application of public private partnership In a financially non - viable project : study case : Tanjung Priok Access Toll Road Project, Indonesia

Toll road development has been implemented in Indonesia since 1978 and currently about 659 km of toll road are operational. Main objectives of the development are to alleviate traffic congestion in urban area and to support regional growth. The government of Indonesia has strongly encouraged private sector financing to meet the demand-supply backlog for road infrastructure. In many cases, the low financial feasibility of toll road projects occur due to either overly high construction cost or low prediction on traffic volume which will automatically reduce profit or cost recovery of the operator. The objective of this thesis is to analyze constraints faced in designing and implementing PPPs for financially non-feasible projects and to propose on what will be attractive to the private sector and also satisfies the government objectives. To achieve such objective, key research question is; what are the constraints and problems faced in designing financially non-feasible PPP projects? This main question is elaborated further in five sub-questions: (1) What are the key characteristics and enabling framework for PPP implementation in toll road development especially in the case of financially non-feasible project? (2) What has been done by government of Indonesia to implement PPP in Tanjung Priok Access Toll Road Development Project? (3) Does the current set up of PPPs in toll roads deal with the key issues faced in financially non-feasible project? (4) What conditions should be created in order to attract private sector participation in this project? and (5) What policy should be formulated for PPP implementation in similar cases for the future? The study is a qualitative research with combined descriptive and exploratory methods. Instruments of the study include two elements; (i) compilation of primary data with in depth interview with the key respondents directly involved in the development of toll road and PPP (purposive sampling), and (ii) literature review and desk study (secondary data includes policy documents, reports and archival data). The study finds that the provision of government support is needed in toll road development in Indonesia. It presence is essential in ensuring the realization of toll road master plan in Indonesia of which contains considerable number of financially marginal and financially non-feasible projects. However current PPP schemes available within Indonesia's regulatory framework as well as their method of providing government support (which is capital grant) are basically conservative and needed to be improved in order to reduce risk towards government and creating value for money. In this case operating subsidy (or service payment method) gives better opportunity for the government to fulfill the purpose of providing government support while reducing fiscal risk and ensuring value for money by linking its payment into private sector performance. Keywords: Public Private Partnerships, Toll Road, Government Support, Financial Feasibility, Economic Feasibility