I N F R A S T R U C T U R E I N V E S T M E N T I N E M E R G I N G
M A R K E T S A N D D E V E L O P I N G E C O N O M I E S
R a j K a n n a n , M a n a g i n g D i r e c t o r
2 Ju l y 2015 S t . Ca the r ine ’s Co l l ege , Ox fo rd
“ A B R I E F L O O K A T I N D O N E S I A ”
Page 1 of 28
CONTENTS
1. Overview of Indonesia – Economic, Demographic & Investment Pages 2 - 5
2. Impediments to Continued Growth – Infrastructure Deficits Pages 7 - 12
3. Role of Institutional Investors in Infrastructure Investment Page 14
4. Role of DFIs – Increasing but faces familiar traction issues Page 16
5. Key Takeaways Page 18
Page 2 of 28
Economic Overview – Solid and consistent growth and projected to become the 5th largest economy in the world by 2030
4.6% 4.7%
5.2% 5.4% 5.5%
6.2% 6.5% 6.5% 6.5%
7.2%
0.0% 2.0% 4.0% 6.0% 8.0%
Chile Thailand
Ghana Nigeria
Indonesia India
Qatar Kazakhstan
Vietnam China & HK
Projected Real Annual GDP Growth
Projected GDP 2018 (USD Billion) 10 Fastest Growing Markets
Projected Annual GDP Growth Rate 2015-2018
Source: Ernst & Young: Rapid Growth Markets (2014)
$57 $277 $284 $330 $388 $451 $495 $1,311
$2,721 $16,305
$0 $5,000 $10,000 $15,000 $20,000
Ghana Vietnam
Qatar Kazakhstan
Chile Thailand
Nigeria Indonesia
India China & HK
Projected GDP (USD Billion)
5.6 6.4 6.6 8.2 8.4 9.3
12.2 30.3
38.2 73.5
0 20 40 60 80
UK France
Mexico Germany
Japan Indonesia
Brazil India
US China
Projected GDP (USD Trillion)
Source: Standard Chartered: The Super-Cycle Report (2010)
Projected GDP 2030 (USD Trillion) 10 Largest Economies
240 265
280
195
45
180
85
110
170
2010 2020 2030
Consuming class
Below Consuming class
Estimated Growth of the Indonesian Consuming Class In Million People
Source: McKinsey Global Institute: “The Archipelago Economy: Unleashing Indonesia’s Potential” (2012)
Despite recent growth setbacks, Indonesia’s GDP is estimated to grow by 5.5% per year between 2015-2018. By 2030, the country is expected to become the 5th largest economy in the world. From 2010 – 2030 additional 125 million people will enter the consuming class (middle class and above).
Source: Ernst & Young: Rapid Growth Markets (2014)
Page 3 of 28
58% of GDP
24% of GDP 9%
of GDP
4% of GDP
2% of GDP
3% of GDP
22% of Population
57% of Population
6% of Population
5% of Population
7% of Population
3% of Population
GDP Contributors - 17,000 islands but 82% of GDP is from 2 Islands - Java and Sumatra, with Kalimantan growing rapidly…
Although having only 17% of total national landmass, Java encompasses 57% of the national population and produces approximately 58% of national GDP.
A majority of industrial zones are present in Java but is expanding to the Eastern Indonesia regions. Vast resource potentials and industrial opportunities are being opened up including geothermal power, fisheries, shipyards, cocoa, palm oil, and more.
Source: Indonesian Statistical Agency (BPS); Indonesian Investment Coordination Board (BKPM), 2013 database; Tusk Advisory Analysis
Industrial zone
Palm oil
Power plants Cocoa
Fishery Shipyard
Corn
Page 4 of 28
Demographic Bonus – Enviable numbers in the productive age group with majority living in cities and most are internet savvy…
Estimated Growth of the Indonesia’s Population by Age Group
In Million People
Source: Coordinating Ministry of Economic Affairs, MP3EI Book (2011)
196 million people will be in the productive working age group of 15 to 64 by 2030, encompassing 70% of the population.
This advantage gives Indonesia the largest working population in the region.
-
50.00
100.00
150.00
200.00
250.00
300.00
2010 2020 2030
Children (0-14) Adult (15-64) Elderly (65 above)
65 58 56
163 183 196
28 24
12
240 265
280
70% ~69% ~68%
Proportion of Urban and Rural Population in Indonesia
53% 71%
2012 2030
53%
Urban Population Rural Population
Source: McKinsey Global Institute: “The Archipelago Economy: Unleashing Indonesia’s Potential” (2012)
32 million people are expected to move from rural to urban areas from 2010-2030.
The need for massive investments in urban housing and employment sectors to accommodate the boom is increasing.
74.6 83.6 93.4 102.8
0
50
100
150
2013 29.8%
2014 33%
2015 36.5%
2016 39.8% In
tern
et u
sers
(in
m
illio
n)
Percentage of total population
Page 5 of 28
16,214.8
19,474.5
24,564.7
28,617.5 28,529.70
-
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
30,000.0
35,000.0
2010 2011 2012 2013 2014
Foreign Direct Investments (in million US$)
Investment Boost - Rising Foreign Direct Investments, mainly from neighbouring countries…
Source: Statistics on Foreign Direct Investments Realization Based on Capital Investment Activity Report Q4, 2014. BKPM Note: investment numbers exclude oil & gas and financial investments
CAGR 11.9%
Singapore, $5.80 , 20%
EU, $3.80 , 13%
Japan, $2.70 , 10%
Malaysia, $1.80 , 6%
USA, $1.30 , 5%
South Korea,
$1.10 , 4%
China, $0.80 , 3%
Hong Kong,
$0.70 , 2%
Australia, $0.60 , 2%
Others, $9.90 , 35%
FDI by Country of Origin (2014) (in billion US$)
FDI in Indonesia has grown rapidly over the last 5 years and is expected to rise further. The current FDI is dominated by fellow Asian countries particularly Singapore, Japan, and Malaysia accounting for over 36%.
Page 6 of 28
CONTENTS
1. Overview of Indonesia – Economic, Demographic & Investment Pages 2 - 5
3. Role of Institutional Investors in Infrastructure Investment Page 14
4. Role of DFIs – Increasing but faces similar traction issues Page 16
2. Impediments to Continued Growth – Infrastructure Deficits Pages 7 - 12
5. Key Takeaways Page 18
Page 7 of 28
Land (70.7%) Water (22.0%) Air (2.70%) Rail (0.5%) Services (4.1%)
Land transportation is the major contributor to logistics costs…
Source: World Bank Report ‘State Of Logistics Indonesia 2013’, Bahagia et al (2013)
Indonesia’s logistics costs at 27% of GDP, is very high compared to the average ASEAN and ASIA PACIFIC logistics costs, which is at 10%
Land Transportation contributes to more than
70% of Indonesia’s logistics costs
8.0%
9.9% 10.6%
13.0%
16.3%
20.0%
25.0%
27.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Indonesia’s logistics costs are much higher than in
other ASEAN and neighboring countries
Key Impediments to Continued Growth – High Logistics Costs…
Page 8 of 28
Travel Time (hrs/100km)
7.7%
13.4%
18.0%
28.4%
38.8%
41.1%
Indonesia
Thailand
Malaysia
India
China
Japan
Ratio of Double Track (%)
Modal Share (%)
2.3
14
25
62.2
46
11
12.9
20
63
22.6
19
0
Jakarta
Taipei
Hong Kong
Rail Private Transport Non-Rail Public Transport Others
Lack of government investments in public transport over the years has resulted in excessive use of private transport for commuting, thus causing major congestion in most cities.
Source: Tusk Advisory Analysis
Poor quality of roads and high levels of congestion have made the travel time in Indonesia the highest in the region, causing logistics costs to be the highest in the region.
Lack of Double tracking reduces efficiency of the rail system in the country – both for freight and passenger rail services.
Despite the general perception that Jakarta has sufficient roads, the reality is the opposite. General land acquisition problems combined with severe underinvestment in roads have caused this bottleneck.
Jakarta
Singapore
London
Tokyo
2.6
2
1.35
1.2
1.1
Indonesia
Vietnam
Thailand
China
Malaysia
Road Ratio (%)
6.26%
12%
21%
22%
Caused by major infrastructure deficits in the transportation sectors…
0 1 2 3 4 5
Airport Density (number per ha)
Passenger-kilometers
(million person-
Cargo (tons-km) Available airline seat km/week
Quality of Air Transport
Infrastructure Malaysia
Thailand
Air Transport Indicators
Since the deregulation in 2004, growth in air travel has gone up double digit per year, but new airport development or expansion of existing airports has not caught up. SHIA for example is designed for 22 mil passengers but currently handles 55 million passengers per year (9th highest in the world).
1.1 2
3 3
4 4
5 8
Singapore Hong Kong
France Australia, NZ
UK, Los Angeles Malaysia (Port
Thailand Tanjung Priok
Dwelling Time (days)
A major issue in the seaport sector is the high dwelling time that currently takes up to 8 days in Tanjung Priok, far longer than Thailand (5 days), and Singapore (1.2 days).
Page 9 of 28
0
1
2
3
4
5
Total Renew. Water Resources (per capita)
Freshwater Withdrawal Ratio
Dam Storage Capacity
No. of Large Dams (>15m)
Large Dam Capacity
Large Dam Density
Malaysia Thailand China Vietnam Indonesia
Poor management of the irrigation canals especially in the regional level has made rice production slow, thus creating issues with food security. 70% of Indonesia’s bulk water is currently used for irrigation, thus improved management bulk water resources is needed.
Water Resource Infrastructure
Source: Tusk Advisory Analysis & World Bank Report
99.3
73.7 89.7
97.3 94 100 97
32
65
85
0
20
40
60
80
100
Thailand Indonesia Malaysia Philippines Vietnam
Electrification Ratio (%) Urban (%) Rural (%)
Electrification Ratio (%)
Low electrification ratio, especially in rural areas is a major bottleneck for economic growth.
Conclusion
54
1104
1975
0 500 1000 1500 2000 2500
Indonesia
Thailand
World Standard
Combined with under investments in the Power & Water Sectors - reaching a crisis situation
Water Storage Capacity Percapita (m3/capita)
Inadequate water supply for personal use deteriorates living standard in Indonesia. It will increase citizens’ health service expense and income loss which eventually leads to economic losses for the country.
Page 10 of 28
Land Acquisition
33%
Spatial Planning
22%
Budget-related 14%
Others 11%
IPPKH 14%
AMDAL 6%
Permit 20%
Other cross cutting issues faced by many infrastructure projects: • Ambiguous legal and regulatory frameworks • Lack of long-term financing • Inadequately prepared projects • Poor asset management • Lack of consequence management • Weak human capital and poor institutional capacity • Lack of industry capacity • Absence of community support for infrastructure projects
Main issues:
Main causes for the infrastructure deficits includes delivery bottlenecks, under investments and lack of government led funding schemes…
The key issues and bottlenecks faced by a selection of priority projects:
Official expenditure data in infrastructure is around 5% of GDP – The actual percentage of APBN and APBD is actually lower, since this data includes costs of office buildings for related ministries.
3.77%
5.24% 4.96% 5.06%
4.26% 4.00% 4.13%
4.72% 5.01% 5.11%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
-
10.00
20.00
30.00
40.00
50.00
60.00
Private Sector
State-Owned Enterprises
Regional State Budget (APBD)
National State Budget (APBN)
Total Infrastructure Investment Share of GDP, %
Total Infrastructure Investment
(in USD Billion)
Source: Tusk Advisory Analysis based on State Budget data from the Ministry of Finance Source: Tusk Advisory Analysis
Infrastructure Investment
Page 11 of 28
The Government has established KPPIP to coordinate delivery of priority projects:
PBAS+ is designed to incentivize the privates sector concessionaire of high economic impact projects to innovate revenue creation strategies that will generate additional revenues to the government.
Availability Payment Scheme is being considered for… 1. Economic Infrastructure that has no
revenue upsides, such as roads in rural areas, public transport, access roads or railways to remote communities, etc.
2. Social infrastructure that naturally has low return profile such as hospital, public housing, schools and education facilities, or community facilities.
…while for Economic Infrastructure that have revenue upsides, there are proposals to consider Performance Based Annuity Schemes Plus (PBAS+)
But change is on the way – The government has established new agencies and new funding schemes for PPPs and priority projects…
Committee for Acceleration of Priority Infrastructure Delivery (KPPIP1)
KPPIP
Coordinating Ministry of Economic
Affairs
Ministry of National
Development Planning
(Bappenas)
Ministry of Finance
National Land
Agency (BPN)
Roles in delivering priority projects:
o Stakeholder coordination and approval ‘chasing’ mandate o Develop Pre-Feasibility Study (OBC) guidelines to be used by
Bappenas for project screening. o Pre-Feasibility Study (OBC) guideline would consist the
requirements for good quality economic and financial analysis for funding scheme determination.
1In Indonesian: Komite Percepatan Penyediaan Infrastruktur Prioritas
The Ministry of Finance is in the midst of operationalising a new PPP Unit.
o The new PPP Unit will be directly under the fiscal agency, unlike the previous unit which was under the Planning Agency, Bappenas
o The new PPP Unit will be directly involved in risk sharing frameworks and the design and implementation of innovative financing schemes like APS, PBAS+ etc.
1
2
The Ministry of Finance is introducing Availability Payment Schemes & PBAS 3
Page 12 of 28
CONTENTS
1. Overview of Indonesia – Economic, Demographic & Investment Pages 2 - 5
3. Role of Institutional Investors in Infrastructure Investment Page 14
4. Role of DFIs – Increasing but faces similar traction issues Page 16
2. Impediments to Continued Growth – Infrastructure Deficits Pages 7 - 12
5. Key Takeaways Page 18
Page 13 of 28
01
02 03
04
Sovereign Wealth Funds (SWF)
Insurance Funds (IF)
Special Purpose Funds
(SPF)
Pension Funds (PF)
Indonesia has 267 institutions managing pension funds of USD 33 billion, mainly investing in deposits, mutual funds and bonds. No record of investments in infrastructure.
Indonesia currently has no sovereign wealth fund. The Government Investment Unit of Indonesia (PIP) was recently dissolved and is to merge with PT SMI.
2. PT Indonesia Infrastructure Finance (Gov’t commitment: USD 450 million. Disbursed USD 140 million in 2014.) A private non-bank financial institution with government seed equity. 3. Hajj Fund (USD 4.6 billion) Keep safe the Pilgrims’ deposits for their hajj journey. Most investments are allocated in Sharia deposits and Government Sukuk. No record of investments in infrastructure.
1 The funds will be incorporated into BPJS in 2029. 2 Not inclusive of Pension Fund, which will come into full effect on 1 July 2015.
There are 4 types of pension funds (% of total assets in Indonesia): 1. Civil Service Provident1 (26%) 2. BPJS (Old-age savings)2 (31%)
3. Employee-Sponsored Pension Fund (35%)
4. Financial Institution Pension Fund (8%)
To date the local institutional investors have had limited role in infrastructure investments but reforms are underway…
1. PT Sarana Multi Infrastruktur (PT SMI) (State Budget 2015 allocated USD 1.6 billion. Provided loan amounts of USD 390,000 in 2013.) A government owned infrastructure financing company.
In 2013, the total assets of insurance industry is USD 50 billion. Mainly investing in equities and bonds. Infrastructure as an asset class is still untested for these Insurance companies, for now…
The introduction of long dated financing schemes like APS & PBAS+ will provide attractive options for the Indonesian institutional investors to enter infrastructure financing.
OJK is currently drafting regulations to enable pensions funds to invest in infra
Page 14 of 28
CONTENTS
1. Overview of Indonesia – Economic, Demographic & Investment Pages 2 - 5
3. Role of Institutional Investors in Infrastructure Investment Page 14
4. Role of DFIs – Increasing but faces similar traction issues Page 16
2. Impediments to Continued Growth – Infrastructure Deficits Pages 7 - 12
5. Key Takeaways Page 18
Page 15 of 28
1. Sponsored projects face implementation bottlenecks
• Funds committed to infrastructure projects are not being disbursed according to schedule as the projects are hampered with bottleneck issues, arising from delays in permit issuance, land acquisition, etc.
• Complex bureaucracy and
administration procedures prolong the process.
ISSUES IN FUNDING DISBURSEMENTS
2. Government is undecided on the funding scheme determination
Government often takes too long to evaluate its funding scheme options based on feasibility studies, thus the committed funds remain undrawn and unused, sometimes requiring extension of draw-down terms. For example, Soekarno-Hatta high-speed railway, Jakarta MRT
USD 1.5 Billion (~ 2.7 times more than 2014)
Development Finance Institutions have increased funding commitments to Indonesia for 2015 - 2019, but fund disbursement issues remain…
Source: World Bank, official reports & Other news reports
USD 95 Billion*
World Bank China* ADB JICA IDB Others
10
12
50*
5 8
* Note: China’s commitment is $10 bil for power sector and $40 bil via a fund focused on Indonesia and other Asian countries.
10
Loan Commitments by DFIs for Indonesia 2015 - 2019
With MOF exploring the use of long dated payments schemes like APS & PBAS, there is hope that the DFI’s funds could be better absorbed.
Page 16 of 28
CONTENTS
1. Overview of Indonesia – Economic, Demographic & Investment Pages 2 - 5
3. Role of Institutional Investors in Infrastructure Investment Page 14
4. Role of DFIs – Increasing but faces similar traction issues Page 16
2. Impediments to Continued Growth – Infrastructure Deficits Pages 7 - 12
5. Key Takeaways Page 18
Page 17 of 28
Indonesia is a rapidly growing economy with vast potential but investments in Infrastructure and human capital is a must to guarantee continued growth Ø The new government is focused on reducing logistics costs, ensuring energy security,
food security and social equity to guide the growth;
Ø There is still vast potential for growth outside of Java; and the government is supporting many programs and investments aimed at developing these regions;
Ø Increased focus on making investment process easier and unlocking bottlenecks is encouraging;
Ø Increased funding committment from DFIs and new rules to enable local institutional investors to participate in infra investments are steps in the right direction.
Ø The government led funding schemes like APS, PBAS are prime opportunities for DFIs to help the government cross the funding barrier;
Ø DFIs also need to provide support to the government to operationalise the new institutions and to help unlock the bottlenecks in funding disbursements;
Ø Increased opportunities for international institutional investors with infrastructure investment experience to assist and co-invest with Indonesian institutional investors like pension funds that are likely to be allowed to invest in infrastructure in the near future.
DFIs and Instituitional Investors have a key role to play to guide the government in its mindset change to introduce long dated payment schemes
Key Takeaways
Page 18 of 28
T H A N K Y O U www.tuskadvisory.com
I N D O N E S I A
P T. Tu s k A d v i s o r y Pe n t h o u s e / L e v e l 2 1 ,
S o n a To p a s To w e r J a l a n J e n d . S u d i r m a n K AV 2 6 ���
J a k a r t a 1 2 9 2 0 I N D O N E S I A
Tel: +6221 250 6668 Fax: +6221 250 6228
Email: [email protected]
S I N G A P O R E Tu s k A d v i s o r y P t e L t d Le v e l 2 5 , O n e R a f fl e s Q u ay N o r t h To w e r S i n g a p o r e 0 4 8 5 8 3 S I N G A P O R E Tel: +65 6622 5718 Fax: +65 6622 5999 Email: [email protected]
Page 19 of 28
Page 20 of 28
National Connectivity
27%
National Security Social Equity
Education: Provide 12 years compulsory education for all citizens. Increase amount of productive vocational labor.
Healthcare: Provide accessible national health care system for all citizens via Health Card system and BPJS.
Productivity & Welfare: Implement reforms to boost agricultural productivity, provide affordable housing, and create a social security system.
Energy Security: Ensure 96.6% electrification ratio and develop 35,000 MW of new generating capacity
19%
Reduce Logistic Cost: Reduce overall logistic cost from 27% of GDP to 19% of GDP by 2019 to increase national competitiveness.
Access Between Urban and Rural Areas: Increase connectivity between areas to leverage the economies of less-developed regions while also paving way for urbanization
Food Security: Increasing food production to be self sufficient and less reliant to import. Targets to achieve production of 10 million tonnes surplus of rice by 2018.
Water Resilience: Increase access to clean water from 60% to 100% by 2019. Increase the average water reserve capacity per capita from 54m3/capita/year to 115m3/capita/year
Encompasses food, energy, and water resilience of the country. Focuses on reducing reliance on imports and increase domestic capacity for energy, food, and water.
Encompasses the need to increase access between regions, reduce regional disparity, reduce cost of logistics and foster trade between regions and other countries.
Encompasses the need to provide social security to the people. Increase labor quality through better education, increase livelihood through better healthcare, and increase overall welfare.
New Government Priorities – Focus on Fixing Infrastructure while Increasing Social Equity
Page 21 of 28
• Improve connectivity by building infrastructure which leads to development of e-health, e-procurement, e-education, and e-logistics
• Develop 2,650 km new roads and complete 1,000 km new toll roads(includes those awarded but not started)
• Rehabilitation of 46,770 km of existing road
• Develop 2,159 km inter-urban railways and 1,099 km urban railways in Java, Sumatera, Sulawesi and Kalimantan
• Develop Bus Rapid Transit systems in 29 cities • Mass rapid transit in 6 metropolitan cities and 17 large
cities
• Develop 15 new airports • Develop air cargo facilities in 6 locations
• Develop 24 new or revitalized seaports • Procure pioneer cargo vessels, livestock vessels,
transport vessels
• Develop power plants, incl. 30 hydropower plants, with the total capacity of 35,000 MW
• Optimize domestic refineries and build new oil refineries of 2X300,000 barrels
Logistics
To reduce logistics costs from 27% of GDP to 19% of GDP by 2019.
Energy
To achieve energy security, the GoI aims to reach electrification ratio of 96.6% by 2019.
Technology
To provide easy connectivity across Indonesia, technology infrastructure is required.
The Government Plan for 2015-2019
0 100 200 300 400 500 600 700 800 900 1000
Public housing
Water Supply & Sanitation
Water Resources
Information & Computer Technology
Energy (Oil & Gas)
Power
Sea transport
Air transport
Land Transport & Ferries
Urban Transportation
Railway
Road
Funds (IDR Trillion)
Government & SOE
Private
Source: Tusk Advisory Analysis
To realize the plan, the Government is planning to commit up to 70% of the required funding, directly and via its State Owned Enterprises with the balance expected from private sector.
Others
• Expansion to 1 million Ha irrigation system and development of 49 new dams to increase irrigation from dams rate from 11% to 20%
• Achieve sanitation and drinking water availability to 100% by developing water supply to 21.4 million house connections in metropolitan area and 11.1 million in rural area
• Improve public house by developing of 5,257 twin-blocks flats to accommodate 515,717 households on lease
Forecasted infrastructure funding sources for 2015-2019
This Time with Direct Government Funding Commitments…
Page 22 of 28
The Maritime Corridor (or otherwise known as the Sea Toll) involves the establishment of 24 strategic ports to serve as a multi-linked sea transportation network which is both time and cost efficient. Maritime development involves revitalization of the shipyard industry and procurement of more patrol ships.
*) major investments including for (1) development of 24 strategic ports ~34.8%;���(2) development of 1,481 non-commercial ports ~28.3%; (3) vessel procurement for the next 5 years ~14.5%
Maritime Corridor/Sea Toll
Power Plants Development
Achieving Economic
Growth 6-7%
By 2019 the government needs to develop at least 35,000 MW of new generating capacity on top of previously unachieved targets
96.6% Electrification Ratio 85.7 GW Generating Capacity
PLN
IPP
§ 16.4 GW new generating cap. § 50,000 kmc new transmission § 82,000 MVA of relay circuits § 150,000 kmc new distribution
§ 18.7 GW new generating cap. § 360 kmc new transmission
Total Investment
IDR 980 Trillion (~USD 98 Billion) is required to fund power plants, transmission networks, as well as distribution networks
State Budget
PT. PLN IPP IDR 100 T (~USD 10 B)
IDR 445 T (~USD 44.5 B)
IDR 435 T (~USD 43.5 B)
PLN and State Budget can only fund a total IDR 200 Trillion (USD ~20 Billion) and require equity injection, direct lending, and tariff adjustment to fill the 345 Trillion (USD ~34.5 Billion) gap in funding
IDR 592 T (~USD 59.2 B)
for sea transport including sea toll*
Required Investment
State Budget ~IDR 260 T (~USD 26.0 B)
SOE ~IDR 238 T (~USD 23.8 B)
Private ~IDR 164 T (~USD 16.4 B)
Planned Funding Diversification
Source: Bappenas Document, Jan 2015
Source: Bappenas Document, Nov 2014
Exchange Rate : USD 1 = IDR 10,000
And prioritizing maritime sector’s growth and Power Generation & Transmission…
Page 23 of 28
Accumulated Government Funding Allocation 2015-2019 in IDR Trillion
* Numbers updated based on available publicized data (Bappenas Deputy of Development Funding presentation, January 2015) *** Including Disaster Management Sector (BASARNAS, BPLS, etc.) and development of specific regional area (Surabaya, Gresik, Batam) ***Source: Background Study RPJMN 2015-2019, Bappenas, developed by Tusk Advisory. – Assumed exchange rate $1 = IDR 13,000
For the next 5 years, the required investments in infrastructure is around $430 billion, however the funding gap is massive…
Total Revenue*
Routine Expenditure
Surplus 1* Non-routine Non-infrastructure
Expenditure
Infrastructure Expenditure*
Available** government
funding
IDR1,415
IDR5,519
Funding needed for
infrastructure***
Funding gap
IDR4,104
Base Line
Infrastructure Funding Gap 2015-2019 in IDR Trillion
The above funding gap is not possible to be filled with direct investments by the private sector alone. As demonstrated in the last decade, most of the planned projects are not bankable thus would require some form of government fiscal support – including via long dated payment schemes
Baseline
IDR1,415
IDR 3,725 IDR 2,310
IDR 7,641 IDR 11,366
Page 24 of 28
The recent increased budget for infrastructure is very encouraging, however converting these additional funds to actual projects requires better delivery mechanisms and better governance framework…
SiLPA and SAL amount from 2008 to 2013 IDR Billion
44,706
120.000
100.000
80.000
60.000
40.000
20.000
-20.000
0
105.324
46.549
98.910
66.524
23.964
94.616
79.950
2009 2008
21,020
70,263
25,722
66,594
2010 2011 2012 2013
SILPA (Sisa Lebih Pembiayaan Anggaran/Financing Surplus)
SAL (Saldo Anggaran Lebih/ Excess Balance)
*State Budget Realization **State Budget Revision (APBN-P) ***Proposed State Budget Revision (RAPBN-P), current State Budget Allocation is IDR 189.1 T
However, looking at the amount of SAL/SiLPA each year, providing additional budget for infrastructure alone is not sufficient to overcome infrastructure delivery problems…
For 2015, the government has increased the infrastructure budget by over 50% from last year
86 114.2
145.5 155.9 177.9
281.1
0
50
100
150
200
250
300
2010* 2011* 2012* 2013* 2014** 2015***
State Budget Allocation for Infrastructure IDR Trillion
>50%
In addition, Government has committed under the RPJMN 2015 - 2019 to increase infrastructure funding by 2.5 times higher than what was spent in 2010-2014
Up to April 2015, only 2% of the allocated budget for Ministry of Public Works has been spent – Key reasons includes slow start to awarding of projects and the issues related to land and permits… Government is thus exploring holistic and comprehensive reforms to fast track infra delivery…
Source: GoI Financial Reports
Source: MoF Press Release
Page 25 of 28
FISCAL AND MARKET REGULATORY
To encourage infrastructure delivery, the government has implemented fiscal, market, regulatory and institutional reforms…
INSTITUTIONAL
Law No. 2/2012 on Land Acquisition for Public Infrastructure
• Regulated timeline for the process • Appointment of better Land Appraisal Team
to calculate fair compensation • Improved compensation determination
method to avoid community rejection Revision on Pres. Reg. No. 67/2005 on
Public Private Partnership (PPP) • Broader scope of infrastructure allowed for
PPP • Provides legal basis for availability
payment for return of investment mechanism
PT Sarana Multi Infrastruktur Provides alternative source of fund and promotes PPP projects. PT Penjaminan Infrastruktur Indonesia (Indonesia Infrastructure Guarantee Fund) Provider of guarantee to increase project attractiveness for investors. PT Indonesia Infrastructure Finance Focuses on the revitalization of private investment for Indonesia infrastructure.
• To accelerate permit processes, Indonesia Investment Coordinating Board (BKPM) has launched one single window permit processes on Jan 26th 2015
• Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) focuses on the preparation and delivery of priority projects, from funding scheme determination to monitoring and debottlenecking
• PPP Unit at Ministry of Finance to facilitate the development of Final Business Case
COMPLETED
Fiscal • Viability Gap Funding (VGF)
The GoI would contribute a maximum 49% per project cost in VGF.
• Land Revolving Fund A facility to support land acquisition for toll road projects; managed by the Ministry of Public Works.
Market • Bond Issuance for Infrastructure Projects
Issuance of municipal bonds.
ONGOING
Fiscal • Availability Payment (PBAS)
The GoI is committed to periodically pay investors for providing infra assets and satisfying standards of operation.
Market • Issuance of infrastructure companies’ bonds
Indonesia Stock Exchange is examining ways to ease and accelerate bond issuance for infrastructure companies.
Revision on Pres. Reg. No. 54/2010 on Public Procurement
• Accommodation of retainer fee • Utilization of procurement agent to
procure within public procurement system, allowing accelerated process
Page 26 of 28 Source: National Single Window for Investment, Indonesia Investment Coordinating Board (BKPM), 2015
Before PTSP After PTSP
The Indonesian Investment Coordination Board (BKPM) launched the One Stop Service Center (PTSP in Indonesian) on January 26th 2015 in an effort to streamline investment permits for all sectors. This program gives BKPM the authority over 134 key permits usually issued by the 22 different ministries/agencies. The PTSP would put the permit issuance process into a single roof in BKPM thus ensuring faster process and clear guidelines. The process is expected to be optimal by April 2015.
Legal Permits Land Use Permits
Coordination w
ith Region
Industrial License
In the past investors have had to seek permits and licenses from individual government agencies. They would refer to BKPM for business permits while refer MoF for taxes. Investors would need to go to ministry of law for legal permits while going to sector ministries for sector/operational permits. Before the PTSP it takes on average 260 days to issue a full business permit. The worst, licenses for power plants - is estimated to take up 930 days or almost 3 years.
Other Licenses
INVESTORS
INVESTORS
OTHER AGENCIES
The new One Stop Service Center would encompass 22 different ministries and agencies into a single service center for investment managed by the National Single Window for Investments. This integrated coordination would accelerate permits from an average of 260 days to only 90 days. It even promises to expedite power plant permits to just 240 days. The OSSC provides consultation, front office and administration services to investors. The office provides issuance for investment, business expansion, tax levies, import and export permits, and human capital permits.
OTHER AGENCIES
OSSC (PTSP)
PERMIT ISSUANCE
260 days 90
days
Average time
260 days
To encourage investments including infrastructure, the government has centralized and shortened approval process for permits and licenses…
Page 27 of 28
INFRASTRUCTURE DELIVERY WHEEL INFRASTRUCTURE DELIVERY WHEEL
POLITICAL COURAGE
& COMPREHENSIVE
REGULATORY REFORMS
VIA INFRASTRUCTURE���
LAW
1
DEBOTTLENECKING
LONG-TERM FUNDING
COMMITMENT &
FULLY PREPARED PROJECTS
2
ACCELERATED SPATIAL PLANNING INCLUSION
& IMPROVED AMDAL
AND IPPKH APPROVAL
3
4
EMPOWERED REGULATORS
& GUARANTEE LAND
ACQUISITION VIA IIGF
5
IMPROVED GOVERNANCE
OF DELIVERY VIA SIDA
& INSTILL VALUE
FOR MONEY
6
INTRODUCE INDUSTRY
EXPANSION PROGRAMS
& COMMUNITY
CONSULTATION SCHEMES UNLEASH PUBLIC
SECTOR CAPACITY &
CREATE PUBLIC-PRIVATE PMOs
IMPROVED ASSET MANAGEMENT
& INTRODUCE
CONSEQUENCE MANAGEMENT
8
7
Source: Tusk Advisory Analysis
Additional holistic reforms are being considered that will increase institutional investor interests via long dated funding schemes…
Page 28 of 28
Pure BOT High
Revenue Risk
APS No
Revenue Risk
Revenue from extra traffic will give the private sector incentives to innovate. By doing so, it will stimulate economic activity. Examples of innovations: • Development of industrial and
commercial area along the road • Upgraded rest area for events • In-situ events, bazaars, market…
Shifting Paradigm
FROM - Toll road as a mode to get from point A to B
TO - Toll road as a destination by itself, thus generating higher
traffic
INNOVATION
Year
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Operation and Maintenance
Revenue
Cost Construction
Revenue sharing
Fixed annuity
• Fixed annuity payment ensuring a fixed agreed IRR (say 14%)
• All revenue above 14% IRR due to extra traffic is shared between Government & private (60:40)
PBAS
PBAS
Source: PBAS+ is an alternative funding scheme for sub-financial economic infrastructure projects developed by Tusk Advisory
PBAS+ enables the development of strategic projects with high economic impact today and pay for it over 20 to 30 years from future tax revenue of the government combined with the revenue collected from the project itself.
Such as PBAS+ for sub-financial economic infrastructure projects to incentivise both the government and the concessionaire