastructure sector as referred in Presidential
Decree No. 67 Year 2005.

2. Business Entity is private business entity in form of limited company, State

Owned Business Entity, Regional Owned Business Entity and coop.

3. The Government Support are financial compensation and/or other form of

compensation given by the Government to the Business Entity through risk
sharing scheme in framework of Infrastructure Provisioning Partnership
Project Implementation

4. The Committee of Infrastructure Provisioning Acceleration Policy, hereinafter

called KKPPI, is the committee set up based on Presidential Decree No 42
Year 2005

5. Risk Management Unit is working unit under Minister of Finance whose main
task and function is to carry out risk management in framework of
infrastructure provisioning project implementation.

6. Political Risk is the risk caused by one party policy/act / decision from The
Government or State which directly and significantly has impact on the
Business entity’s financial loss, which include risk of asset ownership
takeover, risk of regulatory law changes, and risk of currency conversion
limitation and prohibition of fund repatriation.

7. Project Performance Risk is the risk related with project implementation,

which among others include risk location and operational risk.

8. Demand risk is risk caused by lower demand on goods/service produced by

Partnership Project compared with the one promised
 CHAPTER II

PURPOSE AND OBJECTIVE

Article 2

(1) Implementation guidelines of risk control and management of Infrastructure

Provisioning is meant to be:

a. Guidelines in administering risk control and management on infrastructure

provisioning; and

b. Public information means for parties that has the interest on risk control
and management on provisioning of infrastructure, including matters
related with contingent liabilities which the potency to burden the state’s
finance in the future.

(2 ) The Guideline as referred in sub clause (1) letter a contains :

a. Scope of risk management

b. Type of risk and forms of Government Support

c. Criteria of Government Support granting in risk management;

d. Procedure of Government Support granting;

e. Procedure of fund allocation in framework of risk management on

provisioning of infrastructure

f. Reporting and controlling

Article 3

Implementation guidelines of risk control and management on infrastructure

provisioning is aimed to :

a. Supporting the infrastructure availability which can drive and improve the
national economic growth; and

b. To materialize the maintenance of sustainable state’s budget (fiscal

sustainability).

CHAPTER III

SCOPE AND RISK CONTROL AND MANAGEMENT ASPECT

Article 4
The scope of risk control and management on provisioning of infrastructure
covers activity and responsibility on :

a. Planning of technical and financial project feasibility valuation, conducted

by technical department/institution

b. Evaluation of project feasibility and priority according to national

development priority is conducted by KKPPI;

c. Evaluation of fiscal and financial risk, monitoring and reporting of

Government obligation fulfillment in relation with granting of Government
Support is conducted by Department of Finance especially Risk
Management Unit

Article 5

Risk control and management aspect on provisioning of infrastructure

include:

a. Legal aspect

b. Institutional aspect; and

c. Policy aspect.

CHAPTER IV

TYPE OF RISK AND FORMS OF GOVERNMENT SUPPORT

Article 6

(1) Type of risk whose risk sharing scheme needs to be arranged between
Government and Business Entity in provisioning of infrastructure are:

a. Political risk;

b. Project performance risk; and

c. Demand risk

(2) In risk allocation scheme for political risk as referred in sub clause (1)
letter a, it can be promised for granting of compensation to the asset /
Business Entity owner.

(3) In the risk sharing scheme for Project Performance Risk as referred in sub
clause (1) letter b, it can be promised for :

a. location risk, in case these were happened:

 1) the delayed land procurement, can be granted of extension
of concession period and/or granting of compensation in other form
approved by Minister of Finance as long as the delay is caused by
the Government.

2) Increased land price, can be granted of concession period

extension to the Business Entity, to share Land price excess with
the percentage agreed upon with the Business Entity and/or
granting other form of compensation approved by Minister of
Finance.

b. operational risk, in case these were occurred:

1) Delay in the establishment of operation, delay in tariff

adjustment, cancellation of tariff adjustment, or establishment of
initial tariff lower than the one that has been promised, can be
granted of concession period extension to the Business Entity
and/or granted of other form of compensation approved by Minister
of Finance:

2) Changing of output specification beyond the one that has

been agreed upon, which being held by Minister / Head of
Institution, which cause financial loss to the Business Entity, can be
granted compensation by recalculating the production cost

(4) In risk sharing scheme for Demand Risk as referred in sub clause (1) letter
c, it can be promised in case:

a. the realization of revenue is lower than amount of minimum revenue

guaranteed by The Government because the amount of demand on
goods/service produced by partnership project is lower than promised
amount of demand, can be granted financial compensation and/or
other form of compensation approved by Minister of Finance; and

b. Realization of revenue is higher than amount of revenue guaranteed

by Government caused by the demand on goods / service produced by
partnership project is higher than promised amount of demand. The
Government obtains financial benefit on the demand surplus.

CHAPTER V

CRITERIA OF GOVERNMENT SUPPORT GRANTING

IN MANAGEMENT OF RISK

Article 7
The Government Support as referred in Article 6 is given as long as it fulfills
the following criteria:

a. The granting of Government Support must conform with the stipulation of

regulatory law prevails in Indonesia (legality principle)

b. The granting of Government Support is given to the partnership project of

infrastructure provisioning that fulfills technical and financial feasibility
(project quality);

c. The fiscal cost and risk arose from the granting of Government Support
does not surpass the limit of state’s budget capability to bear it; and

d. The granting of Government Support must fulfills transparency principle.

CHAPTER VI

PROCEDURE OF GOVERNMENT SUPPORT GRANTING

Article 8

The procedure of Government Support granting for partnership project of

infrastructure provisioning is conducted through following stages:

a. The pertinent Minister / Head of Institution submit the request proposal of

Government Support to Minister of Finance through KKPPI

b. In submitting the proposal as referred in point a, the Minister/Head of

Institution must conducts appraisal and calculation on project feasibility
with or without the Government Support in the risk management by
enclosing copy of the following document:

1). Report of Pre-feasibility study result;

2). Plan of partnership form;

3). Plan of project financing and its source of fund;

4). Plan of partnership offer which covers schedule, process and way of
valuation; and

5). Document of public consultation result by taking into consideration

implementation of criteria of legality, project quality and transparency
principle as referred in Article 7 letter a,b, and d.

c. The proposal is evaluated by KKPPI based on project quality criteria as

referred in Article 7 letter b
d. After being evaluated and being declared feasible by the KKPPI, the
proposal is submitted by the KKPPI to the Minister of Finance especially
Risk Management Unit to be evaluated based on criteria as referred in
Article 7 letter c and d.

e. Risk Management Unit convey the recommendation to the Minister of

Finance to give the principle approval and form of Government Support
that can be granted, or refuse to give the Government Support.

f. The Government Support as referred in letter e, contains the stipulation

and requirement (terms and condition) at least

1). Prevailing maximum period of Government Support granted

2). Risk sharing scheme with Business Entity, insurance company, and/or
other financial institutions.

3). Other risk control alternatives which is possible based on prevailing

regulatory law

g. In case the Minister of Finance gives the principle approval of

Government Support granting, the allocation of fund for Government
Support is proposed in the draft of State’s Budget to obtain the
parliament’s approval .

h. Based on parliamentary approval in State’s budget law the technical

department / Institution administer the auction or tender process
according to the stipulation of prevailing regulatory law

i. The technical department / institution conveys The Official Report of

Auction Result to Minister of Finance especially Risk Management Unit to
ensure the fairness of auction execution before the partnership
agreement is signed.

j. By taking into consideration the recommendation from Risk Management

Unit the Minister of Finance grants the final approval or refuse the
Government Support granting on the pertinent project.

k. Minister / Head of Institution or the authorized official signed the

partnership agreement after the Minister of Finance granted the final
approval on the pertinent Government Support granting.

CHAPTER VII

FUND ALLOCATION PROCEDURE IN FRAMEWORK OF RISK MANAGEMENT AND

CONTROL ON INFRASTRUCTURE PROVISIONING

Article 9
(1) The submission of fund allocation for granting of Government Support can
be made after the Minister of Finance grant the principle approval as
referred in Article 8 letter d.

(2) Fund allocation in form of financing for risk deposit in framework of the
Government Support granting , is being done following the prevailing
composition and administration of State’s budget.

(3) The management of risk deposit fund is administered by Directorate

General of Treasury in form of guarantee fund account.

(4) In case the fund for necessity of support granting which is already
prepared as referred in sub clause (2) is not used in one budget year in
the end of the year the budgeted fund is keep being stand in the
guarantee fund account.

CHAPTER VIII

REPORTING AND SUPERVISION

Article 10

(1) The Risk Management Unit administer the recording and monitoring of the
Government’s obligation, valuation of fiscal risk and cost, data updating,
and composing of periodical report

(2) The Risk Management Unit administers the perfection steps in risk
control and management according to the development occurred.

(3) The Directorate general of Treasury administer the recording, monitoring,

data updating, and compose periodical report on guarantee fund
management.

Article 11

The Minister / Head of Institution administer the supervision of the

partnership agreement’s execution according to prevailing regulatory law,
and submit the project’s development which obtain the government support
to the Minister of Finance, especially the functions management, i.e. The Risk
Management Unit, periodically.

CHAPTER IX

TRANSITIONAL STIPULATION

Article 12
(1) Before the Risk Management Unit is established and works effectively, the
main task and function of Risk Management Unit is handled by Risk
Management Committee on Provisioning of Infrastructure set up based on
Minister of Finance’s Decree No. 518/KMK.01/2005.

(2) For project whose the procurement process is being done and the winner
is established base on Presidential Decree No. 7 year 1998 regarding
Partnership of Government and Business Entity in Infrastructure
Development and/or Management, but the agreement has not signed yet,
then the Procedure of Government Support granting follows the procedure
below:

a. The pertinent Minister / Head of Institution submit the request

proposal of Government Support with enclosing the project’s related
document to the Minister of Finance through KKPPI

b. The project’s proposal and documents are evaluated by KKPPI based

on project quality criteria as referred in Article 7 letter b.

c. After being evaluated and stated as feasible by KKPPI, the referred

proposal and related document is conveyed by KKPPI to the Minister of
Finance especially The Risk Management Unit to be evaluated based
on criteria as referred in Article 7 letter c and d.

d. In case the Minister of Finance grant the approval of The Government

Support granting the fund allocation of The Government Support is
proposed in the Draft of State’s Budget for obtaining the Parliamentary
approval.

e. The Government Support as referred in letter b contains the stipulation

and requirement (terms and condition) as referred in Article 8 letter f;

f. In case the parliament approve the fund allocation as referred in letter

b, the Minister/Head of Institution or authorized Official sign the
partnership agreement with Business Entity.

CHAPTER X

CLOSING STIPULATION

This Minister of Finance regulation is begin to prevail in the date it is

stipulated

Stipulated in Jakarta

May 19, 2006