Friday, June 14, 2024

How-to understand toll road infrastructure project in Indonesian law

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Infrastructure development, especially toll roads, continues to be a priority for the government in producing extensive freeway infrastructure so that later it can boost productivity through structural transformation. Specifically, toll road connectivity is an important component in promoting economic transformation towards the manufacturing and service sectors. The government said that the development of toll road infrastructure is an important pillar to advance the economy. Currently, there are 54 toll road projects which are categorized as national strategic projects.

Governing law and regulation 

  • Law No. 38/2004 on Road as amended by Law No. 11/2020 on Job Creation and lastly amended by Law No. 2/2022 
  • Law No. 22/2009 on Road Traffic and Transportation as partially voided by Constitutional Court Decision No. 3/PUU-XIII/2015 and amended by Law No. 11/2020 on Job Creation 
  • Government Regulation (PP) No. 34/2006 on Roads 
  • Government Regulation (PP) No. 15/2005 on Toll Roads as amended by Government Regulation (PP) No. 44/2009 as amended again by Government Regulation (PP) No. 43/2013 as amended again by Government Regulation (PP) No. 30/2017 and lastly amended by Government Regulation (PP) No. 17/2021 
  • Ministry of Public Works and Housing Regulation (Permen PUPR) No. 1/PRT/M/2017 on the Procedures for the Procurement of Business Entities for Toll Road Concessions as amended by the Permen PUPR No. 3/2021 
  • Permen PUPR No. 23 of 2021 on Procedures for Determining Toll Road Development Initiated by Business Entities 
  • Permen PUPR No. 2/PRT/M/2007 on Technical guidance of Toll Roads and Connecting Roads Maintenance 
  • Permen PUPR No. 10/PRT/M/2006 on Procedure of Business Entity’s Fund Utilization for Toll Road Land Procurement

Parties

  1. Authorities. It consist of Ministry of Public Works and Housing (MOPWH) and the Indonesia Toll Road Authority (BPJT) 
  2. Operator. It is known as the BUJT. It can be State Owned Enterprises (BUMN), Regionally Owned Enterprises (BUMD) or private business entities (including PMA). For PMA there is no specific ownership restriction. In Indonesian Standard Industrial Classification (KBLI) code 52213 it is open 100% for foreign investment. The license of the operator must follow the post Online Single Submission Risk-Based Approach (“OSS RBA”) requirement consisting of Business Identification Number (NIB) and concession. To know more about the OSS RBA system you can access this link: https://oss.go.id/.

Scope of activities

  1. Entire scope of toll road management. For this scope, it includes the funding, technical planning implementation of construction and the Operation and Maintenance
  2. Operation and Maintenance (O&M). For this scope, the O&M of the toll road built by the Government of Indonesia.
  3. Partial construction and O&M. For this scope the construction of additional parts of existing toll road built by the Government of Indonesia and O&M of the whole toll road.

Procurement

  1. Solicited. If it is a solicited procurement, the Initiator will be the government. First there will be a Pre-qualification (PQ) step. There will be limited tender for those who pass the PQ. If only one qualified participant there will be a re-tender or negotiation with the tender participant and it is subject to The Ministry of Public Works and Housing’s approval.
  2. Unsolicited. If it is a unsolicited procurement, the Initiator will be the private entities but the initiator must meet the requirements which are the initiator technically integrated and in accordance with the master plan, the initiator is economically and financially feasible, and the initiator must have an adequate financial capacity to finance the implementation of the toll road operation. Then, there should be a principle permit and initiative permit. The initiator must make a proposal consisting of a plan and result of Feasibility Study (FS). After that the Initiator will be invited to the tender process and granted with certain compensation which are right to match, additional score of 10%, and/or purchase of initiative.

Concession

Concession is the granting of permits to carry out activities related to infrastructure development. Main Project Document or License types for the concession are Build Operate Transfer (PPJT), O&M contract, or other form of cooperation. For PPJT there are some minimum provisions to be included, which are:

  • investment value 
  • scope of toll road concession 
  • concession period 
  • amendment of concession period 
  • supporting assets of toll road function 
  • initial tariff and the formula on tariff adjustment 
  • rights and obligations, including the risks that have to be borne by the parties, where the risk allocation must be based on efficiency and balance 
  • standard of services performance 
  • amendment of shareholding before the toll road concession operates commercially 
  • sanction in the event that the parties do not fulfill the provisions of the toll road concession agreement 
  • termination of the toll road concession agreement 
  • status of asset ownership 
  • reporting by the BUJT to the MOPWH through BPJT in relation to the commencement of the toll road concession agreement
  • dispute settlement mechanism, in phases, i.e., amicable settlement, mediation and arbitration/court settlement
  • mechanism for supervising the BUJT’s performance in the implementation of the toll road concession agreement
  • amendment of work and/or service mechanism
  • right of expropriation mechanism by the GOI and the lender
  • reversion of infrastructure assets and management rights to the GOI through BPJT based on the authority given by the MOPWH
  • force majeure
  • representation and guarantee of parties stating that the toll road concession agreement is lawful and binding for both parties and is in accordance with the laws and regulations
  • prevailing language: Indonesian language (the language used in relation to the dispute settlement under the jurisdiction of Indonesia should be Indonesian) governing law: laws of Indonesia

These are the comparison for some types of concession:

Build Operate Transfer – Without Government SupportBuild Operate Transfer – Availability Payment SchemeBuild Operate Transfer – Government SupportOperation and Maintenance
Criteria of projectsCriteria of projectsEconomically feasible but requires return on investment in the form of AP to be financially feasibleEconomically feasible but requires government support to be financially feasibleFor existing toll road projects whose initial concession periods have expired, or that have been terminated, or toll road projects that have been constructed by the government
Scope of activitiesEntire scopeEntire scopeEntire scope, except for portion of construction supported by the governmentOperation and maintenance
Term of concessionMax. 50 yearsMax. 50 yearsMax. 50 yearsMax. 50 years
Return on investmentTariffAvailability PaymentTariffOperation and maintenance costs or tariff

Tariff

In determining the tariff of the toll, there should be some consideration. It must be affordable for the toll road user. Other than that, in determining the tariff it must consider the extent of profits generated from the vehicle operational cost. It is calculated based on the discrepancy between vehicle operational cost and value of time on toll roads and alternative crossing on the existing public road. The last consideration is the feasibility of investment. It is calculated based on an accurate and transparent estimate of all costs during the term of the concession agreement, which will enable the toll road concessionaire to get reasonable profit on its investment. 

In toll project, the first tariff actually is determined in the stipulation on the operation of the toll road by the MOPWH. After that the formula for tariff adjustment is determined by the formula of “New Tariff= Old Tariff (1 + inflation rate)” The tariff will be recommended by BPJT and approved by MOPWH. There is also a tariff evaluation every two years taking into account the inflation rate and the evaluation of the minimum service standard fulfillment. But it is possible to be evaluated at any time in any of the following conditions:

  • it is necessary to fulfill a certain traffic service in the toll road system at a certain region by considering the toll road capacity
  • there is an additional scope that falls outside the business plan and affects the feasibility of investment 
  • there is a government’s policy that affects the feasibility of investment
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