Future Ready: Sustainable Cities seminar in Jakarta

Seminar overview

We heard from central and regional government in March this year about the steps they are taking to address Indonesia’s infrastructure deficit.  The country’s economic stimulus packages, government support for infrastructure projects, alternative financing schemes and the project pipeline were the focus of some lively panel discussions led by Global Head of Infrastructure, Mining and Commodities Nick Merritt.

A first-hand account of the challenges and opportunities of sustainable city development was presented by Ridwansyah Yusuf Achmad of Bandung City Government.  Mark Moseley of the Global Infrastructure Hub discussed some global tools and initiatives designed to support government and stakeholders in PPP projects.  Jakarta partner Nadia Soraya presented some of the key challenges facing Indonesia’s infrastructure market. 

Nick Merritt moderated a panel discussion on:

• challenges faced by Indonesia’s infrastructure sector and the role of the private sector in addressing these challenges

• government support for infrastructure projects, and the role of PPP

• need for innovation in how projects are financed, including alternative funding sources such as the new PINA scheme

• standardization and consistency of risk allocation and project documents 

• attracting foreign investors to the infrastructure pipeline

Panellists included:

• Sri Bagus Guritno, Infrastructure PPP Director, Bappenas

• Rainier Haryanto, Program Director, Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)

• Harold JD Tjiptadjaja, Chief Investment Officer – Infrastructure, PT Indonesia Infrastructure Finance (IIF)

• Donny Hamdani, Deputy Finance and Risk Management Director, Indonesian Infrastructure Guarantee Fund (IIGF)

• Mia Amalia, Head of Urban Affairs Subdirectorate, Bappenas

• Mark Moseley, Senior Director, Global Infrastructure Hub

• Benny Bernarto, Partner, TNB & Partners

Key themes

Finding finance: alternative funding sources:  Finding finance for infrastructure remains challenging, not least due to the enormous amount required.  While the government has increased the infrastructure development allocation in the state budget by 22% since 2016 and issued 14 economic stimulus packages, around 30% of infrastructure finance will need to be provided by the private sector.  A new scheme – PINA – has been introduced to support the alternative financing of infrastructure projects, particularly by pension funds and insurance companies.  This scheme complements the work of Bappenas, the IIF and the IIGF.

Bandung City opportunities and challenges:  Bandung aspires to be an exemplary city in which people can live, work and play.  The Mayor’s Office recognizes the economic benefit successful cities can bring to Indonesia, and is addressing the need to modernize its infrastructure, and its transport connectivity in particular.  The opportunities presented by this city of 2.7 million people - of which 60% are under 40 – are set out in its US$4.4bn urban infrastructure project plan.

Bankability:  One of the most significant issues for infrastructure development is not the availability of finance, but the availability of bankable, well-structured projects with an appropriate allocation of risk.  Stakeholders in Indonesia’s developing infrastructure market often have differing expectations, expertise and understanding of core risk allocation principles, and this can make closing deals (as well as managing and operating assets) a significant challenge.  While standardisation of project contract documents and risk allocation will ultimately speed up project delivery, it will be some time before the market is sufficiently mature for this to have a significant impact.

Risk allocation: the GI Hub’s online tool:  The efficiencies that can be achieved by appropriate risk allocation and standardization were addressed by Mark Moseley in his presentation on the Global Infrastructure Hub.  The GI Hub has developed an online tool to help governments and other stakeholders to understand risk allocation principles in PPP projects.  The GI Hub has also launched a global pipeline database to help match investors to projects.

Beyond Java: new metropolitan areas:  Urban development in Indonesia is broader than Jakarta – the 5-year programme includes plans for new metropolitan areas in Sumatra, Sulawesi and Kalimantan.  The programme also aims to develop mid-sized cities that incorporate sustainability principles from inception.