Completion Report - Asian Development Bank · 2017-08-30 · BKPM – Badan Koordinasi Penanaman Modal ... Indonesia (Master Plan for Acceleration and Expansion of Indonesia's Economic

Completion Report

Project Numbers: 40009-013, 40009-023, 40009-033, and 40009-043 Loan Numbers: 2263, 2264, 2475, and 2708 Grant Number: 0064 Technical Assistance Number: 4872 August 2017

Indonesia: Infrastructure Reform Sector Development

Program (Subprograms 1, 2, and 3, and an

Infrastructure Project Development Facility) This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – rupiah (Rp)

At Appraisal At Program Completion 15 September

2006 5 November 2010

Rp1.00 = $0.000109 $0.00011202 $1.00 = Rp9,130 Rp8,927

ABBREVIATIONS ADB – Asian Development Bank BAPPENAS – Badan Perancanaan Pembangunan Nasional (National

Development Planning Agency) BKPM – Badan Koordinasi Penanaman Modal (Indonesia Investment

Coordinating Board) BPPSPAM – Badan Pendukung Pengembangan Sistem Penyediaan Air

Minum (National Water Supply Development Supporting Agency)

CMEA – Coordinating Ministry for Economic Affairs DMF – design and monitoring framework GCA – government contracting agency GDP – gross domestic product IDPL – infrastructure development policy loan IFC – International Finance Corporation IIF – PT Indonesia Infrastructure Finance

IIGF – PT Indonesia Infrastructure Guarantee Fund IPDF – infrastructure project development facility

IRSDP – Infrastructure Reform Sector Development Program JICA – Japan International Cooperation Agency KKPPI – Komite Kebijakan Percepatan Penyediaan Infrastruktur

(National Committee for the Acceleration of Infrastructure Provision)

KPPIP – Komite Percepatan Penyediaan Infrastruktur Prioritas (Committee for Acceleration of Priority Infrastructure Delivery)

LKPP – Lembaga Kebijakan Pengadaan Barang/Jasa Pemerintah (National Public Procuremet Agency)

MOF MP3EI

– –

Ministry of Finance Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia (Master Plan for Acceleration and Expansion of Indonesia's Economic Development)

NPDF – national project development facility PAS – procurement and administrative services PDAM – Perusahaan Daerah Air Minum (regional water supply

enterprise) PDF – project development facility PLN – Perusahaan Listrik Negara (State Electricity Corporation)

PKPS – Pengembangan Kerjasama Pemerintah dan Swasta (BAPPENAS’ directorate for PPPs)

PMU – project management unit PPC – project preparation consultant PPITA – Private Provision of Infrastructure Technical Assistance Loan PPMS – project performance monitoring system

PPP – public–private partnership PSO – public service obligation PSC – project steering committee PSP – private sector participation

PT – perseroan terbatas (limited liability company) RPDF – regional project development facility RPJMN

SDP

–

–

Rencana Pembangunan Jangka Menengah Nasional (National Medium Term Development Plan) sector development program

SDR – special drawing right SMI – PT Sarana Multi Infrastruktur SOE – state-owned enterprise TA – technical assistance TAS – technical advisory services VGF – viability gap funding

NOTES

(i) The fiscal year (FY) of the Government of Indonesia ends on 31 December.

(ii) In this report, “$” refers to United States dollars.

Vice-President S. Groff, Vice-President, Operations 2 Director General R. Subramaniam, Southeast Asia Department (SERD) Country Director W. Wicklein, Indonesia Resident Mission, SERD Team leader A. Haydarov, Infrastructure Economist, SERD Team members D. Simanjuntak, Senior Project Officer, SERD

A. Harianja, Operation Analyst, SERD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

BASIC DATA i I. PROGRAM DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2 B. Program and Project Outputs 3 C. Program and Project Costs 5 D. Disbursements 5 E. Program and Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Related Technical Assistance 6 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 7 K. Performance of Borrowers and the Executing Agency 7 L. Performance of the Asian Development Bank 8

III. EVALUATION OF PERFORMANCE 8

A. Relevance 8 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcome and Outputs 10 D. Preliminary Assessment of Sustainability 11 E. Impact 12

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13

A. Overall Assessment 13 B. Lessons 13 C. Recommendations 15

APPENDIXES 1. Design and Monitoring Framework 16 2. Policy Matrix 30 3. List of Deleted Outputs 58 4. List of Supported Public–Private Partnership Projects 60 5. Status of Compliance with Loan Covenants 68 6. Technical Assistance Completion Report 86

BASIC DATA

A. Loan and Grant Identification 1. Country 2. Loan Number Grant Number 3. Program Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Program Completion Report

Number

Indonesia Loans 2263, 2264, 2475, 2708 Grant 0064 Infrastructure Reform Sector Development Program Republic of Indonesia National Development Planning Agency (Badan Perancanaan Pembangunan Nasional) Loans: $400 million, SDR18.025 million, $280 million, $200 million; Grant: $7.56 million 1643

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval

Loan 2263 Loan 2264/Grant 0064 Loan 2475 Loan 2708

4. Date of Loan Agreement

Loan 2263 Loan 2264/Grant 0064 Loan 2475 Loan 2708

5. Date of Loan Effectiveness

Loan 2263 – In Loan Agreement – Actual – Number of Extensions

Loan 2264/Grant 0064

– In Loan Agreement – Actual – Number of Extensions

Loan 2475 – In Loan Agreement

– Actual – Number of Extensions

4 July 2005 15 October 2006 16 October 2006 24 October 2006 21 November 2006 21 November 2006 27 November 2008 1 December 2010 23 November 2006 23 November 2006 10 December 2008 20 December 2010 29 November 2006 29 November 2006 None 29 November 2006 29 November 2006 None 18 December 2008 18 December 2008 None

ii


– Actual – Number of Extensions 6. Closing Date



Grant 0064 – In Grant Agreement – Actual – Number of Extensions


– Actual – Number of Extensions


– Actual – Number of Extensions 7. Terms of Loan

Loan 2263 – Interest Rate – Maturity (number of years) – Grace Period (number of years)

Loan 2264 – Interest Rate – Maturity (number of years) – Grace Period (number of years)

Loan 2475 – Interest Rate

– Maturity (number of years) – Grace Period (number of years)

Loan 2708 – Interest Rate

– Maturity (number of years) – Grace Period (number of years)

28 December 2010 28 December 2010 None 31 March 2007 29 November 2006 None 30 September 2012 1 February 2016 Two 31 May 2011 31 May 2011 None 31 March 2009 18 December 2008 None 31 March 2011 29 December 2010 None London interbank offered rate (LIBOR) and 0.6% 15 3 1.0% per annum during the grace period, and 1.5% per annum thereafter 32 8 LIBOR and 0.6% less credit of 0.4% 15 3 LIBOR and 0.6% less credit of 0.3% 15 3

iii

8. Terms of Relending – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

None

9. Disbursements

a. Dates Loan 2263-INO

Initial Disbursement 29 November 2006

Final Disbursement 29 November 2006

Time Interval –

Effective Date 29 November 2006

Original Closing Date 29 November 2006

Time Interval –

Loan 2264-INO

Initial Disbursement 2 October 2008

Final Disbursement 23 December 2015

Time Interval 87 months

Effective Date

29 November 2006

Original Closing Date 30 September 2012


Grant 0064

Initial Disbursement 21 July 2008

Effective Date

29 November 2006

Final Disbursement 31 May 2011

Original Closing Date

31 May 2011


Time Interval

54 months

Loan 2475-INO

Initial Disbursement 19 December 2008


Time Interval –

Effective Date 18 December 2008

Original Closing Date 18 December 2008

Time Interval –

Loan 2708-INO

Initial Disbursement 29 December 2010


Time Interval –

Effective Date 28 December 2010

Original Closing Date 29 December 2010

Time Interval –

iv

b. Amount ($ million)

1. Loan 2263-INO: Subprogram 1

Date Disbursed Amount Disbursed

29 November 2006 400

2. Loan 2264-INO (concessional ordinary capital resources lending / Asian Development Fund) and Grant 0064-INO ($) a. Loan 2264-INO ($ equivalent of special drawing rights)

Category

Original Allocation

Last Revised

Allocation

Amount Disbursed

Undisbursed Balance

1 Consulting Services

16,606,000 17,482,094 14,174,613 3,307,481

2 Equipment 150,000 18,210 18,206 4

3 Interest 521,000 524,696 396,080 128,616

4 Unallo-cated

748,000 0 0 0

Total 18,025,000 18,025,000 14,588,899 3,436,101

b. Grant 0064-INO ($)

a. 1 b. Consulting Services 7,307,000 2,948,261 4,358,739

c. 2 d. Equipment 90,000 10,800 79,200

3 e. Administra-tive and Audit Costs

163,000 – 163,000

Total 7,560,000 2,959,061 4,600,939

3. Loan 2475-INO: Subprogram Loan II ($ million)


19 December 2008 280

4. Loan 2708-INO: Subprogram Loan III ($ million)


29 December 2010 200

v

C. Program and Project Data

1. Program and Project Cost ($ million) Loan 2263

Cost Appraisal Estimate Actual

Foreign Exchange Cost 400 400 Local Currency Cost – –

Total 400 400 Loan 2475



Total 280 280 Loan 2708



Total 200 200 Loan 2264; Grant 0064 (Project)


Foreign Exchange Cost 34.1 25.1 Local Currency Cost 4.7 2.9

Total 38.8 28.0

2. Project Financing Plan ($ million) (Loan 2264 and Grant 0064)


Implementation Costs Borrower Financed 4.7 2.9 ADB Financed 26.5 22.2 Other External Financing (Grant 0064) 7.6 2.9

Total 38.8 28.0

IDC Costs Borrower Financed – ADB Financed 0.8 0.6 Other External Financing

Total 0.8 0.6

ADB = Asian Development Bank, IDC = interest during construction.

vi

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

A. PPP Project Preparation and Transaction Execution 21.9 11.5 B. Technical Advisory Services and Capacity Building 12.0 13.5 C. Procurement and Administrative Services 3.0 2.4

Unallocated 1.1 – Interest and Fees 0.8 0.6

Total 38.8 28.0

PPP = public–private partnership.

4. Project Schedule

Item Appraisal Estimate Actual

Date of Contract with Consultants June 2007 June 2008 Equipment and Supplies Dates First Procurement June 2007 May 2010 Last Procurement – – Completion of Equipment Installation NA NA

Other Milestones

NA = not applicable.

5. Program and Project Performance Report Ratings

5.1 Program Performance Rating

Implementation Period Ratings

From To Development Objectives

Implementation Progress

Loan 2263-INO 1 November 2006

29 November 2006

Satisfactory

Satisfactory

Loan 2475-INO 1 December 2008

18 December 2008

Partly Satisfactory

Partly Satisfactory

Loan 2708-INO 1 December 2010

29 December 2010

Partly Satisfactory

Partly Satisfactory

5.2. Project Performance Report Ratings (Loan 2264-INO [Asian Development Fund])

Implementation Period Ratings

From To Development Objectives

Implementation Progress

Jan 2007 Dec 2007 Satisfactory Satisfactory Jan 2008 Dec 2008 Satisfactory Partly Satisfactory Jan 2009 Dec 2009 Satisfactory Partly Satisfactory Jan 2010 Dec 2010 Satisfactory Partly Satisfactory Jan 2011 Dec 2011 On Track Jan 2012 Dec 2012 Potential Problem Jan 2013 Dec 2013 On Track Jan 2014 Dec 2014 On Track

Jan 2015 Dec 2015 On Track

vii

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Per-sons

No. of Person-

Days

Speciali-zation of Members

Loan 2263

Fact Finding Reconnaisance Review

12 December 2005–27 January 2006 1–10 February 2006

14 May–27 June 2007

8 3

46

44

a, b, c, i, j, h

d, i, g, j

Loan 2475

Reconnaisance Fact Finding Review

1–10 February 2008 8–29 April 2008

25 May–20 June 2009

6 3

21 26

d, a, c, i, b

e, b, j

Loan 2708

Fact Finding Loan Appraisal Program Completion

21 June–30 June 2010 30 August–3 September 2010

26 November–30 November 2012

5 5 1

50 50 5

b, d, e, i, k b, d, e, i, j

i Loan 2264/Grant 0064

Fact Finding 12 December 2005–27 January 2006 8 46 a, b, c, i, j, h Review Mission 14 May–27 June 2007 3 44 d, i, g, j Review Review

8–29 April 2008 25 May–20 June 2009

6 3

21 26

d, a, c, i, b e, b, j

Midterm Review 15 November–17 December 2010 4 34 e, b, f, g

Review 1 July–16 August 2011 2 16 e, b, g

Review 25 November–20 December 2011 3 24 c, g, b

Review 26 March–3 May 2013 2 18 b, g

Project Review 10 June–16 July 2014 2 10 g, h

Review Mission 4–6 November 2015 1 3 g

Program Completion 19–24 February 2017 3 15 c, g, j

a = economist; b = investment officer; c = infrastructure specialist or economist; d = public–private partnership advisor; e = public–private partnership specialist; f = procurement specialist; g = project officer; h = procurement officer; i = project implementation specialist; j = consultant; k = head, public–private partnership advisory services.

I. PROGRAM DESCRIPTION

1. During 2000–2005, infrastructure investments in Indonesia dropped to an annual average of 3% of gross domestic product (GDP), from 8% of GDP during 1995–1997. Private infrastructure investment in particular fell sharply from 1.8% of GDP during 1995–1998 to 0.5% of GDP in 2000–2005. This was largely due to the 1997 Asian financial crisis that necessitated the cancellation or suspension of many planned public and private infrastructure projects, as the Government of Indonesia needed to prioritize the cost of financial sector restructuring. To raise infrastructure investments to 5%–6% of GDP during 2005–2009, the government estimated the country’s total infrastructure investment need at $65 billion, of which $30 billion (47% of the total investment need) was expected to be provided by the private sector (footnote 4). This ambitious target was deemed necessary to address the large infrastructure provision gap constraining growth and the reduction of poverty in the country.

2. To launch the private infrastructure investment agenda, in January 2005, the government held the Indonesia Infrastructure Summit that resulted in the Declaration of Action on Developing Infrastructure and Public–Private Partnerships. Following the summit and based on the joint policy advice of the Asian Development Bank (ADB), Government of Japan, and the World Bank, in February 2006 the Coordinating Ministry of Economic Affairs (CMEA) released an infrastructure policy package that included 153 actions to be implemented in 2006.1 At the core of the package was a call for major private sector participation (PSP) in infrastructure, and public–private partnerships (PPPs) were chosen as the preferred approach for increasing PSP. After the Asian financial crisis, PPPs were considered a suitable modality to revive PSP in Indonesia through better governance, strengthened risk management, and dedicated institutions.2

3. To sustain the PPP reforms during the term of the 2005–2009 National Medium Term Development Plan (RPJMN), the government requested ADB, the Japan International Cooperation Agency (JICA), and the World Bank to provide medium-term policy reform support. In response, in October 2006 ADB approved the Infrastructure Reform Sector Development Program (IRSDP) comprising subprogram 1 (a $400 million ADB loan) to support (i) cross-sector reforms for PPPs; (ii) reforms to strengthen PSP in nine sectors (land transportation, railways, sea and air transportation, roads, power, oil and gas, telecommunications, and water supply and sanitation); and (iii) PPP project transactions. The program also included an infrastructure project development facility (IPDF) to support the preparation and transaction of both national and regional PPPs, and $2 million in technical assistance (TA) to enhance PSP in infrastructure provision.3 The IPDF was financed through an Asian Development Fund loan of $26.5 million equivalent and a $7.56 million grant from the Government of the Netherlands (administered by ADB). Subprogram 2 (a $280 million ADB loan) was approved in October 2008,4 and subprogram 3 (a $200 million ADB loan) was approved in November 2010.5 JICA provided cofinancing in the form of a $100 million loan for each subprogram.

1 These included 33 cross-sector, 83 sector, and 5 local government actions, as well as 32 project transactions.

2 In the first half of the 1990s, unsolicited project proposals from politically connected private sector parties created

large public sector liabilities that were exposed by the Asian financial crisis, particularly in the power sector. 3 ADB. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Program Cluster,

Loans, Technical Assistance Grant, and Administration of Grant to the Republic of Indonesia for the Infrastructure Reform Sector Development Program. Manila (TA 4872).

4 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Loan for

Subprogram 2 to the Republic of Indonesia for the Infrastructure Reform Sector Development Program. Manila. 5 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan for

Subprogram 3 to the Republic of Indonesia for the Infrastructure Reform Sector Development Program. Manila.

2

4. During 2007–2010, the World Bank complemented the IRSDP through four annual infrastructure development policy loans (IDPLs).6 The IDPLs focused on (i) enhancing the efficiency of government spending at the national and subnational levels; (ii) increasing private sector financing through PPPs; and (iii) improving governance in infrastructure provision (e.g., land acquisition, environmental protection, public procurement, and internal audit).7 The 2009 IDPL amount was $250 million; all other IDPLs amounted to $200 million each.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. The IRSDP was fully consistent with the 2005–2009 and 2010–2014 RPJMNs, as well as with ADB’s country partnership strategy.8 Given its focus on PSP, the IRSDP was also well aligned with ADB’s growing private sector operations in Indonesia, and had a comprehensive policy matrix covering 69 policy areas during 2005–2009.9 Although unusually comprehensive in scope,10 the matrix was seen by the government as an effective tool to support and monitor progress of the wide-ranging sector reforms that several ministries and agencies had to be deliver under the 2005–2009 RPJMN. The policy matrix included cross-sector reforms that focused on institutionalizing PPPs as the main PSP modality, as well as sector reforms facilitating sector-specific PSP arrangements meant to be eventually phased out through PPPs.11 6. The IPDF supported the PPP agenda by developing model projects. 12 The IPDF’s design was complex: (i) it comprised national and regional project development facilities (PDFs) as revolving funds to deliver 10 national and 40 regional model PPPs, (ii) all economic infrastructure sectors and government agencies at the central and local government level were eligible to access the IPDF, and (iii) the concerned government contracting agency (GCA) was to select the PPP project preparation consultants (PPCs). As the IPDF did not focus on any sector, it was adequate to place it at the National Development Planning Agency’s 6 IDPLs built on the World Bank’s support under (i) the First and the Second Technical Assistance Projects for the

Public and Private Provision of Infrastructure (TAP4I-I and TAP4I-II) during 1991–2001 totaling $58 million, and (ii) the $17.1 million Private Provision of Infrastructure Technical Assistance (PPITA) loan approved in May 2003 and closed in 2008. The PPITA loan supported policy and regulatory reforms to facilitate large-scale private infrastructure investment, including through PPPs. World Bank. 2009. Implementation Completion and Results Report on a Loan in the Amount of USD17.1 Million to the Republic of Indonesia for a Private Provision of Infrastructure Technical Assistance Loan (IBRD-46960). Washington, DC.

7 World Bank. 2012. Implementation Completion and Results Report on a Series of Loans in the Amount of US$850

Million to the Republic of Indonesia for Infrastructure Development Policy Loans I, II, III, and IV. Washington, DC. 8 Presidential Regulation No. 7 (2005) on the RPJMN, 2005–2009; Presidential Regulation No. 5 (2010) on the

RPJMN, 2010–2014; ADB. 2006. Country Strategy and Program: Indonesia, 2006–2009. Manila; ADB. 2012. Country Partnership Strategy, Indonesia, 2012–2014. Manila. During 2006–2008, PPPs featured prominently in

the annual policy packages adopted through the President Instructions No. 3 (2006), No. 5 (2007), and No. 5 (2008).

9 In its original form in 2006, the policy matrix consisted of 69 actions with a total of 215 specific outputs:

subprogram 1 had 63 outputs, subprogram 2 had 99 outputs, and subprogram 3 had 53 outputs. At appraisal of the relevant subprograms, the outputs of subprogram 2 were set at 74, and those of subprogram 3 at 69.

10 For example, the local government finance and governance reform sector development program (phase 1)

approved in October 2005 had 20 policy actions. The third development policy reform program and the capital market development program cluster (subprogram 1) approved in December 2007 had 17 and 46 policy actions, respectively. The World Bank’s IDPL 1 had 7 triggers, IDPL 2 had 9, IDPL 3 had 10, and IDPL 4 had 11 triggers.

11 Sector-specific PSPs, such business-to-business arrangements in the toll road and water concessions or

individual power producer contracts, were anchored in sector laws or government regulations. PPPs were introduced through a presidential regulation, which was lower in the legal hierarchy than government regulations and sector laws.

12 The list of the candidate model projects is in Appendix 4.

3

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(BAPPENAS) Directorate of PPPs (PKPS). The piggybacked TA appropriately focused on supporting the Ministry of Finance (MOF) in strengthening risk management, developing infrastructure financing mechanisms for PPPs, and assisting the BAPPENAS during the IPDF’s start-up. The TA also included support to the National Committee on Acceleration of Infrastructure Provision (KKPPI), which was benefitting from ADB’s and the World Bank’s comprehensive support.13

7. The IRSDP’s use of the sector development program (SDP) modality was novel, as it incorporated programmatic policy-based lending (three separate subprograms) and a project loan. There was no financing to the involved sector agencies given the support through the World Bank’s Private Provision of Infrastructure Technical Assistance Loan (footnote 6). The design of the policy component substantially remained the same during the IRSDP’s life.14 Key changes to the IPDF’s design included (i) the merger of the national and regional PDFs in 2011 due to the non-extension of the Government of the Netherlands’ grant, (ii) the selection of the IPDF consultants by BAPPENAS rather than by the GCAs, and (iii) the dropping of the IPDF’s revolving fund feature given the lack of a legal basis for reflow of funds to BAPPENAS.

B Program and Project Outputs

i. Cross-sector reforms

8. The IRSDP supported establishing the legal and operational framework for PPPs in Indonesia through the adoption of the landmark Presidential Regulation No. 67 (2005).15 The program also included the establishment of the following innovative financial sector mechanisms to support PSP infrastructure projects: (i) PT Indonesia Infrastructure Guarantee Fund (IIGF) to provide guarantees for PPP projects; (ii) PT Indonesia Infrastructure Finance (IIF), a majority privately owned infrastructure finance company, to provide equity and long-term debt to private sponsors; and (iii) PT Sarana Multi Infrastruktur (SMI), a fully government-owned infrastructure finance company, focusing on provision of equity and debt to infrastructure projects undertaken by state-owned enterprises.16 A risk management unit was established at the MOF, and the framework on government financial support for PPPs was revised. The public service obligation (PSO) framework was implemented in the energy sector, and PSO payments were made to the State Electricity Corporation (PLN) every 3 months providing it with the necessary liquidity to continue operations. Finally, the IRSDP facilitated development of the new land acquisition law (Law 2 [2012]), which was enacted in 2012 and became effective in January 2015. This law was a major reform aimed at addressing one of the most important constraints affecting PPP project delivery in Indonesia. At the same time, the IRSDP’s cross-sector institutional reforms have not performed as expected: (i) the KKPPI was not functioning given its large composition and lack of political support, (ii) no central PPP and PSO units were formed at the KKPPI, and (iii) PPP nodes at line ministries have not become operational.

13

The KKPPI was established in 2001. It was cochaired by ministers of the CMEA and BAPPENAS and included the ministers of finance, home affairs, energy and mineral resources, public works, transportation, communications and informatics, and SOEs, as well as the cabinet secretary. ADB supported the BAPPENAS part of the KKPPI Secretariat through a $2 million TA (ADB. 2005. Technical Assistance to the Republic of Indonesia for Support for Infrastructure Development. Manila). The World Bank’s PPITA project supported the CMEA part of the KKPPI Secretariat, as well as the ministries of transport, public works, and energy and mineral resources.

14 At the time of the IRSDP’s approval, the subprogram 2 and 3 loans were each expected to be $300–$400 million.

In reality, the loans amounted $280 million for subprogram 2 and $200 million for subprogram 3. 15

As amended through Presidential Regulations No. 13 (2010), No. 56 (2011), and No. 66 (2013), which improved the provisions on unsolicited proposals, PPP agreements, and the government’s support and guarantees to PPPs.

16 Details on the IIGF, IIF, and SMI can be found on their websites: http://www.iigf.co.id/en/, http://iif.co.id/en_US/,

and https://www.ptsmi.co.id/.

http://www.iigf.co.id/en/

http://iif.co.id/en_US/

https://www.ptsmi.co.id/

4

ii. Sector-specific reforms

9. Transportation. To separate policy and regulatory functions from operations, the IRSDP covered the adoption of several laws, including Law 22 (2009) on road traffic and transportation, Law 23 (2007) on railways, Law 17 (2008) on seaports, and Law 1 (2009) on aviation. Government Regulation 15 (2005) on toll roads (i) established a new regulatory body, the Indonesian Toll Road Authority; (ii) ended the monopoly of Jasa Marga, the toll road SOE; and (iii) allowed toll road PSPs.17 Tariff regulations based on cost recovery principles have been adopted. Despite being provided for in Law 22 (2009), the road preservation fund was not implemented. 18 10. Energy. New laws on energy (Law 30 [2007]) and electricity (Law 30 [2009]), along with the required implementing regulations, were introduced under the IRSDP enabling PSP in the power sector on the basis of both competition and direct award. During the IRSDP, several power purchase agreements using the electricity law’s framework were signed. In the oil and gas subsector, reforms were undertaken to improve infrastructure master planning, promote gas in the national policy mix, remove fuel subsidies, and promote unconventional oil and gas production.

11. Water supply and sanitation. Key IRSDP-supported reforms in this sector included improving the performance of regional water utilities (PDAMs), restructuring the PDAMs’ debt, setting full cost recovery tariffs for water, streamlining PSP procedures in the water supply and sanitation sector, and establishing a water sector regulator.19 However, the PSO mechanism for the PDAMs was not implemented as intended due to the lack of a legal framework. The PDAMs lack the necessary autonomy and are generally unable to access commercial funding.

12. Telecommunications. Among the IRSDP-supported reforms were the introduction of new tariffs for fixed-line and mobile phones, the adoption of regulation on interconnection allowing a move from revenue sharing to a cost-based approach for tariff setting, the adoption of an operational framework for the sector regulator, and the development of a universal service obligation policy.

iii. Project Transactions

13. This IRSDP component focused on preparation and transaction of 10 model national and 40 regional PPP projects mainly in the transportation, energy, water supply, and solid waste sectors in accordance with the PPP framework.20 This was to be attained through an IPDF composed of three outputs: (i) PPP project preparation and transaction execution, which included a national PDF (NPDF) and a regional PDF (RPDF); (ii) technical advisory services (TAS) and capacity building; and (iii) procurement and administrative services (PAS).21 In May 2011, the NPDF and RPDF were merged into a single PDF. Overall, the IPDF supported 31 potential projects, three of which went through bidding (none reached financial close during the

17

Before 2004, toll road concessions were possible only through cooperation with Jasa Marga. 18

The list of dropped outputs is in Appendix 3. 19

The water supply and sanitation sector also covered the solid waste management reforms, such as the adoption of Law 18 (2008) on municipal waste management.

20 This output also included other reforms such as the development of standard bidding documents and concession

agreements for toll road, airport, port, power plant, and water supply PSP projects. 21

For item (i), PPCs were recruited against the requirements of specific projects and based on the defined terms of reference. For items (ii) and (iii), two separate consulting firms were initially recruited. In May 2011, the contract with the TAS firm was terminated and its roles and responsibilities were assigned to the PAS firm.

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IPDF’s life), and seven reached the transaction stage.22 After the introduction of availability-based PPPs through Presidential Regulation No. 38 (2015) and the full roll-out of the new land acquisition framework in 2015, demand for the IPDF increased. By the end of 2015, the IPDF had helped retender seven toll road projects and prepare the transaction of an information and communication technology project that was successfully bid out and financially closed in 2016. C. Program and Project Costs 14. Program. The overall cost of reforms under the three IRSDP subprograms was estimated at $5.2 billion, of which ADB provided loans totaling $880 million and JICA provided loans totaling $300 million.23

Project. At appraisal, the IPDF’s cost was estimated at $38.80 million, comprising (i) the ADB loan of $26.60 million, (ii) the Government of the Netherlands’ grant of $7.56 million, and (iii) the government’s contribution of $4.70 million. At appraisal, the cost allocation was (i) 56% for project preparation and transaction; (ii) 31% for TAS and capacity building; (iii) 8% for PAS; and (iv) 5% for interest, fees, and unallocated funds. However, as the Government of the Netherlands did not extend the closing date for its grant, this closed on 30 November 2010, with only $2.95 million (39%) of the funds disbursed. At completion, the actual project cost was $28.00 million, comprising (i) the ADB loan of $22.20 million, (ii) the Government of the Netherlands’ grant of $2.95 million, and (iii) the government’s portion of $2.90 million. 24 At completion, the cost allocation was (i) 38% for project preparation and transaction; (ii) 47% for TAS; (iii) 10% for PAS; and (iv) the remaining 5% for interest, fees, and unallocated funds. The larger-than-planned share of TAS was needed to ensure adequate completion of the work of PPCs to enable timely initiation of the procurement action. D. Disbursements 15. Program. Disbursement under the IRSDP policy component followed the simplified procedures and related requirements for program loans. All three subprogram loans were disbursed in single tranches upon declaration of effectiveness: a $400 million loan for subprogram 1 was disbursed on 29 November 2006, a $280 million loan for subprogram 2 was disbursed on 19 December 2008, and a $200 million loan for subprogram 3 was disbursed on 29 December 2010. Project. Though the IPDF loan was declared effective on 29 November 2006, the initial disbursement was only made on 2 October 2008 due to the delayed recruitment of TAS and PAS consultants. By the original completion date in September 2012, the IPDF could only disburse 46.5% ($12.3 million) of the ADB loan. As most of the IPDF consultants were based outside of Indonesia and all consultant contracts were administered in BAPPENAS, the project adopted the direct payment procedure. E. Program and Project Schedule

16. Program. Subprogram 1 covered January 2005–September 2006, subprogram 2, October 2006–September 2008, and subprogram 3, October 2008–September 2010.25 Project. IPDF was scheduled to start in the first quarter of 2007, but, due to delays in procuring the TAS and PAS firms, implementation began in May 2008. PAS were mobilized in May 2008 and TAS in October 2008. The IPDF was originally meant to be completed by 30 September 2012; however, it was extended twice, first to 31 August 2014 and then to 31 December 2015, for a

22

The list of all IPDF-supported PPP projects is in Appendix 4. 23

In parallel, the World Bank provided a total of $850 million through its IDPLs. 24

The unutilized part of the ADB loan amounting to $4.7 million was cancelled. 25

The periods of subprograms 2 and 3 were both extended by 3 months to synchronize with IDPLs 2 and 4.

6

total of 40 months. The IPDF loan was closed on 29 February 2016, and the Government of the Netherlands’ grant was closed in November 2011. F. Implementation Arrangements 17. Program. BAPPENAS was the executing agency for the IRSDP. Key implementing agencies were the CMEA, National Land Agency, Ministry of Energy and Mineral Resources, MOF, Ministry of Transport, Ministry of Public Works, and PLN. The KKPPI was responsible for overseeing the IRSDP’s implementation and guiding and directing the line ministries in charge of the various infrastructure sectors. However, the KKPPI did not perform as effectively as expected (footnote 31). 18. Project. The PKPS established a project management unit (PMU) to administer the IPDF. A project steering committee (PSC), chaired by the BAPPENAS deputy chairman for infrastructure affairs, was to be established to serve as a high-level decision-making and guiding forum for NPDF and RPDF;26 however, it was largely inactive and the director of the PKPS performed its functions. Upon approval of IPDF support, GCAs were supposed to appoint a dedicated team to oversee project preparation on their behalf; however, no teams were appointed and the GCAs only provided in-kind contribution (office space) to the PPCs engaged by BAPPENAS. The PMU was meant to monitor the IPDF through a project performance monitoring system (PPMS). G. Conditions and Covenants

19. Program. All three subprograms’ policy actions were accomplished prior to Board approval of the relevant subprogram. Under subprogram 2, the covenant on program monitoring was partly complied with, and under subprogram 3, the covenants on progress and completion reports and on program monitoring were not complied with as no dedicated reports were submitted to ADB. Project. IPDF loan agreement had numerous covenants, of which the following were not complied with: (i) the role of the PSC as a decision-making body over the IPDF, and (ii) the establishment of PPP regional units. The partly-complied-with covenants relate to (i) project review and monitoring (the PPMS was not implemented), (ii) the disclosure of environmental information under IPDF-prepared projects,27 (iii) the effective mainstreaming of PPP project preparation in the GCAs’ annual work plans, and (iv) the establishment of the central PPP unit. The partly- or non-complied-with covenants did not materially affect the IRSDP’s performance. Details on compliance with the covenants of the subprograms’ and IPDF’s loan agreements, including the reasons for partial or non-compliance, are in Appendix 5. H. Related Technical Assistance 20. The IRSDP included a piggybacked TA of $2 million for enhancing PSP in infrastructure provision. It became effective on 12 April 2007, with an original closing date of 31 December 2011. The TA had four components: (i) enhancing PSP- and PPP-related risk management, (ii) establishing sound frameworks for PSP- and PPP-related infrastructure funds, (iii) strengthening communication and social marketing for PSP and PPP reforms, and (iv) providing start-up support to the IPDF. The TA was completed on 30 June 2013 after a total extension of 18 months, having utilized $1.64 million. The TA was effective in delivery of outputs (i) and (iv),

26

The PSC was supposed to comprise senior representatives of the CMEA, MOF, Ministry of Home Affairs, and concerned line ministries, and a representative of the associations of regional governments as a resource person.

27 Environmental impact assessments could not be disclosed due to coordination issues.

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while outputs (ii) and (iii) have been less effective. Overall, the TA is rated successful.28 I. Consultant Recruitment and Procurement 21. Under the IPDF, 17 consulting firms and 12 individual consultants were engaged for PPP project preparation and transaction purposes. One consulting firm was engaged for TAS and one consulting firm for the PAS assignment. All consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants (April 2006, as amended from time to time). The consultant selection was delayed significantly due to the centralization of consultant recruitment in the PKPS as well as the PMU’s limited resources to cope with selecting many consulting firms based on a technically and institutionally complex scope of work.29 On average, it took 7 months to recruit a consulting firm for PPP project preparation.

J. Performance of Consultants, Contractors, and Suppliers

22. The performance of the TAS consulting firm was less than satisfactory, resulting in the termination of its contract in the second year of engagement and the merger of the TAS with the PAS contract. The performance of the PAS consulting firm was satisfactory. The PPCs’ performance was less than satisfactory due to the lack of national PPP expertise and the inadequate provision of international PPP expertise due to budget considerations.30 Inadequate performance of PPCs led to ad hoc solutions, such as the establishment of sub-teams comprising TAS members to improve the PPCs’ outputs and meet the timelines and expectations of the GCAs and BAPPENAS.

K. Performance of the Borrower and the Executing Agency

23. Program. There was strong high-level government commitment to IRSDP reforms, especially during subprogram 1. However, involvement and ownership by midlevel government officials was mixed and limited in the case of some line ministries and SOEs, slowing reforms during subprograms 2 and 3. As the top decision-making committee for PPPs in Indonesia, KKPPI was less effective in facilitating the country’s PPP program.31 Despite these challenges, BAPPENAS ensured overall coordination, oversight, and follow-up with the line ministries and agencies on the IRSDP’s comprehensive reform agenda. It also facilitated the fulfillment of administrative requirements, and was a constructive counterpart to ADB.

24. Project. The IPDF lacked strategic guidance, as the KKPPI and PSC were largely inactive. The PKPS’ performance in screening, selecting, and appraising (compliance vetting) the PPP projects was impaired by its lack of personnel experienced in risk management, financial modeling, and the economic analysis of PPP projects. The PKPS often had to rely on

28

The TA completion report is in Appendix 6. 29

Originally, the intention was to have GCAs procure the PPCs; however, this was not explicitly stated in the IPDF loan agreement. Although the GCAs were allowed to procure consultants (MOF Regulation 156/PMK.07 (2008) on the Guidance on the Deconcentration and Assistance Task Funds), this did not occur due to BAPPENAS’ previous experience of remaining liable before the auditor for all matters although funds had been transfered to local governments. Hence, it was decided that BAPPENAS would procure the PPCs.

30 The IPDF’s implementation was affected by the national consulting industry’s low capacity for PPP project

preparation and transaction. The contracts had been initially sized assuming that most inputs would come from national experts, who were mostly good sector specialists but lacked expertise in the economic, financial, procurement, and legal aspects of PPP projects. Eventually, the IPDF could not attract many reputable international firms specializing in PPP project development.

31 The KKPPI’s performance was partially affected by the government’s push for non-PPP PSP projects, as the

PPPs were increasingly perceived as requiring much more time and effort than other PSP modalities.

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TAS and PAS to perform its screening and gatekeeping role. There was insufficient coordination between BAPPENAS and MOF (resulting in uncertainty regarding the government financial support that affected the pace of bidding of PPP projects), and between the PKPS and the BAPPENAS sector directorates. The PPMS was not implemented. Despite its constrained staff resources, the PKPS did substantial work on capacity building and socialization of PPPs, especially with the local governments that were unfamiliar with PPPs. 25. Despite institutional coordination and capacity constraints, the government continued to implement the IRSDP, which proved to be a useful tool to strategically maintain the PPP and PSP reform agenda in the government bureaucracy. Overall, the performance of the borrower and executing agency is rated satisfactory. L. Performance of the Asian Development Bank 26. Program. ADB, together with JICA and the World Bank, provided important analytical advice to the government during the design and implementation of the PSP and PPP reforms. ADB, through its staff or consultants, provided quality and timely support to BAPPENAS, the CMEA, the MOF, and other key agencies for the IRSDP reforms. The supervision of the IRSDP reforms was continuous and benefitted from the project team leaders’ location in ADB’s Indonesia Resident Mission. ADB, JICA, and the World Bank coordinated closely throughout the IRSDP period. The complex reporting requirements specified in the subprograms’ loan agreements were unevenly implemented, often substituted by progress reports under the associated TA. Overall, ADB’s performance under the program component is rated satisfactory. 27. Project. The IPDF’s complex design and ambitious targets did not reflect the weak capacity of (i) the PKPS to perform the gatekeeping function, and (ii) the national consulting industry to deliver the required quality of PPP project preparation and transaction. Moreover, the IPDF’s design required close monitoring by a staff with PPP experience. After 2011, project administration was assigned to resident mission staff with limited knowledge of project finance and PPP transaction advisory. Due to the resident mission’s administration of the IPDF, ADB remained well informed of project progress and processed government requests for changes to the project and various consultant contracts in a timely fashion. Supervision reports were generally timely and reflected the key project administration information. The inactivity of the PSC and KKPPI required intensive coordination by ADB with PKPS, MOF, and GCAs. ADB, however, was unable to perform this coordination. Covenant compliance management was uneven. Overall, ADB’s performance under the project component is rated less than satisfactory.

III. EVALUATION OF PERFORMANCE A. Relevance

28. Given the constrained fiscal space after the Asian financial crisis and growing infrastructure provision gap, the IRSDP’s focus on raising private investment in infrastructure was highly relevant and fully aligned with the government’s development plans and ADB’s country partnership strategy. Use of the programmatic approach to policy reforms was the right way to flexibly support the legal and institutional changes that required time to design and implement, especially considering the PPPs’ novel nature, the size of the country, and the decentralized nature of the government. It was also appropriate to support the development of the first batch of PPP projects to establish a track record in the market and build the GCAs’ trust in PPPs as an effective modality to contribute to sector infrastructure investment plans. Despite the design issues discussed in paras. 5–8 and lack of progress in PPP project delivery, IRSDP’s

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agenda has remained the government’s priority over the years. Hence, the IRSDP is rated highly relevant.

B. Effectiveness in Achieving Outcome 29. At the outcome level, the IRSDP aimed to increase (i) total infrastructure investments, (ii) the electrification ratio, (iii) access to piped water connections (changed under subprogram 3 to an increase in PDAM investments), and (iv) the share of national roads in good or fair condition.32 Total infrastructure investments increased during 2005–2008, but dropped in 2009 following the global financial crisis and remained at about 3% of GDP until 2015. Total infrastructure investments were mainly driven by SOEs and non-PPP infrastructure investments, while the focus of IRSDP was on PPPs and associated government spending. There was good progress with the electrification ratio that rose from 62% in 2004 to 85% in 2015. The national roads’ condition also improved, but more slowly than expected: by 2015, only 94% of national roads were in good or fair condition against the target of 100%. The least progress was achieved in the water supply area: (i) annual growth of household connections averaged 390,000 during 2006 against the target of 1 million new connections annually, and (ii) the PDAMs’ investment capacity has remained insufficient to meet the network growth demand. 30. The first output on the cross-sector policy, institutional, and legal framework has substantially achieved the expected results. Specifically, this output included (i) establishing the legal and regulatory framework for PPPs; (ii) maintaining central government’s infrastructure budget, including the budget for direct and contingent liabilities related to PPP and PSP projects; (iii) setting up the IIF, SMI, and the IIGF as a the country’s first nonbanking financial institutions specializing in infrastructure finance and guarantees; (iv) developing a new land acquisition framework and improving the financing arrangements for land acquisition in the public interest; (v) developing and operationalizing the PSO subsidy mechanism in the energy sector; and (vi) setting up and operationalizing—although with a mixed degree of independence and efficacy—regulatory bodies in the toll road, downstream oil and gas, telecommunications, and water supply sectors. This output also supported the development of a rolling pipeline of projects through the BAPPENAS’ annual PPP books.33

Reforms not achieved under this output include the KKPPI’s intended role as the government champion of infrastructure and PPP reforms, and the establishment of a central PPP unit. 31. Under the second output on sector-specific reforms, critical laws and regulations were passed on aviation, electricity, road traffic and transportation, shipping, railways, and municipal waste management that promote competition and PSP in these sectors. The following objectives were partly achieved: full cost-recovery tariffs, improved efficiency and wider sector application of the PSO mechanism, better integration and longer term planning of sector infrastructure development, spring-cleaning of stalled toll road concessions, the roll-out of e-procurement in public works, and the restructuring of PDAMs.

32. The IRSDP’s third output on the facilitation of PPP project transactions was supported through the IPDF, which was designed to support the preparation and procurement of PPP projects. The design and monitoring framework (DMF) targeted at least 10 national and 40

32

Under subprogram 2 the time horizon for measuring the entire program’s outcome targets was 2015. Under subprogram 3, the time horizon was reduced to 2008–2009. The details of the attainment of the IRSDP outcomes are in Appendix 1.

33 During the IRSDP period the implementation of the PPP pipeline was constrained by the lack of mainstreaming of

PPPs in sector development plans and infrastructure investment programs of line ministries and government agencies as a regular modality to deliver public investment projects.

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regional PPP projects prepared and put to bidding. Overall, support was extended to 31 potential projects, of which (i) three projects completed the procurement phase during IPDF period; (ii) two national and five regional projects went through procurement but were not awarded; (iii) feasibility studies for three projects were completed but procurement was not initiated due to delayed land acquisition and approval of government support; and (iv) prefeasibility studies were completed for 18 projects, but these were dropped due to (a) their unsuitability for PPPs, (b) a lack of or disruption in GCA commitment (especially at the local level), (c) the lack of a coordination mechanism to ensure timely action by central and local government agencies, and (d) the ultimate unavailability of critical government inputs (land or water resources).34 Private participation in the airport, port, and railway sectors turned out to be problematic due to the predominance of SOEs. Though the IPDF brought a total of 10 projects to the procurement phase (three awarded projects plus two national and five regional projects that have not completed the procurement), this fell below the minimum number of PPPs that it was meant to bring to bidding.35 33. The objective of the ISRDP’s program component (cross-sector and sector reforms) to build the critical mass of the legal and institutional framework for PPPs and PSP was substantially achieved. Hence, the program component is rated successful. The IPDF, the IRSDP’s project component, was not successful in bringing the minimum number of PPPs to bidding. Therefore, the project component is rated less than successful. Overall, IRSDP has been adversely affected by an exogenous shock, the global financial crisis of 2008. The prominent role of SOEs (with which the private sector was expected to compete for PPP projects) in the delivery of public services, and the readiness of the then land acquisition framework for PPPs impaired the IRSDP more than anticipated.36 Thus, and considering the contribution of the program and project components to the operation’s overall size, on balance the IRSDP is rated effective.

C. Efficiency in Achieving Outcome and Outputs

34. Program. The IRSDP’s total financing is estimated at $5.2 billion, including ADB and JICA cofinancing of $1.18 billion. The key objective of IRSDP–surge of private investment through the PPP modality–could not be fully achieved during the program’s life, as only one of the model PPP projects reached financial close during IRSDP period.37 However, it helped facilitate private investment in the electricity, toll road, and telecommunications sectors,38 and establish important and efficient government and private financing mechanisms for PPPs. Hence, the program component is rated efficient. Project. Despite the IPDF’s 40-month extension, only 10 PPP projects (one-fifth of the original minimum target of 10 national and 40 regional PPPs) were brought to bidding. Moreover, only 72% of the IPDF was eventually utilized.

34

The Central Java Power Plant PPP project (one of the IRSDP’s model projects) reached financial close in June 2016, 5 years after the contract was awarded. This delay was due to land acquisition issues. The list of IPDF-supported projects in in Appendix 4.

35 Complementary to the IPDF, ADB also supported selected GCAs through a $0.5 million TA on capacity

development assistance for PPPs (TA 7729-INO). This TA, approved in December 2010 and completed in June 2014, helped (i) the city of Batam prepare the Batam Municipal Solid Waste Management PPP project, and (ii) the city of Bandar Lampung prepare an implementation plan for the Lampung Water Supply PPP project.

36 The strong role of SOEs in infrastructure stems from Article 33 of Indonesia’s constitution that provides that the

production sectors vital to the state and affecting the livelihood of a considerable part of the population, as well as the land, water, and the natural resources contained within them are to be controlled by the state. The control is perceived to require state ownership rather than regulation.

37 Tangerang Water Supply Project supported under the World Bank’s PPITA reached financial close in late 2008. It

followed the provisions of Presidential Regulation No. 67 (2005), but did not require government financial support. 38

During 2005–2010, average annual non-PPP private investment was about $742 million in electricity, $1.7 billion in information and communication technology, and $202 million in transport.

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It was only in 2016 that the PPP program took off in Indonesia, an almost 10-year delay, and the economic benefits from the IRSDP and IPDF were hence lower than expected. The project component is, therefore, rated less than efficient. 35. Considering the contribution of the program and project components to the overall operation’s size, overall the IRSDP is rated efficient in achieving its outcome and outputs. D. Preliminary Assessment of Sustainability 36. Most of the IRSDP reforms continued and gained momentum after the program’s completion in 2010.39 Based on the PPP framework adopted under the IRSDP, the government adopted a new and improved PPP legal and operational framework that triggered rapid take-off of the PPP program.40 Since 2016, (i) eight PPP projects have reached financial close (an estimated total investment of $5.4 billion); (ii) six PPPs were signed (an estimated total investment of $4.0 billion); and (iii) 22 PPPs, including four social infrastructure projects, are being prepared (an estimated total investment of $8.4 billion). 41 After the IRSDP, the government set up and operationalized critical support mechanisms for PPPs, such as viability gap funding (VGF) and a land acquisition bridging finance mechanism. Government-owned and private infrastructure finance companies are operational and rapidly growing. The IIGF is active and now helps improve creditworthiness of PSP, PPP, and SOE infrastructure projects. The KPPIP, the KKPPI’s successor, proved an effective platform to fast-track the preparation, procurement, and implementation of priority infrastructure projects.42 37. Since 2016, PPP nodes have been established in major line ministries such as the MOT and Ministry of Public Works and Housing. Local-level GCAs show better appreciation of PPPs; several local governments, such as the city of Bandung, have established PPP nodes. In February 2017, BAPPENAS, the MOF, the CMEA, Indonesia Investment Coordination Board (BKPM), the National Public Procurement Agency (LKKP), and the IIGF established a joint PPP office as one-stop-shop on PPP information and capacity building for GCAs and the private sector. The government’s infrastructure budget has increased significantly—from Rp144.4 trillion in 2014 to Rp302.6 trillion in 2016. 38. Other IRSDP reforms were less sustainable, including (i) the policy paper on the corporate restructuring of the PLN; (ii) the PLN strategy for achieving full cost recovery through efficiency improvements and transparent subsidies; (iii) the establishment of the Water Supply Development Supporting Agency, which has not become a sector regulator; and (iv) the PDAMs’ debt restructuring and performance improvement.

39. Although the IPDF at BAPPENAS did not sustain and could not become a revolving fund,

39

Post-IRSDP development highlights are in Appendix 1. 40

Presidential Regulation No. 38 (2015). The new PPP framework enabled PPPs in the social sectors and on availability basis, thus addressing the market risk concern of the investors and lenders. Other presidential, ministerial, and agency regulations pertaining to the new PPP framework are listed in the 2017 PPP book (Ministry of National Development Planning/National Development Planning Agency. 2017. Public Private Partnerships: Infrastructure Projects Plan in Indonesia. Jakarta).

41 Figures taken from the 2017 PPP book and the MOF’s PPP unit.

42 ADB supported the post-IRSDP PPP reforms through connectivity and investment promotion programs. ADB.

2012. Report and Recommendation of the President to the Board of Directors on a Proposed Programmatic Approach, Policy-Based Loan for Subprogram 1, and Technical Assistance Grant to the Republic of Indonesia for the Inclusive Growth through Improved Connectivity Program. Manila; ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic Approach and Policy-Based Loan for Subprogram 1 to Indonesia for Stepping Up Investments for Growth Acceleration Program. Manila.

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the PDF concept continued through the establishment of a project development fund at the MOF’s PPP unit. This PDF supports development of full business cases and transaction of PPP projects in a manner that ensures adequate synchronization with the requirements and processes of MOF-housed government support mechanisms such as the VGF, IIGF guarantees, and land acquisition bridging finance. Learning from the IPDF’s experience, the MOF PDF has a streamlined arrangement for PPP project preparation and transaction by assigning this task to eligible government-owned companies that have more procurement flexibility and can engage reputable international and national project advisors.

40. In the longer term (2016–2030), Indonesia’s average annual infrastructure investment needs are estimated at $74 billion (5.5% of GDP) against the estimated total infrastructure investment of $23 billion in 2015 (2.6% of GDP), implying an average infrastructure investment gap of $49 billion (2.9% of GDP).43 Given the government’s fiscal constraints, private investment in infrastructure should play an increasingly prominent role in filling in this gap.

41. Overall, the IRSDP has had important positive effects that ultimately met expectations, albeit with some delay. The legal and institutional set-up of PPPs appears well anchored, and its effectiveness in delivering infrastructure is increasing. The fact that the PPP framework is based on a presidential regulation poses the risk that the President might abolish or adversely change the PPP legal framework due to unforeseen political circumstances. However, this risk will remain relatively small if the PPP program continues to grow and deliver infrastructure, and can be mitigated in the medium-term by a law on PSP.44 Thus, the IRSDP is rated likely sustainable.

E. Impact

42. During 2005–2008, three indicators of the IRSDP’s impact—economic growth, total infrastructure investments, and Indonesia’s competitiveness ranking—showed positive dynamics qualitatively in line with expectations at the start of the IRSDP. However, its performance after the 2008 global financial crisis has been mixed. Infrastructure investments only began to rise after 2014, increasing from 2.9% of GDP to an estimated 3.5% of GDP in 2016. Economic growth also recovered from a low of 4.6% of GDP in 2009 to 6.2% of GDP in 2010–2011. However, GDP growth slowed continuously during 2012–2016, reaching a low of 5% in 2016. Indonesia’s global competitiveness index during 2010–2016 (though surely above the country’s ranking back in 2004–2005) shows several ups and downs with no clear improvement pattern. The IRSDP’s ambitious targets of 7% GDP growth and total infrastructure investment of 6% of GDP remain unachieved to date.45 43. The IRSDP had two positive externalities: (i) the deepening of the financial sector through the establishment, operationalization, and rapid expansion of infrastructure finance (SMI and the IIF) and guarantee (the IIGF) companies that are now important catalyzers of bank and capital market resources for PPP and other types of infrastructure projects; and (ii) the IPDF’s critical role in strengthening the PPP capacity of government staff and the domestic consulting industry, which is now much better equipped to support the preparation and transaction of the country’s PPP project pipeline.

43

ADB. 2017. Meeting Asia’s Infrastructure Needs. Mandaluyong. 44

The first step in developing a law in Indonesia is the preparation of an academic paper. The Stepping up Investments for Growth Acceleration Program (footnote 42) supports the development of an academic paper on a law relating to private participation in infrastructure in Indonesia.

45 Both during IRSDP period and until now, the inadequate supply of infrastructure has remained one of the three

most problematic factors for doing business in Indonesia. Details and data sources are in Appendix 1.

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44. The IRSDP’s program and project components promoted strengthening of and compliance with the country’s environmental and social safeguards systems. During subprogram 3, the new land acquisition law was adopted that significantly improved the processes and procedures of land acquisition and involuntary resettlement in the public interest, including for PPP projects. Project preparation under the IPDF followed Indonesia’s requirements on environmental and social impact assessments. PPP implementation guidelines (BAPPENAS Regulation 3 [2012]) ensured that environmental and social safeguards were adequately mainstreamed in all phases of the PPP project cycle. 46 45. The IRSP’s expected impact in terms of accelerated infrastructure development through PPPs began materializing in 2016, given the time needed to complete the government’s institutional set-up and build critical mass of PPP capacity. Overall, the IRSDP is likely to yield positive development impacts and significant economic gains, although later than expected. Therefore, the IRSDP’s development impact is rated satisfactory.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 46. The IRSDP helped introduce PPPs as a new cross-sector modality for the better governed delivery of public infrastructure through the private sector, and was an important policy dialogue platform for infrastructure issues in Indonesia. Despite its challenges, the IRSDP contributed to sustaining the government’s PPP and PSP agenda within the overall political economy context.47 The IRSDP had a comprehensive scope and ambitious objectives, and was exposed to the risk of ineffective institutional coordination, weak government capacity (especially at the local level), the private sector’s low readiness for PPPs, an inadequate land acquisition framework during the IRSDP period, and the domestic consulting industry’s lack of experience with PPPs.48 The impact of the global financial crisis on Indonesia also affected the IRSDP. Albeit with a significant lag, the IRSDP reforms have begun yielding results (para. 36). Overall, based on the assessment of its relevance, effectiveness, efficiency, and sustainability, the IRSDP is rated successful.49 B. Lessons 47. The IRSDP aimed to provide comprehensive, demand-driven, medium-term support to the government’s ambitious agenda on raising PSP in infrastructure, with a focus on PPPs. At approval, the IRSDP was ADB’s flagship operation in Indonesia. Important lessons learned from the implementation of the IRSDP’s program and project components are highlighted below. 48. Focus. Although it is difficult to pick up certain reforms from the government’s comprehensive policy agenda, such as the one that underpinned the IRSDP, from the monitoring and impact perspectives it is important to try to focus on those reforms that address

46

The IRSDP subprograms and IPDF were assigned category C in all safeguards. 47

The political economy context, willingness to take risks, and readiness to stay engaged over the long term (sometimes for decades) are important elements in the success of public sector operations. ADB. 2014. ADB Support for Enhancing Governance in its Public Sector Operations. Manila.

48 The outcome of the World Bank’s IDPL series was rated moderately unsatisfactory. The IDPLs’ pillars are rated

as follows: (i) national spending on infrastructure: moderately satisfactory; (ii) subnational infrastructure: unsatisfactory; (iii) private investment through PPPs: unsatisfactory; and (iv) cross-cutting areas (land acquisition, environmental management, and fiduciary oversight): satisfactory (footnote 7).

49 ADB. 2016. Guidelines for the Evaluation of Public Sector Operations. Manila.

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the binding constraints. Reforms should be prioritized by considering institutional readiness at all levels. If the operation covers several sectors, then it may be necessary to focus on the sectors, in which the likelihood of the reforms being realized is relatively high.50 Similarly, focus is important in case of project development facilities (PDF) by covering, for example, only (i) selected sectors ready for the preparation and implementation of PDF-supported projects; (ii) national agencies’ projects, if the country has a decentralized system with still evolving local government capacity is still evolving; (iii) projects of local governments with adequate financial strength and track records; and (iv) projects above a certain investment cost. Narrowing the focus of the program and project will also help improve the realism and clear assignment of the targets for the program and the project components. 49. Support to line ministries. In a multisector operation, it is important to provide direct project or TA assistance to the line ministries responsible for designing and implementing the sector policy reforms. In the case of PPPs, this would promote the line ministries’ commitment and capacity to mainstream PPPs in their systems and processes on public investment planning.

50. Structural features. It is important to consider the structural features of the economy during project design. In the case of the IRSDP, the relevant structural features were the strong role of SOEs in infrastructure and construction, the financial sector’s low interest in and capacity for infrastructure investments, and the domestic consulting industry’s shortage of project finance skills.

51. Core functions of government agencies. When introducing a new public service delivery modality or function, the core functions of relevant agencies need to be carefully considered. During the introduction of PPPs in 2005 BAPPENAS was assigned to become the government’s lead facilitator of the country’s PPP program and an eventual home to the central PPP unit. However, the preparation and transaction of PPPs require close synchronization with the government’s financial support requirements and processes, and public financial management is the MOF’s core function. Eventually, these core institutional functions of BAPPENAS and MOF have also materialized in PPPs, with BAPPENAS covering the planning and programming of PPPs, and the MOF covering the preparation, transaction, and provision of government support to PPPs. Hence, the program or project design should carefully consider the core functions of the key government agencies involved in the operation, as these are unlikely to change due to a change in agency leadership. 52. Dedicated monitoring and streamlined procurement for the project components. The policy and project components of such comprehensive operations as the IRSDP tend to have specific performance criteria, risks, inputs, activities, implementation periods, and details.51 This warrants consideration of separate–though interrelated–DMFs for the program and project components. Consultant selection under the IPDF required special treatment given the large number of PPCs that had to be expeditiously recruited within the originally envisaged short IPDF period. In such cases, standard selection of consulting firms is inefficient given the length

50

For example, the IRSDP’s cross-cutting reforms included reforms on clarifying the responsibilities of different government levels in the provision of infrastructure services, on borrowing from domestic and external sources, and on PSO policy. These reforms do not appear to be among the priority ones for the mainstreaming of PPPs. In terms of sectors, PPPs appear to have been likely to find traction only in the energy and water supply sectors given (i) the predominant role of SOEs in the toll road, airport, port, seaport, and railway sectors; and (ii) the fact that PPPs are not needed in the oil and gas and telecommunications sectors.

51 For example, the highlights of IPDF-related aspects were incorporated in the DMFs of each IRSDP subprogram,

the last of which was completed 5 years before the IPDF’s completion in December 2015.

15

App

end

ix 1

23

of time needed to engage a consulting firm; instead a more flexible and streamlined consultant selection approach is warranted, such as retaining PPCs on indefinite delivery contracts. C. Recommendations

1. Program and Project Related 53. Future monitoring and covenants. ADB should continue monitoring the implementation of the PPP program given its importance for addressing the country’s large infrastructure gap. This should be done in coordination with key development partners using the KPPIP and the joint PPP office as platforms for discussions and policy dialogue. In policy lending operations, the covenants related to progress reporting and subprogram evaluation must be closely monitored and compliance adequately recorded. For projects with many covenants, such as the IPDF, covenant monitoring and reporting should form part of the biannual administration missions’ reports.

54. Further action or follow-up. To help expand the PPP program in Indonesia, ADB may consider supporting the following through dedicated operations, project components, or transaction advisory services: (i) upstream and downstream work on PPPs in selected GCAs showing institutional readiness for PPPs, including in the social sectors; (ii) project- and program-level information management and capacity building of GCAs through the joint PPP office; (iii) the expansion of infrastructure finance and guarantee companies to offer new products and services to tap capital market resources; (iv) the introduction of efficient methods for the expeditious engagement of consulting companies and international financial institutions for PPP project preparation, transaction, and contract management; (v) the implementation of a strategic public communication campaign on PPPs to raise public awareness and build critical mass of proponents in various parts of society; and (vi) the development of a legal and regulatory framework on PSP in infrastructure that would unify the legal, procurement, and government support frameworks for PSP projects across sectors and layers of government. With the PPP program roll-out in 2016 and the end of the current RPJMN’s term in 2019, it may be expedient to consider producing the program performance evaluation report in 2020.

2. General

55. Mainstreaming of public–private partnerships in civil servant training. To address the limited understanding of PPP principles in the government, consideration should be given to support mainstreaming of PPP courses (contextualized to Indonesia’s legal and institutional frameworks) in the training programs regularly offered by the country’s civil service training institutes to central and local government officials. 56. Agency level support. With the first phase of PPP reforms accomplished (i.e., the establishment of critical legal and institutional frameworks), more agency-focused support may be warranted to sustain and expand the use of PPPs as a regular modality to deliver public investment. This can be done most expediently through a sector development program modality that would (i) facilitate reforms at either a national government agency or a local government level, and (ii) support preparation and delivery of the agency’s PPP project pipeline (e.g., by financing VGF or the interface infrastructure).

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary

Indicators/Targets at Approval Achievements

Subprogram 1 Subprogram 2 Subprogram 3

Impact An improved investment climate and the achievement of the Government of Indonesia’s medium-term macroeconomic goals, in particular average annual gross domestic product (GDP) growth of 6%–7% during 2005–2009, through enhanced infrastructure provision and access (subprogram 1) Improved investment climate in Indonesia’s economy (subprograms 2 and 3)

Infrastructure investments increased from about 2% of GDP in 2005 to about 6% of GDP by 2011. By 2011, annual real GDP growth more than 7%.

GCI ranking of Indonesia improves regularly from previous ranking in 2004. Real GDP annual growth rises to at least 7% in 2015 from 5.0% in 2004.

Global competitiveness index ranking of Indonesia improves regularly from baseline ranking of 69 for 2005–2006. Real GDP annual growth accelerates to at least 7% in 2014 (2004 baseline: 5%).

Total infrastructure investments as a share of GDP increased continuously from 3.0% in 2005 to 3.6% in 2006, 5.6% in 2007, and 5.7% in 2008. After the global financial crisis, total infrastructure investments as a share of GDP declined steadily from 4.1% in 2009, to 2.9% in 2010, and 2.6% in 2011. In 2012, it was 3.0% of GDP.

a In

2013–2014, total infrastructure investment is estimated at 2.9% of GDP. In 2015 and 2016, the estimate is 3.3% and 3.5% of GDP, respectively.

j

During 2005–2008 GDP growth was on average 5.9% of GDP. In 2009, it dropped to 4.6% of GDP. In 2010 and 2011, GDP growth recovered and was 6.2% in both years. During 2012–2016, GDP growth continuously declined from 6.0% in 2012 to 5.0% in 2016.

b

Global competitiveness index ranking of Indonesia during 2007–2016 is as follows:

c

Period Rank 2003–2004 72 (out of 102 countries) 2004–2005 69 (out of 104 countries) 2006–2007 50 (out of 125 countries) 2008–2009 55 (out of 134 countries) 2010–2011 44 (out of 139 countries) 2012–2013 50 (out of 144 countries) 2013–2014 38 (out of 148 countries) 2014–2015 34 (out of 144 countries) 2015–2016 37 (out of 140 countries) 2016–2017 41 (out of 138 countries)

Appendix 1 17

Design Summary



Indonesia’s inadequate infrastructure supply ranks among the most problematic factors for doing business in the country:

c

Period Rank 2006–2007 1 2008–2009 2 2010–2011 3 2012–2013 3 2013–2014 3 2014–2015 5 2015–2016 3 2016–2017 3

Outcome Accelerated infrastructure development through large-scale private sector participation (PSP) and the mobilization of additional public sector resources (subprogram 1) Enhanced infrastructure provision and access (subprogram 2) Enhanced infrastructure provision

Upward trend in key indicators on investments and project transactions (as specified under Outputs)

Infrastructure investments increased from 3.2% of GDP in 2004 to at least 6.0% in 2015.

Infrastructure investments increased to 4.0% of GDP in 2008 (2005 baseline: 2.9%).

Partly achieved. Total infrastructure investments as a share of GDP increased steadily from 3.0% in 2005 to 3.6% in 2006, 5.6% in 2007, and 5.7% in 2008.

a This increase

was largely driven by state-owned enterprise (SOE) infrastructure investments that steadily increased from 1.4% of GDP in 2005 to 3.0% of GDP in 2008. In 2007–2008, private investment in infrastructure was on average 1.1% of GDP – a spike compared to an average of 0.6% of GDP during 2003–2006 and 0.5% of GDP during 2009–2012. Since 2009, total infrastructure investments as a share of GDP declined steadily from 4.1% in 2009, to 2.9% in 2010, and 2.6% in 2011. In 2012, total infrastructure investment increased to 3.0% of GDP. The decline was due to a sharp decrease in

18 Appendix 1

Design Summary



(subprogram 3) Percentage of the population with access to electricity increased from 67% in 2004 to at least 80% in 2015. Regular load shedding in the Java-Bali grid eliminated from 2015 onward. Number of households with access to a piped water connection increases by 1 million annually from a baseline of 9,449,505 in

Percentage of the population with access to electricity increased to at least 65% in beginning 2009 (2004 baseline: 62%).

infrastructure investments by SOEs and the private sector. On average, the central and local government’s share in total infrastructure investment was one half, SOEs’ share was one third, and the private sector’s share was around one fifth.

a

Government infrastructure investment as a share of GDP was 1.6% in 2013, 1.5% in 2014, and 2.2% in 2015.

d Total

infrastructure investment as a share of GDP is estimated at 2.9% in 2013–2014, 3.3% in 2015, and 3.5% in 2016.

j

The increase is mainly due to larger government and SOE infrastructure investments. The percentage of the population with access to electricity increased to 65.8% in 2009, 80.5% in 2013, 84.0% in 2014, and 85.0% in 2015.

e

Since 2015, no regular load shedding has occurred in the Java-Bali grid as it has a sufficient power supply. Some load shedding may happen incidentally due to transmission and generation forced outages.

f

The share of the population with access to improved water sources has increased steadily from 81.3% in 2005 to 84.5% in 2010 and 87.4% in 2015.

g

There were 13.3 million household connections in 2015, implying an

Appendix 1 19

Design Summary



2005. Percentage of national roads in good or fair condition increased from 81% in 2006 to 100% in 2015.

Investments in regional water utilities (PDAMs) increased to $296 million in 2009 focusing on new connections (2007 baseline: $30 million). Percentage of national roads in good or fair condition increased to 86% in 2010 (2006 baseline: 81%)

average annual increase of 390,000. On average, the number of PDAM connections grew by approximately 4.6% per year during 2006–2013.

h

PDAM investments totaled Rp275 trillion ($30.6 million) in 2007, Rp579 trillion (US$ 64.4 million) in 2008, Rp962 trillion ($ 106.9 million) in 2009, and Rp846 trillion ($ 94 million) in 2010. During 2006–2010, new PDAM investment totaled $296 million, mostly from donor projects.

i

PDAMs generally suffer from poor governance and underinvestment: 73% of PDAMs run at a loss, with average tariffs lower than unit costs, and the government classifies just under 50% of PDAMs as financially unhealthy. Many PDAMs suffer from negative net investment, with annual depreciation exceeding fixed asset growth. Even for many of those with positive net growth in assets, the investment is insufficient to accommodate the organic growth of their distribution networks.

h

The percentage of national roads in good or fair condition was 86% in 2009 and 87% in 2010.

i In 2014, 94% of

national roads were in stable condition.h

Outputs

A. Cross-sector policy, institutional,

Substantially achieved.

20 Appendix 1

Design Summary



and legal framework 1. Improved policy and legal framework for PSP (subprogram 1) Improved PSP framework (subprograms 2 and 3) 2. Well-functioning National Committee for the Acceleration of Infrastructure Provision (KKPPI) (subprogram 1) Improved coordination across sectors (subprograms 2 and 3) 3. Sound risk management framework (subprogram 1) Transparent

The relevant government, presidential, and ministerial regulations on PSP fully operationalized. PPP project transactions proposed by line ministries and contracting agencies reviewed expeditiously; and recommendations on government support, if any, made by the KKPPI. Government support approved by the Ministry of Finance (MOF) for the first batch of PPP projects by the end of 2006.

Revised presidential regulation on PSP issued. Operations of the KKPPI secretariat unified and streamlined. Decisions on government support for transport projects made in accordance with approved policies and procedures.

Ministerial regulation formalizing an operating guideline manual for PPP projects PPP central unit concept formalized. Maintain infrastructure budget allocations at least 30% over 2007 levels.

A PPP framework was introduced through Presidential Regulation No. 67 (2005) (amended three times). Based on this, a new PPP framework was adopted and operationalized through Presidential Regulation No. 38 (2015). Relevant ministerial regulations on PPPs were issued and operationalized. The KKPPI turned out to be an ineffective coordination platform, and was replaced by the Committee for Acceleration of Delivery of Priority Infrastructure (KPPIP) in June 2014. A study on a PPP central unit was completed, but the unit was not established.

National spending on infrastructure increased from Rp24.8 trillion in 2006 to Rp51.1 trillion in 2009 (an increase of 106%), and decreased to Rp49.4 trillion in 2010, with a progressive increase thereafter.

Appendix 1 21

Design Summary



risk-sharing decisions (subprograms 2 and 3) 4. Well-structured public and private sector long-term financing modalities (subprogram 1) Financing facility for lending for public–private partnership (PPP) projects (subprogram 3)

Risk management unit fully operationalized by the end of 2006 At least Rp2 trillion in contingent liabilities allocated for government support for PPP projects in the 2007–2009 budgets.

The IIF formalized in 2009.

The risk management unit became fully operational. To ensure the quality appraisal of PPP projects’ risk and the timely financing of associated contingent liabilities, the government established and operationalized the Indonesia Infrastructure Guarantee Fund (IIGF) in December 2009. As of March 2017, IIGF has signed a guarantee agreement on 13 infrastructure projects with a total investment of around Rp119 trillion. In 2012, the government established a guarantee reserve fund account to ensure funding for materialized contingent liabilities arising from infrastructure projects delivered by SOEs and through PSP schemes. As of 2015, this fund has accumulated Rp2,513.6 billion. The IIF was established in 2009 and became operational in 2010. As of 31 December 2016, it has provided financing to 23 infrastructure projects for an estimated total cost of Rp176.7 trillion against the IIF’s financial commitments of Rp10.5 trillion, a multiplier effect of 17x.

22 Appendix 1

Design Summary



5. Sound land acquisition mechanism, with adequate administrative accountability and social safeguards (subprogram 1) Established revolving fund for land acquisition (subprogram 2) 6. Formulated consistent public service obligation (PSO)policy across sectors (subprogram 2) 7. Five-year rolling pipeline of infrastructure projects (subprogram 3)

Land acquisition for infrastructure investments carried out in line with the new regulatory requirements.

Rp600 billion allocated for the fund in the 2008 State Budget Revenue and Expenditure Law (APBN). Cross-sector PSO policy adopted.

Project book printed and included with the National Medium Term Development Plan (RPJMN).

Utilization of the revolving fund for land acquisition was low due to the inadequacies of the then existing legal land acquisition framework. The new law on land acquisition in public interest was passed in 2012 and became fully effective in 2015. The PSO framework was implemented in the energy sector but not in the water sector due to legal issues related to the use of PSOs for local government-owned enterprises. Based on the submissions of the government contracting agencies, BAPPENAS issues an annual PPP book that includes the PPP project pipeline. PPPs have not yet been mainstreamed in sector development plans or the infrastructure investment programs of line ministries and government agencies as a regular modality to deliver public investment projects.

Appendix 1 23

Design Summary



8. Independent regulatory structures that create equal access and opportunities (level playing field) for all participants (subprogram 1) Improved sector regulation (subprogram 2)

9. Streamlined, decentralized legal framework, delineating functional responsibilities between different levels of government (subprogram 1)

At least three regulatory bodies established by 2010.

The National Tollroad Authority (Badan Pengatur Jalan Tol; BPJT), the oil and gas sector’s downstream regulator (Badan Pengatur Hilir Minyak dan Gas Bumi; BPH MIGAS), and the Indonesian Telecommunications Regulatory Body (Badan Regulasi Telekomunikasi Indonesia; BRTI) were established and made operational, but with varying degrees of independence and tariff setting powers. The water sector regulator (the Water Supply Development Supporting Agency; BPPSPAM) never became a true regulator, but became a technical support entity to set the operation and technical standard for PDAMs. In 2007, Government Regulation No. 38 was adopted to implement the old law on local government (Law No. 32 [2004]). In 2014, a new regional government law (Law No. 23 [2014]) was adopted enabling a tailored approach to local governments with respect to functional assignments. A new government regulation is being finalized to replace Government Regulation No. 38 (2007).

24 Appendix 1

Design Summary



B. Sector-specific reforms 10. Well-structured laws and regulations that promote competition (subprogram 1) Strengthened sector legal framework (subprograms 2 and 3) 11. Tariff structures based on full cost-recovery principles (subprogram 1)

All sector master plans and blueprints revised and updated by the end of 2007. PPP project pipelines reviewed and updated

Five laws passed and related implementing regulations issued within 12 months.

Laws passed on aviation, electricity, and traffic, and related implementing regulations initiated

Substantially achieved. Laws passed on aviation, electricity, road traffic and transportation, shipping, railways, and municipal waste management that promote competition and PSP in these sectors. Except for the telecommunications sector, tariff structures are not on a full cost-recovery basis. For example, the intention to enable regional governments to set electricity tariffs within their jurisdictions in order for different regions to develop region-

Appendix 1 25

Design Summary



Adjust electricity tariffs and PSO margin to reduce and better target PSO subsidy. (subprogram 3) 12. Legal and institutional framework for PSOs that meets the needs of the poor. (subprogram 1) 13. Improved infrastructure sector development planning (subprograms 2 and 3) 14. Termination of all toll road concessions signed prior to August 2007 (subprogram 3)

by line ministries and contracting agencies.

Five ministerial regulations issued for the adoption of sector master plans.

Tariff hike approved by the Indonesian Parliament under decree. Ministerial regulations approved for power tariffs, wastewater, and telecommunications. Ministerial decree issued terminating all pre-August 2007 toll road projects

specific costing and pricing was not implemented due to the requirement for Parliamentary approval to change the cost tariffs. PSO targeting–the proportion of the PSO received by residential consumers with connections of 900 VA or less–did not improve during the IRSDP period. The proportion was reported at 43.6% in 2007, 41.0% in 2008, 41.6% in 2009and 42.9% in 2010. The objective was to achieve the target of 70% PSO subsidy going to low income consumers. Master plans are regularly implemented in the power, and oil and gas sectors. In other sectors, standard sector development plans are done at the start of each RPJMN period, and then updated as needed. PPPs are not mainstreamed in the sector investment planning process. In October 2007, 24 toll road concessions were active and had not reached financial close; 14 of these were toll road concessions signed before 17 August 2007. Ministerial

26 Appendix 1

Design Summary



15. Implemented anticorruption measures in the road sector (subprogram 2) 16. Complete debt restructuring program for PDAMs (subprogram 2)

Action plan developed and e-procurement introduced in the road sector agencies. Ministerial regulation issued and program implementation begun for unhealthy PDAMs.

Degree 6 (2010) required the closure or termination of old toll road concessions by 31 December 2010; this was extended to July 2011. No toll road concessions were terminated during the IRSDP period. In May 2010, of the Ministry of Public Works national contracts, 53% used “semi-e procurement” and 26% used “e-procurement plus.” A key reason why 100% e-procurement coverage was not achieved was a lack of legislation governing e-signatures, lack of procurement management, and the low capacity of procurement committees. PDAM restructuring proceeded very slowly: by 2010, 106 of the 165 eligible PDAMs had submitted restructuring plans and 68 had restructuring programs with the MOF. Second, while some new public investment has been made in PDAMs, none took advantage of subsidized private bank financing made available under Government Regulation No. 29 (2009).

C. Facilitation of PPP project transactions 17. Sound model transactions designed in the transportation, energy, and water supply

At least 18 PPP projects shortlisted, and 10 candidate projects selected to be pursued as model PPP projects.

Partly achieved. As of 31 December 2015, 31 potential projects received support from the infrastructure project development facility (IPDF), of which the following three projects were transacted: (i) the Central Java Power Plant PPP project, (ii) the Central Kalimantan Coal Railway

Appendix 1 27

Design Summary



and sanitation sectors (subprogram 1) 18. Adopted standard bidding documents for PPP projects. (subprogram 2)

An additional 25–30 PPP projects identified, and their preparation and bidding started by 2010 The PDF established by the end of 2006. At least 10 large national projects and 40 decentralized regional projects prepared and put up for bidding under the PDF. The PPP projects meet the government’s social

and environmental

safeguards.

Such documents used for all PPP projects in the power, transport, and water supply sectors

PPP project, and (iii) the Bandung Waste to Energy PPP Project. Of these, only (i) reached financial close in June 2016. The IPDF brought seven projects to the transaction stage, but none got awarded. Three projects were under preparation, and the IPDF has also prepared 18 prefeasibility studies. However, these were dropped for various reasons prior to reaching transaction stage. The IPDF became more active in the second half of 2015: it supported the retendering of seven toll projects that were halted for some time due to land acquisition issues, and the preparation for the transaction of the Palapa Ring Fiber Optic PPP project. PPP projects were prepared in accordance with Law No. 2 (2012) on land acquisition, and Law No. 32 (2009)

on the environment. There are no standard bidding documents for PPP projects. In 2016, the National Public Procurement Agency initiated the development of such documents for the airport, streetlight, water supply, and waste-to-energy PPP projects. There are template bidding documents for the power purchase agreements carried out by the State Electricity Company (PLN)

28 Appendix 1

Design Summary



19. National PPP project book (subprogram 3) 20. Completed feasibility studies and tendering for model PPP projects (subprogram 2) Completed prefeasibility studies and tendering for at least two PPP projects (subprogram 3) 21. Provided project development facility (PDF) support for project preparation and transaction execution (subprogram 2) PDF support for project preparation and transaction execution (subprogram 3)

Feasibility studies for 10 PPP projects and tendering for two PPP projects initiated. Pipeline of at least 15 PPP projects developed for the PDF.

Project book printed and included with the RPJMN. Tendering for three PPP projects initiated, including the $2.5 billion Central Java Power Plant. Rolling pipeline of at least 15 PPP projects developed for the PDF.

following the electricity law. The PPP book is developed and disclosed annually. The number of PPP projects supported through the IPDF is provided above. The IPDF in BAPPENAS ceased to exist in February 2016 due to the closure of the Asian Development Bank (ADB) loan. The IPDF as a revolving fund did not materialize, as the public financial management system of the country allows project preparation cost recovery through a public services agency mechanism that can only be set up at the MOF. The PDF was established in the MOF to support the preparation of full business cases and transaction phase of PPP projects.

Appendix 1 29

Activities with Milestones Inputs

Refer to policy actions or outputs under each subprogram in Appendix 2.

ADB ordinary capital resources loans: (i) $400 million for subprogram 1 approved in December 2006, (ii) $280 million for subprogram 2 approved in December 2008, and (iii) $200 million for subprogram 3 approved in December 2010.

Asian Development Fund loan of$26.5 million approved in 2006.

Government of the Netherlands grant of$7.6 million for the IPDF approved in 2006.

ADB grants of (i) $2 million for TA 4728 approved in 2005, and (ii) $2 million for TA 4872 approved in 2006.

Cofinancing from the Government of Japan through the Japan International Cooperation Agency approved for subprograms 1, 2, and 3 ($100 million each).

a World Bank. 2015. Technical Note: Estimating Infrastructure Investment and Capital Stock in Indonesia. Jakarta.

b ADB’s Statistical Database System.

c World Economic Forum’s Global Competitiveness Reports during 2003–2015.

d MOF. http://www.anggaran.depkeu.go.id/dja/edef-seputar-list.asp?apbn=tani.

e ADB. 2016. Achieving Universal Electricity Access in Indonesia. Mandaluyong.

f Communication with the PLN.

g World Bank’s World Development Indicators. http://data.worldbank.org/.

h D. Ray and L.Y. Ing. 2016. Survey of Recent Developments: Addressing Indonesia's Infrastructure Deficit. Bulletin of Indonesian Economic

Studies 52(1). i World Bank. 2012. Implementation Completion and Results Report on a Series of Loans in the Amount of US$850 Million to the Republic of Indonesia for Infrastructure Development Policy Loans I, II, III, and IV. Washington, DC. j ADB staff calculations based on estimates of the total nominal infrastructure investments provided by the infrastructure team of the Australia Indonesia Partnership for Economic Governance.

http://www.anggaran.depkeu.go.id/dja/edef-seputar-list.asp?apbn=tani

30 Appendix 2

POLICY MATRIX

No. Action Output and/or Milestone Subprogram

Highlights of developments after the completion of the policy measure and the IRSDP period

1 2 3

I. Cross-Sector Policy, Legal, and Institutional Framework (BAPPENAS, CMEA, MOF, MOHA, MEMR, MOT, MPW, BPN)

1. Establish a framework for PSP that provides for good governance through transparent and competitive selection of project sponsors

1.1 High-level policy statement in support of sector reforms and PPPs at the Indonesia Infrastructure Summit

C Infrastructure summits discontinued due to little progress and no new projects to show to the investors and lenders.

1.2 Presidential regulation 67/2005 on Cooperation Between the Government and Business Entities in Infrastructure Provision (replacement of President Regulation 7/1998)

C Presidential Regulation 67/2005 was updated several times. In 2015, it was replaced through Presidential Regulation (Perpres) 38/2015, which enabled, among other things, PPPs on availability payment basis and enhanced scope of PPPs to the social infrastructure.

1.3 Operations guidelines manual, elucidating presidential regulation 67/2005, describing rules and procedures for preparing and executing PPP projects, and stipulating that Government support would be considered only if so indicated in the bidding documents

C Now replaced as Bappenas Regulation (Permen Bappenas) 4/2015, which is an implementing regulation of Perpres 38/2015.

1.4 CMEA regulations 3/2006 on readiness criteria for project prioritization and 4/2006 on procedures for evaluating projects requiring Government support (indicating that requests for such support should be submitted prior to bidding)

C Partly adopted under Permen Bappenas 4/2015 and MOF regulation on viability gap funding (VGF).

1.5 Draft of cross-sector OGM for PPP projects in infrastructure provision completed

C Partly adopted under Permen Bappenas 4/2015

1.6 Revision of presidential regulation 67/2005 submitted for ministerial approval by CMEA

C Updated several times. Now as Perpres 38/2015

2. Improve coordination among government institutions and consultation with external stakeholders to accelerate infrastructure development

2.1 Presidential regulation 42/2005 on strengthening the KKPPI mandate C Now Committee on Acceleration of Priority Infrastructure Delivery (KPPIP) established in 2014. Significant change to KKPPI initial roles.

2.2 CMEA regulation 1/2006 on the organizational structure and responsibilities of the KKPPI secretariat and the PPP central unit

C KKPPI was not functioning from very beginning as it was very large and did not a functioning (with budget) secretariat.

2.3 Minister of Transportation decree 270/2006 and Minister of Energy and Mineral Resources decree 2541/2006 on the establishment of the PPP nodes in their ministries

C The PPP Nodes have not functioned.

2.4 KKPPI website with regularly updated information in Bahasa Indonesia and English on PPP project status, and relevant laws and regulations

C Continued under KPPIP. Website of KPPIP is functional and informative. It’s regularly updated.

Appendix 2 31



1 2 3

2.5 Feasibility study of a PPP central unit completed C Not implemented. Only in in February 2017, Bappenas, MOF, BPKM, LKPP and IIGF agreed to set up a joint PPP office housed in IIGF. It’s a joint venture, not a separate office. Participating agencies will second staff to this office. It is supposed to improve coordination among government agencies, manage PPP information in an integrated manner and delivery capacity building for government contracting agencies.

2.6 Review of the KKPPI secretariat’s structure C Not implemented

2.7 Implementation of recommendations of the review for better coordination C Not implemented

2.8 Establishment of the Consolidated Indonesia Infrastructure Forum (CIIF) for consultations with investors and other stakeholders

C In operation for 1 year only

2.9 Revitalization of CIIF operations by Coordinating Ministry of Economic Affairs

C Not implemented. The CIIF never functioned as envisaged and only a few meetings were held. Discussion continued as to the need for some such body. Little ownership by the government.

3. Establish a risk management framework to ensure adequate risk mitigation and sharing for projects that require Government support

3.1 MOF regulation 518/2005 on the establishment of risk management committee

C Continued as MOF’s Directorate on Government Support and Infrastructure Financing (MOF’s PPP Unit)

3.2 MOF regulation 38/2006 on risk management policy, outlining the criteria (legality, project quality, fiscal prudence, and transparency) and procedures for the provision of Government support for PPP projects.

C Set of MoF regulations on risks management and government support

3.3 Establishment of the permanent risk management unit to evaluate proposals for Government support for PPP projects, manage consequent fiscal risks, and propose limits on exposure.

C Continued at MOF’s Directorate on Government Support and Infrastructure Financing (MOF’s PPP Unit)

3.4 The risk management unit fully operational in terms of functions, budget, staffing, and standard operating procedures

C Continued at MOF’s Directorate on Government Support and Infrastructure Financing (MOF’s PPP Unit)

32 Appendix 2



1 2 3

3.5 Allocation of resources for Government support to PPP projects in the annual budgets

C C C Continued under MOF’s Directorate on Government Support and Infrastructure Financing (MOF’s PPP Unit). This includes annual VGF allocations and allocations to the land acquisition bridging finance mechanism (LMAN) at DG State Assessment Management.

Ministerial Regulation of Finance Number 223 Year 2012 regarding Viability Gap Funding.

Ministerial Regulation of Finance Number 190 Year 2015 Regarding Availability Payment on PPP in Infrastructure Provision.

Ministerial Regulation of Home Affair Number 96 Year 2016 Regarding Availability Payment on Regional PPP in Infrastructure Provision.

3.6 Preparation of the policy paper on a new Guarantee Fund with adequate resources for risk sharing to enhance PSP

C IIGF established.

3.7 Operationalization of the Guarantee Fund C IIGF established and operational. As of March 2017, IIF has signed a guarantee agreement on 13 infrastructure projects with a total investment of around Rp119 trillion.

3.8 Presidential Decree and ministerial regulation on the provision of government guarantees to PPP projects pursuant to Presidential Decree 13/2010

C Ministerial Regulation of Finance number 260 Year 2010 as amended by Ministerial Regulation of Finance No. 8 year 2016 regarding guideline on government guarantee. IIGF regulatory framework has been expanded to enable to also issued guarantees to non-PPP projects. Government guarantees have been provided to the Palapa Ring Project, Umbulan Water Supply Project, Central Java Power Plan Project, and Toll Road Projects.

Appendix 2 33



1 2 3

4. Establish financing mechanisms to support public and private sector portions of infrastructure projects, and adopt measures to broaden and deepen the financial sector, with focus on nonbank financial institutions

4.1 Policy paper on long-term infrastructure financing C PT SMI established and operational as government-owned infrastructure finance company focusing on infrastructure SOEs. In 2015-2016, assets of Public Investment Center of MOF were transferred to PT SMI enabling it to lend to local government. PT SMI is now expanding towards an Indonesia Development Finance Agency.

4.2 Policy paper on the establishment of the project development facility (PDF) C Implemented in 2015 as PDF at MOF.

4.3 Allocation of resources for the preparation of PPP projects in the draft 2007 budget

C After close of PDF at Bappenas, continued in 2015 and afterwards under the PDF at MOF and OBC budget for KPPIP projects.

4.4 Establishment and operationalization of the PDF for the preparation of national and regional PPP projects

C After close of PDF at Bappenas, continued in 2015 and afterwards under the PDF at MOF and OBC budget for KPPIP projects.

4.5 Government Regulation 66/2007 issued on a proposal for the establishment of the Indonesian Infrastructure Fund to finance the private sector portion of PPP projects

C

4.6 Establishment and operationalization of IIFF to provide long-term local currency debt for PPP projects

C IIF established and operational. It’s able to raise short, medium and long term local currency funding and short and medium term dollar funding. IPO is planned in 2020. ADB and WB are providing total of $300 million additional financing to support expansion of IIF.

5. Establish a land acquisition framework to facilitate infrastructure development

5.1 Presidential regulations 36/2005 and 65/2006 on land acquisition outlining the rules and procedures for infrastructure projects serving public purpose

C

5.2 Analysis of gaps between the revised land acquisition framework and international best practices such as the Equator Principles

C

5.3 BPN Regulation 3/2007 on land acquisition guidelines C

5.4 Action plan on acceleration of land acquisition C New law and regulations on land acquisition in public interest established in 2012 and fully effective since January 2015. The new land acquisition framework has enhanced transparency, efficiency, and predictability in the land acquisition process for infrastructure projects. It also allows the private sector

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to fund land acquisition on the government’s behalf. In December 2016, Presidential Regulation (Perpres) No. 102/2016 was issued on funding of land acquisition in public interest for purposes of executing national strategic projects. This regulation provides for a framework to refund the private sector for land acquisition in PPP and PSP national strategic projects using the bridging funding mechanism established at MOF’s Directorate General on State Asset Management. To provide the detailed guidance on the calculation of the refund amount (principal and interest) and the payment procedure, Ministry of Finance issued a Regulation No. 21/PMK 06/2017 on procedures for land acquisition funding for national strategic projects and management of assets derived from land acquisition by the state assets management agency (LMAN). This mechanism has been primarily designed for the toll road PSP projects. Under this mechanism, the toll road concessionaires will acquire the land on behalf of the government, submit the refund payment request to LMAN, LMAN will seek confirmation from the BPJT and BPK, once confirmed LMAN will pay the concessionaires, and the LMAN will seek refund of the paid amount from MPWH for eventual use for other PPP and PSP projects.

6. Adopt legal framework that clarifies the responsibilities

6.1 Government regulation 38/2007 on the assignment of functions among central, provincial, and regional and/or municipal governments

C

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of different levels of government in the provision of infrastructure services

PP 38/2007 was one of the implementing regulation for the old law on local government, Law No. 32/2004, which was inadequately reflecting the differences in the capacities of local governments in respect with the functional assignments at local level (the law followed the one-size-fits-all policy). In the context of Indonesia, however, this is not practical. For example, functional assignment for local government in Java is different than in Papua. Furthermore, the sectoral laws also diluted the provisions of the law no. 32 and PP 38/2007. Given this, in 2014 the government introduced a new regional government law (Law No. 23/2014), which now enabled for a tailored approach to local governments in respect with functional assignments. The new law now identifies six main basic delivery areas (requiring compliance with minimum service standards): health, education, public works, housing, public safety, and social. The line ministries, as the technical ministries, need to provide technical guidelines on the minimum standard of services. The corresponding government regulation is being finalized and it will replace PP38/2007.

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7. Revise the national policy and legal framework on borrowing from domestic and external sources to give priority to infrastructure development

7.1 Government regulation 2/2006 on Foreign Loans and Grants C

7.2 Government regulation 54/2005 on Regional Government Borrowing; Government regulation 55/2005 on On-Lending; and Government regulation 57/2005 on On-Granting

C Government regulation 54/2005 on regional government borrowing was replaced by Government Regulation 30/2010 that enabled local government to issue bonds linked to local infrastructure financing. Government regulations 55/2005 and 57/2005 have remained in place and are being used to channel funding from the national to local governments for the latters’ development projects. In terms of on-granting, the water hibah (grant) project funded by the Government of Australia presents a good case of channeling donor funds to local governments using output based assistance mechanism established under MOF Regulations PMK 168/2008 and PMK 169/2008. Under the water hibah mechanism, the local government receives a grant (hibah) only after the utility delivers the required outputs (typically household water connections). In 2015, government adopted direct lending scheme enabling SOEs to directly borrow from IFIs against a sovereign guarantee. This scheme is faster than the subsidiary loan agreement scheme that requires parliament’s approval. In 2016, government has also adopted regulations on national strategic projects and 35GW program that entitles such projects to government guarantees based on MOF assessment of the project viability.

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7.3 Minister of Development Planning/Chair of BAPPENAS regulation 5/2005 for planning, proposing, and evaluating projects to be financed by foreign loan/grant, MOF decrees 52/2006 and 53/2006 for the replacement of MOF decree 35/2003, with criteria for classifying revenue- and nonrevenue-generating projects

C In 2011, government improved the foreign assistance framework by adopting the Government Regulation 10/2011 and Minister of Development Planning Regulation 4/2011. New features of the new regulations include the use of legal borrowing limit as a measure to control debt portfolio, more flexible sources of financing and improved accountability mechanism of government agencies involved.

7.4 Mechanism developed on how to prepare a rolling 5-year pipeline of projects to be financed by foreign loans or grants (Blue Book/Green Book/Brown Book)

C C C Blue and Green books are issued at the start of RPJMN period and then updated annually.

8. Adopt a PSO policy that ensures uniformity across infrastructure sectors

8.1 Develop a policy paper on PSO in infrastructure provision

C

8.2 The PSO policy incorporated in the RPJM 2010-2014 C In 2010, an adjustment in electricity tariffs was achieved for the first time in almost a decade. However, despite the tariff increase, the 2010 subsidy levels (Rp58.1 trillion) and targeting (42.9% of the poor) actually worsened against Rp37 trillion and 43.6% of the poor in 2007. PSO policy continued under RPJMN 2015–2019. The PSO policy was adopted through the 2003 SOE Law but is currently used for only 3 SOEs (KAI, Pelni and Antara), with PSOs accounting for under 3% of the 2017 subsidy budget. For example, the fuel and electricity subsidies are not classified as PSO subsidy despite being delivered through Pertamina and PLN.

II. Sector Reforms

A. Land Transportation (MOT, MPW)

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9. Undertake long-term planning for land transportation in terms of physical expansion, restructuring, and safety

9.1 Land transportation master plan C The National Transport System (SISTRANAS) and National Logistic System (SISLOGNAS) master plans published in 2005 and 2012 still underpin further master planning efforts. This reform has continued, with railway (2011), ports 2013/14 and air travel (2013) master plans taking their lead from the earlier multi-modal master plans. A roads long-term master plan should be published in 2017/18.

9.2 Road safety action plan C With over 25,000 road accident deaths per year in Indonesia, this policy was very relevant throughout IRSDP. Although action has been taken through the publication of subsequent Road Safety Acton Plans and the Directorate General of Highway’s Road Safety Master Plan, the effect on the performance of road authorities in tackling road safety issues has been minimal. Lack of targeted funding has caused stagnation.

10. Revise the legal framework for land transportation to reflect decentralization and eliminate the SOE monopoly by separating the regulator and operator functions

10.1 Law 22/2009 on Road Traffic and Transportation C Law 22/2009 was wide-ranging. Many elements of the law are still not implemented – e.g. the Road Fund, but remain valid as possible policy improvements

10.2 Development of Government regulations for the law 22/2009 (establishing Forum LLAJ, standardization of vehicle inspection procedure)

C These regulations remain relevant. Generally LLAJ forums and vehicle testing facilities are dysfunctional, but with some exceptions. Only one LLAJ in Nusa Tenggara Barat is working successfully as was intended.

11. Adopt appropriate tariff policy in line with the cost recovery principle

11.1 Ministerial regulations 52/2006 on tariff formulation for bus transport and 62/2007 on ferry transportation

C The goal of cost recovery has not been achieved, so the efforts were not sustainable. For instance Transjakarta recovers only one third of its operating costs.

11.2 Implementation of the new tariff policy C Though the reform has remained relevant, its goals were not achieved. Hence, the efforts were not sustainable.

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12. Adopt measures to improve safety in land transportation

12.1 Establishment of the Directorate of Land Transportation Safety C Safety of transport remains a significant issue in Indonesia. The Directorate within MoT is actually the Directorate of Land Transport, not land safety, so some focus is lost. However, it is accepted that safety is a key focus area for them.

12.2 Establishment of the Forum LLAJ C This reform was and still remains very relevant as increased public scrutiny through FLLAJ is essential to driving change in land transport. LLAJ forums have been established across the country, but most are dormant or include only public sector members, making them ineffective. Policy direction was not implemented in practice.

12.3 Implementation of a new vehicle inspection system C 13. Improve roads and traffic

management to reduce congestion in the Jakarta–Bogor–Depot–Tanggerang–Bekasi (JABODETABEK) area

13.1 Ministerial regulation 14/2007 on truck and trailer prohibition areas C

13.2 Ministerial regulation 14/2006 on traffic management policy C

13.3 Implementation of road decongestion actions C C

14. Review the current PSO policy for land transportation to make it affordable for the poor, and to increase PSP and service coverage

14.1 Review of subsidy policy framework for land transportation C

14.2 Implementation of subsidy scheme C

B. Railways (MOT)

15. Undertake long-term planning for the railway sector in terms of physical expansion, modal shift, and sector restructuring

15.1 Railway revitalization program C

15.2 Railway transportation master plan for the JABOTABEK area C There was little traction on JABODETABEK in the absence of a metropolitan transport authority. In 2015, JABODETABEK Transportation Authority was established under MOT, but its powers may be inadequate to address the institutional coordination issues, including between the central and local government levels.

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16. Revise the legal framework for the railway sector to reflect decentralization and eliminate the KAI monopoly by separating the regulator and operator functions

16.1 Law 23/2007 on Railways

C

16.2 Government regulations for Law 23/2007 C The Government regulation No. 56/2009 on Railway Provision is key regulation issued to implement the Law 23/2007 on Railways.


17.1 Ministerial regulation on tariff calculation and application for railways C

18. Adopt regulatory arrangements for the railway sector that ensure level-playing field for all operators

18.1 Assessment of the current regulatory arrangements in the railway sector C

18.2 Implementation of recommendations of the assessment C

19. Improve railway operation and maintenance

19.1 Assessment of management practices of the railway operator C

19.2 Assessment of the implementation of the recommendations C

19.3 Medium- and long-term maintenance program C

19.4 Technical standards, procedures, and rules for operations C

19.5 Regulation on train car operation and safety standards

C

20. Review the current PSO policy for the railway sector to make it affordable for the poor, and to increase PSP and service coverage

20.1 Review of PSO policy framework for railway sector C

20.2 Implementation of subsidy scheme C As of end of 2016 there has not been any railways PPP projects in Indonesia. In 2016, Indonesian government has awarded the 50-year concession for the $5.1 billion Jakarta-Bandung high speed rail line to the joint venture of Indonesian state-owned enterprises and China Railway International, however the project has not reached financial close yet.

C. Sea Transportation (MOT)

21. Undertake long-term planning for sea transportation in terms of physical expansion and restructuring

21.1 Revised sea transportation blueprint C

22. Revise the legal framework for sea transportation to reflect decentralization and

22.1 Presidential instruction 5/2005 on the empowerment of the national shipping industry, promoting the separation of the regulatory and operator functions in ports and allowing more than one terminal operator

C

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eliminate the PELINDO monopoly by separating the regulator and operator functions

22.2 Law 17/2008 on Shipping C It became operational in 2011. The law provided for establishment of new institutions, such Port Authorities that would be able to enter in concession agreements with the private sector. However, the Port Authorities have not been adequately empowered to perform their important functions.

22.3 Ministerial regulations on the implementation of presidential instruction 5/2005

C

22.4 Development of draft Government regulations for Law 17/2008 C Among the government regulations issued for law 17/2008 are Government Regulation No. 20 of 2010 on Inland Waterways Transport, and Government Regulation No. 64 of 2015 concerning Amendment to Government Regulation No. 61 of 2009 concerning Harbours.

23. Adopt appropriate tariff policy in line with the cost-recovery principle f

23.1 Ministerial regulations 57/2006 and 22/2007 on tariff formulation and application

C

23.2 Implementation of the new tariff policy C

24. Adopt regulatory arrangements for sea transportation that ensure level playing field for all operators

24.1 Assessment of the current regulatory arrangements for ports C


25. Review the current PSO policy for sea transportation to make it affordable for the poor and to increase PSP

25.1 Review of PSO policy framework for sea transportation C

25.2 Implementation of subsidy scheme C There was no port PPP in Indonesia so far. PSP sector regulations have been issued recently: Regulation of the Minister of Transportation No. PM 15 of 2015 on Concession and Other Cooperation Forms Between the Government and the Port Business Entity in the Field of Harbours (amended by Regulation of the Minister of Transportation No. PM 166 of 2015).

26. Adopt measures to enhance security in international ports and safety in sea transportation

26.1 Review of security arrangements in international ports C

26.2 Verification and certification of compliance by international ports with the provisions of the 2002 International Shipping and Port Security Code

C

26.3 Technical safety and inspection standards for ships C

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D. Air Transportation (MOT)

27. Undertake long-term planning for air transportation in terms of physical expansion and restructuring

27.1 Revised air transportation blueprint C

28. Revise the legal framework for air transportation to reflect decentralization and eliminate the Angkasa Pura monopoly by separating the regulator and operator functions

28.1 Law on Aviation 1/2009 C

28.2 Government regulations for Law 1/2009 C Government Regulation No. 40/2012 on Airport Construction and Environmental Preservation.


29.1 Ministerial decree on tariff formulation and application C

29.2 Implementation of the new tariff policy C

30. Adopt regulatory arrangements for air transportation that ensure level playing field for all operators

30.1 Assessment of the current regulatory arrangements for airports C


31. Integrate air traffic control services to enhance coordination and safety

31.1 Study on a new air traffic control corporation C

31.2 Implementation of recommendations of the feasibility study C AirNav Indonesia, the national air traffic control provider, was established in 2012.

32. Adopt measures to enhance security in international airports

32.1 Review of security arrangements in international airports C

32.2 Verification and certification of compliance by international and major airports with the regulations of the International Civil Aviation Organization

C AVSEC Airport Security was formed by PT Angkasa Pura II to provide security services and meet international and national rules with regards to the provision of security services at airport.

33.

Review the current PSO policy for air transportation

33.1 Review of PSO policy framework for air transportation

C

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to facilitate access to remote and disadvantaged areas and increase PSP

33.2 Implementation of the subsidy scheme C There have not been any airport PPP projects in Indonesia. The operation and management of airports continues to be split between two state owned enterprises with PT Angkasa Pura I being responsible for operating 13 airports in eastern Indonesia (including Bali Denpasar) as well as PT Angkasa Pura II that operates 13 airports in western Indonesia (including Soekarno-Hatta International Airport, the country’s largest airport). Foreign ownership of airports is not possible in Indonesia under Law No. 1/2009 on Aviation which states that foreign investors cannot own a majority stake in an Indonesian airport.

E. Roads (MPW, MOF, MOT, MOHA, BPN)

34. Undertake long-term planning for road transportation in terms of rehabilitation and expansion

34.1 Revised blueprint for the national road network C The SISTRANAS and SISLOGNAS masterplans published in 2005 and 2012 still underpin further master planning efforts. This reform has continued, with railway (2011), ports 2013/14 and air travel (2013) master plans taking their lead from the earlier multi-modal master plans. A roads long-term master plan should be published in 2017/18.

35. Revise the legal framework for the road sector to reflect decentralization, and eliminate the Jasa Marga monopoly by separating the regulator and operator functions

35.1 Government regulation 15/2005 on toll roads, providing for the establishment of a new regulatory body, ending Jasa Marga’s monopoly, and allowing large-scale PSP

C This reform was very relevant and helped established BPJT now seen as the central toll road authority by all stakeholders. No further legal change required, but further institutional reform of BPJT required to improve role as regulator.

35.2 Ministerial decree 374/KPTS/M/2005 on toll road tariff setting through competitive bidding

C

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35.3 Ministerial regulation 22A/2005 on prequalification guidelines, 295/2005 on regulatory body, and 392/2005 on minimum service standards

C This reform remains relevant up to date. Further policy change is required as toll road tenders continue to attract little interest, and most interest is dominated by SOEs. Minimum Service Standard, although improved, require further improvement to generate service benefits for users. BPJT needs to improve the current procurement practices; introduce better control and sanctions over under-performing toll road providers; and encourage greater private sector participation.

35.4 Ministerial regulations 10/2006 on land acquisition for toll road development; 11/2006 on assignment of responsibilities and tasks for toll road development; 27/2006 on procurement guidelines for toll road concessions; 1/2007 on technical guidelines for research, development, and empowerment of the toll road sector; and 2/2007 on maintenance of toll roads and their access roads

C The land regulations have resulted in significant land acquisition process reform, with improvements being made year-on-year in terms of speeding up land acquisition.

36. Adopt measures to ensure good governance and combat corruption

36.1 Draft standard bidding documents for public procurement C

36.2 Website presenting all projects and activities of the Directorate General of Highways

C Not maintained. Majority of contracts are not presented on DGH website.

36.3 Ministerial decree on the adoption of a transaction-based e-procurement system for all road contracts, including online submission of bids and electronic bid opening

C

36.4 Partial implementation of the transaction-based e-procurement system C

36.5 Expansion of the e-procurement system C Since 2014, the government designed and successfully rolled out a uniform e-procurement platform (SPSE) developed by the National Public Procurement Agency (LKPP). All projects of the Ministry of Public Works and Housing, including those of the Directorate General of Highways, use SPSE for procurement purposes.

36.6 Anticorruption action plan for further measures in the areas of procurement, accountability and transparency, auditing, and human resource development

C

36.7 Phased implementation of the anticorruption action plan C C

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37. Adopt regulatory arrangements for road transportation that ensure level playing field for all operators

37.1 Establishment of BPJT as a separate regulatory body C

37.2 BPJT operational in terms of functions, budget, organizational structure, staffing, and standard operating procedures

C BPJT operational, but institutional strengthening and adjustments to allow BPJT to receive toll revenue required

37.3 Review of the contracting and regulatory functions and reporting arrangements of BPJT

C BPJT role in ensuring (and sanctioning, if needed) toll road operator performance needs strengthening.

37.4 Implementation of recommendations of the review C

38. Adopt a land acquisition mechanism that facilitates the execution of PPP projects

38.1 Initial concept of a revolving fund for land acquisition C

38.2 MOF Regulation 791/2006 and MPW Decree 171/2007 on the establishment of a revolving fund for land acquisition

C In 2016, the government established a land acquisition bridging finance mechanism (LMAN) at the Public Service Agency of the Directorate General of State Asset Management of the Ministry of Finance. LMAN is a revolving fund that can timely compensate the private sponsors for land acquisition cost in PPP projects.

39. Adopt measures to provide sustained funding for road preservation and to link it to road use

39.1 Review of the current system of road user charges and development of road fund policy

C Road user charges through fuel levy are difficult to implement when fuel was heavily subsidized.

39.2 Legal basis for the establishment to the road fund C The legal basis was firmly established, but the road fund was never implemented as there was little political support to setting it up. The road fund remains an option for increasing accountability and public pressure.

40. Adopt measures to improve road maintenance

40.1 Adequate budget allocation for routine maintenance of national roads C C Situation unchanged – routine maintenance remains overlooked in the field.

40.2 Concept of performance-based contracting for road maintenance completed

C Relevant concept, but early trials by DGH did not prove successful as industry was not prepared to take on performance risk as the network is not in sufficiently good condition. DGH is introducing long segment contracts which are a stepping stone towards full PBMCs.

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F. Power (MEMR, PLN, BKPM)

41. Undertake long-term planning for the power sector in terms of physical expansion, service coverage, and sector restructuring

41.1 Revised power sector master plan (RUKN) C The government continues to issue these every year. They are mostly based on PLN’s RUPTL which is also issued annually. In the recent years, the RUPTL and therefore the RUKN have become more focused on expanding renewables and gas-fired generation and have an increased focus on energy access

41.2 Updated power development plan (RUPTL 2007–2016) completed by PLN C These are being issued annually.

41.3 Institutional and financing strategy for meeting the Government’s electrification targets

C There is greater focus on electrification. The government is now developing the least cost electrification plans for several eastern provinces of the country. In 2016, Ministry of Energy and Mineral Resources has also issued regulation (PERMEN ESDM No 38/2016) which allows for private-sector led electrification efforts. In 2017, the same ministry issued a regulation (PERMEN ESDM No 3/2017) which specifies technical guidelines for small-scale renewable energy projects utilizing DAK (Special Allocation Fund).

41.4 Implementation of the electrification strategy C Ongoing. According to the government, 91% of the country has access to electricity by 2016.

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42. Adopt a legal framework for the energy sector that ensures energy security through diversification of energy sources and energy conservation

42.1 Law 30/2007 on Energy C In 2007, the government established a specific legal basis for national energy management, with the adoption of Energy Law No. 30/2007. The law spells out general principles for the management of energy resources and the government’s basic targets for the future development of the energy mix. In particular, it laid the foundation for regulations on the development of renewable energy and energy conservation. Energy Law 30/2007 mandated the National Energy Council to draft a National Energy Policy (NEP) and update it every four to five years. Parliament adopted a revised NEP in 2014, which was signed on 17 October 2014 as the Government Regulation No.79/2014.

42.2 Development of Government regulations for Energy Law 30/2007 (regulations on energy conservation; geothermal resource development issued)

C Among the most recent regulations are:

MEMR Regulation (PERMEN ESDM No. 14/2016) on the implementation of energy conservation

Government Regulation No. 7/2017 on indirect use of geothermal

Government Regulation No. 28/2016 on geothermal production bonus

PERMEN LHK No. 46/2016 on accessing conservation forest for geothermal activity

43. Revise the legal framework for the power sector to remove uncertainty caused

43.1 Government regulations 3/2005 and 26/2006, and related ministerial decrees enabling the purchase of electricity from independent power producers by PLN

C

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by the annulment of Law 20/2002 on electricity by the Constitutional Court

43.2 Law 30/2009 on Electricity C In December 2016, the Constitutional Court declared, among other things, the following provision of the law conditionally unconstitutional:

the electricity business can be carried out separately through its different functional levels of generation, transmission and distribution; and

the private sector entities can engage in the business of supplying power to the Indonesian public.

43.3 Development of draft regulations for Law 30/2009 C Among the implementing regulations are the ones on Electricity Business Provision (Government Regulation No. 14/2012 and amended by No.23/2014), that provide a greater role for regional governments to participate in the sector. Cross Border Sale and Purchase (Governmental Regulation No.42/2012) and Electricity Support Business (Government Regulation No. 62/2012) are also supporting implementation of the Law 30/2009. Recently, the government has also adopted regulations on wheeling and tariff indexation.

44. Strengthen PLN’s institutional structure and capacity in the areas of project planning and implementation, financial management, and corporate governance

44.1 Policy paper on corporate restructuring of PLN C

44.2 Implementation of corporate restructuring C No significant progress

45. Adopt appropriate tariff policy for PLN customers in line with the cost recovery principle

45.1 Strategy for achieving full cost recovery by PLN through efficiency improvements, tariff increases, and transparent subsidies

C

45.2 Implementation of the full cost recovery strategy C Ongoing. MEMR has issued PERMEN ESDM No. 28/2016 and PERMEN ESDM No. 29/2016 that remove subsidies for all consumers except for those that qualify in the 450 VA category.

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45.3 Review of the tariff structure and tariff-setting process C MEMR is currently undertaking a cost of service and tariff review study expected to lead to a review of the tariff structure

46. Adopt regulatory arrangements for the power sector that are consistent with the new legal framework and aim at economic regulation

46.1 Assessment of the current regulatory arrangements C


47. Review the current PSO policy for the power sector to make it affordable for the poor, and to increase PSP and service coverage

47.1 Review of PSO policy framework for power sector C

47.2 Implementation of the revised PSO policy C Ongoing. Recent practice is that fuel and electricity subsidies are not classified as PSOs despite being delivered through Pertamina and PLN.

48. Improve the investment climate for independent power producers

48.1 Presidential regulation 77/2007 and amendment 111/2007 on Lists of Fields Closed and Conditionally Open to Investments

C These have been supplanted by the 35 GW program, stipulated in Perpres No. 4/2016, and the latest RUPTL of PLN (2016 – 2025).

48.2 Implementation of the presidential regulation by BKPM C MEMR has delegated to National One Stop Shop (under BKPM) for energy investment and issued PERMEN ESDM No. 15/2016 on 3-hour expedited licensing process for energy infrastructure.

G. Oil and Gas (MEMR, BPH MIGAS)

49. Undertake long-term planning for the oil and gas sector in terms of physical expansion

49.1 Oil and gas sector master plan (RUPPN) prepared by MEMR C This has been supplanted by annual gas master plan and policy plans.

49.2 Ministerial decree 2950/2006 on master plan for natural gas pipeline network

C The latest gas infrastructure master plan and the gas supply-demand balance were issued in 2015 by MEMR.

50. Amend the legal framework for the oil and gas sector to address concerns of the constitutional court about domestic market obligation and pricing, while preserving downstream competition

50.1 Revision of Government regulations 35/2004 and 36/2004 for law 22/2001 on oil and gas

C

51. Adopt a legal framework for the energy sector that ensures energy security

51.1 Presidential regulation 5/2006 on National Energy Policy, stipulating an increased share of natural gas in the energy mix

C The increasing share of natural gas in the energy mix is now is enshrined in the latest RUPTLs and RUKNs.

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through diversification of energy sources and energy conservation

51.2 Ministerial decree 1503/2006 establishing a team comprising DG Migas, BPH Migas, and PLN to coordinate gas supply policy

C Not implemented

51.3 Ministerial Regulation 33/2006 on coal bed methane development C Coad bed methane development proved difficult due to infrastructure and geographical constraints. MEMR has recently a new regulation on coal bed methane development (MEMR Regulation No. 38/2015 on the Acceleration of Unconventional Oil and Gas Businesses. This regulation provides for more favorable terms for gas exploration of unconventional resources through allowing different scenarios for the contractors to recover the development and production cost (against the one-size-fits-all approach previously).

52. Introduce competition in oil product distribution, and adopt market-based pricing to remove government subsidies and energy mix distortions

52.1 Dismantling of the Pertamina monopoly in the retail market C Slow progress. The removal of subsidies for gasoline is expected to open up the retail market to more suppliers.

52.2 Gradual domestic oil price adjustments C C C Ongoing

52.3 Removal of fuel subsidies for industrial users C Completed

52.4 Preparation of a roadmap for complete fuel subsidy removal C Ongoing

53. Adopt regulatory arrangements for the oil and gas sector that are consistent with the amended legal framework and aim at separating the

53.1 BPH Migas operational in terms of functions, budget, organizational structure, staffing, and standard operating procedures

C Recently there was confusion between the roles of BPH MIGAS MEMR’s DG of Oil and Gas (DG MIGAS) in pipe-line price determination given the involvement of in the same topic

53.2 Assessment of the current regulatory arrangements C See notes above

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policy making, contracting, and regulatory functions

53.3 Implementation of recommendations of the assessment C In 2012, the Constitutional Court decided to abolish BP Migas–the upstream regulator in the sector–created new regulatory uncertainties and raised concerns on the sustainability of several projects. This development created risks that investment and production in the oil and gas sector may decline. BP Migas’ functions were transferred to the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas), an institution established under Presidential Regulation Number 9 of 2013 on Management of Upstream Oil and Gas Business Activities. SKK Migas is assigned to manage the upstream oil and gas business activities under the cooperation with the private sector.

H. Telecommunications (MCI)

54. Undertake long-term planning for the telecommunications sector in terms of physical expansion and restructuring

54.1 Information and communication technology blueprint C

55. Transform the telecommunications sector from the current duopoly to full market competition

55.1 Business opportunities opened for fixed-line international and domestic long-distance connections

C C

56. Revise the legal framework for the sector to reflect changes in the industry structure

56.1 Ministerial regulation 8/2006 on interconnection, providing for a move from revenue-sharing to a cost-based approach to tariff setting

C

57. Adopt new industry structure and regulatory arrangements for the sector that aim at economic regulation

57.1 BRTI operational in terms of functions, staffing, organizational structure, budget, and standard operating procedures

C

57.2 Ministerial regulations 9/2006 on tariffs for fixed lines and 9/2008 on tariffs for cellular phones

C

57.3 Ministerial decree on the telecommunication and information technology blueprint of master plan for medium term plan 2010-2014

C

58. Review the current USO policy for the sector to increase PSP and service coverage

58.1 Government regulation 28/2005, allocating part of telecommunications companies’ revenues for USO

C

58.2 Ministerial regulations 11/2007 and 38/2007 on USO for the provision of telecommunications services, and ministerial decree 145/2007 on USO areas

C

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58.3 Implementation of the new USO policy C Three contracts were signed in 2016 for the Palapa Ring broadband PPP projects for Western, Central and Eastern Indonesia respectively. Palapa Ring has become the first project in telecommunication sector using availability payment scheme introduced under 2015 PPP regulations. It also received guarantees from IIGF. The USO achieved little during the IRSDP period but is now the source of availability payments for the non-commercial Palapa Ring PPP projects.

I. Water Supply and Sanitation (MPW, BAPPENAS, MOF, MOHA)

59. Undertake long-term planning for the water supply and sanitation sector in terms of physical expansion and restructuring

59.1 Policy on community-based water supply and environmental sanitation C

59.2 Ministerial regulation 20/2006 on policy and strategy for water supply development

C Continued as guidance for development of drinking water supply master plan by central and local governments called RISPAM.

59.3 Ministerial regulation on wastewater C MPW Regulation no. 16/PRT/M/2008 on National Policy and Strategy of Development Wastewater Management Systems for Human Settlement. Implementation of pilot projects and scaling up for wastewater treatment still ongoing. Local governments used such regulation as reference when preparing their local regulations on wastewater.

59.4 Ministerial regulation 21/2006 on solid-waste management C This regulation served as the basis for MPWH regulation in 2013 no. 03/PRT/M/2013 on Solid Waste Management Infrastructure for Household.

Appendix 2 53



1 2 3

59.5 Ministerial regulation 18/2007 on water supply provision C In 2015, the Constitutional Court annulled the 2004 Water Resources Law because the law encouraged the commercialization of water resources at the expense of people's basic right to water.

b Moreover, the court stated that

the private sector could not be granted exclusive rights to water resources (such as rivers and springs), and should only be allowed access to water sources as licensed and regulated by the state. Its revocation removed the legal basis for regulation of key matters such as extracting groundwater, protecting water sources, and even providing drinking water, among others. Following this decision of the Constitutional Court the government adopted two implementing government regulations: one concerning water resources (Government Regulation 121/2015) and the other concerning the supply of drinking water (Government Regulation 122/2015). These restored many of the regulatory functions of the earlier water resources law. To ensure consistency with the Constitutional Court's ruling, both these regulations reemphasize the need for state control of water. The private sector can access water sources and participate in the supply and distribution of drinking water, but only in cooperation with PDAMs, or other state actors, and as licensed and regulated by the state. Where there is no PDAM coverage, the private sector can supply drinking water but must follow the tariff policies of the local government. MPWH issued regulation no. 27/PRT/M/2016 on drinking water supply management.

54 Appendix 2



1 2 3

60. Adopt measures to enhance PDAMs’ transparency, improve their operational efficiency and financial viability, and expand their service coverage

60.1 Assessment of managerial, technical, and financial performance of PDAMs, and publication of results

C C PDAM performance results are published. But most PDAMs lack comprehensive and appropriate business plans that include full cost recovery tariffs. Adoption and enforcement of PDAMs’ use of single business plan models is needed to raise relevance of the published performance results of PDAMs.

60.2 MOF regulation 120/2008 on PDAM debt restructuring C This regulation was replaced by MOF regulation 176/PMK.05/2016. PDAM debts continued to be forgiven, which is a massive disadvantage to those PDAMs which have done the right thing and repaid their debt. Lack of adopted business plan models may result in the repeat of the debt problem despite debt restructuring.

60.3 Implementation of the PDAM debt restructuring program C Monitoring of PDAM debt performance is inadequate. Most of PDAMs failed to meet their obligations. Hence the debt restructuring program is likely to be rescinded.

61. Further increase service coverage through community schemes, other institutional mechanisms, and PSP

61.1 Design of a non-PDAM community-driven rural and urban water supply expansion program

C

61.2 Implementation of the water service expansion program C C Selected best practice projects were replicated.

62. Revise the legal framework for the water supply and sanitation sector to reflect decentralization and eliminate the PDAM monopoly

62.1 Government regulation 16/2005 on water supply, eliminating the need for local parliament approvals of tariff increases, clarifying the terms for PSP, and providing for the establishment of a new regulatory body

C Reversing trend with appointment of PDAM as the monopoly in the distribution under PP 122/2015, based on the Constitutional Court’s decision to annul the 2004 Water Resources Law. The 2006 government regulation on PDAM tariffs was replaced in 2016.

62.2 Government regulations on dams and reservoirs for law 7/2004 on water resources

C This regulation was revoked given the 2004 Water Resources Law annulment by the Constitutional Court in February 2015. The annulment of the law resulted in reenactment of the Law no 11/1974 on Irrigation. Given this, MPWH issued ministry regulation no. 27/M/PRT/2015 on dams.

Appendix 2 55



1 2 3

62.3 Law 18/2008 on Municipal Waste Management C This policy has been sustained and guides the provincial and municipal governments in solid waste management.

63. Improve management of water catchments to ensure adequate supply and quality of raw water

63.1 Establishment of the National Movement for Water Conservation Partnership (GN-KPA)

C Some new movement happened through signing of MOU between eight ministers in 2015 to revitalize 108 watersheds, 15 lakes and 29 dams.

64. Adopt appropriate tariff policy that ensures full cost recovery

64.1 Ministry of Home Affairs regulation 23/2006 on drinking water tariff policy providing for cost recovery and reduction in consumer categories

C PDAMs do not have proper business plans and the debt restructure scheme, which required full cost recovery, is likely to be rescinded. Apart from this, full cost recovery definition was inadequate (not all costs were included.), and monitoring proved difficult.

64.2 Implementation of the new tariff policy by local governments C C This is used by healthy PDAMs in big cities such as Surabaya, Makassar, Medan. Others PDAMs are still striving to implement this policy.

65. Adopt regulatory arrangements that separate the policy making, regulatory, contracting, and operational functions

65.1 Establishment of BPPSPAM C Concept of BPPSPAM as a sector regulator was essentially incompatible with the intent of regional autonomy.

65.2 Review of the current regulatory arrangements and assessment of the suitability of BPPSPAM to act as an independent regulator

C BPPSPAM has never become a regulator. It is a technical support entity to set operation and technical standard for PDAMs.

65.3 Implementation of recommendations of the review/assessment C

66. Develop a PSO policy for raw water, drinking water, sanitation, and solid waste

66.1 Review of PSO policy framework for water sector C PSO for PDAMs has not been implemented.

66.2 Implementation of the subsidy policy C Partially implemented. Among reasons for lack of PSO policy for water supply was lack of legal basis for PSOs for regional enterprises. The adopted tariff policy requires full cost-recovery, a lifeline tariff for small users, and cross-subsidy between

56 Appendix 2



1 2 3

customer categories. The 2014 Law on Regional Governance provides for some limited reforms of regional state-owned enterprise (BUMD) governance, but retains important restrictions that, for example, effectively preclude creation of metropolitan water utilities.

III. Project Transactions (MCI, MEMR, MOT, MPW, PLN, BPJT, BPH Migas)

67. Build up and maintain a strong PPP project pipeline based on sector master plans and blueprints

67.1 List of 91 infrastructure projects issued at the first Indonesia Infrastructure Summit

C Only 3 projects come into operation.

67.2 Updated rolling pipeline of PPP projects (PPP Book) C C PPP Book is issued annually. 2017 PPP Book presents a more realistic list of PPP projects, due to better coordination with all major government agencies.

68. Review the current bidding and contract documents, revise to incorporate international best practices, and publish in English

68.1 Standard bidding documents and concession agreement for toll roads C Implemented, but these are developed based on the government regulations on toll road concessions, not in accordance with the PPP framework.

68.2 Standard bidding documents and power purchase agreement for power plants

C Implemented, but these are developed based on the regulatory framework based on the electricity law, not in accordance with the PPP framework.

68.3 Standard bidding documents and water supply license for water supply projects

C Not implemented

68.4 Standard bidding documents and concession agreements for airport and port projects

C Not implemented

69. Prioritize the PPP projects and, in line with presidential regulation 67/2005, undertake rigorous prefeasibility studies, including an estimate of the type and level of Government support, if any

69.1 Candidate model PPP projects (attachment to the Letter of Development Policy) selected by KKPPI in the various infrastructure sectors for preparation and execution in line with presidential regulation 67/2005, CMEA regulations 3/2006 and 4/2006, and MOF regulation 38/2006

C Model projects failed to be transacted

69.2 Funds allocated and preparation of information memorandums for the model projects started for distribution at the second Indonesia Infrastructure Summit

C Model projects failed to be transacted

69.3 Initiation of prefeasibility and feasibility studies for 10 PPP projects in full compliance with presidential regulation 67/2005 requirements

C

69.4 Prefeasibility and feasibility studies initiated for further PPP projects C Initial prefeasibility and full feasibility studies completed, but the projects failed to be transacted or awarded.

70. Subject to a positive outcome of the prefeasibility

70.1 Initiation of tendering for two PPP projects in full compliance with presidential regulation 13/2010 requirements

C

Appendix 2 57



1 2 3

studies, select private sector partners through a transparent and competitive tendering process

70.2 Tendering for further PPP projects C The long-awaited roll-out of the PPP program happened in 2016 only: eight PPP contracts in the telecommunication, toll road, and water supply sectors were signed for the total estimated amount of $3.1 billion.

BAPPENAS = National Development Planning Agency, BKPM = National Investment Coordination Board, BPH Migas = gas contracting and regulatory body, BPJT = Indonesian Toll Road Authority, BPN = National Land Agency, BPPSPAM = National Water Supply System Development Supporting Agency, BRTI = Indonesian Telecommunications Regulatory Body, BUMD = local government-owned enterprise, BUMN = state-owned enterprise, CIIF = Consolidated Indonesia Infrastructure Forum, CMEA = Coordinating Ministry of Economic Affairs, DG Migas = Directorate General Mineral and Gas, GN-KPA = National Movement for Water Conservation Partnership, IIFF = Indonesian Infrastructure Financing Facility, JABOTABEK = Jakarta–Bogor–Tanggerang–Bekasi, KKPPI = National Committee for the Acceleration of Infrastructure Provision, MCI = Ministry of Communications and Informatics, MEMR = Ministry of Energy and Mineral Resources, MOF = Ministry of Finance, MOHA = Ministry of Home Affairs, MOT = Ministry of Transport, MPW = Ministry of Public Works, OGM = operations guidelines manual, PDAM = regional water supply enterprise, PDF = project development facility, PELINDO = Indonesian Port Corporation, PLN = State Electricity Corporation, PPP = public–private partnership, PSO = public service obligation, PSP= private sector participation, RUKN = power sector master plan, RUPPN= Oil and Gas Master Plan, RUPTL = power sector development plan, SOE = state-owned enterprise, USO = universal service obligation. a SP1 refers to subprogram 1, which covered January 2005–September 2006; SP2 refers to subprogram 2, which covered October 2006–September 2008; and SP3

refers to subprogram 3, which covered October 2008–September 2010. The “C” in the SP1, SP2, and SP3 columns indicates that the output has been completed.

58 Appendix 3

LIST OF DELETED OUTPUTS

AT APPRAISAL OF SUBPROGRAM 2

No. Description Subprogram Reason for Deletion

4.5 Establishment of the PPP Infrastructure Fund to finance the public sector portion of PPP projects

3 There was no need for such a fund, as allocations are made in the national budget on a regular basis for land acquisition and other contributions from the Government of Indonesia.

4.7 Feasibility study of a municipal infrastructure fund for local government infrastructure

2 There was no need for such a feasibility study, as the Indonesian Infrastructure Financing Facility may fund both national and local PPP projects.

4.8 Implementation of recommendations of the feasibility study

3 See the reason under 4.7

4.9 Draft securitization law, allowing the issuance of asset- and mortgage-backed bonds

2 The objective of this output was to establish a secondary mortgage facility that would issue long-term bonds and use the proceeds to buy mortgages from banks. This was expected to catalyze the development of a domestic bond market that could also be used for infrastructure financing. However, the focus of the secondary mortgage facility has changed as banks are unwilling to sell their mortgages.

6.2 Implementing regulations for laws in the various infrastructure sectors that are in conformity with decentralization principles

2/3 Covered by the regulations to be issued under outputs 10.2, 16.2, 22.4, 28.2, 42.2, and 42.3.

12.4 Government regulation on vehicle inspections by private sector companies

2 Covered by one of the regulations to be issued under output 10.2.

15.2 Coal infrastructure transportation master plan for Kalimantan

2 No need for such a master plan, as private coal mine operators can build their own railway.

40.4 Countrywide expansion of the pilot program for performance-based contracting for road maintenance and vehicle road control

3 As the pilot program under output 40.3 covers 3 years, such expansion can only begin after subprogram 3.

Appendix 3 59

56.3 Restructuring of the telecommunications licensing system

2 Covered by the implementation of the new telecommunications industry structure and

licensing system under output 56.4.

58.2 Policy on institutionally based water supply and environmental sanitation

2 Covered by the ministerial decree on the water supply outlining a strategy for increasing access to water and identifying mechanisms and incentives to achieve the government’s access targets under output 58.3.

59.4 Countrywide expansion of the pilot program for PDAM debt restructuring, commercialization, consolidation, water loss reduction, and service expansion

2/3 Covered by output 59.3, which includes all PDAMs (i.e., there is no piloting).

IRSDP = Infrastructure Reform Development Program, PDAM = regional water supply enterprise, PPP = public–private partnership.

Source: Asian Development Bank.

AT APPRAISAL OF SUBPROGRAM 3

1.6 Cross-sector/draft ministerial regulations on sectoral operations guidelines manual

The draft cross-sector operations guidelines manual for PPP projects has been completed; however, the ministerial regulations require more time than expected and the delay does not impact the overall IRSDP.

17.2 Railways/assessment of the implementation of new tariff policy

As ministerial regulations were issued recently, more time is required to monitor the implementation of the new policy carefully.

40.3 Roads pilot program for performance-based contracts with private sector companies

The line ministry is currently considering establishing a road fund.

62.2 New law on local government enterprises providing greater autonomy of PDAMs with regard to local governments

This output was originally intended to be carried out by the Ministry of Home Affairs, but the Ministry of Finance has since issued several regulations governing PDAM debt restructuring and management. Thus, this output is no longer applicable.

62.5 Implementing regulations for Law 18 (2008) on municipal waste management

The regulations are being prepared and are expected to be completed in early 2011.

70.3 Financial closure of two PPP projects All government parties have agreed that, to improve credibility of the PPP agenda in Indonesia, project preparation and procurement must be emphasized. Therefore, this target will be completed, but more time is required.

60 Appendix 4

LIST OF SUPPORTED PUBLIC–PRIVATE PARTNERSHIP PROJECTS

I. Model Public–Private Partnership Projects Originally Selected for the Infrastructure Project Development Facility

No Project Key Features Estimated Investment

($ million)

1. National Telecommunications Backbone 30,000 km of a fiber optic network 1,500

2. Central Java Coal Fired Power Plant 2 x 600 MW 1,200

3. Pasuruan Combined Cycle Plant 1 x 500 MW 275

4. Solo–Kertasono Toll Road 165 km 928

5. Medan–Kuala Namu–Tebing Tinggi Toll Road 60 km 142

6. Teluk Lamong Seaport 350m berth container terminal 275

7. Margagiri–Ketapang Ferry Terminal 1.2 million passengers 97

8. Dumai Water Supply 500 liters/second 44

9. Tangerang Water Supply 500 liters/second 37

10. Bandung Water Supply 450 liters/second 26

Total 4,524

km = kilometer, m = meter, MW = megawatt.

Source: Asian Development Bank. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Program Cluster, Loans,

Technical Assistance Grant, and Administration of Grant to the Republic of Indonesia for the Infrastructure Reform Sector Development Program. Manila.

Appendix 4 61

II. Transacted projects (as of 31 December 2015)

No. Project Name

GCA PDF Consultants

Investment Value

($ million)

Description Key Issues and Status

1. Central Kalimantan Coal Railway

MOT Individual Consultants

5,000 The project’s scope is to build and operate a railway line 425 km long for the transport of goods and passengers. The project has two stages: (i) Stage 1 from Puruk Cahu to Bankguang (269.3 km), to become operational at the end of the third year; and (ii) Stage 2 from Bankguang to Batanjung (154.9 km), to become operational at the end of the fifth year. The transportation capacity is 30 million tons per year during Stage 1 and 50 million tons per year during Stage 2. The modality is BOT, with a cooperation agreement for 50 years after the commercial operation date.

Prequalification was announced in April 2010, RFP was issued in June 2012, and re-prequalification took place in December 2013 with four qualified bidders. Following a substantial delay in the transaction process, only one bidder submitted a bid document. A cooperation agreement was signed between the Governor of Central Kalimantan and the consortium Mega Guna-China Railway Group on 14 January 2015. Land acquisition is currently ongoing, progressing toward financial close.

2 Bandung Waste to Energy

Kota Bandung

PAS-TAS sub-team

60 This is a BOT project for a waste-to-energy facility in the district of Gedebage, in the city of Bandung. The plant has three incineration lines to treat 700 tons of base domestic waste per day, with a peak capacity of 1,050 tons per day and a power output of 10 MW. The term of the cooperation agreement is 25 years after the commercial operation date, the same as the power purchase agreement. The plant’s two revenue sources are the tipping fee of Rp330,000 per ton and power purchase at Rp1,450 per kilowatt-hour.

This project was unsolicited, with PT BRIL as the project proponent. Prequalification was performed from June to December 2012, and three consortia were shortlisted. The RFP was issued in April 2013, and bids were submitted in August 2013. PT BRIL and the Hangzhou Boiler Company Limited Consortium were the winning bidders, and Perda 14 (2010) was issued on the tipping fee. The local parliament approved the draft CA, and the new city mayor put the contract signing on hold.

3 Central Java Power Plant

PT PLN PAS-TAS sub-team

4,000 This is a build–own–operate–transfer project with a cooperation agreement of 25 years for a 2,000 MW power plant in Batang regency, Central Java.

The project was awarded in 2011 to a consortium formed by the J-Power Consortium, Ithocu, and Adaro. Financial close was pending the resolution of land acquisition by the PLN, leading the consortium to declare force majeure. Financial close achieved in July 2016.

BOT = build–operate–transfer, GCA = government contracting agency, km = kilometer, MOT = Ministry of Transport, No. = number, PAS-TAS = project advisory team – technical advisory team, PT = limited liability company, PLN = State Electricity Company, PDF = project development facility, RFP = .request for proposal. Source: National Development Planning Agency. 2015. Infrastructure Reform Sector Development Project: Project Completion Report. Jakarta. Prepared by

the project’s procurement and administrative service consulting company.

62 Appendix 4

III. Projects that Reached Transaction Stage (as of 31 December 2015) No.

Project Name

GCA PDF Consultants

Investment Value

($ million)


1 Batam Municipal Solid Waste Management

Kota Batam

PAS-TAS Sub-team

125 This is a BOT project for a waste-to-energy facility at the Talaga Punggur final disposal site, in the city of Batam. The plant has three process lines with a total capacity of 1,050 tons per day and a power output of 16 MW. The term of the cooperation agreement is 25 years after the commercial operation date, the same as the power purchase agreement.

The OBC was completed in December 2012 and the FBC was completed in June 2014 by PT SMI under TA 7729-INO. Prequalification was performed in 2013 with one shortlisted bidder, and re-prequalification occurred in January 2014 with four shortlisted bidders. The bid deadline was extended several times but ultimately received no bids due to unresolved issues relating to tipping fees and power purchase. The project was being prepared for re-tender.

2 Nambo Waste Management

West Java Province

PT Bina Asih 48 This is a solid waste management BOT project with the capacity to process a minimum of 1,000 tons of waste per day, to service the city of Bogor, Bogor regency, and Depok. The facility’s expected daily output is 408 tons of refuse-derived fuel, 45 tons of compost, 125 tons of recycled material, and 21 tons of landfill material. The project term is 25 years after the commercial operation date.

Prequalification was announced on 5 February 2015, and nine proposals were received, of which three passed the evaluation process. The procurement committee issued the final request for proposals on 24 September 2015, with bids expected before 30 November 2015.

3 Tanah Ampo Cruise Terminal

MOT SMEC in Association with PT Denka Krisna Cendekia and PT Perentjana Djaja

15 The project is a full concession (full transfer of demand risk to the private sector) to upgrade and operate the Tanah Ampo Passenger Cruise Terminal in Karangasem, Bali to international standards, expand the jetty to accommodate two cruise ships up to 300 meters in length, and operate and maintain the terminal. The project has three sources of revenue: passenger terminal fees, ship mooring fees, and lease fees from commercial areas. The term of the cooperation agreement is 25 years, including construction.

Technical advisory services finalized the OBC in 2010, and SMEC completed the FBC in 2012. Prequalification was performed with no prequalified bidders, and the project was re-prequalified in May 2013, with a single prequalified bidder. The Ministry of Transport refused to proceed until the value of the assets and its stake in the project as GCA were clear. In the meantime, the Karangasem regency withdrew from the project in 2014, and the project remains on hold.

4. Lamongan Water Supply

Lamon-gan regency

PT Mitra Pacific Consulindo International

13 The project’s scope is a 20-year concession to build and operate a water supply system to serve four subdistricts (Paciran, Brondong, Laren, and Solokuro) in the Lamongan regency. The system’s capacity is 200 I/s, with a distribution of approximately 40% for industrial consumers and 60% for domestic consumers.

The OBC was completed in June 2012 and the FBC in May 2013. Prequalification took place in November 2013, with one prequalified bidder; re-prequalification took place in January 2014, with three prequalified bidders. The RFP was issued in August 2014 and no bids were submitted. The source of water could not be confirmed due to

Appendix 4 63

land acquisition issues in building a new reservoir. The constitutional count annulled the water law in February 2015, making full water concessions invalid.

5 Banda Aceh Urban Development

Kota Banda Aceh

PT Wiswakhar-man

22 The project’s scope is to develop the new Keudah bus terminal in the Peunayong area. It comprises BOT and BTO components: BOT for the shopping mall, hotel, pedestrian bridge, and mall and basement parking area; and BTO for the Keudah transit terminal dockyard, plaza, pedestrian alleys, and riverfront development. The term of the cooperation agreement is 30 years, including construction.

The OBC was completed in October 2012, and the FBC was completed in July 2014. Prequalification took place in July 2014, with one prequalified consortium, and re-prequalification took place in September 2014. The RFP was issued in December 2014. The single bidder did not submit a proposal, and the tender was declared failed. The CGA intends to re-tender the project.

6 Pekanbaru Water Supply

Kota Pekan-baru

PT Taram 180 The project will develop a new water supply system in the city of Pekanbaru, including a new water treatment plant with capacity of 700 l/s, which will later increase to 1,370 l/s, and a transmission network and service reservoirs. The project modality is a BOT contract for a period of 32 years after the commercial operation date. The project is unsolicited, proposed by GS Engineering and Construction.

The project proponent submitted the final feasibility study in May 2014. After a lengthy discussion about the project scope and capacity of the PDAM, the mayor issued the decree of initiator in July 2015. Prequalification was announced in October 2015.

7 Palapa Ring Ministry of Commu-nication and Informa-tics

PAS-TAS sub-team

247 The project consists of three fiber optic backbone packages covering 51 cities or districts in the west, center, and east of the country. The west package covers 5 districts or cities stretched over 1,122 km (sea); the central package covers 17 districts or cities stretched over 1,676 km (sea and land); and the east package will cover 35 districts or cities stretched over 5,681 km (sea and land). This is an availability-based, build–own–operate–transfer project with 25 years concession from the commercial operation date.

Prequalification was announced in August 2015 with six consortia prequalified for each of the three packages. The RFP was issued in October 2015, with bids expected for December 2015.

BOT = build–operate–transfer, BTO = build-transfer-operate, FBC = full business case, GCA = government contracting agency, km = kilometer, l/s = liters per second, MOT = Ministry of Transport, No. = number, OBC = outline business case, PAS-TAS = project advisory team – technical advisory team, PDAM = regional water utility, PT = limited liability company, PDF = project development facility, RFP = request for proposal, SMI = Sarana Multi Infrastruktur. Source: National Development Planning Agency. 2015. Infrastructure Reform Sector Development Project: Project Completion Report. Jakarta. Prepared by the project’s procurement and administrative service consulting company.

64 Appendix 4

IV. Projects Under Preparation No. Project

Name GCA PDF

Consultants Investment

Value ($ million)


1 Pondok Gede Water Supply

Kota Bekasi PT Taram 25 This is a BOT project to build and operate a 300 l/s water supply system from intake through the secondary distribution pipes for a period of 20 years after the commercial operation date. It will serve 31,700 connections in the districts of Pondok Gede and Jatiasih, in Bekasi.

IUWASH prepared a basic feasibility study in 2014. The OBC and FBC were completed in 2015. The project was originally structured as a full concession but, as a result of the constitutional court decision in February 2015, was changed to BOT. Currently AMDAL is being finalized and prequalification is being prepared (expected in December 2015).

2 West Semarang Water Supply

Kota Semarang

PAS-TAS sub-team in collaboration with the PT IIF

65 This is a BOT scheme to supply 1,000 l/s of additional capacity to the PDAM of the city of Semarang. The scope includes BOT for intake, treatment plan, and primary network, and build-and-transfer for the secondary network. The term of the cooperation agreement is 25 years after the commercial operation date, with a mix of availability and output payment.

The feasibility study and OBC were originally prepared by the Ministry of Public Works with support from the Japan International Cooperation Agency. The FBC was done by PricewaterhouseCoopers and Maxeed in 2012. The IIF provided technical advisory services with support from the Indonesia Reform Sector Development Program. IIGF and VGF in-principle approvals were secured in 2015. Issuance of prequalification is pending.

3. Soekarno Hatta Airport Rail Link

MOT Individual consultants

2,570 The project is a 37 km railway line between Soekarno Hatta International Airport and Halim Perdanakusuma Airport, including rolling stock. The scheme is a concession with a minimum revenue guarantee for 30 years from the commercial operation date.

The feasibility study completed in 2014, and PT SMI was appointed the project preparation and transaction advisor. The project is ready for tender, pending land acquisition and the issuance of the in-principle approvals of the VGF and IIGF.

AMDAL = , BOT = build–operate–transfer, FBC = full business case, GCA = government contracting agency, IIF = Indonesia Infrastructure Finance Company, IIGF = Indonesia Infrastructure Guarantee Fund, km = kilometer, l/s = liters per second, MOT = Ministry of Transport, No. = number, OBC = outline business case, PAS-TAS = project advisory team – technical advisory team, PDAM = regional water utility, PT = limited liability company, PDF = project development facility, SMI = Sarana Multi Infrastruktur, VGF = viability gap funding. Source: National Development Planning Agency. 2015. Infrastructure Reform Sector Development Project: Project Completion Report. Jakarta. Prepared by the project’s procurement and administrative service consulting company.

Appendix 4 65

V. Dropped Projects

No. Project Name GCA PDF

Consultants

Investment Value

($ million) Description Key Issues and Status

1 Margagiri-Ketapang Port

MOT SMEC in association with Denka Krisna Cendekia and Perentjana Djaja

85 This is a BOT project to provide an additional ferry transportation link between Java and Sumatra, with a capacity of up to 4 million passengers per year.

This project was one of ten preselected national projects; and was announced at the Infrastructure Conference 2006. The OBC study was completed in 2010. The project was dropped because the land originally earmarked was unavailable, and no alternative land was found.

2 Bandung Bulk Water Supply

Kota Bandung

Poyry Environment GmbH

54 New water treatment plant to provide Bandung municipality with an additional 1,100 l/s of supply capacity.

The prefeasibility study was completed in 2011. The project was dropped due to a raw water shortage and opposition to the scheme by the PDAM.

3 Maros Water Supply

Kota Maros

PT Waseco Tirta 8 The proposed 30-year BOT contract arrangement was expected to add a further 250 l/s of production capacity to the current system in Maros. The scope included intake, a treatment plant, reservoirs, and trunk mains.

The OBC study was completed in September 2011, and the FBC was completed in March 2012. Prequalification took place in August 2011, and re-prequalification took place in February 2012. The project was dropped at the FBC stage, when it was confirmed that raw water was unavailable.

PT Bina Asih Fitcher and Parama Gardita

4 Serang Water Supply

Kota Serang

Mitra Pacific Consulindo International

12 This was supposed to be a 25-year concession to build, finance, operate, and transfer a 250 I/s water supply system, and later to expand it to include a water treatment plant, service reservoir, transmission main, and distribution system.

The project was dropped, as the GCA decided to finance the project using the state budget when a concession previously awarded was not implemented.

5 Palu Water Supply

Province of Central Sulawesi

Mitra Pacific Consulindo International

12 This was a 25-year agreement to build, finance, operate, and transfer a 250 I/s water supply system in Kota Palu, including a new water treatment plant, and transmission and distribution system expansion.

The OBC was completed in June 2012. The project was dropped, as inter-local government coordination was unresolved; the GCA then decided to finance the project using the state budget.

6 Padang Water Supply

Kota Padang

SGI Studio Galli in association with PT TARAM

30 This is a BOT project to provide an additional 200 I/s in water supply capacity and extend the system in southern Padang, as well as reconstruct an existing 500 l/s water treatment plant.

OBC was completed in January 2013. The project was dropped, because the West Sumatera provincial government was unwilling to act as the GCA to resolve inter-local government coordination.

7 Pekanbaru Cargo Terminal

Kota Pekanbaru

Egis International

30 The project aimed to provide a cargo terminal including loading and unloading, parking, warehouse, storage, and supporting terminal facilities.

The project was dropped at the inception report stage. It was included on the investment negative list, as the private sector cannot operate the terminal.

8 Palembang Multimode

Kota Palembang

Egis International

50 This is a BOT project to construct and operate a multimodal terminal including bus and cargo, a

The project was dropped; there was no OBC because no land was available. It also would

66 Appendix 4


Consultants

Investment Value


Terminal river port, a railway station, connecting road, and associated utilities.

have required a substantial amount of government support.

9 Krabyakan Water Supply

Kota Malang

SGI Studio Galli and TARAM

22 This project aimed to supply 700 l/s to serve potential markets in Kabupaten, Pasuruan, and Sidoarjo.

The project was dropped at the inception report stage, due to insufficient raw water.

10 Cimahi Water Supply

Kota Cimahi

SGI Studio Galli in association with PT TARAM

35 The project aimed to build an intake, a water treatment plant with a capacity of 50 l/s, and a transmission and distribution network from off-take points to deliver 700 l/s to 50,000 house connections.

The project was dropped at the inception report stage, due to insufficient raw water.

11 Yogyakarta Railway Station and Malioboro

Special region of Yogyakarta

Yachiyo Engineering Company Limited in association with PT Wastuwidyawan

500 This project aimed to revitalize the Tugu Railway Station and pedestrianize the Malioboro thoroughfare. It employed a modified BOT scheme, whereby the private partner will construct all required facilities for the project, but will operate and maintain only the building facilities and parking areas. The term of the cooperation agreement is 30 years.

The OBC was completed in October 2012, and the FBC was completed in June 2014.

The project was dropped, as the GCA decided not to implement it as a PPP and to use public budget funds instead.

12 South Cimahi Water Pollution

Kota Cimahi

PT Waseco Tirta The project scope is centralized wastewater collection and a treatment plant for industrial areas in South Cimahi.

It was rejected as unfeasible at the inception report stage. There was no OBC.

13 Surakarta Solid Waste Management

Kota Surakarta

PAS-TAS sub-team

38 The project aimed to construct and operate a waste-to-energy facility at the Putri Cempo final disposal site, with a processing capacity of 460 tons per day and a power output of 7.1 MW.

The FBC was completed in November 2013; Prequalification occurred in February 2014, with no prequalified bidders. The project was discontinued when the GCA decided not to provide a tipping fee.

14 Southern Bali Water Supply

Province of Bali

Poyry Environment GmbH

150 The project has two components: (i) BOT for the Tukad Unda 1,000 l/s bulk water supply system; and (ii) an operate–transfer scheme for the Tukad Penet and Tukad Petanu systems, totaling 600 l/s. The term of the cooperation agreement is 30 years, including construction. The project revenue is the bulk water tariff charged to the provincial government of Bali.

The Southern Bali Water Supply is an unsolicited project with the K-Water consortium as project proponent, confirmed by the Governor of Bali on 18 June 2013. The project proponent requested a Government Guarantee, which was rejected by the GCA. The GCA eventually decided to continue the process with funds from the public budget.

15 Jakarta Monorail

Special capital region of Jakarta

PAS-TAS sub-team

1,040 The project scope is to build and operate a monorail system in Jakarta, comprising two lines

14.3 km and 13.5 km long, with a maximum capacity of 487,500 passengers per day. The

project modality is a full concession, with demand risk on the private partner. The term of the

cooperation agreement is 50 years after the commercial operation date.

The project was initially awarded in 2003. Construction began in 2004 but soon stopped because of a lack of funds. Following a re-award and shareholding restructuring, the project was cancelled in 2011. It was revived in 2013 but during the renegotiation of the contract the GCA decided to cancel again due to the investor’s failure to fulfill conditions.

16 Gedebage Kota SMEC 580 The project scope is to develop a multipurpose The OBC was completed in December 2012.

Appendix 4 67


Consultants

Investment Value


Integrated Terminal

Bandung International Planning Pty Limited in association with PT Denka Krisna Cendekia

(railway and bus) transport terminal in the Gedebage district, in the city of Bandung. The modality is a mixed BOT and BTO scheme: BOT for commercial facilities, and BTO for the operation and maintenance of the transport terminal, excluding transport services. The term of the cooperation agreement is 25 years after the commercial operation date. The sources of revenue for the project are (i) lease payments and other income from the operation of commercial areas, and (ii) fees for the operation and maintenance of the multipurpose terminal.

PDF support to the project was discontinued in

2014 since the mayor of Bandung decided to

postpone the signing of the Bandung Waste to

Energy contract. The project has been on hold

since then.

17 Tukad Unda Water Treatment

Province of Bali

Catur Bina Guna Persada

46 The project scope is to build and operate a raw water abstraction facility, a water treatment plant, pumping station and storage reservoir in Kabupaten Klungkung, and main pipelines from Kabupaten Klungkung to Kota Denpasar and Kabupaten Badung, using a 30-year BOT contract arrangement.

The OBC was completed in 2010. The GCA decided not to proceed. The project was later incorporated into the scope of Southern Bali Water Supply PPP.

18 Palembang Monorail

Kota Palembang

PAS-TAS sub-Team

550 The project scope is to build and operate a monorail system in the metropolitan area of Palembang, comprising four corridors and 13 stations with a maximum capacity of 95,000 passengers per day. The project modality is a full concession (demand risk), using a cooperation agreement of 50 years after the commercial operation date.

The Governor of South Sumatera requested technical assistance in May 2013. The technical assistance evaluated the prefeasibility study prepared by the GCA. OBC needs additional study on the project’s commercial, legal, environmental, and social aspects.

BOT = build–operate–transfer, BTO = build–transfer–operate, FBC = full business case, GCA = government contracting agency, km = kilometer, l/s = liters per second, MOT = Ministry of Transport, No. = number, OBC = outline business case, PAS-TAS = project advisory team – technical advisory team, PDAM = regional water utility, PPP = public–private partnership, PT = limited liability company, PLN = State Electricity Company, PDF = project development facility, RFP = request for proposal. Source: National Development Planning Agency. 2015. Infrastructure Reform Sector Development Project: Project Completion Report. Jakarta. Prepared by the project’s procurement and administrative service consulting company.

68 Appendix 5

STATUS OF COMPLIANCE WITH LOAN COVENANTS

1. Subprogram 1

Covenant Reference in

Loan Agreement Status of Compliance

Particular covenants

(a) The Borrower shall cause the Program to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental, and governance practices. (b) In the carrying out of the Program, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.

Section 4.01 Complied with.

The Borrower shall make available, promptly as needed, the funds, facilities, services, and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Program.


The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Program are conducted and coordinated in accordance with sound administrative policies and procedures.


(a) The Borrower shall maintain, or cause to be maintained, records and documents adequate to identify the Eligible Items financed out of the proceeds of the Loan and to indicate the progress of the Program. (b) The Borrower shall enable ADB's representatives to inspect any relevant records and documents referred to in paragraph (a) of this Section.


(a) As part of the reports and information referred to in Section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as ADB shall reasonably request concerning the implementation of the Program Cluster, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter and Policy Matrix. (b) Without limiting the generality of the foregoing or Section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB quarterly reports on the carrying out of the Program Cluster and on the accomplishment of the targets and carrying out of the actions set out in the Policy Letter and Policy Matrix. These reports shall be used at the completion of the Program Cluster to produce a comprehensive report on the overall impact of the policy reforms described in the Policy Letter and Policy Matrix.

Section 4.05 Complied with. Monitoring and reporting under the program was supported under the technical assistance on Support for Infrastructure Development (TA 4728-INO).

Appendix 5 69

Other covenants

Program Management BAPPENAS shall be the Program Executing Agency responsible the coordination of the implementation of the Program Cluster and reporting to ADB. MOF shall be responsible for the administration and disbursement of the Loan proceeds, and the maintenance of accounts. In line with its mandate, KKPPI, chaired by the Coordinating Minister for Economic Affairs, shall oversee implementation of the Program Cluster, and provide guidance and direction to the line ministries responsible for various infrastructure sectors, which will act as implementing agencies. Implementation of the policy actions will also be coordinated with a number of other agencies, including state-owned enterprises and local government-owned enterprises, in charge of infrastructure provision.

Schedule 5, paras. 1–2

Complied with.

Implementation of the Policy Letter The Borrower shall ensure that the policies adopted and actions taken prior to the date of this Loan Agreement as described in the Policy Letter and the Policy Matrix, continue in effect during the Program Cluster Period and thereafter.

Schedule 5, para. 3

Complied with.

Policy Dialogue The Borrower shall keep ADB informed of, and the Borrower and ADB shall from time to time exchange views on, sector issues, policy reforms and additional reforms during the Program Cluster Period that may be considered necessary or desirable, including the progress made in carrying out policies and actions set out in the Policy Letter and the Policy Matrix. The Borrower shall promptly discuss with ADB problems and constraints encountered during implementation of the Program Cluster and appropriate measures to overcome or mitigate such problems and constraints. The Borrower shall keep ADB informed of policy discussions with other multilateral or bilateral agencies that have implications for implementation of the Program Cluster, and shall provide ADB with an opportunity to comment on any resulting policy proposals. The Borrower shall consider ADB’s views before finalizing and implementing any such proposals.


Complied with.

Counterpart Funds

The Borrower shall ensure that the Counterpart Funds are used to finance the local currency costs relating to the implementation of the Program and other activities consistent with the objectives of the Program and shall provide the necessary budget appropriations to finance the structural adjustment costs relating to the implementation of reforms under the Program.

Schedule 5, para. 7

Complied with.

70 Appendix 5

Environmental and Social Assessment

The Borrower shall, and cause its line ministries and contracting agencies to, ensure that environmental and social assessments for the model PPP projects are carried out and appropriate mitigation measures, including monitoring, are prepared and implemented in accordance with all applicable laws and regulations of the Borrower.

Schedule 5, para. 8

Complied with.

Monitoring of the Program

The Borrower shall ensure that reporting on progress of, and refinements to, the Program Cluster through periodic meetings is made by its line ministries, as implementing agencies, to BAPPENAS which will in turn will to ADB and relevant stakeholders. The CMEA part of the KKPPI Secretariat, in accordance with CMEA Regulation 1/2006, hosts regular consultative meetings with the private sector and development partner community to solicit their feedback on emerging regulations and the impact of Program Cluster implementation. Joint quarterly reviews of the overall Program Cluster performance shall be undertaken by the Borrower with ADB during the Program Cluster Period.

The Borrower and ADB shall jointly assess the impact and evaluate the benefits of the Program is completed, in accordance with ADB’s Performance Management System. The Borrower and ADB shall use the findings of such assessment and evaluation in refining the Program Cluster. The Borrower shall actively assist and support ongoing Program Cluster monitoring and evaluation including facilitating consultations with central and provincial agencies, infrastructure sector participants, civil society, and other key stakeholders as appropriate.


Complied with. Monitoring and reporting under the program was supported under the technical assistance on Support for Infrastructure Development (TA 4728-INO).

2. Subprogram 2




(a) The Borrower shall cause Subprogram 2 to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental, and governance practices. (b) In the carrying out of Subprogram 2, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.


The Borrower shall make available, promptly as needed, the funds, facilities, services, and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of Subprogram 2.


Appendix 5 71

The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of Subprogram 2 are conducted and coordinated in accordance with sound administrative policies and procedures.


(a) The Borrower shall maintain, or cause to be maintained, records and documents adequate to identify the Eligible Items financed out of the proceeds of the Loan and to indicate the progress of Subprogram 2. (b) The Borrower shall enable ADB's representatives to inspect any relevant records and documents referred to in paragraph (a) of this Section.


(a) As part of the reports and information referred to in Section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as ADB shall reasonably request concerning the implementation of the Program, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter, including the Policy Matrix. (b) Without limiting the generality of the foregoing or Section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB semi-annual reports on the carrying out of the Program and on the accomplishment of the targets and carrying out of the actions set out in the Policy Letter, including the Policy Matrix. These reports shall be used at the completion of the Program to produce a comprehensive report on the overall impact of the policy reforms described in the Policy Letter and Policy Matrix.


Monitoring and reporting under the program was supported under the technical assistance on Support for Infrastructure Development (TA 4728-the INO), which supported the development of monthly progress reports on the status of the IRSDP policy reforms.

Other covenants

Program Management BAPPENAS shall be the Program Executing Agency responsible for reporting to KKPPI and ADB, and coordinating implementation of the Program by the Implementing Agencies and a number of other relevant agencies of the Borrower, including state-owned enterprises and local government-owned enterprises that are in charge of infrastructure provision. MOF shall be responsible for the administration and disbursement of the Loan proceeds, and the maintenance of accounts. In line with its mandate, KKPPI, co-chaired by the Minister of CMEA and the Chairman of BAPPENAS, shall continue to be responsible for coordinating the implementation and sustaining of the actions under the Program, and for providing guidance and direction to the EA, the Implementing Agencies and the relevant line agencies of the Borrower involved in Program actions and activities.


Complied with.

Implementation of the Policy Letter The Borrower shall ensure that: (a) the policies adopted and actions taken prior to the date of this Loan Agreement as described in the Policy Letter and

Schedule 5, para. 3

Complied with.

72 Appendix 5

the Policy Matrix, continue in effect during the Program Period and thereafter; and (b) all reasonable measures are undertaken to implement the reform actions which are agreed triggers for the processing of the subsequent Subprogram.

Policy Dialogue The Borrower shall keep ADB informed of, and the Borrower and ADB shall from time to time exchange views on, sector issues, policy reforms and additional reforms arising during the implementation of the Program and Project that may be considered necessary or desirable, including the progress made in carrying out policies and actions set out in the Policy Letter and the Policy Matrix. The Borrower shall promptly discuss with ADB problems and constraints encountered during implementation of the Program and appropriate measures to overcome or mitigate such problems and constraints. The Borrower shall keep ADB informed of policy discussions with other multilateral or bilateral agencies that have implications for implementation of the Program and Project, and shall provide ADB with an opportunity to comment on any resulting policy proposals. The Borrower shall consider ADB’s views before finalizing and implementing any such proposals.


Complied with.

Counterpart Funds

The Borrower shall ensure that the Counterpart Funds are used to finance the local currency costs relating to the implementation of Subprogram 2 and other activities consistent with the objectives of Subprogram 2 and shall provide the necessary budget appropriations to finance the structural adjustment costs relating to the implementation of reforms under Subprogram 2 and the Program.

Schedule 5, para. 7

Complied with.

Environmental and Social Assessments and other Compliance Actions

The Borrower shall ensure, and shall cause the EA, Implementing Agencies and other relevant line ministries and contracting agencies of the Borrower to ensure that for the PPP projects developed or supported under the Program: (a) environmental and social assessments are carried out and appropriate mitigation measures, including monitoring, are prepared and implemented in a timely manner, in accordance with all applicable laws and regulations of the Borrower; and (b) studies and technical designs prepared will broadly comply with all relevant ADB policies, guidelines and other requirements.

The Borrower shall ensure, and shall cause the EA, Implementing Agencies, and other relevant line ministries and contracting agencies of the Borrower to ensure that recommendations resulting as outputs from the Project and/or the ADB’s technical

Schedule 5, para. 8–9

Complied with. The project’s preparation and transaction complied with the stipulations in BAPPENAS’ PERMEN 3 (2012) on general implementation guidelines between the government and business entities in providing infrastructure. This regulation established safeguard mechanisms at each step of the project cycle in relation to environmental (environmental impact studies) and social

Appendix 5 73

assistance entitled ‘Enhancing Private Sector Participation in Infrastructure Provision’ which is linked to the Project, are implemented to the fullest extent possible, and within a timely manner.

aspects (land acquisition and resettlement programs) in compliance with national regulations on environmental protection (Law 32 [2009]) and land acquisition (Presidential Regulation No. 65 [2006]) in effect during the IRSDP period. The studies and technical designs are deemed to comply broadly with relevant ADB policies.


The Borrower shall ensure that: (a) reporting on progress of, and refinements to, the Program through periodic meetings are made to BAPPENAS by the Implementing Agencies and the other relevant agencies of the Borrower, which in turn will report to ADB and relevant stakeholders; and (b) the CMEA part of the KKPPI Secretariat, in accordance with CMEA Regulation 1/2006, hosts regular consultative meetings with the private sector and development partner community to solicit their feedback on emerging regulations and the impact of Program implementation. Joint semi-annually reviews of the overall Program performance shall be undertaken by the Borrower with ADB during the Program Period.

The Borrower and ADB shall jointly assess the impact and evaluate the benefits of the Program within ten months after Subprogram 2 is completed, in accordance with ADB’s Performance Management System. BAPPENAS shall be responsible for maintaining all monitoring data and evaluating benefits of Subprogram 2 and the Program. The Borrower shall cause the BAPPENAS and Implementing Agencies to submit a Program review report to ADB within ten months after Loan Effectiveness that: (a) assesses compliance with, and impact of, the agreed actions under Subprogram 2; and (b) subject to the Borrower’s readiness to continue with the Program, defines requirements for adjustments to activities to be undertaken under the subsequent Subprogram. The Borrower and ADB shall use the findings of such assessment and evaluation in refining the Program. The Borrower shall actively assist and support ongoing Program monitoring and evaluation including facilitating consultations with central and provincial agencies, infrastructure sector participants, civil society, and other key stakeholders as appropriate.


Partly complied with. Technical assistance on Support for Infrastructure Development (TA 4728-INO) supported the development of monthly reports on the overall progress of the IRSDP policy matrix and overall infrastructure reform agenda. However, no dedicated program review report was submitted to ADB 10 months after loan effectiveness.

74 Appendix 5

3. Subprogram 3




(a) The Borrower shall cause Subprogram 3 to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental, and governance practices. (b) In the carrying out of Subprogram 3, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.


The Borrower shall make available, promptly as needed, the funds, facilities, services, and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of Subprogram 3.


The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of Subprogram 3 are conducted and coordinated in accordance with sound administrative policies and procedures.


(a) The Borrower shall maintain, or cause to be maintained, records and documents adequate to identify the Eligible Items financed out of the proceeds of the Loan and to indicate the progress of Subprogram 3. (b) The Borrower shall enable ADB's representatives to inspect any relevant records and documents referred to in paragraph (a) of this Section.


(a) As part of the reports and information referred to in Section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as ADB shall reasonably request concerning the implementation of the Program, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter, including the Policy Matrix. (b) Without limiting the generality of the foregoing or Section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB semi-annual reports on the carrying out of the Program and on the accomplishment of the targets and carrying out of the actions set out in the Policy Letter, including the Policy Matrix. These reports shall be used at the completion of the Program to produce a comprehensive report on the overall impact of the policy reforms described in the Policy Letter and Policy Matrix.

Section 4.05 Not complied with. No semi-annual reports were submitted to ADB.

Other covenants

Program Management BAPPENAS shall continue as the Program Executing Agency responsible for reporting to KKPPI and ADB,


Complied with.

Appendix 5 75

and coordinating implementation of the Program by the Implementing Agencies and a number of other relevant agencies of the Borrower, including state-owned enterprises and local government-owned enterprises that are in charge of infrastructure provision. MOF shall be responsible for the administration and disbursement of the Loan proceeds, and the maintenance of accounts. In line with its mandate, KKPPI, co-chaired by the Minister of CMEA and the Chairman of BAPPENAS, shall continue to be responsible for coordinating the implementation and sustaining of the actions under the Program, and for providing guidance and direction to the EA, the Implementing Agencies and the relevant line agencies of the Borrower involved in Program actions and activities.

Implementation of the Policy Letter The Borrower shall ensure that the policies adopted and actions taken prior to the date of this Loan Agreement as described in the Policy Letter and the Policy Matrix, continue in effect during the Program Period and thereafter.

Schedule 5, para. 3

Complied with.

Policy Dialogue The Borrower shall keep ADB informed of, and the Borrower and ADB shall from time to time exchange views on, sector issues, policy reforms and additional reforms arising during the implementation of the Program and Project that may be considered necessary or desirable, including the progress made in carrying out policies and actions set out in the Policy Letter and the Policy Matrix. The Borrower shall promptly discuss with ADB problems and constraints encountered during implementation of the Program and appropriate measures to overcome or mitigate such problems and constraints. The Borrower shall keep ADB informed of policy discussions with other multilateral or bilateral agencies that have implications for implementation of the Program and Project, and shall provide ADB with an opportunity to comment on any resulting policy proposals. The Borrower shall consider ADB’s views before finalizing and implementing any such proposals.


Complied with.

Counterpart Funds The Borrower shall ensure that the Counterpart Funds are used to finance the local currency costs relating to the implementation of Subprogram 3 and other activities consistent with the objectives of Subprogram 3 and shall provide the necessary budget appropriations to finance the structural adjustment costs relating to the implementation of reforms under Subprogram 3 and the Program.

Schedule 5, para. 7

Complied with.

Environmental and Social Assessments and other Compliance Actions

The Borrower shall ensure, and shall cause the EA,


Complied with. See remarks on this covenant under

76 Appendix 5

Implementing Agencies and other relevant line ministries and contracting agencies of the Borrower to ensure that for the PPP projects developed or supported under the Program: (a) environmental and social assessments are carried out and appropriate mitigation measures, including monitoring, are prepared and implemented in a timely manner, in accordance with all applicable laws and regulations of the Borrower; and (b) studies and technical designs prepared will broadly comply with all relevant ADB policies, guidelines and other requirements.

The Borrower shall ensure, and shall cause the EA, Implementing Agencies, and other relevant line ministries and contracting agencies of the Borrower to ensure that recommendations resulting as outputs from the Project and/or the ADB’s technical assistance entitled ‘Enhancing Private Sector Participation in Infrastructure Provision’ which is linked to the Project, are implemented to the fullest extent possible, and within a timely manner.

subprogram 2.


The Borrower shall ensure that: (a) reporting on progress of, and refinements to, the Program through periodic meetings are made to BAPPENAS by the Implementing Agencies and the other relevant agencies of the Borrower, which in turn will report to ADB and relevant stakeholders; and (b) the CMEA part of the KKPPI Secretariat, in accordance with CMEA Regulation 1/2006, hosts regular consultative meetings with the private sector and development partner community to solicit their feedback on emerging regulations and the impact of Program implementation. Joint semi-annually reviews of the overall Program performance shall be undertaken by the Borrower with ADB during the Program Period.

The Borrower and ADB shall jointly assess the impact and evaluate the benefits of the Program within six months after Subprogram 3 is completed, in accordance with the Program performance management system. BAPPENAS shall be responsible for maintaining all monitoring data and evaluating benefits of Subprogram 3 and the Program taking into account results indicated in the completion reports prepared for Subprograms 1 and 2. The Borrower shall cause the BAPPENAS and Implementing Agencies to submit a Program review report to ADB within six months after the Effectiveness Date that: (a) assesses compliance with, and impact of, the agreed actions under Subprogram 3 and the overall Program. The Borrower and ADB shall use the findings of such assessment and evaluation in refining the Program. The Borrower shall actively assist and support ongoing Program monitoring and evaluation including facilitating consultations with central and provincial agencies, infrastructure sector participants, civil society, and other key stakeholders as appropriate.


Not complied with. No program review report was submitted to ADB within 6 months after the effectiveness date.

Appendix 5 77

4. Infrastructure Project Development Facility

Covenant Reference in Loan Agreement

Status of Compliance


In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.


(a) The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than 6 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement as well as on the use of the procedures for imprest account/statement of expenditures), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. (b) The Borrower shall enable ADB, upon ADB's request, to discuss the Borrower's financial statements for the Project and its financial affairs related to the Project from time to time with the auditors appointed by the Borrower pursuant to Section 4.02(a) hereabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

Section 4.02 Complied with. The project was audited by Indonesia’s Financial and Development Supervisory Board, an accepted auditor of ADB-financed projects approved before 2009. The Board provided copies of audit reports to ADB in June each year.

The Borrower shall enable ADB's representatives to inspect the Project, the Goods financed out of the proceeds of the Loan and any relevant records and documents.


Other covenants

Project Executing Agency and Implementing Agencies BAPPENAS as Project Executing Agency shall establish the Project Management Unit (PMU) in its Directorate of Public-Private Partnerships (DPPP). The DPPP Director shall be responsible for, and oversee, the PMU and the Project Development Facility (PDF). The Borrower shall cause the PMU, under the guidance of the KKPPI Secretariat, to be (i) provided with a Project director and full-time qualified technical and administrative staff, adequate resources, and specialist consultants, advisors, and qualified personnel acceptable to ADB to support the PDF operations, and (ii) responsible for ensuring that activities under the Project fully adhere to the Borrower’s PPP legal and regulatory framework, that

Schedule 5, para. 1

Complied with.

78 Appendix 5

procurement policies of the Borrower are applied consistently, and that competitive and transparent selection processes are adopted.

The PMU shall be responsible for the day to day implementation of the Project including: (i) assessing proposals for PDF funding; (ii) managing the PDF including authorizing and monitoring disbursements from, and repayments to, the PDF; (iii) coordinating the recruitment and performance monitoring of consultants under Part A by the Participating Ministries; (iv) linking PPP venture proponents with appropriate financial institutions; (v) overseeing and monitoring the development of N-PPP and R-PPP Projects, including assessing technical experts/consultants’ performance; (vi) providing advisory support to the KKPPI on cross-cutting policy or regulatory measures in the areas of anticorruption, transparency, and dispute resolution; and (vii) Project promotion. The Borrower shall ensure that the relevant staff of the PMU, the Participating Ministries, and the Participating Regional Governments are trained in screening, preparation, transaction execution and monitoring activities for PPP projects, including environmental, social, and resettlement safeguard requirements.

Schedule 5, para. 2

Complied with.

The PMU shall be responsible for recruiting and managing technical advisors under Part B to support the PMU, the Participating Ministries, and PPP Regional Units (PPP-RUs) to: (i) establish and manage the PDF, including preparing model funding proposals, and related documentation; (ii) train Participating Regional Government staff to optimize their resources and expertise; (iii) undertake social assessment and resettlement planning training; (iv) promote the PDF; and (v) prepare the PDF long-term strategy.

Schedule 5, para. 3

Substantially complied with. No PPP-RUs were established.

A Project Steering Committee (PSC), chaired by BAPPENAS Deputy Chairman for Infrastructure Affairs, shall be established to serve as a high-level decision making and guiding forum for the National PDF and Regional PDF and shall comprise senior representatives of the CMEA, MOF, Ministry of Home Affairs and the concerned Participating Ministries of the Borrower, with a representative of the associations of regional governments to participate as a resource person. The Chairman may invite representatives of donor organizations and relevant experts to join PSC meetings as observers. The PMU shall act as secretariat for the PSC.

Schedule 5, para. 4

Not complied with. The PSC was inactive and BAPPENAS made the decisions on the IPDF.

The Borrower shall ensure that the PDF, comprising the National PDF and the Regional PDF, is established within 6 months of the Effective Date and supported by the PMU.

Schedule 5, para. 5

Complied with.

National PDF The Borrower shall ensure that the National PDF provides funding for N-PPP Project preparation and transaction execution to support the conclusion of appropriate PPP Arrangements and undertakes the contracting out of consulting and PPP transaction advisory services in an open, transparent, and competitive manner in accordance with the national procurement regulations.

Schedule 5, para. 6

Complied with.

Appendix 5 79

The Borrower shall ensure that the selection procedures as set out below together with relevant criteria specified in the Operational Guidelines Manual, are fully complied with for each N-PPP Project proposal, subject to periodic modifications as may be required and approved by the PSC: (a) Proposed Participating Ministries prioritize their potential N-PPP Projects using the prioritization criteria specified in the Operational Guidelines Manual and submit the evaluation, together with a request for support for their top priority projects for consideration by the PMU; (b) where proposals require financial assistance from the Borrower, the PMU will coordinate with the MOF; (c) the PMU ranks each proposal against all National PDF proposals, taking into account the following criteria and stage of completion of relevant activities:

(i) inclusion of the proposal in the proposed Participating Ministry’s masterplan for infrastructure development and in the KKPPI database which records potential national projects seeking PPP; (ii) quality of the demand forecast or other studies indicating the need for the proposed project; (iii) the results of a rapid preliminary assessment of the technical, economic and financial prospects of the project; (iv) the level of private sector interest, including an assessment of the project’s prospects for attracting wide international private sector participation if a comprehensive pre-feasibility study is prepared using NPDF resources; (v) completion of all necessary initial steps in accordance with Perpres No.67/2005, including public notification and consultation; (vi) submission by the proposed Participating Ministry of a comprehensive Request for Proposal for consulting services for project preparation and transaction execution, with a written and binding commitment to KKPPI that the proposed Participating Ministry has complied with all applicable national laws, regulations and policies, and all relevant environmental and social safeguard requirements; (vii) resource requirements for the necessary consulting services, availability of counterpart support, and extent of commitment from the proposed Participating Ministry to provide such support; (viii) prospects for meeting initial public investment requirements for project implementation, such as land acquisition; and (ix) the need for, and extent of risk-sharing support for project implementation and/or operation by the Borrower.

(d) Following assessment by the PMU that the priority ranking of the proposed N-PPP Project meets the

Schedule 5, para. 7

Substantially complied with.

National and regional project development facilities (N- and R-PDF) were restructured into a single category as a PDF in 2011. Project proposals were evaluated in accordance with PERMEN 3 (2012) of BAPPENAS on general implementation guidelines between the government and business entities in providing infrastructure, as well as PERMEN 6 (2012) on the criteria to enter the PPP book. Project proposals were discussed with sectoral ministries, MOF, and the CMEA before approving the PPP book.

80 Appendix 5

appropriate ranking level, the PMU shall forward the proposal together with the PMU evaluation and recommendation to the Deputy Chairman for Infrastructure Affairs of BAPPENAS for approval. (e) The Deputy Chairman for Infrastructure Affairs of BAPPENAS shall (i) review and decide on each submitted proposal; (ii) report the decision and reasons for the decision to the Chairman of KKPPI; and (iii) authorize funding from the National PDF for each approved project. (f) Further stages of processing of the N-PPP Project shall be in compliance with the Borrowers’ funding procedures.

Following the approval of a proposal, the Borrower shall require (a) each Participating Ministry to put in place appropriate implementation arrangements, such as establishing a project implementation unit, to be supported by full-time qualified technical and administrative staff and adequate resources, and (b) the project management unit (PMU) to support each Participating Ministry to manage the relevant N-PPP Project preparation and transaction execution and subsequent implementation monitoring.

Schedule 5, para. 8

Complied with. PPP projects are developed in accordance with the stipulations in PERMEN 3 (2012) of BAPPENAS on general implementation guidelines between the government and business entities in providing infrastructure. This includes the establishment of a PPP team and a procurement team in the GCA. The PMU supports the GCA in performing its duties, using the TAS consultant.

Regional PDF The Borrower shall ensure that the Regional PDF provides funds to finance consulting services for R-PPP Project preparation, bidding, evaluation, negotiations and contract award and implementation monitoring.

Schedule 5, para. 9

Complied with. In May 2011, the R-PDF was merged with the N-PDF.

The procedures for a R-PPP Project proposal to be financed from the Regional PDF are as follows: (a) the PMU reviews and where appropriate, confirms that the R-PPP Project proponent meets the eligibility criteria outlined in paragraph 11 below, (b) the PMU reviews and where appropriate, confirms that the R-PPP Project proposal meets the eligibility criteria outlined in paragraph 12 below, (c) the PMU forwards the proposal, its evaluation of issues in (a) and (b) above, and a recommendation to the DPPP Director. The Borrower shall ensure that the DPPP Director: (i) reviews and decides on each proposal, and (ii) reports the decision and the reasons for the decision to the Chairman of the PSC; and (iii) authorizes the funding. Upon receipt of a R-PPP Project proposal, the PMU shall evaluate the eligibility of a provincial, town or district government to be a Participating Regional Government based on the criteria agreed with ADB. Where the evaluation is positive, then the PMU shall proceed to evaluate the eligibility of the R-PPP Project proposal.


Substantially complied with. Project proposals were evaluated in accordance with the stipulations in PERMEN 3 (2012) of BAPPENAS on general implementation guidelines between the government and business entities in providing infrastructure, as well as PERMEN 6 (2012) on the criteria to enter the PPP book. Project proposals were discussed with sectoral ministries, the MOF, and the CMEA before being approved for the PPP

Appendix 5 81

book. However, the PSC was not part of the proposal review and decision process.

Each R-PPP Project proposal must meet the following eligibility criteria, subject to periodic modifications as may be required and approved by the PSC:

(a) be approved by the head of the applicant Participating Regional Government; (b) have potential to generate revenue sufficient to cover all R-PPP Project operating and capital costs and be proposed by an applicant Participating Regional Government which has either no outstanding arrears to the Borrower or a clear plan to reschedule arrears which is acceptable to the Borrower; (c) have written agreement between the Participating Regional Government and the PMU (the Implementing Agreement) to abide by the conditions of the Project Development Facility including adopting a competitive process to select private sector partners, and complying with applicable environmental laws, regulations and standards of the Borrower, in broad accordance with the principles and objectives of ADB’s Environment Policy 2002, and applicable laws, regulations, policies and standards of the Borrower for resettlement, in broad accordance with the principles and objectives of ADB’s Involuntary Resettlement Policy; (d) is a small to medium scale urban infrastructure project valued up to and including $10 million, for which required regulatory frameworks requirements and financing needs are limited in complexity; and (e) meets project-specific selection criteria as determined by the PSC and agreed with ADB.

Schedule 5, para. 12

Complied with. Project proposals are evaluated in accordance with the stipulations in PERMEN 3 (2012) of BAPPENAS on the general implementation guidelines between the government and business entities in providing infrastructure, as well as PERMEN 6 (2012) on the criteria to enter the PPP book. Project preparation followed Indonesia’s prevailing environmental and land acquisition framework, and was also in broad accordance with the principles and objectives of ADB’s environment and social safeguards policies.

The PMU shall provide a free, public access website that publishes the eligibility, selection and ranking criteria, updated details of R-PPP Projects from when they are approved, the financing priority list showing R-PPP Project ranking, and relevant information pertaining to each R-PPP Project.


Complied with. The IRSDP website contained information about the ongoing projects, as well as the eligibility criteria determined in the regulations.

Following approval by the Directorate of Public Private Partnerships (DPPP) Director of a proposal, the Borrower shall require each Participating Regional Government to establish a PPP Regional Unit (PPP-RU) to be supported by appropriate full-time qualified technical and administrative staff and adequate resources. Each PPP-RU shall be responsible for supporting the Regional PDF Projects which are part of the relevant regional PPP program. The Borrower shall ensure that each PPP-RU is appropriately supported by the PMU to manage the relevant Regional PDF Project preparation and transaction execution and subsequent implementation monitoring.


Not complied with. No PPP-RUs were established that constrained the PMU’s and TAS consultant’s efforts to prepare projects and transfer knowledge effectively. It also led to little or no engagement of regional governments in supervising their PDF consultants.

The Borrower shall cause the PMU to ensure that prior to receiving any financial assistance und ether Regional


Substantially complied with.

82 Appendix 5

PDF, each Participating Regional Government shall have agreed in writing that detailed ‘in kind’ contribution will be provided and in the event that the contribution is not made on a timely basis, financial assistance will be suspended.

Participating regional governments provided in-kind resources to PDF consultants.

The Borrower shall ensure that the mandate of the Regional PDF provides for:

(a) financing consulting services for the preparation of eligible projects in: (i) water supply, (ii) wastewater treatment and sanitation, (iii) solid waste management and disposal facilities, (iv) passenger transport terminals, (v) markets, (vi) regional government-owned air and seaports, and (vii) other urban facilities as deemed appropriate by the PSC; (b) identical conditions to apply to its different financing arrangements to ensure a consistent and equitable approach to funding applications; and (c) subject to the introduction of the revolving funding mechanism, operating the Regional PDF as a revolving financing facility, using the reflow of funds from the R-PPP Projects.


Substantially complied with. As the revolving fund mechanism proved incompatible with Indonesian public financial management systems, no framework was designed and implemented for the reflow of funds from R-PPP projects.

Technical Advisory Services and Capacity Building The Borrower shall ensure that the PMU provides assistance at both central and regional government levels to assist in developing concepts of PPP implementation by: (a) disseminating information to, and dialogue with, prospective investors and potential providers of finance, (b) encouraging the use of rating agencies and schemes of appropriate financing for R-PPP Project implementation, and (c) adopting and implementing regulations that can augment the efficacy of PPP in an effort to accelerate urban infrastructure development.


Complied with.

Within 18 months of the Effective Date, the Borrower shall ensure or cause to ensure that a study is completed of appropriate cost recovery arrangements for the N-PPP and R-PPP Projects, including reflow fund mechanisms, recommendations for appropriate mechanisms which are in accordance with the Borrower’s budget and finance laws and regulations, and proposals for necessary amendments to related regulations. Within 24 months of the Effective Date, the Borrower shall ensure or cause to ensure that (i) in order to make the PDF sustainable, the KKPPI will consider the recommendations from the study and if feasible and appropriate, endorse a proposal for cost recovery arrangements for consideration and adoption by the Ministry of Finance (MoF); and (ii) subject to the introduction of cost recovery arrangements, requirements to comply with the applicable cost recovery arrangements are inserted into the bidding documents and final PPP Arrangements.


Complied with. The study was completed in 2009, and suggested that BAPPENAS administer the reflow fund; however, the ensuing consultation with the MOF clarified that funds from the GCAs can only be received by the MOF. Accordingly, BAPPENAS could not implement the refund scheme.

The Borrower shall ensure or cause to ensure that (i) international training programs relating to PPP are delivered for around 75 persons, and similar national training programs are delivered for around 600 persons that result in the awarding of a recognized diploma or certificate; and (ii) international workshops are held for around 50 persons, and national workshops are held for about 200 persons, both relating to PPP; and (b) the beneficiaries of training are the most appropriate and that


Complied with. Since 2009, approximately 40 national training events and workshops reaching 800 persons have been delivered to GCAs. BAPPENAS has carried

Appendix 5 83

they are selected on a transparent basis from staff of the ministries and agencies of the Borrower and regional governments.

out three international training programs in 2011 (United Kingdom), 2012 (Spain), and 2013 (Singapore), reaching 40 persons. (b) Concerned ministries and agencies selected trainees based on the criteria provided by BAPPENAS.

Without prejudice to the generality of Section 4.02 of this Loan Agreement, the Borrower shall ensure that all Project accounts, including financial statements, statements of expenditures and account records, shall be audited annually, with consolidated audit reports (in English) submitted to ADB in accordance with the requirements and within the deadlines stated in Section 4.02(a) of this Loan Agreement and the audit opinion including: (a) an assessment of the adequacy of accounting and internal controls systems with respect to Project expenditures and other financial transactions, and to ensure safe custody of Project financed assets; (b) a determination as to whether the Borrower, the Project Executing Agency, and Implementing Agencies have maintained adequate documentation for all financial transactions, specifically including the SOE and imprest account procedures; and (c) confirmation of compliance with this Loan Agreement’s financial covenants and ADB requirements for Project financial management. ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project


Complied with.

Progress Reports Without limiting the generality of Section 6.05 of the Loan Regulations, the Borrower, during the implementation period of the Project, shall submit to ADB, through the PMU: (a) quarterly progress reports on the Project, and (b) a Project completion report within three (3) months after completion of the Project summarizing: (i) progress made against established targets; (ii) delays and problems encountered, and actions taken to resolve issues; (iii) compliance with covenants in this Agreement; (iv) proposed program of activities for the next six (6) months; (v) expected progress during the succeeding period, and (vi) status of activities in the Project Area.


Complied with. Quarterly reports were issued regularly. A consultant was mobilized in June 2014 to perform the project completion report.

Project Review and Monitoring The Borrower shall ensure or cause to ensure that:

(a) annual reviews of the Project are undertaken jointly with ADB to assess progress and to identify constraints and ways to address identified constraints, with the first review commencing within six (6) months following the Effective Date to enable adjustments in N-PPP or R-PPP Project design or implementation as needed; (b) each review will cover the status of N-PPP and R-PPP Project proposal preparation and transaction execution, the performance of the Project consultants, and any necessary changes in Project scope, implementation arrangements and/or reallocation of


Partly complied with. Items (a), (b), and (c) have been complied with. Items (d) and (e) were not complied with, as a PPMS was not developed or used for project monitoring purposes. Monitoring was done

84 Appendix 5

Loan proceeds; (c) a midterm review will be conducted within three years of the Effective Date, to ensure that N-PPP and R-PPP Projects are implemented and managed effectively and that benefits are maximized; (d) a Project Performance Management Systems (PPMS) is developed in accordance with ADB’s PPMS Handbook and Project objectives to monitor PDF inputs, progress in assistance, outcomes and impacts, with indicators of capacity building and information dissemination for agencies of the Borrower, financial institutions, potential investors, and other stakeholders incorporated in the design of the PPMS to facilitate the monitoring and evaluation of Project benefits; and (e) data collection for the PPMS will be undertaken by the Participating Ministries and Participating Regional Governments.

against the IRSDP’s design and monitoring framework, which included three subprograms.

The Borrower shall ensure, or shall cause the PMU to ensure, that: (a) N-PPP or R-PPP Projects shall be designed and carried out in compliance with the Borrower’s environmental, safety, social safeguard, procurement, labor and social protection laws, standards, regulations and requirements, and, to the extent possible, in accordance with ADB’s environmental and social safeguard policies including ADB’s Policy on Involuntary Resettlement, ADB’s Policy on Gender and Development, ADB’s Social Protection Strategy, ADB’s Indigenous Peoples’ Policy and any Action Plan for Indigenous Peoples and any Specific Plans for Indigenous Peoples, and the relevant Participating Ministry or Participating Regional Government shall undertake measures to address any adverse effects; and (b) the public has free and ready access to environmental information produced for a N-PPP or R-PPP Project funded by the Project Development Facility, including via a free access website.


Partly complied with. Item (a) was complied with, as project preparation and transaction followed PERMEN 3 (2012) of BAPPENAS, which that provided safeguard mechanisms at each step of the project cycle in relation to environmental (environmental impact studies) and social (land acquisition and resettlement programs) aspects in compliance with national regulations on environmental protection (Law 32 [2009]) and land acquisition (Presidential Regulation No. 65 [2006]) in effect during the IRSDP. Project preparation and transaction was also conducted, as much as possible, in broad accordance with the principles and objectives of ADB’s environment and social safeguards policies. Item (b) was partly complied with, as environmental information produced by the PDF was being compiled for disclosure

Appendix 5 85

on the IRDSP website.

The Borrower shall, during the Project, cause the Participating Ministries and the Participating Regional Governments to prepare an annual work plan for the next year, to ensure that during each year of the relevant N-PPP or R-PPP Project preparation, adequate budgetary allocation of required counterpart support (in-kind or cash) is made and such funds are released by the relevant authorities on a timely and regular basis to facilitate N-PPP or R-PPP Project preparation and transaction execution. Each annual work plan shall include (i) the specific allocations of sufficient counterpart funds for the current year; and (ii) a financing plan for N-PPP or R-PPP Project activities for the succeeding year.


Partly complied with. Participating ministries and regional governments had to follow PERMEN 3 (2012) of BAPPENAS on general implementation guidelines between the government and business entities in providing infrastructure. This regulation established several milestones throughout project preparation and transaction whereby the GCA must approve a project-related plan with resources. This includes establishing the PPP team and approving the procurement plan. However, the provisions of this regulation were not implemented.

In order to ensure sustainability of the technical, procurement and administrative support to be provided to the Borrower’s ministries and agencies and regional governments for project preparation and transaction execution after the completion of the Project, the Borrower shall, during the Project, cause the PMU to prepare and implement annual work plans for the smooth and efficient transition of the support functions into the operations of the planned PPP-CU.


Partly complied with. A study on the PPP central unit was completed, but the unit

was not established.

ADB = Asian Development Bank, BAPPENAS = National Development Planning Agency, CMEA = Coordinating Ministry of Economic Affairs, CU = central unit, EA = executing agency, GCA = government contracting agency, IPDF = infrastructure project development facility, IRDSP = Infrastructure Reform Sector Development Program, KKPPI = National Committee for the Acceleration of Infrastructure Provision, MOF = Ministry of Finance, N = national, PDF = project development facility, PERMEN = BAPPENAS’ ministerial regulation, PMU = project management unit, PPMS = project performance monitoring system, PPP = public–private partnership, PSC = project steering committee, R = regional, RU = regional unit, TAS = technical advisory services.

86 Appendix 6

TECHNICAL ASSISTANCE COMPLETION REPORT

Division: Indonesia Resident Mission (IRM)

Technical Assistance (TA) Number, Country, and Name: Amount Approved: $2,000,000

TA 4872-INO: Enhancing Private Sector Participation in Infrastructure Provision

Revised Amount: Not applicable

Executing Agency: National Development Planning Agency (BAPPENAS)

Source of Funding: TASF-Others

Amount Undisbursed: $360,212.16

Amount Utilized: $1,639,787.84

TA Approval Date: TA Signing Date:

Fielding of First Consultant: TA Completion Date

Original: 31 December 2011

Actual: 30 June 2013

21 November 2006 12 April 2007 1 March 2007 Account Closing Date

Original: 31 December 2011

Actual: 30 November 2015

Description:

The technical assistance (TA) aimed to help (i) the Ministry of Finance (MOF) determine and provide risk-sharing support to private investors in infrastructure projects, and design and establish infrastructure financing mechanisms; (ii) the National Committee for the Acceleration of Infrastructure Development (KKPPI) develop effective communications on the social marketing of infrastructure reforms; and (iii) the National Development Planning Agency (BAPPENAS) launch the infrastructure project development facility (IPDF) for preparing public–private partnership (PPP) projects. The TA targeted four departments of the Government of Indonesia: (i) the Center for Fiscal Risk Management (Risk Management Unit [RMU]) of the MOF’s Fiscal Policy Office, (ii) the MOF’s Directorate of Investment Management, (iii) the Office of Deputy for Infrastructure and Regional Development in the Coordinating Ministry of Economic Affairs (CMEA), and (iv) the Directorate of PPP Development in BAPPENAS. The TA was piggybacked to the Infrastructure Reform Development Sector Program approved on 21 November 2006,

1 and became effective on 12 April 2007, with original completion

expected by 31 December 2011. The TA was extended twice, to 30 September 2012, and then to 30 June 2013.

Expected Impact, Outcome and Outputs:

As part of the Infrastructure Reform Sector Development Program (IRSDP), the TA was expected to support an improved investment climate and the achievement of the government’s medium-term macroeconomic goals through enhanced provision and access to infrastructure. The TA’s expected outcome was accelerated infrastructure development through private sector participation (PSP) and the mobilization of additional public sector resources for infrastructure. The TA had four PSP- and PPP-focused outputs: (i) the RMU’s enhanced capacity, (ii) the establishment of a sound fiduciary framework for infrastructure fund management, (iii) reformed communication and social marketing, and (iv) start-up and preliminary technical preparations under the IPDF.

Delivery of Inputs and Conduct of Activities:

The TA’s inputs were focused on component (i), which was allocated 34 person-months of international and 54 person-months of national consultant inputs. Outputs (ii) and (iii) were each allocated 4 person-months of international and 10 person-months of national consultant inputs, and output (iv) was allocated 5 person-months of international and 5 person-months of national consultant inputs. The total programmed budget for consultant services was $1.6 million, in addition to $60,000 for workshops, $30,000 for surveys and data collection, and $62,500 for equipment and communications.

The TA has provided strong support for and enhanced the capacity of the MOF’s RMU staff through on-the-job training, support in risk-sharing analysis, and both in-country and overseas training. As the MOF’s Directorate of Investment Management withdrew its participation in the TA, the output on the establishment of a sound fiduciary framework for fund management was not delivered. The CMEA, with help from international and national communication specialists, developed the communication and social marketing strategy for PPP projects. The consultants also conducted community consultation and pre-market sounding of selected PPP projects. The Directorate for PPP Development, with help from international and national PPP specialists, developed guidelines for preparing PPP projects that were enhanced and implemented under the IPDF. The overall performance of the consultants under the TA was satisfactory. The location of the TA project officers in ADB’s Indonesia Resident Mission ensured continuous supervision of the TA, timely action on the MOF, KKPPI, and BAPPENAS’s requests, and synergy between the IRSDP’s policy agenda and the IPDF established at BAPPENAS. ADB’s performance is, therefore, rated satisfactory. Despite the withdrawal of the MOF’s Directorate of Investment Management from the TA, the RMU, a major TA beneficiary, remained strongly committed and provided the required coordination and institutional support to the TA. The KKPPI and BAPPENAS also provided the required inputs and support to their components of the TA. Overall, the performance of the MOF, the KKPPI, and BAPPENAS under the TA is rated satisfactory.

1 ADB. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Program Cluster,

Loans, Technical Assistance Grant, and Administration of Grant to the Republic of Indonesia for the Infrastructure Reform Sector Development Program. Manila.

Appendix 6 87

Evaluation of Outputs and Achievement of Outcome

The TA effectively supported the RMU in (i) building staff capacity, (ii) improving risk-sharing support to private investors in PSP and PPP projects, and (iii) designing a proper financing mechanism for infrastructure. The capacity building was done through both in-country (including on-the-job) and overseas training. The RMU sent selected staff for training in (i) financial modeling, asset and liability management, and capital adequacy planning in Hong Kong, China; (ii) renewable energy project financing in Singapore; (iii) international investment agreement and investor state arbitration in Washington, DC; and (iv) PPP international best practice and regulations in London. Four RMU staff also attended an Asian PPP Practitioners Networking workshop in Seoul, the Republic of Korea. Several training sessions related to value for money, the public sector comparator, and risk analysis techniques for PPP projects were conducted in the country. The RMU also delivered a concept for establishing and operationalizing the state budget-financed geothermal exploration support fund. Strong support was provided for the RMU to establish a PPP central unit in the MOF, but the establishment of this unit was postponed, as the MOF has not yet decided which department is most suitable for such a unit. The CMEA delivered a draft communication strategy for PPP projects, but the strategy was not adequately disseminated to other PPP stakeholders. The expected output on the establishment of a sound fiduciary framework for the management of infrastructure funds was not delivered because the Directorate of Investment Management withdrew from the TA. The IPDF’s expected operationalization as a revolving fund was not implemented because the public financial systems require any fund reflow to be channeled to the general government budget, not transferred directly to a government agency. Overall Assessment and Rating

The TA was highly relevant as it helped strengthen the fiscal risk management systems and government capacity arising from the expected large private infrastructure investment facilitated with direct or contingent government support. The TA helped the RMU enhance its capacity in determining the type of government support to be provided, and formulating the risk-sharing arrangements between national, provincial, and district governments for PPP projects. The RMU has become a strong MOF directorate, eventually serving as the basis for (i) the directorate on government support and infrastructure financing (the MOF’s PPP unit), and (ii) the directorate on state financial risk management established in late 2014. Although most of the expected outputs were delivered, the TA implementation was extended twice, for a total extension of 18 months. This extension further enhanced the capacity of RMU, CMEA, and BAPPENAS staff by providing some additional overseas training; however, the ambitious expected outcome for enhancing private participation in infrastructure provision was not achieved. The TA outputs on the PPP project communication strategy and fiduciary frameworks on the management of infrastructure funds were not implemented, and the TA was also affected by the frequent replacement of ADB project officers in charge of TA administration. Of the TA amount of $2.00 million, $1.64 million was utilized despite two extensions. Although there has been a significant shortfall in achieving the design outcome and impact, and full sustainability is unlikely (due to ineffectiveness, the KKPPI was replaced by the Committee for Acceleration of Priority Infrastructure Delivery [KPPIP] in July 2014 and the IPDF at BAPPENAS was closed in February 2016), some project components provide major and sustainable benefits, such as strengthened fiscal and project risk management capacity and institutional set-up in the MOF. Hence, overall the TA is rated successful. Major Lessons:

Although the TA provided strong support to the RMU through overseas and domestic training, capacity building was not well planned and was largely implemented ad hoc without a clear training plan. Frequent changes in the RMU staff in charge of the TA affected institutional memory and records, and was one reason why the TA account was not closed until November 2015. Little coordination took place between the RMU, BAPPENAS, and the CMEA as the TA’s implementing agencies, contributing to the fact that the PPP project communication strategy developed under the TA for the CMEA was not adequately disseminated to other stakeholders. Recommendations and Follow-Up Actions:

The World Bank provides comprehensive support to the MOF’s PPP unit under the Indonesia Infrastructure Finance Development Project approved in April 2016. The KPPIP has shown its active role in ensuring adequate coordination and problem solving among major stakeholders, and there is now a clear division of labor between BAPPENAS, the MOF, and the CMEA in the PPP field. A new PPP framework issued in 2015 enables PPPs on availability basis and in the social sector, and permits state-owned enterprises to be government contracting agencies. Thus, it may be expedient to support, through separate TA, (i) the BAPPENAS directorate of PPP development, which helps government contracting agencies identify, select, and prioritize PPP projects (with a focus on the social sectors); and (ii) the MOF’s directorate on state financial risk management in ensuring the fiscal sustainability of the increased role of state-owned enterprises and government financial institutions in infrastructure delivery.

Prepared by: Aziz Haydarov Designation: Infrastructure Economist, Indonesia Resident Mission

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgements as to the legal or other status of any territory or area.

Documents

Completion Report - Asian Development Bank · 2017-08-30 · BKPM – Badan Koordinasi Penanaman Modal ... Indonesia (Master Plan for Acceleration and Expansion of Indonesia's Economic