Infrastructure Development through PPP Scheme in Indonesia

In Indonesia, the public-private partnerships (PPP) scheme was introduced with the expectation that it would fill the financial demand-supply gaps in the development of infrastructures. However, infrastructure development through the PPP scheme has faced a number of issues; only a limited number of PPP projects have reached financial close, and many of these projects were behind their original schedule. Considering the fact that the PPP scheme is struggling in Indonesia, this research, as a first step to activate the PPP scheme, investigated how and to what extent the current PPP scheme in Indonesia contributes to the formulation of PPP projects. In this research, the toll road sector was focused on, because this sector is the most advanced in delivering projects through the PPP scheme among the other sectors in Indonesia. The research method utilised in this research is a multiple and heterogeneous case study method. The research compares the 18 PPP toll road projects that were included in the PPP book 2015, 2017, 2018 published by the Indonesian government. These projects include the projects that successfully reached financial close on time and also the projects that were/have been mired in project formulation due to any number of reasons. To heighten the validity and reliability of the study, both preliminary data (interviews with the PPP-related institutions) and secondary data (documents provided by the PPPrelated institutions) were collected and analysed. The major findings of this research are as follows: (1) The government’s roles and responsibilities in the PPP scheme that is suggested as critical for smooth project formulation by previous researches are basically well developed. However, the legal environment; coordination among the related stakeholders, especially between the central and local governments; and provision of good candidate projects were not sufficient in some cases, and this insufficiency led to delayed project formulation in these projects. (2) The mechanism for concessionaire selection and risk allocation between the public and private sectors is already well developed in the toll road sector; this well-developed mechanism is deemed to contribute to smooth project formulation. (3) The mechanism for deciding sound financial packaging is basically well developed, and the Contractor Pre-Financing (CPF) system in particular is deemed to contribute significantly to timely financial close. However, misapplication of the procedure of deciding the financial scheme led to delay in some cases. (4) To sum up, for smooth project formulation all the way to financial close, all the factors mentioned above are deemed critical, which means that missing even one factor could lead to delay of the project formulation. It should be noted, however, that even though the PPP scheme is relatively well developed as a whole, there is still room to improve some parts of it in Indonesia to avoid delay. Through investigating the Critical Success Factors (CSFs) leading to success/delay in the formulation of PPP toll road projects, this research found the critical issues related to sustainability of the PPP projects too: there are some potential risks in coverage of government guarantee, the government financial support, and the CPF system. It should be noted that there is a possibility that the PPP scheme in the toll road sector in Indonesia will not work well in the future due to these risks, even though it works relatively well at this moment as confirmed in the case projects. Considering the findings above, this research recommends the following: (1) improvement in three factors related to the PPP scheme, namely in the coordination among the stakeholders, especially between the central and local governments; the quality of candidate projects; and the procedure for structuring the financial package to realise smoother project formulation without any delay; and (2) improvement of the PPP scheme itself, especially the government guarantee and/or financial support offered to heighten sustainability of the PPP toll road projects.