Infrastructure development in the form of facilities and infrastructure is the government’s obligation as an effort to meet the needs of society in the era of globalization. The limitation of the State Budget (APBN) in financing infrastructure development causes a funding gap that must be covered. To overcome this, the government is required to use several alternative funding, one of which is using a development cooperation scheme involving the private sector or investors known as the Public Private Partnership (PPP). Through this article, it is hoped that business actors can understand the PPP scheme in Indonesia and the related provisions.
Governing law and regulation
- Presidential Regulation (Perpres) No. 38/2015 concerning Government Cooperation with Business Entities in Infrastructure Provision
- Regulation of the Minister of National Development Planning/Head of National Development Planning Agency (Permen PPN/Kepala Bappenas) No. 4/2015 concerning Procedures for Implementing Government Cooperation with Business Entities in Infrastructure Provision as amended by Regulation of the Minister of National Development Planning/Head of Bappenas (Permen PPN/Kepala Bappenas) No. 2/2020
- Regulation of the Head of National Procurement Agency (Perka LKPP) No. 29/2018 concerning Procedures for Implementing Procurement of Business Entities Implementing Infrastructure Provision through Government Cooperation with Business Entities on the Initiative of Ministers/Heads of Institutions/Heads of Regions
- Head of National Procurement Agency Regulation (Perka LKPP) No. 19/2015 regarding guideline for procurement of business entity on PPP in Infrastructure provision
- Ministerial Regulation of Finance (Permenkeu) No. 190/2015 regarding Availability payment on PPP in Infrastructure provision
General exposition of PPP
There is no definite explanation of PPP, but it can be concluded that PPP is a form of agreement between the public sector (government) and the private sector (private) to provide public service facilities that are bound by an agreement, divided into several forms depending on the contract and risk sharing. In Indonesia PPP is known as government-to-business cooperation (KPBU). KPBU is defined in Perpres No. 28/2015 as a collaboration between the government and business entities in the provision of infrastructure for the public interest by referring to the specifications previously determined by the Minister/Head of Institution/Head of Region/BUMN/BUMD, which partially or wholly uses the resources of the Business Entity with due observance of the risk sharing between the parties. Business entities include State-Owned Enterprises (BUMN), Regional-Owned Enterprises (BUMD), private business entities in the form of Limited Liability Company, foreign legal entity or cooperative. The Business Entity is the party that carries out the PPP contract and is responsible for the infrastructure and services provided in accordance with the specifications included in the contract.
In selecting the Implementing Business Entity, the government may use either the bidding method or the direct appointment method. Bidding or direct appointment is conducted through prequalification. Direct appointment can be made if:
- the PPP is a development of infrastructure that has been built and/or operated previously by the same Implementing Business Entity;
- the PPP is a work that can only be carried out by using new technology and only one service provider is able to apply it; or
- the PPP is a Implementing Business Entity that has controlled most or all of the land required to implement the PPP.
Direct appointments are also made if the pre-qualification of the Implementing Business Entity only results in one participant.
Whole land-procurement process
Land is one of the most significant obstacles in infrastructure development. Presidential Decree (Keppres) No. 38/2015 stipulates that land acquisition funding for PPPs is carried out by the government from the budget of BUMN/BUMD or from Business Entities in collaboration with BUMN/BUMD. Business entities can repay part or all of the cost of land acquisition when the PPP project is considered financially feasible. Thus, all risks and uncertainties related to land acquisition are the full responsibility of the government.
Types of infrastructure project in PPP scheme
Infrastructure that can be collaborated in PPP is economic infrastructure and social infrastructure. PPP can be an Infrastructure Provision which is a combination of 2 (two) or more types of infrastructure as follows:
- transportation
- road
- water resources and irrigation
- drinking water
- centralized wastewater management system
- local wastewater management system
- waste management system
- telecommunications and informatics
- electricity
- oil and gas and renewable energy
- energy conservation
- urban facilities
- educational facilities
- sports facilities and infrastructure, as well as the arts
- area
- tourist
- health
- Correctional Institution
- public housing
It is now possible to bundle a PPP proposal for two or more types of infrastructure projects. In such a scheme, the business entity will cooperate with a new government of Indonesia (GOI) ad hoc body that will be formed for the particular project, known as a Government Contracting Agency (GCA). Perpres No. 38/2015 requires the GOI institutions involved or otherwise relevant to the project to enter into a memorandum of understanding to, among other matters, decide on which GOI institution will be the GCA coordinator of the bundled project. The purpose of this body is to facilitate development and this provision is meant to avoid any confusion as to which GOI entity will be in charge of the PPP project on behalf of the GOI. To encourage investors to develop infrastructure projects using the PPP approach, Perpres No. 38/2015 allows GOI support in the form of what is called Viability Support, which is a financial contribution granted by the GOI or tax incentives. A GOI guarantee is also available in the form of an Infrastructure Guarantee, which is to be further regulated by a separate regulation that has not been enacted as of this date. Perpres No. 38/2015 also introduces the possibility of the GCA to co-fund part of the infrastructure development.
Procedure
In Permen PPP/Kepala Bappenas No. 4/2015, the PPP implementation phase consists of Planning, Preparation and Transactions. In the planning stage, there will be an identification and determination of PPPs, PPP budgeting, and PPP categorization. The output of the planning stage is a list of project priorities and a preliminary study document that is submitted to the Ministry of PPN/Bappenas to be compiled as a List of PPP Plans consisting of PPPs ready to be offered and PPPs in the preparation stages.
Next, in the preparation stage the Minister/Head of Institution/Head of Region/Director of BUMN/BUMD as PJPK (cooperation project person-in-charge) assisted by the Preparation Agency and accompanied by public consultation will conduct a pre-feasibility study, make plans for Government Support and Government Guarantees, make stipulations on procedures return on investment of the Implementing Business Entity, and carry out land acquisition for PPP. At this stage, the PJPK will also begin to prepare the PPP agreement.
Last, the transaction stage that is carried out by the PJPK and consists of the Procurement of the Implementing Business Entity, the signing of the PPP agreement, and the fulfillment of the financing for the Provision of Infrastructure by the Implementing Business Entity. The Implementing Business Entity has a period of 12 months after the PPP agreement is signed to obtain financing for the PPP. Financing that is obtained from loans is declared accomplished if the loan agreement to finance the entire PPP has been signed and part of the loan has been disbursed to start the construction work. If the PPP is divided into several stages, the financing that is obtained from loans is declared accomplished if the loan agreement has been signed to finance one of the PPP stages and part of the loan has been disbursed to start the construction work.
PPP on Initiative of Business Entity
A Business Entity may submit a PPP initiative to the Minister/Head of Institution/Head of Region with the criteria for Provision of Infrastructure as follows:
- technically integrated with the master plan in the sector concerned
- economically and financially feasible
- the Business Entity that proposes the initiative has adequate financial capacity to finance the implementation of Infrastructure Provision.
The Initiating Business Entity is required to prepare a feasibility study on the proposed PPP. The PPP initiating Business Entity may be given alternative compensation in the form of additional value of 10%, granting of the right to make an offer by the initiating Business Entity to the best bidder (right to match) in accordance with the results of the assessment in the auction process or the purchase of intellectual property rights of the accompanying PPP initiative by the PPP initiator. Minister/Head of Institution/Head of Region or by the winner of the auction.
Related institution
Institutions that play a direct role in the implementation of PPPs include the Ministry of PPN/Bappenas as the PPP coordinator, the Ministry of Finance through the DJPPR (directorate general of financing and risk management) in providing Government Support and Government Guarantees, and Ministries/Institutions/Regional/BUMN/BUMD as PJPK.
In addition, to accelerate the PPP stage, supporting institutions were also formed, such as the Policy Committee for the Acceleration of Infrastructure Provision (KKPPI) which was changed to the Committee for the Acceleration of Priority Infrastructure Provision (KPPIP), PT Sarana Multi Infrastruktur (SMI) which could act as a Preparation Agency in mentoring and / or financing to PJPK, and PT Penjaminan Infrastruktur Indonesia (PII) as an instrument for guaranteeing infrastructure development.
In addition to these institutions, there are institutional organizations that must be formed in the implementation of PPPs. Among other things are those in charge of the Cooperation Project (PJPK), namely the Minister/Head of Institution/Head of Region as the PJPK of the infrastructure sector which is the responsibility of the Ministry/Institution/Region. who will act as PJPK.
