Role of Ministry of Finance

to promote PPP

Infrastructure Development

MINISTRY OF FINANCE THE REPUBLIC OF INDONESIA

Centre for Fiscal Risk Management Fiscal Policy Office

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Freddy R. Saragih

Head of Center for Fiscal Risk Management

Fiscal Policy Office

Ministry of Finance the Republic of

Indonesia

Tokyo, January 2013

Grand Design:

Fiscal & Financial Support for PPP Infrastructure

Project

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Land Fund: To accelerate land acquisition of PPP projects;

Viability Gap Fund (VGF): To increase the financial viability of PPP project ;

Indonesia Infrastructure Guarantee Fund (IIGF): To guarantee for infrastructure risks;

Infrastructure Fund: To offer long term, mainly local currency, financing for infrastructure

projects;

GOI has also established Geothermal Fund Facility to enhance PPP geothermal projects

Fiscal & Financial Support for PPP Infrastructure Project

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Government of Indonesia

Land Fund Guarantee Fund (IIGF)

Infrastructure Fund (PT. SMI-IIFF)

Land Acquisition & Clearence

Policy Risks Project

Financing

Preparation Bidding Construction Operation

Viability Gap Fund

Construction Cost Contribution

Viability Gap Fund (VGF)

Click to edit Master title style Legal Context

Presidential Regulation (PR) No. 56/2011 as a second revision of PR No. 67/2005

concerning the Infrastructure Provision through Public-Private Partnership

In PR No.56/2011, Government is allowed to provide government support and

guarantee

Section 17A (4) Presidential Regulation No. 56/2011: Minister of Finance may

approve the provision of Government support in the form of tax incentives and/or

financial contribution based on the proposal from the Government Contracting

Agency (Minister/Head of Institution/Head of Local Government)

Minister of Finance Regulation Number 223/2013 concerning Construction Cost

Contribution for Public Private Partnership Project

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Objectives of VGF: 1. To increase the financial viability of the project so that private

sector’s interest to participate in PPP Projects;

2. To increase certainty of infrastructure project provision in

accordance to planned quality and timing; and

3. To increase the availability of infrastructure with affordable tariff for the community

“VGF is the government fiscal policy to support the infrastructure provision through the PPP scheme”

Objectives of VGF

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Click to edit Master title style Principles and Form of VGF

Principles of VGF

1. VGF is alocated by the Government through State Budget,

considering state budget ability, fiscal sustainability, and fiscal risk

management;

2. VGF will be provided only when there is no other practical alternative

to make the project viable

Form of VGF

1. In the form of cash to the project as a part of Construction Cost;

2. VGF does not dominate the financing of the project Construction Cost

of the project

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Click to edit Master title style Eligibility Criteria of VGF

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The project is economically feasible but not financially viable yet

User pay principle project

Minimum Investment Cost of Rp100 Billion (±US$10 Million)

Private investors are selected through open and competitive bidding under PPP

regulations.

The cooperation agreement should set up the asset transfer and/or asset

management scheme from the investors to Government Contracting Agency (GCA)

at the end of concession period

The feasibility study:

(1)Show the optimal risk allocation between investors and GCA;

(2)Conclude that the project is economically feasible (including technical, legal,

social, and environment aspect) and show that the project become financially viable

with the VGF support

VGF is applied only to sectors prescribed in Presidential Regulation 67/2005 and its

subsequent amendments

VGF amount becomes the only financial bidding parameter

Geothermal Public Private Partnership (PPP)

Project

Click to edit Master title style Public Private Partnership (PPP) Scheme

• Regulated by The Presidential Regulation number

67/2005, number 13/2010, and number 56/2011;

• To ensure a competitive, transparent, and

accountable bidding process;

PPP experience:

Central Java Power Plant:

Owner’s Estimate Price USD 7.1 cents/kWh

Winning Bidder’s Price 5.76

Saving (19%) USD 1.34 cents/kWh

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Click to edit Master title style Geothermal PPP Structure

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Investor

Geothermal Project Company

Local

Government

PT PLN (Persero)

Minister of

Energy and

Mineral

Resources

Lender Contractor

Geothermal

License (IUP) PPA

Recourse

Agreement

Electricity

Business

License

(IUPTL)

Geothermal

Fund Facility

Equity Debt EPC

PPP Facilities:

• Geothermal Fund Facility to

help mitigate exploration risks

• Government Guarantee to

ensure project bankability

Contracting Agencies Guarantee

Agreement MoU

Click to edit Master title style Geothermal Fund Facility

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Definition • Is intended to fund geothermal exploration

Objective

• Increase the contribution of renewable energy resources, especially geothermal energy in the energy mix

• to make the geothermal projects become financially viable and bankable by providing exploration data which is verified a reputable international institutions

Eligibility

• Local government to increase the data sufficiency of geothermal working areas before tendering

• Geothermal developers to do exploration

Size • Rp2 Trillion (cumulative in 2012), planned to be added annually

Government Guarantee for Infrastructure

Click to edit Master title style Guarantees on the Electricity Sector

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Support Letter

Confirmation Note**

Letter of Guarantee

Guarantee Agreement (PPP

Scheme)

Business Viability Guarantee Letter

1 Period / Project

Early 1990s/27 IPP (1st Gen)

Mid 2000/Cirebon (2nd Gen)

2009/10,000 MW Fast Track I – PLN EPC

Start at the end of 2011 (i.e. CJPP)

Start at 2011

2 Addressee Project Company • Lender (JBIC)* • Insurer (NEXI)*

Lenders Project Company Project Company

3 Issuer Ministry of Finance signed by Minister

Ministry of Finance signed by Head of Fiscal Policy Office

Ministry of Finance signed by Minister

• IIGF (and GoI) Ministry of Finance signed by Minister

4 Coverage Not stated Not stated Installment (Principal + Interest)

Detailed as per covered financial obligations of PLN as stated in the PPA

PLN’s payment of default

5 Terms of Payment of Claims

Not stated Not stated 45 days

• Definite number of days to each payment type, eg. Regular availability payments and termination payment ;

• Detailed claim and payment mechanism

Not stated

*) Under Umbrella Note of Mutual Understanding between the Ministry of Finance of the

Government of Republic of Indonesia and Japan Bank for International Cooperation (JBIC),

and with Nippon Export and Investment Insurance (NEXI)

**) 3 (three) Confirmation Note for 3 (three) IPP contracts (2.800 MW) : IPP Tanjung Jati B

3&4, IPP Paiton 3 and IPP Cirebon

Moving Forward:

Project Development Facility and PPP Unit

Click to edit Master title style Project Development Facility

Background:

Lack of capacity of Government Contracting Agency (GCA) in conducting project preparation of the PPP Project

The objectives:

Providing financial support and assistance to GCA for project preparation;

Providing GCA to access to the experts and consultants needed in the project preparation;

Providing assistance to GCA in proposing government support and/or guarantee)

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Thank You

Attachment

Click to edit Master title style Geothermal fund managed by PIP will reduce exploratory risk

prior to PPP tender

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Exploratory Well Drilling Resource Evaluation Well logging,

Testing

Geo-scientific

survey

Preliminary Survey

Detailed Survey

Exploratory Well Drilling

Feasibility Study

Plant Facility/ Steam Field Detail Design

Plant Facility Construction/ Steam Field Development

Plant Operation

Geothermal Fund Area