“I speak of “new partnership” as a concept that underscores my personal commitment and my Government’s determination to promote a strong environment for business and entrepreneurship in Indonesia…”, declared President of the Republic of Indonesia, H.E. Susilo Bambang Yudhyono to the delegates gathered for the first national summit on infrastructure development and public private partnerships, held January 17-18, 2005 in Jakarta, Indonesia.
Infrastructure is essential if Indonesia is to be able to generate the kind of growth to create jobs and reduce poverty for millions of poor Indonesians… and yet it is more than that – it is creating roads that not only link factories to markets but that can also take doctors and teachers to remote villages. It is providing electricity that can not only power companies to generate much-needed employment and revenues but that will also bring lights to schoolchildren and parents so that their days are not dictated by the rising and falling of the sun. It is creating telecommunications links that will help people communicate not just with each other but with other nations and neighbors; it is providing clean water so that communicable diseases do not strike down children and prevent them from leading productive, fulfilling lives. Infrastructure is one of the key challenges of our generation, and we must all work together to ensure that we are able to build and invest
today for tomorrow’s generations.
These sentiments were echoed by the more than 700 delegates from government, private sector, development partners, civil society, and the media, who gathered in Jakarta for two days to discuss the crucial role infrastructure plays in promoting economic growth and reducing poverty. The Government of Indonesia, along with its partners in development, including the private sector, affirmed its commitment to improving infrastructure services and the investment climate, and reiterated its determination to expand the coverage and quality of infrastructure to the 35 million poor who suffer the most from the lack of it. Ensuring equity by narrowing the gap between urban and rural areas’ infrastructure provision, and the service imbalance between the eastern and western regions of the country will be equally important, the Government vowed.
Delegates were unanimous in their agreement that investment in infrastructure must increase if Indonesia is both to achieve the 6-8 percent growth target and meet its ambitious goals of halving poverty by 2015.
For a country of Indonesia’s stature, the Government asserted, the quality of infrastructure services was poor and needs immediate attention from the public sector and private sector alike. While the challenges are enormous, the Government felt confident that needs could be met, but only if the public and private sectors come together now in a strengthened partnership and reaffirm their commitment to work together to address the obstacles to infrastructure provision. To this end, the Government underscored their commitment to implementing the necessary reforms that will boost the private sector’s involvement in infrastructure in Indonesia – including reforms to level the playing field and improve the regulatory frameworks and create a climate of predictability. The private sector pledged to behave responsibly, operate transparently, and use their knowledge and expertise to improve the quality of infrastructure investment in Indonesia.
Delegates from 22 countries representing key industries involved in infrastructure development came together for two days of intense discussion with Government and other stakeholders. The Summit was organized by the Coordinating Ministry For Economic Affairs,
BAPPENAS, and KADIN, and was addressed by President Susilo Bambang Yudhoyono, the Vice President Jusuf Kalla, 10 government ministers and official delegates from all key investing countries. Timed to coincide with the first 100 days of the new administration, the Summit was held to discuss strategies and policies to improve infrastructure provision and services for the public, to prioritize reforms to facilitate infrastructure development, to demonstrate the government’s increased commitment to create a healthy environment for public private partnerships, and to communicate the Government’s strategy and launch their short-term initiatives and future plans for infrastructure service delivery. The critical role that infrastructure will play in the reconstruction of Aceh following the tsunami emerged as a key theme of the conference.
Indonesia’s Vision for Infrastructure Development
For Indonesia to reach a 6-8% medium-term growth target, the Government asserted, infrastructure investments of US$30 billion annually are required. The Government committed to spending around 20 percent from their own budget, but needs the international and domestic private sector to fill the gap. The time has come for all of us, the Government asserted, to work together, to form new, strengthened partnerships and bridge this funding gap, so that the high quality infrastructure services can be provided to the people of Indonesia, and the private sector can have an increasingly important role to play in offering investment, expertise, fostering competition, and improving competition.
The Government announced that it is fully committed to reinvigorating infrastructure investment and quality with a new operating and governance environment. Government ministers representing all of the major sectors recognized the clear impediments to infrastructure growth and laid out a three pronged approach designed to tackle these issues comprehensively.
· First, the Government will focus its own resources increasingly on sectors which are not commercially viable or will not attract private investment
· Second, the Government will focus on sectoral reforms that will ensure a continually larger portion of infrastructure services are commercially viable and allow sustainable private sector participation in infrastructure investment and provision.
· Third, more immediately, the Government will enact programs to support greater private sector involvement in infrastructure investment and provision through creating and maintaining public-private partnerships in infrastructure services and by removing all bureaucratic bottlenecks which currently inhibit private sector involvement.
To demonstrate their resolve, the Government has moved aggressively in recent weeks to issue a number of regulations designed to ease restrictions and pave the way for greater private sector participation in infrastructure investment. These include actions to: pass regulations on toll roads, vehicles and drivers inspections, and new licensing and safety procedures; new regulations on development of the water supply system; new law on land acquisition; interim regulations on the provision and utilization of electricity; actions to expand railway infrastructure; and new regulations on water-related transportation, ports, and aviation safety, security and airports.
Removing Bureaucratic Hurdles for Private Investment
Given that many of these reforms proposed by Government will take some time to implement, the Government has outlined a number of immediate policy actions which they will take over the next six month period in order to move swiftly to ease some of the obstacles which limit great private sector involvement and provide greater clarity, security, and comfort to investors in the near-term.
1. All contractual commitments made by the Government of Indonesia to the private sector will be honored.
2. Develop clearly articulated strategies and sectoral plans for enabling private investment – especially for power, roads and water. This will give private investors the clarity and certainty they need to manage risks in their investments.
3. Invite investors to participate in upcoming fast-track infrastructure investments – these 91 projects worth up to US$22 billion have been carefully selected, are critically important for the economy and allow investors to make an adequate return. These transactions will be managed by a senior-level government committee that will ensure an efficient, fair, transparent, and rapid selection of suitable investors.
4. Interim regulation that addresses the issue of private participation in the electricity sector in order to address the annulment of the previous law has been issued. This will be a transition measure until a more comprehensive law is passed.
5. Issue a regulation that will serve as the basis for private participation on the ports sector, and eliminate the conflict of interest of PELINDO as operator and regulator, which discourages private investments.
6. Committed to revise law 36/1999 for Telecommunication, to strengthen the legal basis for independent regulation.
7. Develop a pragmatic and effective risk management framework for private investments in infrastructure. This framework will include a clear policy on public support for private investments in infrastructure. The Government will consider providing credit enhancements addressing specific policy-based and Government performance risks after taking into account the contingent liabilities that such enhancements imply and their fiscal impact. The government will also explore market-based credit enhancements that may be available – including those from multilateral agencies.
8. Develop local financial and capital markets for infrastructure financing and risk management. As a further step to mitigate risks for private investments in infrastructure and to mobilize long-term domestic resources for infrastructure, the Government will focus on developing local financial and capital markets. Reforms will be undertaken aimed at enabling insurance firms, pension funds, and capital markets to finance infrastructure, development of debt markets, and establishing new institutional investors such as infrastructure funds to pool resources.
9. Revise and issue KEPPRES 7, originally issued to establish some basic ‘rules of the game’ for private participation in infrastructure but found inadequate in its application, hence the need for immediate revision.
10. Develop an action plan for independent tariff setting mechanisms for power and toll roads, recognizing that tariffs should rely on competition wherever possible and should be regulated for all monopolistic segments of infrastructure. In order to convey greater income certainty to investors, the Government will commit to greater policy predictability, with a transfer of pricing responsibilities to independent regulatory agencies, as per agreed and tendered contracts.
11. Strengthen regulatory agencies by providing budget and staff to give them a high degree of autonomy and transparency and also to provide them with adequate human and financial resources to undertake their functions.
Forging a New Era of Partnership in Indonesia
The international community, including bilateral donors and the major development Banks commended the Government’s determination and commitment to accelerate ongoing policy reform in key sectors to foster a new generation of infrastructure development in Indonesia – one in which the private sector will be an integral and long term partner. Together they are expected to contribute between 10-15 billion USD to support infrastructure development over the next five years. Delegates applauded the Government’s announcement of immediate steps to systematically remove bureaucratic hurdles to ensure smooth private sector participation. The World Bank and the Asian Development Bank announced their readiness to catalyze private investment and provide between 3-4 billion USD for infrastructure development in the next three years. As an immediate follow-up of the summit, Japan will announce in the upcoming CGI meeting the commitment of approximately 1 billion USD for infrastructure development for the year 2005, and Japan will continue to play a major role in the coming years. Similarly, European and other countries expressed strong support for the government’s program.
The private sector representatives enthusiastically endorsed the Government’s vision for infrastructure development and especially welcomed the Government’s determination to make private sector a trusted and long term partner. The private sector investors agreed that this partnership with Government was the key to sustainable infrastructure development in Indonesia, and one which they committed to operate with transparency, predictability, openness, and through fair competition. Private sector delegates confirmed strong interest in participating in all 91 key infrastructure projects announced by the Government during the Summit. Numerous private companies announced plans to open offices in Indonesia to develop and expand their operations here. They shared their hope that these projects are just the first phase of a broader spectrum of projects in every sector that they are eager to participate in the years ahead.