Presentation to EIBD Stakeholders’ Briefing

Financing Infrastructure Projects in Indonesia:

Current Availability and Issues

Richard Michael 22 October 2013

1.  IIF Profile

2.  PPP Framework

3.  Current Status

4.  MP3EI

5.  Recent Developments

6.  Transport Sector Overview

7.  Project Finance Market

8.  Case Study 1: Cikampek-Palimanan Toll Road

9.  Case Study 2: Tangerang City water BOT

CONTENTS

2

IIF PROFILE (1)

3

PT Indonesia Infrastructure (IIF) is a private non-bank financial institution formed by and under the Ministry of Finance of the Republic of Indonesia. Licensed under the Minister of Finance Regulation (PMK) No. 100/2009, IIF is professionally managed and focused on supporting and investing in commercially feasible infrastructure projects. The establishment of IIF is a key element of strategic development by Government of Indonesia and development partners among international financial institutions to address the constraints on the flow of private investment in Infrastructure.

Board of Commissioners President Commissioner : Sofyan A.Djalil Commissioner : Marwanto Harjowiryono Commissioner : Arif Baharudin Commissioner : Jemal-ud-din Kassum Commissioner : Robert Dolk Commissioner : Rajeev Kannan Commissioner : Hans-Juergen Hertel Board of Directors President Director : Kartika Wirjoatmodjo Director : Harold Tjiptadjaja Director : Wito Krisnahadi Director : Haruhiko Takamoto

Board of Commissioners & Board of Directors

Vision & Mission

To provide capital for infrastructure in Indonesia and to work closely with Infrastructure sponsors, the financial sector, and the Government of Indonesia to accelerate the construction of well – conceived, commercially viable infrastructure projects.

Shareholders

•  To ensure investors’ needs are reflected in contractual structures and concessions.

•  To lead in offering a mix of long term financing instruments appropriate for infrastructure.

•  To work with Indonesia’s financial institutions and other institutional investors to channel the nation’s saving into the long term development of Indonesia’s Infrastructure.

About Us

Representative −

Gov’t of Indonesia

IFC ADB

SMBC DEG

No Shareholders %

1 Government of Republic of Indonesia via PT Sarana Multi Infrastruktur (Persero) 34.29%

2 Asian Development Bank (ADB) 16.94%

3 International Finance Corporation (IFC) 16.94%

4 Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG) 16.94%

5 Sumitomo Mitsui Banking Corporation (SMBC) 14.89%

Total 100.00%

IIF PROFILE (2)

Transportation infrastructure, covering airports services, provision and/or ports services, railways facilities and infrastructure

Waste water infrastructure, covering waste water processing plants, collection networks and mains networks, and garbage facilities covering transportation and disposal

Road infrastructure, covering toll roads and toll bridges

Telecommunication and information infrastructure, covering telecommunication networks

Irrigation infrastructure, covering raw water channels Electricity infrastructure, covering power generation, including geothermal electric power development, transmission and distribution

Drinking water infrastructure, covering intake building for raw water, transmission networks, distribution networks, drinking water processing plants

Oil and gas infrastructure, covering oil and gas processing, storage, transportation, transmission or distribution;

Other infrastructure projects which are approved by the Minister of Finance

SECTORS

4

SCOPE PROJECT INITIATIVES

GOVERNMENT OF INDONESIA INITIATIVES

PRIVATE SECTOR INITIATIVES

PROJECT TYPES

•  PPP under Presidential Regulation No.67/2005 jo Presidential Regulation No.13/2010 and No.56/2011

•  Private Project under “Izin Pengusahaan”

•  Private to private

IIF PROFILE (3)

5

•  Senior Loan •  Subordinated Finance

(Mezzanine)

•  Guarantees

INVESTMENTPRODUCTS

FUND - BASED

NON FUND - BASED

End of Financing Period

•  Refinancing

•  Equity Investment

•  Stand-by Finance

FIN

AN

CIN

G P

ROD

UCT

S

Project Life Cycle

Project Preparation Project Construction

Project Operation

End of

Con-cession

Tender

IIF PROFILE (4)

6

End of Financing Period

Loan Syndication

Arranger

ADVISORY

SERVICES Transaction

Advisor

Financial Advisor

Project Life Cycle

PROJECT TYPES

•  PPP under Presidential Regulation No.67/2005 jo Presidential Regulation No.13/2010 and No.56/2011

•  Private Project under “Izin Pengusahaan”

•  Projects funded by state budget

•  Private to private

Project Construction

Project Operation

End of

Con-cession

Tender Project Preparation

State Minister of Stated Owned

Agencies

Chairman: Coordinating Minister of Economic Affairs

Co-chair: Minister of Planning/ BAPPENAS

Secretary 1: Deputy Min.Infrastructure, CMEA Depity 2: Deputy Min. Infrastructure, BAPPENAS

Line Ministers (sectors) MPW,

MOT

Ministers of Home Affairs Ministry of Finance

PPP central Unit (P3CU) Policy Coordination, Project Planning,

Coordination Analysis, Coordination on the need of government support, cross sector

facilitation, Transaction and Advisory Support

PPP Nodes Project identification and preparation, Monitoring and

Quality Control, ie: -Project Identification

-Preparation tender documentation -Transaction and post transaction process

Line Ministry Project devt. and

Monitoring

SOE Poject Project devt.

and Monitoring

Local Govt.Project Project devt. and

Monitoring

Project Development

Facility

IIGF Assesing and

Managing Govt Support

SMI/IIF Financing

Government Contracting Agency (GCA) Project Facilitation

Risk Management

Unit Devt Govt.

Support, Policy, and Monitoring

National Committee of Policy for Infrastructure Acceleration (KKP)

CURRENT STATUS (1)

7

Source : World Bank

3,339 3,950 4,948 5,606 6,436 7,427 8,543 9,270

14.9 17.4 21.4 23.1 26.3 29.9

5.5%

6.3% 6.0%

4.6%

6.2% 6.5% 6.5%

6.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

1

10

100

1,000

10,000

2006 2007 2008 2009 2010 2011 2012 2013

GDP (IDR Trillion) GDP per capita (IDR million)

Economic Growth

99 129

174 188

0

0.005

0.01

0.015

0.02

0.025

0

50

100

150

200

250

300

Gov't Spending on Infrastructure (IDR Tn)

Gov't Spending on Infrastructure (% of GDP)

Government increases infrastructure spending allocation..

55 64 73 76 80

118

169 194 8.2% 8.5%

7.4% 8.1% 7.7%

9.1%

10.9% 11.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

100

200

300

400

500

2006 2007 2008 2009 2010 2011 2012 2013

Gov't Capital Expenditure (IDR Trillion)

Gov't Capital Expenditure (% of Total Gov't Spending)

55 64 73 76 80

118

169 194 8.2% 8.5%

7.4% 8.1% 7.7%

9.1%

10.9% 11.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

100

200

300

400

500

2006 2007 2008 2009 2010 2011 2012 2013

Gov't Capital Expenditure (IDR Trillion)

Gov't Capital Expenditure (% of Total Gov't Spending)

APBN-P RAPBN

…in order to maximize economic growth

APBN-P RAPBN Source: Ministry of Finance, RAPBN Source: Central Bureau of Statistics & RAPBN, Bank Indonesia

Revised to 5.9%

CURRENT STATUS (2)

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MP3EI (1)

Source:  Master  Plan  Accelera1on  &  Expansion  of  Indonesian  Economic  Development  (MP3EI)  2011-­‐2025,  IIF  Analysis    

•  Government’s  MP3EI  has   iden.fied  poten.al   investment   requirement   in   Indonesia  of   approximately   IDR  4,000  Trillion   (~USD  444  billion),  of  which  around  41%  will  be  allocated  to  the  infrastructure  sector,  i.e.  in  the  amount  of  IDR  1,653  Trillion  (~USD  184  

billion),  broken  down  as  follows:  

Power & Energy IDR 393 tn

24%

Toll Roads & Roads IDR 387 tn

23%

Water Utilities IDR 27 tn

2%

Ports IDR 129 tn

8%

Airports IDR 24 tn

2%

Rail IDR 222 tn

13%

ICT IDR 170 tn

10% Other

IDR 301 tn 18%

Huge  investment  requirement  for  infrastructure  development  

•  Using  minimum  5%  of  GDP  as   a  method   to  esAmate   infrastructure   investment   requirement   for   Indonesia,   it   is   esAmated   that  Indonesia  requires  approximately  USD  353  billion  for  the  next  5  years  based  on  IMF’s  forecast  on  Indonesia’s  GDP.  

(in USD billion) 2013 2014 2015 2016 2017

Forecast on Indonesia's GDP (World Economic Outlook Apr-12, IMF) 1,055 1,214 1,394 1,593 1,812

Total

Est. infrastructure investment requirement, assuming 5% of GDP (the level before 1998 crisis) 53 61 70 80 91 353

9

Transport Sector 46%

▪  To support the development of the main economic activities within the corridors (MP3EI), the total investment value has been identified at about IDR 4,000 Trillion (~US$ 444 billion)

▪  From that total investment, 41% will be needed in infrastructure sector IDR 1,653 Trillion (~US$184 billion) and the private sector is expected to contribute 51% of the total investment needed.

Infrastructure Sector requires significant funding that is suitable for its characteristics

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Investment Indication in Main

Activity

1,653

Infrastructure

Indication of Investment in Main Economic Activities (IDR Trillion)

Investment Indication Value

Based on Investor

Private

Government

SOE

Mix

SOURCE: Master Plan Acceleration & Expansion of INA Economic Development_2011-2025 (MP3EI)

MP3EI (2)

10

2,347

•  Indonesia Infrastructure Guarantee Fund (IIGF): New entity under MoF to provide performance guarantees for government –related contracting agencies in PPP project. Only guarantee issued to date for Central Java Power Project (to close 4Q13?). Guarantees in process for Umbulan, Lampung, W Semarang, Sumsel 9/10, etc.

•  Land Acquisition Law (2012): Streamlines process for acquisition for “eminent domain” purposes, but does not apply to existing Trans-Java toll roads

•  Viability Gap Funding (VGF): For certain PPPs which are economically feasible, but not financially viable, up to 50% of project cost can be funded by Government during the construction period. Tenders awarded on basis of lowest NPV of VGF amount. Proposed for water projects, but roads/rail also possible

•  Central PPP Unit: To be established by Risk Management Unit of MoF, but may be limited in scope/authority

•  Performance-Based Annuity Scheme (PBAS): Proposed alternative to VGF whereby Government pays for asset over concession life on availability basis. No market risk for private sector – may be applicable to less bankable roads outside Java

RECENT DEVELOPMENTS

11

Roads:

  Trans-Java roads have struggled due to weakness of some sponsors and land acquisition issues

  Trans-Sumatra 2,700 km still unclear structure (Hutama Karya?);

  New roads being tendered: Serpong-Balaraja, Medan-Kuala Namu

  Jakarta awarded 6 inner city toll roads to companies largely under the regional government

  Ambitious schemes: Sunda Straits Bridge, Sea-based Jakarta/Surabaya road?

Ports:

  Sector dominated by the Pelindos

  Kalibaru North PQ process dropped to award to Pelindo II

  Terminal 1 will be a JV with Mitsui & Co

  Cilamaya, W Java, to be tendered, but resistance from Pelindo II

  Separation between regulation/operation not established

TRANSPORT SECTOR OVERVIEW (1)

12

Airports:

  Also dominated by Angkasa Pura I & II

  Kertajati in W Java may be a PPP

  Private investment in Batam, N Bali, Yogya plus 10 new PPPs (eg Palu, Jayapura, Lampung)

  Separation regulation/operation again not effective

Rail:

  C Kalimantan Rail PPP – structural issues

  E Kalimantan Rail proposed by Russian Railways

  Express rail line to Soekarno-Hatta planned as PPP - PQ to be launched this year?

  Projects usually on state budget via Kereta Api – e.g. double tracking Jakarta/Surabaya

  New DKI Governor relaunching Jakarta MRT and Monorail projects – no private funding

TRANSPORT SECTOR OVERVIEW (2)

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•  Liquidity: For Rupiah, market quite liquid. US$ fluctuates for local banks

•  Tenors: Up to 15 years provided by local banks. Offshore up to 20 years

•  Pricing: For Rupiah, based on Jibor, time deposits. Spreads narrowing in recent years

•  Main Players: State-owned banks (BNI, Mandiri, BRI), large locals (BCA, BII, CIMB Niaga), branches of foreign banks (HSBC, SMBC, StanChart, ANZ, DBS, ICBC), offshore players, multilaterals (IFC, ADB)

•  Risk Appetite: Few genuine limited-recourse deals by local players (name lending still prevalent), but moving towards international standard

PROJECT FINANCE MARKET (1)

14

PROJECT FINANCE MARKET (2) Sponsors need more and more stronger competitive edge which can be achieved by establishing greater access to achieve optimum mix of available financing in the market

Multilaterals

70% - 80%

Debt

20% -

30%

Equity

Typical Financing Mix

Financing Institutions

Source of Funds

Banks •  International Banks •  Large Domestic Banks •  Local Branch of Foreign Banks •  Small-to-medium Domestic Banks

Convertibles

Equity

Subordinated Loan

Mezzanine

e.g. deposits (mostly short term for domestic banks) & capital markets

•  Strategic Investors •  Private Equity / Hedge Funds •  Infrastructure Financing Institutions

(SMI/IIF)

e.g. multilateral member countries, capital markets

Infr

astr

uctu

re P

roje

ct In

vest

men

t

e.g. private investors, multilaterals, capital markets

Infrastructure Financing Institutions (SMI/IIF)

e.g. Government, multilaterals, private investors & capital markets

Qua

si-

Equi

ty

ECAs e.g. government, private investors

15

PROJECT FINANCE MARKET (3)

Type of Institutions

Characteristics of Major Financing Institutions in Indonesia

Mezzanine Facilities Debt Facilities

Pure Project Finance as Acceptable Structure

Strong Long-Term IDR Currency Funding

Require Gov’t Guarantee Tenor

ECAs ✔ ✔ ✔ can be very long

Multilaterals ✔ ✔ ✔ ✔ long

International Banks ✔ ✔ ✔ medium

Large Domestic Banks ✔ long-to-

medium

Local Branch of Foreign Banks ✔ medium-to-

short

Small to Medium Domestic Banks ✔ medium-to-

short

PE Funds ✔ ✔ medium

✔ ✔ ✔ ✔ long-to-medium

16

•  Key part of Trans-Java toll road network; 116km linking existing Jakarta-Cikampek and Kanci-Palimanan toll roads

•  Sponsored by PLUS/UEM of Malaysia (55%) and Saratoga/NRC (45%)

•  Concession Agreement signed 2006 for 35 years with regulator BPJT; lenders negotiated a Tripartite Agreement with Sponsors/BPJT in late 2011

•  Total cost Rp 12.5 trillion, funded on a 70:30 debt:equity basis

•  Financial close was in September 2012 and first drawdown achieved June 2013

•  Financing with 15-year tenor of Rp 8.8 trillion provided by 22 banks

•  Combination of local banks (BCA, Bank DKI, Bank BJB, Panin, ICBC), IIF and Malaysian Exim

•  First operational section due to open 1Q2015

CASE STUDY 1: CIKAMPEK-PALIMANAN TOLL ROAD (1)

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CASE STUDY 1: CIKAMPEK-PALIMANAN TOLL ROAD (2)

18

CASE STUDY 1: CIKAMPEK-PALIMANAN TOLL ROAD (3)

19

•  Not transport, but an example of a B2B alternative to PPP model

•  BOT water project under a Cooperation Agreement signed in February 2012

•  Delivery of 1,950 lps treated water to 1.8 million population of Tangerang City

•  Sponsored by Moya Asia Limited

•  PDAM Tirta Benteng offtaker of bulk water and responsible for delivery to end users

•  Total cost of Rp 1.4 trillion, financed on 53:47 debt:equity basis

•  Funding of Rp 751 billion with a 12-year tenor

•  Arranged by IFC, IIF and SMI and signed in June 2013

•  First water project to be financed under new Ministry of Public Works B2B regulation for water sector. May be applied to other sectors, including transport?

CASE STUDY 2: TANGERANG CITY WATER BOT

20

T H A N K Y O U

21

PT Indonesia Infrastructure Finance The Energy Building, 15th Floor

Sudirman Central Business District, Lot.11A Jl. Jend. Sudirman Kav.52-53, Jakarta 12190 - Indonesia

Phone 62-21-29915060 Fax. 62-21-29915061