Difficulties in Partnership-based Projects
Bernardus Djonoputro, Investor Magazine, April 2012
Out of 79 infrastructure projects offered through the PPP scheme, only one has passed the tender process. Another 33 projects were suspended. This situation is thought to be partly caused by a lack of understanding of the essence of PPP, by Frans S Imung
Economic actors have long complained about the lack of infrastructure. This does not escape the attention of the government. Nevertheless, the fact is infrastructure development remains merely a discourse. The government has only a limited funds available for infrastructure investment and yet private companies have shown high interest in infrastructure projects. It is too bad that the government chooses not to exploit these opportunities.
The National Development Planning Agency (Bappenas) has stated that around US$143 billion will be needed for infrastructure development in 2010-2014, or around 3% of GDP, in order to meet the country’s economic growth target of 7% per annum in 2014. Of this amount, the government budget can only cover around 35% or US$ 50 billion of the total required infrastructure investment, leaving around 65% or US$ 93 billion of the investment expected to come from private sector.
Unfortunately, Public Private Partnership (PPP) schemes are far from providing solutions. 33 PPP projects on the government’s list for 2011 were cancelled. These projects were part of the 79 investment projects worth US $ 53 billion which originally planned using PPP scheme. Another 34 new projects entered showcase phase, but only 9 reached pre-qualification stage and only one passed tender and named a winner in the middle of last year.
According to Bernardus Djonoputro, the Managing Director of PT Nusantara Infrastructure Tbk, the difficulties in tendering process for infrastructure projects are caused by many obstacles. "In my opinion, the weakest point of these issues is the poor commitment between government and private sectors in implementation of partnership management ," explained the man who is familiarly called Bernie, after the Nusantara Infrastructure Dialogue Series held at the campus of Bandung Institute of Technology (29/2).
The poor management of public-private partnership, Bernie said, resulted from the accumulation of six acute problems that everyone has been complaining about. Protracted land acquisition process becomes the major obstacle in PPP projects realization. Not to mention the obstacles related to political issues, laws and regulations, and also the limited financial support. Financial institutions tend to not understand the nature of the infrastructure business so they are less willing to provide financial support to infrastructure projects.
On the flip side, the lack of qualified resources capacities coupled with inadequate feasibility studies on the projects offered aggravate the problem. Whereas, if these long standing problems can be eliminated quickly, Indonesia economy has a chance to achieve a growth rate of beyond 7%. "Private investors has been very ready to get into this sector, but mutually beneficial cooperation between public and private sector should be developed," explained Bernie.
In order to realize PPP-based projects, according to Euan Low, the Country Manager Mott MacDonald Japan KK, private sector preparedness alone is not enough. The government must also be prepared because they do have an obligation to build the infrastructure, as mandated by the constitution of Indonesia. In the context of Public-Private Partnerships (PPP), there should be an equality in both public and private sectors.” Without the principle of equality infrastructure development cannot proceed,” said Euan Low.
Understanding the equality still poses a challenge for Indonesia. Therefore, Euan Low said, the realization of PPP projects in Indonesia is considered the most difficult one in the world. The differences in perception between the central and local governments and the private sector can be found from project preparation phase up to implementation phase.
The government is faced with a daunting challenge. Professionalism in PPP projects should be made priority. Examples from different countries can be used for comparison. The government should focus on several important points, Euan said, ranging from progressive vision of cooperation management and also qualified commercially. Moreover, it still needs project feasibility, tender process and a fair concession agreement and acceleration of land acquisition.
With no intention to point fingers at the government, the professional learning in infrastructure projects through PPP pattern has been going on for too long. If we look back, the effort to accelerate infrastructure development was rolled out at the end of 2009. However, only one project i.e. IPP of PLN in Central Java has completed its tender and has named a winner by JPower-Itochu-Adaro consortium.
The cessation of the PPP projects seems to be a great irony because many support policy has been launched. Supporting devices such as government regulations and infrastucture guarantee has been established. Government bridging finance was realized in the form of Viability Gap Fund. Funding mechanism through financial organs such as PT Sarana Multi Infrastruktur and PT Penjaminan Infrastruktur Indonesia were available. However, only one steam power plant project completed its tender. ”Out of the many investment tenders, all have stopped at the pre-qualification stage,” explained Bernie.
An observer of infrastructure, Andreas Wibowo, confirmed that the realization of PPP projects does not run smoothly, although the regulatory support has been prepared. He made a special note about the need for preparedness of the project that would be carried out with private sectors. "It is not uncommon for data and information regarding the financial feasibility of the project to be minimal, especially issues concerning the identification and analysis of risk," said Andreas some time ago, in a discussion entitled " PPP Patterns and Infrastructure Development", in Jakarta (13/3).
Given the current conditions, all parties involved in infrastructure development should have an improved understanding. This includes banking circles as they are often less aware of the nature of infrastructure business. Bernardus Djonoputro stressed that all parties must fully understand the essence of partnership. The government on one side should have an open mind pertaining to commercial aspects.
Infrascope research of 2011 shows that Indonesia was ranked 9th out of 16 Asia Pacific countries in terms of their readiness to realize PPP pattern. As a form of awareness, the management of PT Nusantara Infrastructure Tbk regularly holds a socialization program through dialoge series and aims to increase everyone’s understanding of the essence of infrastructure development with PPP pattern.