Business As Usual? –Reformed Approaches to Deliver Indonesia InfrastructureRainier Haryanto, Program Director

16th November 2015

Presentation Outline

Indonesia Infrastructure - IssuesIndonesia Infrastructure - Issues

Lesson Learnt and Reformed ActionsLesson Learnt and Reformed Actions

National Strategic Projects and Priority ProjectsNational Strategic Projects and Priority Projects

KPPIPKPPIP

Question and AnswersQuestion and Answers

2

INDONESIA INFRASTRUCTURE –ISSUES

Development Planning Target to achieve economic growth of 6-7% p.a. in 2015-2019

4

Enggano

Kertajati

Singkawang

MuaraTeweh

Miangas

Maratua

Tojo Una-Una

Pohuwato

Moa

Namniwel

Taria

Kenyam

Aboy

Sultan Hassanuddin

Banda Aceh

Belawan

Kuala Tanjung

Dumai

Batam

PangkalPinang

Pontianak

Panjang

Padang

Tj. Priok

Cilacap

Tj. Perak

Lombok

Kupang

Palangkaraya Banjarmasin

Makassar

Maloy

Bitung

Halmahera

SorongJayapura

Merauke

Ambon

KorowayBatu

Sea toll concept as a means to support Indonesia in becoming the world maritime axis. • develop 24 new seaports • increase number of substantial

vessels (pioneer cargo, transport vessels, pioneer crossing vessels)

• develop 60 crossing ports

Strengthen connectivity through air transport infrastructure development• develop 15 new airports• develop air cargo facilities in 6

locations • increase number of pioneer

airplanes

Improve transport efficiency by road development and maintenance• develop 2,650 km of new roads • develop 1,000 km of new toll roads• rehabilitate 46,770 km of existing

road

Reduce logistic cost by improving railway infrastructure develop new tracks in Java, Sumatra, Sulawesi, and Kalimantan:

2,159 km inter-urban railways1,099 km urban railways

Develop urban transport• develop Bus Rapid Transit

(BRT) in 29 cities• develop Mass Rapid Transit

(MRT) in 6 metropolis and 17 large cities.

Achieve electrification ratio of 96.6% by 2019 through generating capacity improvement • develop power plants with total

capacity of 35,000 MW

Ensure efficiency of fuel productionby optimizing domestic refineries• build new oil refineries of

2x300,000 barrels• Expand existing refineries in

Cilacap and Balongan

Energy Related

Logistic Related

Location of 24 new seaports & 15 new airports

Source: Bappenas

Achieving food sovereignty through irrigation system improvement• develop 33 new dams and 30

hydropower plants• expand 1 million ha irrigation system • rehabilitate existing irrigation system

Infrastructure Financing Sources, 2015-2019(Based on National Development Planning Ministry Exercise)

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National and Regional Budgets

Financing Gap

SOEs ~ 22.23%~ 106.7 US$

~ 175.1 bill US$

NOTES:1) Hypothetical number, not for quotation. Official number of needs only include budget ceiling for National and

Regional Budgets as approved by Ministry of Finance on January 20152) Portion of National Budgets based on agreed budget ceiling by the Ministry of Finance as proposed by the

National Development Planning Ministry3) All estimates only based on the large investment and rehabilitation projects, e.g., not calculating the operational

costs in detail.

Total Need of Strategic

Infrastructure Investment1)

(480 bill US$) 3)Private Investment (PPPs, Off Balance

Sheet,Loan, Obligations,

etc ~ 36.52%)

National Gov’t Budgets

~ 29.88%2)

~ 143.3 bill US$

Regional Gov’t Budgets ~ 11.37%

~ 54.5 bill US$

FOREX Assumption is based on conversion rate of IDR 10,000 per US$

Alternative Financing Schemes

Lot of Opportunities

for Private Sector

Plan and Reality

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Budget/Funding mechanism

Human Resources

Environmental assessment process

Location Permits

Government Supports and Guarantees

Spatial Planning

Forestry Permits process

Overlapping Regulations

Procurement Process

3,000 ft

3 ft

High level

On the ground realities

Coordination and commitment

Political Decision, Groundbreaking

Implementation

BIG DISCONNECTION

Need intensive debottlenecks for

comprehensive problems solving, periodic MONEV,

and clear Action Plan

Presentation Outline

Indonesia Infrastructure - IssuesIndonesia Infrastructure - Issues

Lesson Learnt and Reformed ActionsLesson Learnt and Reformed Actions

National Strategic Projects and Priority ProjectsNational Strategic Projects and Priority Projects

KPPIPKPPIP

Question and AnswersQuestion and Answers

7

Lesson Learnt - Applying “Project Laboratory Approach” is a MUST ... !

To get the Expected Output

1. There should be a detailed Action Plan (AC) with clear timeframe and indication of who’s doing what. AC need to be signed by every stakeholders (PICs).

2. There should be dedicated working teams to consis-tently monitor and making sure of the agreed AC follow ups.

3. Unresolved problems from technical level should be reported and resolved at the decision-making level (minister’s level)

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Reformed Actions by the Government to Accelerate the Delivery of Infrastructure Projects

Fiscal reforms Institutional reforms Regulatory reforms

Supported by improving awareness of Indonesian infrastructure issues, convergent reforms are building a better business environment for tomorrow’s investment

• Investing in Indonesian infra-structure has been regarded as risky with uncertain returns on investment.

• Indonesia did not have any fiscal mechanisms that could support the development of infrastructure investment

• Indonesia suffered a lack of leadership to implement the changes needed for the infrastructure sector to grow

• Regulatory reforms are the backbone of long-term structural change. Indone-sian regulatory corpus has been characterized by some ambiguities and conflicting regulation

Indonesia now has fiscal supports to improve project

attractiveness, such as VGF and Availability Payment. It has also established land revolving fund to improve risk-sharing scheme.

Establishment of KPPIP(Committee for Acceleration of Priority Infrastructure Delivery) and empowerment of existing

institutions (PT. SMI and IIGF) to fill in the gap in enhancing project

bankability. Ministry of Finance has established PPP Unit to

provide PDF and TA.

The GoI has ratified the revised regulations related to PPP,

Availability Payment, Direct Lending and land acquisition. Moreover, policy deregulations have been included as

one of the main aspects of the Economic Policy Packages.

issu

esR

efor

ms

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Attracting Private Investment - The difference between then and now...

THEN

Although reforms are done in a “learning by doing” approach, but all of the above improvements are already in place.Now it requires a political courage, a policy consistency and a sense of urgency by the government to unlock the infrastructure

development for the country*PDF/TA: Project Development Facility/ Transaction Advisory

Committee for Acceleration for Priority Infrastructure Delivery (KPPIP) was set up with clear mandate i.e. to be the central coordinating agency and debottlenecking champion

Lack of clear championship at top

Championship at top

Following facilities are set up and empowered:• OBC Facility and Quality Guidelines in KPPIP• PDF/TA* under PPP Unit MoF• Potentially centralized Project Preparation facility in Bappenas

Poor quality of project preparation and limited budget

allocation

Project Preparation

Quality

GoI has ratified Law No.2/2012 and its implementing regulations (incl the recently revised Pres Reg 30/2015) which provides certainty for land acquisiton duration for investors

Severe delay in land acquisition process

Land Acquisition

Improved fiscal supports with MoF plays more active role: • PPP Unit is set up under MoF• Viability Gap Funding is available (MoF Reg 223/2012)• MoF Reg 190/2015 re: Availability Payment has been ratified,

allowing for elimination of demand risk from private sector

Lack of fiscal support and lack of proper risk allocation

between Govt and private sector

Project Bankability

Presidential Reg 82/2015 allows Govt Guarantee to be provided to SOEs which receives direct lending from financial institutions or specifically assigned by Pres. Reg to deliver projects.

Limited coverage of government guarantee

Govt Guarantee

NOW

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NATIONAL STRATEGIC PROJECTS AND PRIORITY PROJECTS

National Strategic Projects and Priority Projects

Roads RailwaysWater & Sanita-

tionEnergy Electrici-

ty Ports Airports

4 3 3 2 7 2 1

Priority Projects

Priority Projects

(Type A - 22 Projects)

National Strategic Projects

Looking at the delays and hindrances in delivering strategic projects, the Government is developing the Presidential Regulations and Presidential Instruction for National Strategic Projects.

KPPIP was mandated to select National Strategic Projects and coordinate their deliveries. From the list, KPPIP will identify the priority projects which will receive additional facilities such as Pre-Feasibility support, funding scheme determination platform and dedicated debottlenecking support.

Roads Railways Airports Ports Housing Energy

52 18 17 13 3 7

PSN Distribution

Water & Sanitation

BorderDevelopment Dams Technology Estates Mining

10 7 60 3 26 6

Agrarian & Fisheries Electricity

3 1 ProgramOther

CMEA/CMMA Projects

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National Strategic Project (PSN)’s Facilities and Privileges

1. Permits and Non-Licensing

The PSN that already has the Borrow-to-Use Permits for Forest Areas (IPPKH) no longer needs the Location Designation licence for a forest area. The process for Location Designation licence will be carried out together with the process for issuing Environmental Permit, Building Permit, Disturbance Permit and Building Plan Approval through a single data access. The PSN can immediately start its construction stage after receiving the Designation Location license, Environmental Permit and Building Permit.

2. Government Procurement

Procurement by direct appointment can be conducted for consultancy service up to a value of IDR500 million. The Government can directly appoint an international firm or a consultant service provider that has previously been engaged by the related ministries or institutions and has maintained a good reputation. Multi-years budget is allowed if the engagement can not be completed in a single financial year.

5. Debottlenecking

The Government can exercise discretion to debottleneck issue in delivering the PSN as per the prevailing regulations. In the case where no Law/Regulation exists, the Government is able to decide/act using Good Governance principle.

The implementation of PSN will support the local content.

4. Local Content

6. Spatial Planning

PSN locations will be set as Holding Zones when the Minister of Environment and Forestry has not approved the revision of the designation and the function of the forest area. When the designated project location is converted to a forest area, project implementation can continue by granting IPPKH. Adjustment of the Spatial Planning for the PSN will be performed as per the prevailing regulation.

The Government will support Business Entities in procuring land through land acquisition prioritisation and state land utilisation. Business Entities’ expenses related to the land acquisition can be reimbursed to the Government and payment can be made through the State Budget/Local Government Budget. These reimbursements can be considered as part of the investment cost.

3. Land Acquisition7. Government Guarantee

The Government will provide guarantees to the PSN that are implemented by the Local Government and Business Entity. In this case, the Local Government must provide project guarantee in advance prior to requesting any Guarantee from Central Government.

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Pres. Reg. on National Strategic Projects stipulates acceleration on permits/non permits and the roles of central and regional One Stop Service

Central PTSP processes permits and non-licensing (e.g. Location Permit, Environmental Permit, Borrow-to-Use Permits for Forest Areas, Building Permit and fiscal and non-fiscal facility) in 5 working days at the latest once all required documents are complete and correct. For permits issued by Regional Governments, the process will be done by Regional PTSP.

PTSP is able to process permits and non-licensing in 5 working days

The PSN can immediately start its construction stage after receiving the Location Determination License, Environmental Permit and Building Permit.

The PSN may start construction after obtaining 3 permits

Ministers, head of institutions, governors, and/or regents/mayors provides the relevant recommendations for permits and non-licensing issuance in 5 working days at the latest, except for these following permits and non-licensing:• Environmental Permit (60 working days);• Borrow-to-Use Permits for Forest Areas (30 working days);• Non-licensing for tax facility e.g. Income Tax and/or Value Added Tax (28 working days).

Ministers, head of institutions, governors, and/or regents/mayors can issue Permits and non-licensing that are not environmentally harmful in a form of checklist (e.g. Building Permit, Disturbance Permit and Building Plan Approval).

Permits that are not related to environment should be issued in form of checklist

Unless stipulated in the Law/Gov. Reg., recommendations for permits and non-permits should be issued within 5 working days except for the specific 3 permits

Since Central and Regional PTSP will borne the mandates as stipulated in the PSN Pres. Reg, there is a need to ensure there are sufficient manpower resources and capacity to execute them.

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KPPIP Priority Project’s Facilities and Privileges

Priority project will receive facilities to re-do/revise the existing pre-feasibility studies in forms of funding or pool of consultant to ensure high quality project preparation. KPPIP has allocated more than 50% of its budget for OBC facility.

OBC Facility by KPPIP/Bappenas

PPP Unit in Ministry of Finance will prioritize projects with PPP potential as listed in KPPIP Priority Projects List. The projects will be prioritized to receive Project Development Facility / Transaction Advisory (PDF/TA), application for government support, Viability Gap Funding (VGF), and/or Availability Payment.

Prioritization of PPP projects at PPP Unit, Ministry of Finance

Priority projects will be prioritized for debottlenecking efforts through stakeholder coordination facilitated by KPPIP with supports from internal full time experts from professionals. KPPIP is also able to establish ad hoc working team to resolve specific issues.

Priority Debottlenecking Support and Working Team Facilities To encourage on schedule project implementation

with good quality, KPPIP will introduce incentive/disincentive* scheme on Project Owner’s performance. The incentive may be additional priority project quota for the Project Owner in the coming year, supports for related studies, etc. Disincentives may be the Project Owner placement in KPPIP blacklist for future priority project candidates, and refund of OBC fund provided by KPPIP.

Incentive/Disincentive* scheme for project

*The incentive/disincentive scheme is a work in-progress.15

KPPIP

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Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

KPPIP was established to revitalize KKPPI1 functions by downsizing the organizational structure, authorizing synergized decision makings and involvement since the project preparation stage, and strengthening capacity building in internal committee.

KPPIP members include ministries and institutions that play significant roles in project preparation

Coordinating Ministry of Economic Affairs

Ministry of Finance

Ministry of National Development Planning/Bappenas

Ministry of Agrarian and Spatial Planning (BPN)

Coordinating Ministry of Maritime Affairs2

Ministry of Environment & Forestry 2

1 KKPPI or Komite Kebijakan Percepatan Penyediaan Infrastruktur, in English called Committee for Acceleration of Policy and Infrastructure Provision was the committee prior to the revitalization of KPPIP2 Proposed revision of Presidential Reg. 75/2014;3OBC: Outline Business Case; 4PDF: Project Development Fund

In carrying out its mandates, KPPIP strengthens its internal synergy by dividing the work and preventing duplication efforts so that efficient and effective infrastructure delivery can be achieved

Examples of line Ministries/Institutions involvement based on each line Ministry/Institution mandates:

o Assessing and providing OBC facility for bottom-up projectso Developing Pre-Feasibility standard and quality guidelines

o Debottlenecking on issues related to land acquisition and supporting acceleration efforts

o Providing OBC3 facility for top-down projectso Monitoring and debottlenecking of projects on economic issues

o Reviewing and approving Government support and guaranteeo Providing PDF4 facility for PPP projects

EKON

• KPPIP involves other line Ministries/Institutions in infrastructure sector (economy or social) when making decision.

• KPPIP has established the Electricity Team (UP3KN) and the Development of Bontang Oil Refinery Acceleration Team. Will form the Land Acquisition Acceleration Team etc.

Exis

ting

Mem

bers

Prop

osed

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UP3KN Working Unit

Bontang Oil Refinery Working Team

Other Working Teams

Team for Land Acquisition Acceleration

Finance Team

Legal Team

KPPIP is supported by a Full-time PMOCommittee

Coordinating Minister of Economic AffairsMinister of Finance

Minister of National Development PlanningMinister of Agrarian and Spatial Planning

Implementation Team

Sectoral Working Team

Pool of Consultants

Full-Time PMO

Professional1. Act as the single point of contact for all government agencies, potential funders and private sector investors for coordinating and delivering the Strategic & Priority Infrastructure projects;

2. Coordinate the delivery of the projects to be on-time, within the budget and at the best quality;

3. Enable and facilitate the GCAs' capabilities to deliver projects via various fiscal and technical support schemes.

Mission

Champion in Managing and Delivering the Strategic & Priority Infrastructure Projects in Indonesia

Vision

Inte

r-S

ecto

ral

Wor

king

Tea

ms

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KPPIP Mandates

Top down projects (from

President/Vice President)*

Bottom Up Projects(Proposed by Line

Ministries and Regional Govt)

* OBC (Outline Business Case) is the output of pre-feasibility study. FBC (Final Business Case) is the output of feasibility study.** Project owner is the ministry, agency head, regional heads, SOE/ROE heads established as the responsible party in priority infrastructure delivery.

3. Determination of funding scheme &

source for priority projects

State Budget

SOE appointment

PPP/Strategic Funding

Coordinate between the project owner** and Bappenas related to funding source (State Budget, Regional Budget, ODA)

SOE appointment aims to accelerate implementation and leverage SOE financial capacity.

PPP Unit at MoF to coordinate FBC* development and do transaction advisory to implement PPP projects(involving internationally reputable consultant).

2. Determination

of Priority Projects

4. Monitoring &Debottlenecking

KPPIP assists development of

Action Plans and monitor

debottlenecking efforts

KPPIP’s six main tasks as stipulated in Pres. Reg. No. 75/2014

5. Determine strategy and policy6. Facilitate capacity and institutional building related to Priority Infrastructure delivery

1. Development of pre-feasibility study

(OBC*) quality standard and revise/re-do when necessary (3-

6 months)

Groundbreaking

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[Initiatives] Tools currently developed by KPPIP

OBC GuidelineKPPIP is developing OBC Guideline which consists of required elements in the OBC to ensure that the pre-feasibility study from Project Owners satisfies the standard for good quality project preparation. Value for Money (VfM) analysis is included in the Guideline to determine the most beneficial funding scheme for the project.

Together with KPPIP, Bappenas also provides fund for Pre-Feasibility Study. Moreover, Ministry of Finance has developed PPP Unit which will provide Project Development Fund for Final Business Case (FBC) and Transaction Advisor.

Funding Scheme GuidelineThis sector-specific guideline is the tool to determine the most optimal funding scheme by using the elements of OBC. This Guideline will ensure that the projects offered to investors are bankable and prepared based on an international quality standard.

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[Initiatives] KPPIP is developing an integrated IT SystemKPPIP is currently developing an integrated IT system for providing database on projects’ latest status which can be effectively utilized for monitoring purposes.

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DatabaseProject

information such as map, track, existing study

and latest project status.

An integrated IT system with

monitoring capacity for stakeholders, so that

they can have real time data.

Platform data outlook that is efficient and functional using a user-friendly framework.

Record decisions related to projects and synchronize the implementation schedule that can be utilized by stakeholders.

[Immediate initiatives] KPPIP establishing a pool of consultants

KPPIP

KPPIP will procure and conduct early screening for consultants, both firms or individuals, that are applying.

Some firms and individual consultants that are suitable will be given the Multi-years Umbrella Contract inside the pool of consultants.

When needed, KPPIP can direct appoint firms and individual consultants that are most needed for the project.

KPPIP Pool of Consultants

Direct appointment for the pool of consultants.

Benefits of having a pool of consultants

• Avoiding a lengthy procurement process when KPPIP needs consultants for managing the project.

• Providing a quality of pool of consultant that can be utilized by the PMO and Working Teams of KPPIP.

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Current KPPIP’s Priority Projects - already agreed at the ministerial meeting in March 2015

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8. SHIA Express Railway (Rp 24T)

9. West Semarang Water Supply (Rp 765 M)

10.Balikpapan –Samarinda Toll Road (Rp 11,4T)

11. Manado – Bitung Toll Road (Rp 4,3T)

OBC Developm

ent

Ready for PPP

Tender Permit and Land Acquisiti

on

Financial Close*

Construction**

1. New oil refinery (Rp 75 -140T)

2. Jakarta Sewerage SystemZona 1 (Rp 7T)

3. Airport Revitalization (brownfield)

4. Kuala Tanjung Int. Hub. Seaport (Rp 30T)

5. Bitung Int. Hub. Seaport (Rp 34T)

6. Panimbang – Serang Toll Road

7. Upgrading existing refineries (Cilacap, Dumai, Plaju, Balongan, Balikpapan)

12.HVDC (Rp 20T)13. Indramayu Power Plant

(Rp 20T)14.Sumatera Transmission

(Rp 35T)15.MRT Jakarta South -

North (Rp 25T)16.Sumsel 9, 10 Power

Plants17.Central and West Java

500 kV Transmission Line

19. 4 sections of Trans Sumatera toll road (Rp30T)20.Makassar – Pare Pare Railway (Rp 6,4T)21.Water to Energy –Development of Hydro Power Plants Karangkates IV&V, Kesamben, and Lodoyo22.NCICD Phase A (Rp20T)

18. Sumsel 8 (One package with Sumsel8, 9, 10 with total investment value of Rp 54T)

19.Batang Power Plant/Central Java Power Plant (Rp 40T), Target: October 2015

KPPIP’s additional15 projects in line with the Nawacita

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1. Inland Waterways/CBL Cikarang-Bekasi-Laut Jawa, (Pelindo II)2. Jabodetabek Circular Line (Kemenhub)3. Jabodetabek Light Rail (PT. Adhi Karya)4. Trans Sumatera Railway (Kemenhub)5. Connectivitiy Improvement to support Special Economic Zone/ KEK (Kemen PU&Pera,

Kemenhub)6. East Kalimantan Railway (Kemenhub)7. Purukcahu – Bangkuang Railway (Pemprov Kalimantan Tengah)8. Railway to support KEK Sei Mangkei (Kemenhub)9. Kertajati Airport (Pemprov Jawa Barat)10. Palapa Ring Broadband (KemenKominfo)11. Technopark Development (KemenRistek & Dikti)12. West Java Port as a replacement to the Cilamaya Port (Kemenhub)13. South Sumatera Light Rail 14. High Speed Railway15. New Karawang Airport

Some KPPIP Achievements to Date

Acceleration on the Project Preparation and the Decision Making ProcessBontang Oil Refinery Revived the project preparation process, which has been delayed for 5 years.

Facilitated the preparation of an Outline Business Case (OBC) by allocating an amount of ~IDR14 Billion for the engagement of an international company to conduct the work.

Panimbang – Serang Toll Road

Facilitated the preparation of Value for Money review, which is part of a project preparation process under Public-Private Partnership scheme and a basis of justification to determine the funding scheme.Developed a standard in preparing the Pre-feasibility Study/Outline Business Case (OBC) for a toll road project.Facilitated the preparation of an Environmental Impact Analysis (EIA), which is required for the land acquisition.

Acceleration to determine the Project Funding SchemeJakarta Sewerage System (JSS)

Provided a guideline in preparing the OBC, that becomes a basis for the funding scheme recommendation, in accordance with the standards set by KPPIP Facilitated meetings among the stakeholders to assess recommendation on the funding scheme and subsequently, obtained an approval at Ministerial level.

South Sumatera Light Rapid Transit (LRT)

Reviewed the existing financial assessment of the project.Reviewed the SOE capability for developing the project.Provided a recommendation to the decision maker on the project funding scheme.

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Presentation Outline

Indonesia Infrastructure - IssuesIndonesia Infrastructure - Issues

Lesson Learnt and Reformed ActionsLesson Learnt and Reformed Actions

National Strategic Projects and Priority ProjectsNational Strategic Projects and Priority Projects

KPPIPKPPIP

Some Project UpdatesSome Project Updates

Question and AnswersQuestion and Answers

26

KPPIPMenara Merdeka, 8th floor

Jl Budi Kemuliaan I No 2, Jakarta 10110E-mail : sekretariat@kppip.go.id

Landline : +62 21 2957 3771

TERIMA KASIH / THANK YOU