The Public-Private Partnership Law Review: Indonesia

Overview

The government has recognised PPP as one of the important funding methods for its public infrastructure provision. At the time of writing, the Medium-Term National Development Plan (RPJMN) for 2019–2024 shows that the need for the infrastructure provision amounts to 6,445 trillion rupiahs, of which 37 per cent will be funded by the government budget and 21 per cent by state-owned enterprises. Private investments are expected to fill the remainder (42 per cent).2

The government has made continuous efforts to institutionalise and promote PPP arrangements by enhancing the PPP regulatory and institutional framework. Consequently, PPPs in Indonesia are equipped with several government supports, government guarantee and project development facilities provided by the central government through the National Planning Board (Bappenas) or the Ministry of Finance (MoF), or both. However, the implementation of PPPs in Indonesia is still facing various legal challenges.

Thus, those wishing to enter into PPPs in Indonesia should understand how the landscape of PPPs is shaped. This chapter will illustrate the fundamental legal aspects of Indonesia's PPPs.

The year in review

There have been a few notable events that have significant impacts on PPP development in Indonesia. These events are the occurrence of covid-19, the capital relocation and the issuance of the Job Creation Law.

i Covid-19

Covid-19 has hit the whole world and has impacted economic and infrastructure development in many countries, and Indonesia is not an exception. While badly hit by covid-19, Indonesia is still committed to deliver its public services, especially in developing its infrastructure and sticking to its Medium-Term National Development Plan (RPJMN) 2019–2024.

ii The capital relocation

Indonesia plans to relocate the nation's capital. Recently the government officially declared it will move its capital from Jakarta to East Kalimantan by passing Law No. 03/2022 concerning the State Capital.

The National Planning Board considers that moving the capital will increase trade flows if the capital city is moved to a province that has good connectivity with other provinces and the new capital is strategically situated.3 Consequently, the relocation of the state capital will encourage investment in the new capital province and its surroundings.4

The Minister of Finance, Sri Mulyani, has stated that the estimated financing needs for the construction of the new state capital would consist of three sources. These are the state budget at 89.4 trillion rupiahs (19.2 per cent), PPPs at 253.4 trillion rupiahs (54.4 per cent) and other private investment at 123.2 trillion rupiahs (26.4 per cent).5 This means the new capital development is wide open for the private sector to invest in, especially through the PPP mechanism.

iii The Job Creation Law

In 2020, the government issued Law No. 11/2020 concerning Job Creation. This Law, better known as the Job Creation Law, UUCK or Omnibus Law, has changed as many as 80 laws with more than 1,200 ineffective or repetitive provisions revised.6

The Job Creation Law facilitates several strategic policies to improve investment climate and business activities, protection and welfare of workers and empowerment and protection of small- and medium-sized enterprises (SMEs). In addition, this Law favours increasing investments and supports the development of national strategic projects.7 In particular, the Law provides a strong foundation to make infrastructure provision through PPPs flourish.

iv Progress

Considering the challenges facing the country and several efforts taken by the government, although performed rather slowly, Indonesia has progressed its initiatives to realise the RPJMN mandate.

Regarding PPP projects, there are as many as 90 projects with 40 projects under preparation. Seven projects are ready for offers, 21 projects are at tender stage and 22 projects are already in operation.8

In light of the above, Indonesia will always need private investments through PPPs for its infrastructure provisions. Hence, those who wish to enter a PPP project need to understand the PPP framework in Indonesia, which is somewhat challenging.

General framework

i Types of public–private partnership

PR 38/2015 on PPP along with its supporting Regulations address several fundamental issues in the development of infrastructure projects under a PPP mechanism, such as the permitted sectors, types of PPP, government guarantees and government support.

According to this Regulation, the types of infrastructure, in which government may cooperate with private entities, are as follows:

  1. transportation;
  2. roads;
  3. water resources and irrigation;
  4. drinking water;
  5. central waste water treatment;
  6. local waste water treatment;
  7. waste management facilities;
  8. information and telecommunications;
  9. power generation;
  10. oil and gas and renewable energy;
  11. energy conservation;
  12. urban facilities;
  13. educational facilities;
  14. sport and art infrastructure and facilities;
  15. regional infrastructure;
  16. tourism infrastructure;
  17. healthcare infrastructure;
  18. prisons; and
  19. public housing.

In general, the most frequent form of PPP in Indonesia is DBFMOT (design-build -finance-maintain-operate-transfer). Basically, in this kind of modality, the project will utilise a state or regional asset where the Government Contracting Agency (GCA) will hand in the asset to the SPV and the SPV will design, build, operate and maintain the facilities. At the end of the cooperation period, all facilities including the land and the building already built will be handed back to the GCA. This modality is similar to build-own-transfer (BOT). However, DBFMOT is not always used for various reasons, such as being prohibited by sectoral regulation. For example, in the water resources sector, private institutions are not allowed to operate and maintain the facility. So, unless there is a change in regulation, cooperation in this sector will be unlikely involve to operation and maintenance by the private partner. Hence, depending upon the infrastructure sector, there are some identified variations on the use of modalities such as build-transfer-operate (BTO) and build-own-operate (BOO).

In BTO, the private sector partner typically builds the project assets during the concession period. Then the private sector needs to transfer these assets to the GCA after the construction period ends. The private sector retains the rights to operate and maintain the facility until the cooperation period ends. The SPV recovers its investments by charging user fees until the end of the contract period. These fees are in most cases regulated by the government or are predetermined. The best example of this case is the expansion of Hang Nadim International Airport project. In this project, the GCA awarded a 25-year concession to a consortium involving PT Angkasa-Pura 1, Wijaya Karya and Incheon International Airport. The consortium is required to renovate the existing airport and build the new airport. On completion of construction, they are required to hand back the asset to the GCA and reserve the rights to operate and maintain the facility.

In the case of BOO, this is cooperation with a private entity where the private sector partner owns the project assets over the duration of the PPP concession period and there is no handover at the end of the cooperation period. PR 38/2015 opens the opportunity for cooperation with this scheme. According to Article 39 of this Regulation, if a private investor has already obtained land required to deliver public services, the investor can be directly appointed as the private partner. However, again this shall be subject to the infrastructure sector. As an example, in the airport sector BOO is not possible.

ii The authorities

A PPP may involve multiple stakeholders. The primary stakeholder is the GCA. PR 38/2015 states that any government institution can be the GCA depending on the mandate from the sector regulations.

The GCA will be supported by the government institutions at central level. There may be various government institutions involved in a PPP project depending on the infrastructure sector. These central level government institutions typically involve:

  1. the MoF;
  2. Bappenas;
  3. the BPN; and
  4. the sectoral ministry.

Those government institutions in a PPP project will have their own roles and authorities.

The MoF will be mainly responsible for awarding government guarantee and support in the form of financial support or support from the Viability Gap Fund. In addition, the MoF is responsible for providing Project Development Fund support for preparation and transaction of a PPP project. Further, the MoF is also responsible for awarding any other financial support, such as tax exemptions.

Bappenas is primarily responsible for assisting in planning and some project preparation. In practice, Bappenas helps GCAs to prepare preliminary studies, outline business cases and final business casess for numerous PPP projects.

The BPN is primarily tasked with supporting land acquisition. Typically, it will issue a statement if the required land is ready to be used for the project and clear from all encumbrances.

The sectoral ministry will be the ministry that issues the sectoral business licences. Although Indonesia has now adopted one-stop service for licensing, in some cases sector ministries still be involved. As an example, an environmental permit is issued by the Ministry of Environment.

iii General requirements for PPP contracts

Sectoral regulations

As indicated above, a PPP project shall firstly consider the laws and regulations in its own sector, In general, sectoral regulations will regulate several fundamental aspects such as: management of authorities applicable in that sector; permitted government spending; cooperation with the private sector; the approval processes; and inputs and outputs of the project.

To better illustrate this, an example could be a PPP project in the waste-to-energy sector. The first fundamental aspect regulated under the regulations in this sector is the governing authority to manage waste. Under Law 18/2008 concerning Waste Management, the authority to manage municipal waste lies with regional government, either at municipal or provincial government level. Another aspect provided for in the regulations is the amount of compensation paid by the central or regional government to a party to manage municipal or regional waste management activities (tipping fees). According to Law 18/2008, the government or regional government is obliged to finance waste management activities from state or regional budget allocation. The next issue regulated is the fuel used to produce the electricity; this is the waste itself and known as feed stock. In particular, the law regulates who should and can be responsible for carrying out separation, collection, transportation, processing and finalisation of the waste. Last but not least, an aspect regulated under the regulatory framework of this sector is the feed-in tariff, which is the electricity tariff produced from municipal solid waste.

Hence, sectoral regulations are the primary laws and regulations that need to be considered in structuring a PPP project. Note that there are at least 21 permitted sectors for PPPs, and each of them is unique.

General regulations

In addition to the sectoral regulations, there are also general regulations. The general regulations framework governs any cross-cutting issues in a PPP project that also need to be considered in structuring or entering a PPP deal. These include but are not limited to land acquisition, environmental safeguarding, investment limitation, use of state assets and employment. These are focused on below.

Land acquisition

Land acquisition is often problematic in any government projects. There have been so many objections and strikes from the landowners when knowing their land will be impacted. At the same time, the government is obliged to acquire land for public use. Accordingly, the acquisition of the required land must be done in accordance with: (1) Law 11/2020 (the Job Creation Law); (2) Government Regulation 19/2021 on the implementation of Land Acquisition (GR 19/2021); and (3) the National Land Agency (BPN) Regulation No. 06/2015 (collectively the Land Acquisition Framework). The Land Acquisition Framework basically governs the implementation procedures, compensation and objections.

The process of land acquisition is divided into three stages, namely planning, preparation and implementation. The planning stage consists of the preparation of a project feasibility study and a land acquisition plan document prepared by the GCA. The process is followed by the preparation stage consisting of, among other things, public consultation and determination of location for the development (SP2LP). Finally, the implementation stage will commence after the SP2LP is issued. This stage consists of, among other things, land status inventory, land valuation by an independent appraiser appointed by the BPN, negotiation of compensation, payment of compensation and transfer of land title.

Deadlock in land acquisition initiatives is mostly caused by disagreement on the compensation. Considering this issue, the government has issued a guide on giving out compensation as set forth in the Land Acquisition Framework. Basically, the forms of compensation consists of payment of money, compensation land, resettlement, ownership share in the project or other forms as mutually agreed. The Land Acquisition Framework also stipulates the criteria of persons eligible for compensation (not only persons owning the land with registered title). Hence, the government strives to compensate the acquired land with the best rates.

If there is an objection for whatever reasons, the Land Acquisition Framework provides a mechanism for a challenge by any objecting party. Any objection during public consultation may be submitted directly to the team carrying out the public consultation. Any objection after the SP2LP is issued may be submitted to the relevant state administrative court within 30 days of the issuance of SP2LP. Any objection to the land status inventory may be submitted to the BPN within 14 days of the announcement of the land status inventory. Any objection to the result of negotiation of compensation may be submitted to the district court (with right to appeal to the Supreme Court).

Another important matter concerning land acquisition is financing. This can be done by a national governmental body from the state budget or regional budget. The GCA must make sure that all land acquisition costs, including the costs for payment of compensation and any other operational and supporting expenses, are included in the budget. In the case of a PPP project, private investors are allowed to fund the land acquisition in advance. The land acquisition cost may be repaid by the GCA to the private investors or in the form of recalculation of investment value.

Environmental safeguarding

Environmental matters are considered as important issues in any development project. In Indonesia, environmental affairs are generally governed by Law 32/2009 on the Environment (the Environmental Law).

Infrastructure projects, including those funded through PPPs are exposed to various environmental issues depending on the nature of the project. Many infrastructure projects are known to significantly impact the environment. Accordingly, the law requires that all business activities in Indonesia that will have a significant impact on the environment shall require an environmental impact assessment and must obtain an environmental licence. The issuance of this licence will therefore be a prerequisite for the issuance of any other business licences.

The list of businesses and activities subject to environmental impact assessments is further governed in the implementing Regulation of the Environmental Law, which is the Minister of Environment and Forestry Regulations No. 4 of 2021 (the ME Reg 4/2021). This Regulation states that, in principle, the activities requiring environmental impact assessments are those that involve changing landscape, exploitation, air pollution, social and cultural tension, bad impact on any conservation area, any introduction of new biodiversity, deterioration of national defence and any advanced technology that potentially harms the environment.

At the same time, ME Reg 4/2021 also governs the other types of environmental assessments based on the level of impact on the environment prior to issuance of an environmental licence. These assessments are for activities that are not classed as environmental impact assessment mandatory activities as above. These are known as environmental management efforts and environmental monitoring efforts (UKL-UPL) and as statements of ability to manage and monitor the environment (SPPL).

Investment limitation

According to PR 38/2015 on PPP, the selected private investors shall form a special purpose vehicle in the form of a limited liability company (PT). Where the selected investors consist of foreigners or foreign entities, the provisions of Law No. 25 of 2007 (the Investment Law)regarding investment as amended by the Job Creation Law are applicable.

Note that in Indonesia, not all investment fields are open for foreign investment. The Investment Law along with its implementing Regulation regulates certain business fields in which the share ownership by foreign subjects is limited or even forbidden. In particular, Presidential Decree No. 10 of 2021 regarding Investment Business Sectors as amended by Presidential Decree No. 49 of 2021 lists all investment sectors closed, open, or partially open for foreign investment.

In the case of PPP, it is important to pay attention to this limitation as a PPP project in Indonesia may be a bundling project consisting of several sectors. Hence, both the government and the investors should carefully pay attention to the limitation issues concerning the investment especially where there are so many potential investments from overseas.

Use of state or regional assets

Most PPP projects in Indonesia will utilise state or regional assets in the form of land and buildings, although other kind of assets can be used depending upon the nature of the partnership. The use of state or regional assets is generally governed in Government Regulation No. 27/2014 concerning Management of State and Regional Assets (GR 27/2014) along with its implementing Regulations.

According to this Regulation, state or regional assets can be utilised in several ways, namely rental, lend-use, cooperative utilisation (KSP), build-operate-transfer or build-transfer-operate (BOT/BTO) and cooperative for providing infrastructure (KSPI). Each of these mechanisms has its own features in terms of partner organisation, duration and payment obligation as shown in Table 1.

Table 1: Forms of state asset utilisations
MechanismPartner organisationDurationPayment obligation
RentParties other than ministries/government institutions and regional government. No tendering requiredMaximum of five years (with the possibility to extend under certain conditions)Rental tariff
Lend-use (PP)Central government or regional governmentMaximum of five years, extendable for one periodN/A
KSPKSP partner, selected through a tender exercise (state-owned enterprises/certain SOEs may be appointed directly without tendering in the case of state-owned/regionally-owned assets). The tender shall follow procedures set-out in GR 27/2014.Maximum of 30 years with the possibility to extend (a maximum of 50 years, with the possibility to extend in the case of certain infrastructure provisions)Fixed contribution; and revenue sharing
BOT/BTOBOT/BTO partner, selected through tendering. The tender shall follow procedures set-out in GR 27/2014Maximum of 30 years, with the possibility to extendFixed contribution
KSPIKSPI partner, appointed in accordance with other prevailing laws and regulations. (PR 38/2015 on PPP)Maximum of 50 years, with possibility to extendSurplus profit sharing (clawback)

In light of the above, whenever an infrastructure project utilises state or regional assets, except for rent and lend-use, in principle, there shall be a tender process that shall follow GR 27/2014. The tender procedures for KSPI are an exception that shall follow the other prevailing laws and regulations. One of the prevailing Regulations that set forth procurement for private partners is PR 38/2015. Hence, any assets that will be funded under PPP following PR 38/2015 are bound by GR 27/2014 where the period of utilisation shall be 50 years and the payment obligation will adopt surplus profit sharing (clawback).

Employment

In the event a PPP project is likely to involve foreign workers, the Investment Law states that the project company or SPV shall prioritise Indonesian workers. However, it is still possible to employ foreign workers for certain positions, especially experts who can provide training and transfer of knowledge for Indonesian labourers. Specifically, employment is governed by Law No. 13/2003 (the Employment Law) as amended by the Job Creation Law.

Bidding and award procedure

According to PR 38/2015, there are two known PPP structures seen from the initiative perspective, namely:

  1. solicited projects – initiated by the Minister, head of institution or head of region in accordance with sectoral regulations; and
  2. unsolicited projects – initiated by the business entities with the following conditions:
    • being technically integrated with the master plan on the sector concerned;
    • being economically and financially feasible; and
    • the business entity that initiated has adequate financial capacity to finance the implementation of infrastructure provision.

Tendering for PPP projects is specifically governed the Government Procurement Agency Regulation No. 29/2018 concerning Solicited PPP Procurement (LKPP Reg 29/2018) and the Government Procurement Agency Regulation of No. 19/2015 concerning PPP Procurement (LKPP Reg 19/2015). To date, LKPP Reg 19/2015 governs unsolicited PPP procurement.

i Pre-qualification

In reference to Article 36 of PR 38/2015, the tendering of private entities can be conducted through (1) open tender; and (2) direct appointment in which these methods shall always be done through the pre-qualification process. While the open bidding shall be prioritised, PR 38/2015 opens a direct appointment method with the following requirements:

  1. a PPP project is a project with certain conditions;9 or
  2. pre-qualification of open bidding results to one pre-qualified business entity.

There is no minimum number for pre-qualified bidders to proceed to the next step. This means that if there are two bidders qualified, the tender may proceed and that if there is only one qualified bidder, the tender may proceed to the negotiation or discussion of PPP agreement.

ii Tendering methods

Once pre-qualification is done, the process proceeds to tendering processes whereby the pre-qualified bidders will be invited to submit their proposals. According to LKPP Reg 28/2018, in term of stages PPP tendering consists of a one-stage tender and a two-stage tender. The competition criteria and the scoring system of the tender shall be clearly mentioned in the tender document.

One-stage tendering

One-stage tender is normally used if the project specification can be easily determined. The one-step tender involves two envelopes comprising administrative and technical documents (envelope 1) and financial documents (envelope 2). This kind of tender will use a pass-fail system where if the bidder fails in the envelope 1 evaluation, the bidder cannot proceed to be evaluated for envelope 2. After the winner is determined, in principle there is no more negotiation on the selection criteria. Hence, all PPP agreement drafts should be clear from the beginning.

Two-stage tendering

Two-stage tendering is more appropriate for complex projects where the specification or outputs cannot be easily determined. More requirements and competitive dialogue are used to obtain the best proposal that provides best value for money.10 The principle of one-step tender applies in the first step of the two-step tender mechanism. Stage two starts when stage one is completed by inviting the bidders for competitive dialogues. As a result of the dialogue, whenever deemed necessary, the tender documents are modified with the updated requirements based on the dialogue.

iii Unsolicited proposals

In the case of an unsolicited PPP, a tender shall also be conducted after the unsolicited project proposal is approved by the GCA. This means the project initiator shall participate in open tender to challenge its proposal. The tendering rule shall basically follow the solicited process.

However, in the tender the project initiator will receive compensation that shall be chosen and determined prior to the tender commencement. These forms of compensation include right to match,11 addition of 10 per cent score or the government buying the feasibility study document should it decide to undertake the project with the feasibility study prepared by the project initiator.

The contract

PR 38/2015 governs that a PPP agreement should contain the following minimum provisions:

  1. the scope of works;
  2. concessionary periods;
  3. the performance guarantee;
  4. the tariff and its adjustment mechanism;
  5. the rights and responsibilities of the contracting parties, including risk allocation;
  6. performance standards;
  7. the transfer of shares prior to the commercial operation date;
  8. penalties for a non-performing party;
  9. the termination of the agreement;
  10. the requirement to publish the financial report in a national newspaper;
  11. the dispute settlement mechanism;
  12. the performance monitoring mechanism;
  13. the use and ownership of the infrastructure assets;
  14. asset transfer management;
  15. force majeure;
  16. representation and warranty;
  17. the prevailing language; and
  18. choice of law (i.e., Indonesian law).

It should be noted that the maximum value of the performance guarantee is 5 per cent of the total investment value, and share transfers prior to the commercial operation date by the winning bidder require the GCA's approval. In practice, the PPP agreement may be updated to satisfy changing needs. Such updates may be allowed so long as the additions do not contradict prevailing regulations, do not substantially change the initial scope of works and can be agreed by the contracting parties.

The provisions in a PPP agreement are different from one project to another even in projects of the same nature. Hence a PPP agreement shall be tailored to the needs reflecting the available studies. A PPP agreement will typically consist of several aspects, such as commercial, financial, technical, legal and environmental ones. A PPP agreement shall supersede any other deals or documents made available prior to the signing of the PPP agreement.

i Payment

In Indonesia's PPP framework, there are three sources of revenue streams including:

  1. user charge – the main income of the SPV is based on user payments for the services and facilities, offered in form of tariffs;
  2. availability payment – the GCA makes an annual payment of an agreed amount as the SPV's main income throughout the operation period (it essentially covers all costs – construction, operation and maintenance (O&M), financing, and statutory – and provides the returns for investors; this is a new model, introduced in the latest presidential regulation); and
  3. other forms – any other forms of revenue streams as long as they do not conflict with the prevailing regulations.12

ii State guarantees

PR 38/2015 stipulates that a PPP project may qualify for a GG (a guarantee in the form of financial responsibility taken on by the GCA through the mechanism of a guarantee/regress agreement). GG is awarded by the Minister of Finance through the IIGF. The Minister of Finance has the authority to determine the criteria for the awarding of the GG; request and obtain the data/information required from the parties forming the project partnership; approve or reject the proposed GG; and determine the kind of GG to be awarded.

The government may also provide support to a PPP project, defined as any financial support and other support awarded by the GCA or MoF, or both, based on their authority, to increase financial and effectiveness viability of a PPP project.

Financial support may include tax incentives; exemption from import duties; and partial support for construction. Other support means non-financial support that may be provided by government in various ways depending upon the nature of the project. The most common support required is in the form of licensing.

Finance

PR 38/2015 stipulates that the SPV should enter into a financial agreement with a financing institution within 12 months of the PPP agreement being signed by the winning bidder and the GCA. The period can be repeatedly extended by the GCA for another 12 months. Each extension can be obtained if an error has been committed by the GCA and if the error conforms to the criteria determined by the GCA. The PR 38/2015 also opens a possibility that a financial close is conducted in several stages as considered necessary (partial financial close). If the SPV fails to conclude a financial agreement within the said periods, cooperation is automatically terminated, and the performance guarantee liquidated.

PPPs will most likely utilise state or regional assets. Considering the regulations pertaining to state or regional assets, there is no chance that the state or regional assets can be the object for collateral. Hence, the financing that can be considered is project finance that can be obtained from multiple sources, such as Indonesian or overseas commercial banks or international development banks that may provide such services. The SPV will be welcome to finance the project through any other financing methods, such as private equity and capital markets. In view of this, the government welcomes the capital inflow either from domestic or overseas financing sources.

In regard to financing the project, it is important to note that there is an obligation to use Indonesian rupiahs in any financial transactions conducted within the Indonesian jurisdiction as stated in Bank of Indonesia Regulation No. 17/3/PBI/2015. This Regulation states that all financial transactions within the Indonesian jurisdiction that take place on or after 1 July 2015 must be nominated and settled in Indonesian rupiah exchange rates.13

Recent decisions

PPPs are a relatively new method of funding infrastructure provisions so there are not many cases concerning PPP projects.

However, there has been a notable judicial decision regarding PPP projects in Indonesia especially in the water resources sector. The decision in question is the Constitutional Court Decision No. 85/PUU-XI/2013, preventing the privatisation and monetisation of water resources by the private sector as the Constitutional Court deemed water resources to be a basic need of every human that needs to be managed by the public sector.

Due to this decision, the new Law No. 17/2019 Concerning Water Resources (the Water Resources Law) was enacted, which reflects the this decision. According to this Law, concessions for operation and maintenance of water resources infrastructure shall be prohibited. This has hindered the progress of several dam projects that badly need funding from the private sector through PPP.

However, as per recent developments, availability payment may be a viable option. In this case, availability payment is basically a government-pay mechanism that utilises the state budget so that the control is in the government's hands.

Outlook

PPPs are a relatively new form of funding infrastructure provision in Indonesia. Implementing them presents numerous challenges. Basically, to make a successful PPP initiative, it is necessary to choose the right project. The PPP regulatory framework in Indonesia does not sufficiently provide guidance on how to select the right projects. Consequently, as observed previously, while there is demand to enter Indonesia's PPP market, this country is still struggling to produce projects that are feasible and ready for offers.

Another issue is the capacity of the human resources who lack of knowledge of or experience in undertaking PPP projects. Both the government officials and the local private sectors are not accustomed to structuring PPPs for funding infrastructure. Consequently, the development of PPPs is rather sluggish.

The Project Development Fund is the next problem, especially for the regional governments that do not have the budget allocation for preparing PPP projects, although they really need it to fund their infrastructure provision through PPP. Recently, regional governments and even line ministries who wish to structure PPP projects are struggling to finance the project preparation. In practice, they are seeking help from government institutions, such as Bappenas, the Ministry of Transport, the Ministry of Public Works or the Ministry of Finance, who have budget allocation to prepare PPP projects. However, PR 38/2015 has provided a way out to this issue by allowing the GCA to reimburse all preparation and transaction costs to the winning bidder, but no GCA has done this. In the future, it is hoped that all stakeholders in Indonesia's PPP projects shall have a solution to this problem.

Last but not least, learning from the success stories from PPP projects that have reached operation stage, the keys to success are a strong market and certainty in revenue streams. In the case of projects with a user-charge basis, multiple revenue streams with wide market potential is the key. For example, toll road projects are considered the most successful PPPs in Indonesia. The market potential in this sector is relatively wide, and the private partner may utilise multiple revenue streams not only from vehicle charges but also from the other revenue streams, such as service areas.

In projects with availability payments, mainly used for financing social-based projects, there are two main success factors, namely the project being economically feasible and the strong fiscal capacity of the GCA. In this kind of project, the GCA should make sure that the project provides high economic value and can create economic development for the community, and there should be sufficient fiscal capacity considering the project will not rely on the income from the end user. Hence, it is important to consider these aspects prior to entering a PPP deal with an availabile payment revenue stream.

Footnotes

1 Dhonke Ridhong Kafi is one of the founding partners at DKMS Lawyers.

2 Ministry of National Development Planning/National Development Planning Agency, Public Private Partnership (2021) http://simpulkpbu.pu.go.id/publication/read/ppp-book-2021> accessed on 18 January 2022.

3 Tirta Citradi, RI Pindah Ibukota, Ekonomi Lebih Merata (2019) https://www.cnbcindonesia.com/news/20190919161845-4-100740/ri-pindah-ibu-kota-ekonomi-lebih-merata> accessed 18 January 2022.

4 ibid.

5 Muhammad Idris, Pemerintah Izinkan Swasta Undang Asing Bangun Ibukota Baru (2021) https://money.kompas.com/read/2021/04/08/010600426/pemerintah-izinkan-swasta-undang-asing-bangun-ibu-kota-baru?page=all> accessed 18 January 2022.

6 BKPM, UU Cipta Kerja Berikan Jalan Mudah untuk Berinvestasi di Indonesia https://www.bkpm.go.id/id/publikasi/detail/berita/uu-cipta-kerja-berikan-jalan-mudah-untuk-berinvestasi-di-indonesia> accessed 18 January 2022.

7 ibid.

8 Ministry of National Development Planning/National Development Planning Agency, Public Private Partnership (2021) http://simpulkpbu.pu.go.id/publication/read/ppp-book-2021> accessed on 18 January 2022.

9 Certain conditions mean (1) development of an infrastructure that has previously built and/or operated by the same business entity, and (2) the nature of project can only be done by specific technology where there is only one investor who can perform it.

10 Article 19 LKPP Reg 29/2018.

11 'Right to match' means if the proposal from the competitor is better in any respect, the project initiator is given a chance to make its proposal of the same quality or value or to make a better proposal.

12 Article 11 Section (2) Presidential Regulation No. 38/2015.

13 Article 23 PBI No. 17/3/PBI/2015.

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