PPP Projects in Indonesia: Issues and Challenges

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1 A LEADING CATALYST IN FACILITATING INDONESIA S INFRASTRUCTURE DEVELOPMENT PPP Projects in Indonesia: Issues and Challenges Pradana Murti Head of Project Development Division APN Conference Seoul, 30 th November 2017 PT Sarana Multi Infrastruktur (Persero)

2 Fiscal Support from Ministry of Finance (MoF) to Attract More Private Participation through PPP Viability Gap Fund (VGF) Project Development Facility (PDF) Government Guarantee (Directly by MoF or through IIGF) Availability Payment Schemes Those financial facilities are fiscal tools in supporting the execution of PPP projects, indicated by the signing of financial close of the following PPP projects: No Project Name Project Cost Financial Facilities Financial Close 1 Central Java Power Plant IDR40 Trillion / USD 3.03 Billion 2 Palapa Ring-West Package 3 Palapa Ring-Central Package IDR1.28 Trillion / USD 97 Million IDR1.38 Trillion / USD 105 Million 4 Umbulan Water Supply IDR2.10 Trillion / USD 159 Million 5 Palapa Ring-East Package IDR5.09 Trillion / USD 386 Million Government Guarantee (MoF & IIGF) 6 June 2016 PDF, IIGF Guarantee & Availability Payment PDF, IIGF Guarantee, Availability Payment, Financing from PT. SMI & PT. IIF PDF, VGF, IIGF Guarantee, Financing from PT. SMI & PT. IIF PDF, IIGF Guarantee, Availability Payment, Financing from PT. SMI & PT. IIF 11 August August December March 2017 Kurs 1US$ = Rp

3 Fiscal Support from Ministry of Finance (MoF) to Attract More Private Participation through PPP Project Development Facility (PDF) Viability Gap Fund (VGF) Government Guarantee (Directly by MoF or through IIGF) Availability Payment Schemes (AP) Those financial facilities are fiscal tools in supporting the execution of PPP projects, indicated by the signing of financial close of the following PPP projects: IIGF Guarantee PDF VGF IIGF Guarantee PDF AP IIGF Guarantee IIGF Guarantee CJPP Central Java Power Plant 2x 1000 MW Umbulan Water Supply Palapa Ring Optic-Fiber Network Various Toll Roads These Support Has Made PPP is Happening as one of the option for the Acceleration of Infrastructure Development in various sectors across Indonesia Souce: Bappenas

4 List of PPP Awarded Projects in Indonesia No Projects Sector Estimated Project Cost Facilities / Support Signing Status 1 Manado-Bitung Toll Road 2 Balikpapan-Samarinda Toll Road 3 Pandaan-Malang Toll Road 4 Krian-Legundi-Manyar Toll Road 5 Jakarta-Cikampek II Elevated Toll Road 6 Batang-Semarang Toll Road 7 Serpong-Balaraja Toll Road 8 Umbulan Water Supply Water Supply Rp 5.1 trillion/ USD 386 Million Rp 9.9 trillion/ USD 750 Million Rp 5.9 trillion/ USD 447 Million Rp 9.02 trillion/ USD 683 Million Rp 16.4 trillion/ USD 1,242 Million Rp 11 trillion/ USD 833 Million Rp 9.9 trillion/ USD 455 Million IDR2.10 Trillion / USD 159 Million IIGF Guarantee 8 June 2016 Construction IIGF Guarantee 8 June 2016 Construction IIGF Guarantee 8 June 2016 Construction Government Guarantee (MoF and IIGF) Government Guarantee (MoF and IIGF) IIGF Guarantee PDF, VGF, Financing from PT. SMI & PT. IIF & IIGF Guarantee 5 December 2016 (Guarantee 22-Feb-17) 5 December 2016 (Guarantee 22-Feb-17) Construction Construction 27 April 2016 Construction 8 June December 2016 Construction Construction 9 Central Java Power Plant Power Plant IDR40 Trillion / USD 3.03 Billion Government Guarantee (MoF & IIGF) 6 June 2016 Construction 10 Palapa Ring-West Palapa Ring-Central Palapa Ring-East Telecommunication IDR1.28 Trillion / USD 97 Million IDR1.38 Trillion / USD 105 Million IDR5.09 Trillion / USD 386 Million IIGF Guarantee, Financing from PT. SMI & PT. IIF & Availability Payment 11 August August March 2017 Construction 11 Cisumdawu Toll Road Rp 8.21 trillion/ USD 622 Million Government Guarantee (MoF and IIGF) 22 February 17 Financial Close 12 Serang-Panimbang Toll Road Rp 5.33 trillion/ USD 404 Million Government Guarantee (MoF and IIGF) 22 February 17 Financial Close 1USD = IDR 13,200 4

5 Assigned by Ministry of Finance, PT SMI Serves as the Enabler in the PPP Project Preparation through PDF* PPP Project Contracting Agency Project Value Government Support Status Palapa Ring West Package Middle Package East Package Ministry of Communication and Informatics Rp 1.28 Trillion (~USD Million) Rp 1.38 Trillion (~USD Million) Rp 5.09 Trillion (~USD Million) Govt Guarantee through IIGF Construction Water Supply System Umbulan East Java Province Rp 2.05 Trillion (~USD Million) Viability Gap Funding (VGF) Govt Guarantee through IIGF Construction Water Supply System Lampung City of Bandar Lampung Rp 700 Billion (~USD Million) Viability Gap Funding (VGF) Govt Guarantee through IIGF Bid Evaluation City Transportation Medan City of Medan Rp 6.40 Trillion (~USD Million) Viability Gap Funding (VGF) Potential Govt Guarantee through IIGF FBC Drafting Regional Public Hospital Sidoarjo Sidoarjo District Rp 251,00Billion (~USD19.02 Million) Potential Govt Guarantee through IIGF FBC Drafting Water Supply System Pekanbaru City of Pekanbaru Rp 478,00Billion (~USD36.21 Million) Potential Govt Guarantee through IIGF FBC Drafting Toll Road of Surabaya- Madura Bridge Ministry of Public Works Rp 1.3 Trillion (~USD 1 00 Million) Potential Govt Guarantee through IIGF MOF Principle Approval Sam Ratulangi Teaching Hospital Ministry of Research and Higher Education Rp 387,23Billion (~USD29.01 Million) Potential Govt Guarantee through IIGF MOF Principle Approval 1USD = IDR 13,200 *Project Development Facility 5

Sharia Conventional PT SMI Business Model Sources of Funds PT SMI Business Pillars Business Pillar #1 Business Pillar #2 Business Pillar #3 FINANCING & INVESTMENT ADVISORY SERVICES PROJECT

Loan Mezzanine Equity investment Shareholder s loan Arranger & Underwriter Standby Lender PPP Municipal Financing (PIP/RIDF) Public Sector Advisory Training & Capacity Building Investment Advisory

6 Sharia Conventional PT SMI Business Model Sources of Funds PT SMI Business Pillars Business Pillar #1 Business Pillar #2 Business Pillar #3 FINANCING & INVESTMENT ADVISORY SERVICES PROJECT DEVELOPMENT Sectoral Focus Capital Injection from GOI Capital Market (Bonds, Notes, Securitization) Loans and Grants Infrastructure Financing Senior loan (Working Capital, Investment Loan) Junior Loan Mezzanine Equity investment Shareholder s loan Arranger & Underwriter Standby Lender PPP Municipal Financing (PIP/RIDF) Public Sector Advisory Training & Capacity Building Investment Advisory Project Development Facility (PDF) PPP Project PDF & Donor Fund Management Renewable Energy Project (Geothermal Exploration) TA & Donor Funds Management Municipal Projects Electricity & Energy Efficiency Transportation Telecommunication Train Rolling Stock Renewable Energy Irrigation Water Supply Oil and Gas Road and Bridge Waste Water & Waste Management Sharia Capital Market BPJS, Sharia Insurance Hajj & Syirkah Funds Sovereign Wealth Fund Sharia Financing IMBT/Lease with Option to Own Murabahah/Installment Sale with Deferred Pmt. MMQ/Diminishing Partnership Musharakah/Joint Partnership Indent Ijarah* Financial Advisory Technical Assistance Donor Fund Management Hospital Regional Infrastructure Correctional Infrastructure Market Social Infrastructure Education Infrastructure Tourism Infrastructure IMBT= Ijarah Muntahia Bittamlik MMQ= Musyarakah Mutanaqisah * under development 6

7 PT SMI Has a Mandate to Become a Catalyst to Support Infrastructure Development Various & Flexible Financing Products To close the gap; e.g. senior loan, mezzanine, shareholder s loan and equity investment Enabler to accelerate infrastructure development Providing advisory services, project development, capacity building Financing facility for regional government to accelerate infrastructure development Regional Government Infrastructure Development Fund Raising Fund Raising Optimization (leveraging) from capital market, conventional & sharia banking, bilateral and multilateral organization Optimization of Strategic Partnership and Technical Assistance from bilateral/multilateral organizations To Support Sustainable Development Goals (SDGs) and Climate Change programs Setting up a special division, Green Climate Fund (GCF) accreditation, ESMF guidelines, renewable energy promotion 7

Execution of Mandate as Catalyst of Infrastructure

SMI s Mandate Financing Sectors Long-term financing

Large Multiplier effect Competitive interest rate

Transportation 8,47% Electricity 14,82% Oil and Gas 6,79%

(Hospital) 4,11% 3,42% Toll Road 32,38% Irrigation 3,92%

1,65% Social (Market) 0,29% Social (Terminal) 0,08%

1 Trillion Maturity Grace Period Up to 25 Years Up to 15

8 Execution of Mandate as Catalyst of Infrastructure Development Financing and Investment as of October 2017 PT SMI s Mandate Financing Sectors Long-term financing Innovative Financing Product Flexible Financing Scheme Large Multiplier effect Competitive interest rate Multiplier Effect Long-term and Flexible Scheme Transportation 8,47% Electricity 14,82% Oil and Gas 6,79% PT PLN (Ex-PIP) 17,64% Telecommunication 3,99% Road Social (Hospital) 4,11% 3,42% Toll Road 32,38% Irrigation 3,92% Other 4,46% Project Location Mix Rolling Stock 2,36% Water 1,65% Social (Market) 0,29% Social (Terminal) 0,08% Renewable Energy 0,07% Total Project Cost IDR Trillion Maturity Grace Period Up to 25 Years Up to 15 Tahun Bali Nusa Tenggara 6,26% Kalimantan 9,82% Papua Maluku 5,80% Multiplier Effect 5.3 times to Financing Commitment 9.5 times to Paid-up Capital Example: Toll Road Financing of Palembang - Indralaya Sulawesi 13,41% Sumatera 22,59% Jawa 42,12% 8

9 Financial Performance of PT SMI Corporate Rating: AAA Financial Statements Opinion Soundness Level Corporate Rating 2012 (Audited) Unqualified Opinion AA/Stable (Fitch Ratings) 2013 (Audited) Unqualified Opinion 2014 (Audited) Unqualified Opinion 2015 (Audited) Unqualified Opinion 2016 (Audited) Unqualified Opinion Sep-2017 (Unaudited) AA AAA AAA AAA AAA - AA+/Stable (Fitch Ratings) AA+/Stable (Pefindo & Fitch) AA+/Stable (Pefindo & Fitch) AAA/Stable (Pefindo)** - AAA/Stable (Pefindo) Total Revenue (Rp Million) Net Income (Rp Billion) +50,4% 2,339 2, ,2% , Sep Sep-17 Total Asset (Rp Billion) Total Equity (Rp Billion) +46,8% 32, , ,3% 25, ,769 5,132 7,088 9,169 4,310 4,545 4, Sep Sep-17 9

10 Agenda 1 Umbulan Water Supply 2 Palapa Ring 3 Lesson Learnt 10

system to end user connection (will serve + 1,3 million people) East Java Water Enterprise (PDAB) Role 1. Production Sysyem 4.

11 Govt Contracting Agency East Java Provincial Government Offtakers Private Entity Role Umbulan Water Supply Project Profile COOPERATION STRUCTURE 5 Local Water Enterprises (PDAMs): Pasuruan City, Pasuruan Regency, Sidoarjo Regency, Surabaya City, Gresik Regency Build Operate & Transfer of New Facilities (Production, Transmission, & Offtake System) PDAMs Role Build & Operate Distribution system to end user connection (will serve + 1,3 million people) East Java Water Enterprise (PDAB) Role 1. Production Sysyem liter/second Aggregator (receive water from private entity & supply water to PDAMs) & Offtaker for 200 liter/second 2. Transmission System + 93 km piping transmission system PPP FACILITIES 3. Offtake System 16 Tapping Pipe & Water Meter Systems in 5 different local govt administrative areas Project Value Construction Period Concession Period Viability Gap Fund (VGF) from MoF + IDR 2,3 Trillion 2 years from the Effective Date of the PPP Agreement 25 years from the Commercial Operation Date (COD) IDR 818,01 Billion PROJECT INFO SUMMARY 1USD = IDR 13,200 11

Assignment PT SMI PDAB Project Development PT PII Recourse Agreement Offtake Agreement PPP Agreement Umbulan Water Supply Project Structure

12 Ministry of Public Works Physical Construction Support KAB PASURUAN KOTA PASURUAN KAB SIDOARJO KOTA SURABAYA KAB GRESIK Policy & debottlenecking Support Cooperation Agreement The Govt of Indonesia Coordinating Ministry of Economic Affairs The East Java Governor (GCA) Assignment PT SMI PDAB Project Development PT PII Recourse Agreement Offtake Agreement PPP Agreement Umbulan Water Supply Project Structure Ministry of Finance Government Guarantee Guarantee Agreement Offtake Agreement VGF PT Meta Adhya Tirta Umbulan (SPV) Local Government Support 5 PDAMs 12

Procurement of business entity - Water supply Financial Close Negotiation with Kab.

13 Umbulan Water Supply Project Milestone Pre-qualification RFP VGF and Project Structure Bid Submission Signing: - Cooperation Agreement - Guarantee Agreement - Offtaker Agreement Assignment to PT SMI Alignment and Capex Calculation Change in law: - Procurement of business entity - Water supply Financial Close Negotiation with Kab. Pasuruan First PPP Project with Viability Gap Fund First PPP Project with Combination of Government Support & Guarantee First PPP Project in Water Sector PPP Project in Provincial Level (consists of 5 municipal areas) 13

Umbulan Water Supply Issues and Challenges GCA GCA s commitment GCA s capacity Regulatory Framework Overlapping and complexity of regulations Multiple Stakeholder There are more than 70 related

14 Umbulan Water Supply Issues and Challenges GCA GCA s commitment GCA s capacity Regulatory Framework Overlapping and complexity of regulations Multiple Stakeholder There are more than 70 related stakeholders Capacity gap among stakeholders Lack of commitment from the GCA to make the project going forward Understanding/knowledge of PPP Unclear implementation of regulations Multiple interpretations of regulations Different mind set and knowledge capacity gap among stakeholder need extra effort in managing stakeholder Different commitment among stakeholder Project championship 14

15 Agenda 1 Umbulan Water Supply 2 Palapa Ring 3 Lesson Learnt

16 Palapa Ring Project Profile National Target Telecomunication needs Project Target PROJECT RATIONALE National Project included in National Long Term Plan National backbone network Remote region with geographical challenge and small potential user which has not been connected with internet access. PROJECT STRUCTURE Capital Cost Estimates Contract Period ECONOMIC AND FINANCIAL ASPECT West Package: USD Rp 1,28 Triliun Middle Package: USD Rp 1,38 Triliun East Package: Rp ,- *USD 1 Rp ± 18 months constructiian and 15 years for operational for each package Post Tax WACC Target - West and Middle Package: 12,5% (DER 80:20, Equity Return 20%, Senior debt rate 14%) - East Package: 12,5% (DER 80:20, Equity Return 25%, Senior debt rate 12,3%) Availability Payment STATUS In Principal Approval from MoF obtained on 6 Oktober 2015 Guarantee In Principal Approval from IIGF obtained on tanggal 20 November 2015 (West and Middle Package) and 20 Mei 2016 (East Package) Project Status - West Package: Financial Close on 11 Agustus Middle Package: Financial Close on 29 September East Package: Financial Close on 29 Maret 2017 GCA Ministry of Communication and Information Technology Indonesia TECHNICAL ASPECT Private Role Engineering design and construction Backbone network provision, operational, and maintanance Project financing Technology Fiber optic network or microwave if geographical condition challenging 16

17 Palapa Ring Issues and Challenges Existing Backbone Network BP3TI Service Operator Procured Backbone Network Network Operator Last Mile Scope Project Offered Project Structure GCA/Public Role GCA is Ministry of Communication and Information Technology BP3TI GCA is obligied to give avaibility payment priodically to SPV based on the service provided Private Role Engineering design and construction Backbone network provision, operational, and maintanance Project financing Access Charge Access charge received from network users is a revenue for GCA but do not reduce the amount of avaibility payment Demand risk is borne by GCA. MICT- BP3TI Regres Agreement Availability Payment Access Charge Guarantee Agreement Network Service SPV Network User Equity/ Sponsor Creditor 17

Palapa Ring Project Milestone Pre-qualification for West, Middle, East Package RFP for West, Middle, East Package Bid Submission for West and Middle Package Signing for West and Middle Package: -

2016 Q1 2017 No Bid Submission for East Package Re-prequalification for East Package Assignment to PT SMI Bid Submission for East Package Signing for East Package: - Cooperation Agreement -

18 Palapa Ring Project Milestone Pre-qualification for West, Middle, East Package RFP for West, Middle, East Package Bid Submission for West and Middle Package Signing for West and Middle Package: - Cooperation Agreement - Guarantee Agreement New RFP for East Package Financial Close for West and Middle Package Financial Close for East Package Q Q Q Q Q Q Q Q No Bid Submission for East Package Re-prequalification for East Package Assignment to PT SMI Bid Submission for East Package Signing for East Package: - Cooperation Agreement - Guarantee Agreement First PPP Project with Avaibility Payment First PPP Project in ICT Sector First PPP Project with Combination of Availabilty Payment & Guarantee PPP Project in Central Government Level 18

Palapa Ring Issues and Challenges GCA Project

aggresive GCA decission on service level of the

19 Palapa Ring Issues and Challenges GCA Project Timeline Service Level Regulatory Framework Incomplete regulation on Avaibility Payment Project timeline set by GCA is tight and aggresive GCA decission on service level of the Project The absence of regulation for Avaibility Payment procedure 19

20 Agenda 1 Umbulan Water Supply 2 Palapa Ring 3 Lesson Learnt

Lesson Learnt 1 SoE/RoE Capacity Improvement of financial and managerial

Central/Local Government support to enhance capacity of SoE/RoE.

2 year 2012 Newly established the State Assets Management Agency to

5 Financing structure Most local banks and financing institutions in

limited recourse type structure 3 Capacity Gap Setting new mind set and

21 Lesson Learnt 1 SoE/RoE Capacity Improvement of financial and managerial capacity in most Water SoE/RoE in Indonesia. Central/Local Government support to enhance capacity of SoE/RoE. 4 Standard Documentation Focus on developing templates and standard documentation. International based template (common law system) should be adjusted to civil law and local content approach. 2 Land Acquisition Implemention of law no. 2 year 2012 Newly established the State Assets Management Agency to facilitate land acquisition and land banking. 5 Financing structure Most local banks and financing institutions in Indonesia do not apply project financing scheme - intruducing hybrid or limited recourse type structure 3 Capacity Gap Setting new mind set and capacity building for government stakeholders on PPP Process. 6 Stakeholders Management Established of Priority Infrastructure Project Acceleration Committee to solve stakeholders communication and debottlenecking issues Fourm for regularly update to the stakeholder The need of leaderdship and commitment from GCA 21

22 A LEADING CATALYST IN FACILITATING INDONESIA S INFRASTRUCTURE DEVELOPMENT THANK YOU Disclaimer All information presented were taken from multiple sources and considered as true by the time they were written to the knowledge of PT Sarana Multi Infrastruktur (Persero). PT Sarana Multi Infrastruktur (Persero) can not be held responsible from any inacuracy contained in the material. PT SMI follows all internal and external guidelines and regulations that govern the evaluation process on determining the financing feasibility of an infrastructure project. Every decision to finance or not to finance a project is therefore based on a responsible and thorough due diligence process. Any complaint in the process of financing irregularities can be submitted to: Corporate Secretary PT SMI Tel : Fax : corporatesecretary@ptsmi.co.id Public complaints on PT SMI service will be kept strictly confidential and handled by a special committee to ensure that complaints are addressed appropriately.

Situation and Outlook of PPP Infrastructure Development in Indonesia

Situation and Outlook of PPP Infrastructure Development in Indonesia Dedy S. Priatna, PhD Deputy Minister for Infrastructure National Development Planning Agency (Bappenas) PPP Infrastructure Investment