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DETERMINATION AND ALLOCATION OF KEY

RISK EVENTS FOR TOLLWAY

CONSTRUCTION AND OPERATION ININDONESIA

Djoen San Santoso

Tri Basuki Juwono

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Introduction

Infrastructure development is important for

economic growth.

Main constraint for infrastructure

development: government budget.

Private participation in infrastructure

development.

Risk management.

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Transportation in Indonesia

Transportation infrastructure is one of the key

facilities.

Tollway construction has been intensified since

2005, including the release of Presidential

Regulations concerning the land procurement for

public interest.

Transportation = Road

Indonesia

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Tollway in Indonesia

Risk management is not clear.

Allocations of risks are not well agreed and some

are not stipulated in the agreement.

Attractiveness for investment.

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Objectives

To determine important risk events in Indonesian

tollway.

To analyze and propose allocation of important riskevents to serve as guideline in contract agreement.

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Limitation

Only concern about 2 parties:

1. Government (public)

2. Highway and tollway companies (private)

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Research Method

Secondary data:

1. Research papers on this topic.

2. Previous study.

3. Documents related to tollway collected from

government and tollway companies.

4. Brief discussion.

Primary data:1. Qualitative risk assessment survey.

2. Interview.

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Questionnaire Survey

Assessment of risk are based on 2 points of views:

1. Probability of occurrence

2. Degree of impact

5-point Likert scale.

Allocation of risks

Total valid respondents = 15

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Risk Events

55 risk events are listed in the questionnaire survey.

Categorized into:

1. Politic and Regulation (11 risks)

2. Tollway company (5 risks)3. Finance and Economic (5 risks)

4. Design (6 risks)

5. Land Acquisition (4 risks)

6. Construction (8 risks)

7. Traffic (6 risks)

8. Operation and Maintenance (8 risks)

9. Force majeure (2 risks)

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Risk Index

Risk Index (RI) indicates the significance of the risk.

RI = M(P) x M(I)

where:

M(P) = Mean of risk probability

M(I) = Mean of risk impact

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Code Risk EventProbability Impact Risk Index

Mean Rank Mean Rank Score Rank

R1 Instability and insecurity of the

region

1.71 46 3.46 9 5.93 33

R2 Breach or cancellation of contract 1.60 48 3.73 6 5.97 32

R3 Expropriation of the project by

government

2.00 34 3.07 25 6.13 30

R4 Change in environmental policy and

regulation

2.13 30 2.87 33 6.12 31

R5 Change in policy and regulation

related to tollway

2.07 32 3.20 21 6.61 25

R6 Change in business policy and

regulation

1.80 43 3.00 28 5.40 38

R7 Delay by government in making

decision and approval

3.13 4 3.36 7 10.52 4

R8 Delay in issuing permits by

government

2.53 17 3.13 18 7.94 17

R9 Coordination problem among

government agencies related to

tollway

2.33 23 2.87 27 6.69 23

R10 Inability of government to fulfill its

responsibilities

2.60 14 3.27 13 8.49 12

R11 Problem with public acceptance 2.36 21 2.86 31 6.73 21

R12 Cash flow problems due to investor 2.79 9 3.43 5 9.55 6

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R13 Problem in managing income 2.15 29 3.08 19 6.64 24

R14 Agreement related problems 2.29 26 2.86 30 6.53 26

R15 Credit related problems 2.57 16 3.36 10 8.63 11

R16 Regulation related problems 2.29 27 2.71 37 6.20 29

R17 Limited financial transaction 1.86 42 2.86 34 5.31 39

R18 Exchange rate fluctuation 2.33 24 2.47 43 5.76 35

R19 Interest rate fluctuation 2.73 10 3.07 15 8.40 15

R20 Inflation 2.67 12 3.27 11 8.71 10

R21 Bankruptcy of consortium's member

or subcontractor

2.13 31 2.93 29 6.26 27

R22 Faults in tender specifications 1.60 49 2.73 36 4.37 48

R23 Lack of design innovation 1.87 38 2.40 48 4.48 47

R24 Faults in contractor's design 1.87 39 2.53 45 4.73 46

R25 Design change requested by

government

2.20 28 3.20 16 7.04 20

R26 Competition in tender 2.36 22 2.50 42 5.89 34

R27 Project feasibility 2.60 15 3.40 8 8.84 9

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R28 Delay in land acquisition 4.13 1 4.00 1 16.53 1

R29 Delay in payment related to land

acquisition

2.73 11 3.27 12 8.93 8

R30 Over budget in land acquisition 3.80 2 3.80 2 14.44 2

R31 Claim from community related to

land right

2.93 5 2.87 26 8.41 14

R32 Delay in construction 2.53 18 3.07 24 7.77 18

R33 Problems with subcontractors 1.87 40 2.67 40 4.98 42

R34 Over budget due to new safety

standard and environmental policy

1.93 36 2.53 47 4.90 43

R35 Cost over-run 2.87 7 3.20 14 9.17 7

R36 Lack of skilled or experienced

workers

2.07 33 2.71 38 5.61 36

R37 Problems related to construction

materials

1.87 41 2.29 49 4.27 49

R38 Severe weather causes low

productivity

2.67 3 3.17 41 8.46 13

R39 Change in construction plan due to

third party interference

1.93 37 2.53 44 4.90 44

R40 Low traffic volume 2.93 6 3.80 3 11.15 3

R41 Faults in toll system application 1.53 51 2.00 53 3.07 53

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R42 No increment in toll fee 2.87 8 3.60 4 10.32 5

R43 Fail in constructing the road feeders 2.67 13 3.07 17 8.18 16

R44 Change in plan of road network which

directly affecting the tollway

2.40 19 3.00 20 7.20 19

R45 Road users do not pay toll fee 1.40 55 1.67 55 2.33 55

R46 Unpredicted increment in personel

cost

2.33 25 2.67 39 6.22 28

R47 Unpredicted increment in operationalcost

2.40 20 2.80 32 6.72 22

R48 Increment of import fee 1.53 52 2.33 50 3.58 52

R49 Low traffic volume due to severe

weather

1.47 53 1.93 54 2.84 54

R50 Low achievement of tollway operator 1.73 44 2.80 35 4.85 45

R51 Technology related problems 1.67 47 2.20 52 3.67 50

R52 Environmental related problems 2.00 35 2.53 46 5.07 40

R53 Asset transfer problems 1.73 45 2.07 51 3.58 51

R54 Natural force majeure (act of God) 1.60 50 3.40 22 5.44 37

R55 Political force majeure (war, riot) 1.47 54 3.40 23 4.99 41

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Top 10 Risk Events

Based on the value of RI, the top ten risk events are

as follows:

Code Risk EventRisk Index

Score Rank

R28 Delay in land acquisition 16.53 1

R30 Over budget in land acquisition 14.44 2

R40 Low traffic volume 11.15 3

R7 Delay by government in making decision

and approval

10.52 4

R42 No increment in toll fee 10.32 5R12 Cash flow problems due to investor 9.55 6

R35 Cost over-run 9.17 7

R29 Delay in payment related to land

acquisition

8.93 8

R27 Project feasibility 8.84 9

R20 Inflation 8.71 10

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Allocation of Risks

Top 10 risks were allocated to:

1. Project stages

2. Suitable party (public or private or share)

Allocation based on previous study, result of

questionnaire survey and discussion with experts in

tollway.

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Risk Allocation to Project Stage

Rank Code Risk EventDevelop

ment

Pre-Construction

Construc

tionOperationDetailed

Design

Land

Acquisiti

on

1 R28 Delay in land acquisition

2 R30 Over budget in land acquisition

3 R40 Low traffic volume

4 R7 Delay in making decision and

approval by government

5 R42 No increment in toll fee

6 R12 Cash flow problems due to

investors

7 R35 Cost over-run in construction

8 R29 Delay in payment related to

land acquisition

9 R27 Project feasibility

10 R20 Inflation

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Risk Allocation to Suitable Party

Rank Code Risk Event Government

Highway or

Tollway

Company







6 R12 Cash flow problems due to investors 7 R35 Cost over-run in construction

8 R29 Delay in payment related to land

acquisition


10 R20 Inflation

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Land Acquisition Risks

Risks related to land acquisition:

1. Delay in land acquisition (R28)

2. Over budget (R30)

3. Cash flow problems due to investors (R12)

4. Delay in payment (R29)

Possible reasons:

Availability of cash.

Land price is not acceptable.

Land brokers and speculators.

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Land Acquisition under Government


Highway or

Tollway

Company









acquisition


10 R20 Inflation

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Land Capping110%


Highway or

Tollway

Company









acquisition


10 R20 Inflation

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Approval and Toll Fee Increment

Delay in making decision and approval (R7) and No

increment in toll fee (R42) are under government

control Governments responsibility.

R7 is at the development stage. While R42 is at the

operation stage.

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Low Traffic Volume

Directly related to income.

Allocated to tollway company?

Investment project so risk is under investor.

Share with government?

Attract investor to financially less feasible project.

Downside risk protection. Downside risk protection with clawback clause.

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Cost Overrun and Inflation

COST

OVERRUNManagement of

project

Change

order

INFLATION

Wrong cost

estimation

Tollway companyGovernment

Delay in

approval

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Project Feasibility

Exists in the Development and Pre-Construction

(Detailed Design) stages.

At Development stage (tender process), cost could

not be recovered if could not win the project.

At Detailed Design stage: limited information on

the Development stage (ground condition, shifting

the toll route due to problem in land acquisition).

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Conclusions

Proper identification and allocation of risks are

important to attract investors.

Regulations on risk allocation should be clearly

stated in the agreement.

Government is expected to be more proactive in

managing land acquisition risks.

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Acknowledgement

Toll Road Regulatory Board (Badan Pengatur Jalan

Tol)

PT. Citra Murni Semesta

Dr. Wimpy Santoso, Dr. Andreas Wibowo and Mr.

Harlan Pangihutan

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THE END

THANK YOU

Djoen San Santoso

Saitama University

[email protected]