MINISTRY OF NATIONAL DEVELOPMENT PLANNING / NATIONAL DEVELOPMENT PLANNING AGENCY (BAPPENAS)

INFRASTRUCTURE DEVELOPMENT STRATEGY IN

Jakarta, 13 January 2011 AGENDA

Expenditure on Infrastructure Development

Infrastructure Development Achievement

Policy and Strategy on Infrastructure Development

PPP Development

National Connectivity

2 Expenditure on Infrastructure Development

3 Foreign Direct Investment Status

 The Indonesian government has been eager to attract private investment in infrastructure, and has employed a number of tools and enacted a variety of measures to facilitate investments and increase the number of public private partnerships (PPPs).

 The efforts of the government are proving fruitful as FDI in Indonesia has grown substantially over recent years, from US$ 6 billion in 2006 to US$ 10.8 billion in 2009 (Source: the Indonesia Investment Coordinating Board).

 This trend looks set to continue in 2010, with first quarter figures rising by 41% year-on-year (y-o-y) to US$ 3.92 billion. Strong sectors for investment continued to be the transport, storage and communications industry, which recorded US$ 941.5 million investment for 23 projects and the mining sector, which attracted US$ 711 million for 12 projects. Both of these sectors demand supporting infrastructure, and investment into the sectors has buoyed the construction sector. 4

Indonesia Infrastructure Investment Impact on Macro Economic

Stable GDP growth supported by Before1998, highIndonesia growth domestic consumption US$1924/capita GDP GDP followed by high investment on 15.0% infrastructure Ratio of Government Capital Expenditure 10.0% to GDP

5.0% GDP Growth Rate

0.0% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 -5.0%

-10.0%

-15.0% Year

5 Indonesia Logistics Cost

Japan 4.88 Indonesia (Avg) 14.08 Makassar 11.70 Medan 15.61 Surabaya 13.67 Jabotabek 15.32

0.00 5.00 10.00 15.00 20.00 Indonesia Jabotabek Surabaya Medan Makassar Japan (Avg) Logistics Costs 15.32 13.67 15.61 11.70 14.08 4.88

 Average Indonesia Logistics Cost, 14,08% from total sales (Japan Logistics Cost is 4,8% from total sales)

6 Government Expenditure

7 Government Expenditure for Infrastructure 2005-2009 (Rp Trillion)

70

60

50

40

30

20

10

0 2005 2006 2007 2008 2009

8 Public investment has recently increased, led by sub-national spending

Total investment in infrastructure by sources Total investment in infrastructure by sectors

8 8

7 7 6 6

5

5 4

4 % of GDPof %

3 GDPof % 3 2 2 1 1 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Central Sub-national SOE Private Transports Irrigation WSS Energy Telecom

World Bank , May 2010

9 Investment in PPP Project (2005-2009)

140

120

100

80 QUANTITY 60

40

20

0 Water PPP Power Toll Road IPP 10000 MW Port Airport Railway Supply Plant Operation 25 16 1 25 2 0 0 0 Construction 3 18 6 3 0 0 0 0 Preparation 51 118 28 24 14 7 11 6

Rp 790 Billion

Toll Road Power Plant Rp. 63.743 Trillion Water Supply Rp 52.999 Trillion 10 Infrastructure Development Achievement

11 Drinking Water and Sanitation

Drinking Water Coverage Sanitation Coverage 80 120

70 100 60 80 50

40 60

30 40 20

10 20

0 Target Realisasi 0 2004 2009 2014 Target Realisasi 2010 2010* 2004 2009 2014 2010 2010* AirDrinking Minum Water (%) 48.8 47.7 50.05 49.97 70 SanitasiSanitation (%) 38 51 54 53 100

12 Solid Waste

Percentage of Collected Solid Waste 21 20.63 20 19 18.41 18.03 18 17 16 2001 2004 2007

Cities in Indonesia produce solid waste 10 million ton/year 10 million ton of solid waste produce 404 million m3 of methane annually 13 Electricity

100.0%

90.0%

80.0%

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0% 2004 2009 EstimatedPerkiraan Achievement Capaian Target 2010 Target 2014 2010 2010 RasioElectrification Elektrifikasi Ratio 60.0% 66.3% 66.6% 67.2% 80.0%

RasioUrban Elektrifikasi Electrification Ratio Desa 89.2% 96.8% 97.0% 97.3% 98.9% Elastisitas Energi 1.7% 1.6% 1.6% 1.6% 1.4% Energy Elasticity 14 Telecommunication

100.0%

90.0%

80.0%

70.0%

60.0%

50.0% >

40.0%

30.0%

20.0%

10.0%

0.0% Estimated 2004 2009 AchievementPerkiraan Target 2010 Target 2014 Capaian2010 2010 Teledensitas Total Telekomunikasi Akses Total Teledensity 18.8% 86.1% 100.0% 75.0% 100.0% (PSTN, FWA, seluler) Desa BerderingVillages Covered USO by USO 17.2% 78.2% 90.0% 90.0% 100.0% JangkauanRatio of TVRI National Thd TVPopulasi to Population 32.9% 56.8% 60.0% 60.0% 88.0% 15 Irrigation

Irrigation Coverage

Million Ha Million

Planned 2010 Estimated 2010

Number of Dam

Planned 2010 Estimated 2010 16 Roads

120.0

100.0

80.0

Km

60.0

Ribu Thousand sKm Thousand

40.0

20.0

- 2004 2009 Terget 2010 EstimatedPerkiraan Achievement Capaian Target 2014 2010 Lajur Km 73.6 84.6 93.1 93.1 104.7

17 Railway

350.0

300.0

250.0

200.0

150.0

100.0

50.0

- 2004 2009 Target 2010 EstimatedPerkiraan Achievement Capaian Target 2014 20102010

PenumpangPassenger (Million (Juta People) orang) 149.6 207.1 220.0 218.0 302.0

BarangFreight (Juta (Million Ton) Ton) 17.5 18.9 20.1 19.2 27.5 18 Sea Transport

100.0%

90.0%

80.0%

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0% 2004 2009 EstimatedPerkiraan Achievement Capaian Target 2010 Target 2014 20102010 Domestik 54.0% 90.2% 98.0% 98.0% 100.0% Ekspor-Impor 3.5% 9.0% 10.0% 10.0% 15.0%

19 Air Transport

140.00

120.00

100.00

80.00

60.00

40.00

20.00

- 2004 2009 EstimatedPerkiraan Achievement Capaian Target 2010 Target 2014 20102010 Domestik 54.00 82.74 90.83 90.83 131.92 Internasional 10.80 16.10 18.08 18.08 28.75 20 Policy and Strategy on Infrastructure Development

21 Five-Year National Development Plan 2010 - 2014

22 Government Policy: …..To Boost Infrastructure Financing Up to 5% of GDP

2009 2010 2011 2012 2013 2014 Growth (%) 5,1 5,5 6,2 6,8 7,3 7,7 Nominal GDP (Rp Trillion) 5.206,5 5.989,5 6.718,3 7.632,3 8.611,0 9.523,3 Infrastructure Needs 5% GDP (Rp. Trillion) 260,3 299,5 335,9 381,6 430,6 476,2

Total of Infrastructure Needs (2010 – 2014) Rp. 1.923,7 Trillion (US$ 213,3 Billion)

23 Indonesia can afford to spend more on infrastructure development …because its fiscal and debt position is strong

Scenario 1: Low growth 2010 2011 2012 2013 2014 GDP growth (%) 3.5 4.5 5.5 5.5 5.5 Budget deficit (% GDP) -1.6 -1.4 -1.1 -0.9 -0.8 Public debt to GDP ratio (%) 32.9 32.2 30.8 29.3 27.8 GoI gross financing needed (IDR trillion) 221 223 216 218 248

Scenario 2: Business as usual 2010 2011 2012 2013 2014 GDP growth (%) 5.4 6.0 6.2 6.2 6.2 Budget deficit (% GDP) -1.6 -1.4 -1.1 -0.9 -0.8 Public debt to GDP ratio (%) 31.9 30.8 29.2 27.6 26.0 GoI gross financing needed (IDR trillion) 224 228 223 226 258

Scenario 3: Big push 2010 2011 2012 2013 2014 GDP growth (%) 5.6 6.4 6.8 7.0 7.2 Budget deficit (% GDP) -2.6 -2.4 -2.1 -1.9 -1.8 Public debt to GDP ratio (%) 32.8 32.4 31.5 30.4 29.2 GoI gross financing needed (IDR trillion) 284 298 304 324 375

Scenario 4: Bigger push 2010 2011 2012 2013 2014 GDP growth (%) 5.6 6.5 7.1 7.4 7.6 Budget deficit (% GDP) -2.6 -2.6 -2.6 -2.6 -2.6 Public debt to GDP ratio (%) 32.8 32.6 32.1 31.5 30.9 GoI gross financing needed (IDR trillion) 284 307 343 388 463 World Bank Jakarta, May 2010 24 Infrastructure Financing Gap

2,000.00 323,67 T 1,800.00 1,600.00 Private

923,7 T 923,7 Extra Government

. 344,67 T 1

1,400.00 effort required to enable private 1,200.00 SOE 340,85 T funding. 1,000.00

TOTAL Rp TOTAL Local Gov 800.00 355,07 T 600.00 400.00 Central Gov 559,54 T 200.00 - Investment Need 2010-2014 Estimated Financing Capacity Gap

• Central Government budget can only cover 7% growth target requires: 29.1 % of total investment need. Rp 1.923,7 Trillion (about US$ 213,3 billion) of investments during 2010-2014. • Big opportunity for private investment through PPP (Rp 668,34 Trillion25 or 34.7%). 25 Strategy on Infrastructure Development in Five-year National Development Plan 2010-2014

• Increasing infrastructure’s level of service to comply with minimum standard of service.

• Supporting the improvement of real sector competitiveness.

• Enhancing Public Private Partnership: – Shifting government role to be facilitator or enabler. – Focus on service sustainability through efficient and effective investment.

• Dual Track Strategy: – Developing infrastructures which accelerate goods and information flow, and – Encouraging industrialization program through regional centers development in 6 Priority Economic Corridors. 26 Infrastructure Program Priority in 2010 - 2014 PRIORITY PROGRAM NO SECTOR PROGRAM EXAMPLE OF PRIORITY ACTIVITY 1 Energy Renewable Energy Development Program and Energy Development of oil and gas infrastructure Conservation EBT development; partnership program in the framework of energy conservation and efficiency 2 Electricity Program of Quality and Quantity Enhancement of Development of power plant, transmission network, main Electricity Infrastructure which is Environmentally substation, distribution network, and distribution substation Friendly Urban Electricity Development Program Post, Telecommunication and Information Sector Stabilization Program 3 Post, Telecommunication Enhancement, Equality, and Development of Post, Implementation of sector reformation and Information Telecommunication and Information Infrastructure Technology Quality Program Development of Post, Telecommunication and Information Infrastructure 4 Roads, and Land Road Services Program Development of toll road and cross road Transportation Land Transportation Services Enhancement Program Development of scout land transportation

5 Sea Transportation Sea Transportation Services Enhancement Program Development of port and procurement of commercial ship

6 Air Transportation Air Transportation Services Enhancement Program Development of airport and Scout Air Transportation 7 Railways Railways Services Enhancement Program Greater Jakarta Mass Rapid Transit and Jakarta – Surabaya High Speed Rail 8 Water Resources Water Resources Conservation Program Development of reservoir Water Resources Utilization Program Rehabilitation/Enhancement of Irrigation Network, land water and swamp; bulk water fulfillment Water Resources Damage Control Program Control of rural flood and coastal protection 9 Housing and Settlement Housing Development Program Provision of owned and rented residential

Sanitation and Drinking Water Development Program Drinking water provision, development of waste water system,

Settlement Quality Enhancement Program Arrangement of slum area; urban quality enhancement 27

Infrastructure Financing Scheme

GOI INFRASTRUCTURE PRIVATE INVESTMENT PLAN INFRASTRUCTURE Government Guarantee

Public Private State Budget Private Sector Partnership (APBN) (PPP)

External Domestic External Financing PPP Loans/Grants Sources (PHLN) (Rupiah) To fund Government priority • For financially viable projects with high economic projects with high and social returns such as economic returns; roads, geothermal power • Minimum requirement plant for government PPP Blue Book support and or Book guarantee 28 PPP Development

29 Private Participation in Infrastructure is Increasing

$8,000 Water and Sewage $7,000 Transport

$6,000 Energy Telecom $5,000

$4,000

US$ Millions US$ $3,000

$2,000

$1,000

$0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

World Bank Jakarta, May 2010 30 The Changing of Infrastructure Laws

Open infrastructure industry and market for private investors

Sectors New Laws Telecommunication Law Number 36/1999 Oil and Gas Law Number 22/2001 Road & Bridge Law Number 38/2004 Railway Law Number 23/2007 Sea Transport & Port Law Number 17/2008 Air Transport & Airport Law Number 1/2009 Land Transport Law Number 22/2009 Electricity Law Number 30/2009 Water Law Number 7/2004 31 Implementation of Financing Alternatives on PPP Scheme

Project Feasibility Scheme

Private Economically viable 1 Hybrid Financing Financially not viable Public

Private PPP with Economically viable 2 Government Financially Marginal Public Private Support

Private Economically viable 3 Regular PPP Financially viable Private

Operation and Maintenance Construction 32 Policy on PPP In Five-Year National Development Plan 2010-2014

. Creating successful PPP model projects. . Implement Projects listed in PPP Book. . Strengthening PPP institution at all level of government. . Streamlining PPP process. . Proper project preparation to reduce unnecessary transaction cost. . Provide government support in state budget.

33 Agenda for PPP Development

 Land:  Completion of Land Act in 2010  Provision of Land Fund in State Budget (on top of regular allocation)  Land provision by the Government:  Financially viable project  Loan to project  Financially marginal/non viable project  Subsidy to project  Allocation of government support in State Budget  PPP One Stop Service  Tax Holiday for infrastructure investor  Project Development Facility Revolving Fund  Exploration suitable PPP financing scheme  Guarantee Fund enhancement.

34 Government Support for Private Investment in Infrastructure

• Government support is divided into: • Direct/non-contingent support (including: fiscal contribution, land, permits, tax incentive, part of construction, etc ) • Contingent support (Government guarantee). • Government guarantee can cover one or more Contracting Agency’s obligations pertaining to: • Land acquisition • Revenue risk

• Licenses, permits, and approvals • Demand risk

• Financial close delay/failure • Pricing risk • Change in law/regulations • Enforcement risk • Breach of contract • Standalone termination risk • Integration with network

• Government has to provide land prior to tender. However, Government has an option to reimburse land cost if the project financially viable. 35 Creating The Environment for PPP

Government of Indonesia

Legal and Regulatory Framework

Land Acquisition Guarantee Fund Infrastructure Fund PDF P3CU Fund (PT PII) PT SMI – PT IIF

Financial Private Investor SYNERGY Institution/ Lender

To Promote Infrastructure Development Growth Through PPP

PPP Project Pipeline

*) Almost all the PPP element are available the question are how can they synergize all the components 36 PPP Infrastructure Project Pipeline

1. Project Ready for Offer 3. Potential Project Project Cost Project Cost No Sector/Sub-sector Number No Sector/Sub-sector Number (US$ Million) (US$ Million) 1 Marine Transportation 1 36.00 1 Land Transportation 2 274.00

Total 1 36.00 2 Marine Transportation 11 2,859.29

3 Air Transportation 7 1,557.80 2. Priority Project 4 Railways 9 9,547.30 Project Cost No Sector/Sub-sector Number (US$ Million) 5 Toll Road 17 19,261.33 1 Toll Road 18 7,591.57 6 Water Supply 18 1,327.50 2 Water Supply 6 521.87 7 Solid Waste and Sanitation 3 57.27 3 Solid Waste and Sanitation 3 220.00 8 Power 5 4,045.00 Total 27 8,333.44 Total 72 38,929.49

Total Investment: US$ 47,3 Billion (100 Project)

37 PPP Projects Ready for Transaction in 2011

Investment No Projects Contracting Agency Estimation (US$ Million)

01 Southern Water Treatment Facility Bali Provincial Government 59.1 02 Purukcahu-Bangkuang Coal Railway Provincial Government 2,100.0 03 Maros Water Supply Maros Regency 12.9 04 Tanah Ampo Cruise Terminal MoT 36.0 05 Bandung Solid Waste Management (unsolicited) Bandung City 86.0 06 Surakarta Solid Waste Management (unsolicited) Surakarta City 7.4 07 Southern Airport Banten Provincial Government 85.0 08 Umbulan Water Supply East Provincial Government 204.2 09 Jatiluhur Water Supply MPW 189.3 10 Medan - Kuala Namu – Tebing Tinggi Toll Road Toll Road Agency 475.5 11 Independent Power Producer PT. PLN 3,000.0 12 Soekarno Hatta Airport – Manggarai Railway MoT 735.0

13 Bridge Development Board for Sunda Strait Strategic Area 25,000.0

14 Pondok Gede Water Supply City 22.4

15 Soreang-Pasir Koja Toll Road Toll Road Agency 102.2

16 Pandaan-Malang Toll Road Agency 252.8 38 PPP Projects under Preparation in 2011

Investment No Projects Contracting Agency Estimation (US$ Million) 1 Jakarta Project Jakarta Provincial Government 496.5 2 Gedebage Integrated Terminal City of Bandung 269.0 3 Consolidated Redevelopment of Banda Terminal City of Aceh 22.7 4 Palembang Multimode Terminal City of Palembang 134.0 5 Pekanbaru Cargo Terminal City of Pekanbaru 140.0 6 Water Supply City of Serang 16.9 7 Palu Water Supply City of Palu 13.5 8 Lamongan Water Supply Lamongan Regency 13.6 9 Malioboro Station Revitalization City of Yogyakarta 137.5 10 Krabayakan Spring Water Supply Malang Regency 21.9 11 South Cimahi Water Pollution Control City of Cimahi 52.2 12 Cimahi Water Supply City of Cimahi 18.5

39 National Connectivity

40 National Connectivity Framework

Regional Development

Domestic Connectivity National ICT - Intra island Transportation - Inter island System - International

National Logistic System 41 VISION OF CONNECTIVITY DEVELOPMENT LOCALLY INTEGRATED, GLOBALLY CONNECTED

3 Level Connectivity

City Town

Town Island Asia

City Indonesia Town Town International City Island Europe Gateway Town

City Town Town Island America

Town City

Among Growth Poles Within Growth (sub-regions) Poles (urban) Inter-island International Intra-island

LOCAL Connectivity NATIONAL Connectivity GLOBAL Connectivity 42 Ways to improve Intra-island connectivity: Railways

 For Kalimantan and , rail will be needed to link coal deposits to ports . Largely funded by PPP coal concessionaires

 On Java, driving force for railway revitalization will be passenger services . Could be competitive with road and air transport within 5-10 years . And also open up niche opportunities for freight services between industries and their markets (Aqua) . High-speed passenger trains (>US$28 billion) are too expensive now, but upgrading passenger/freight services (

43 Ways to improve Intra-island connectivity: Roads (Trans-Java Expressway)

 Trans-Java Expressway would more than half travel times between Surabaya and Jakarta: from 20 hours to 8 hours. Link major urban centers on Java and provide access for towns and rural areas to markets. . Benefits in the transport of perishable goods throughout and from Java. . Trans-Java can make all Java ports inter-connected and thus become a gateway to international and domestic markets.  Major investment of US$5 billion to connect and upgrade 900 km of roadway . Link major urban centers on Java and provide access for towns and rural areas to markets.  15 segments shared among 9 concessionaires  Government should also acquire land (US$1.5 billion) in return for shares  Benefits to other sectors: Because of traffic congestion, trucks can make only one round trip per day from Jakarta’s main industrial sites to Tanjung Priok port. As a result, trans-shipment costs are double those in Malaysia and Thailand.

44 The projects in Java are urgent and necessary because

Successful projects can have a large poverty reduction impact  Largest poor population (approx. 20 million) is in Java, more than double compared to the second largest in Sumatra (approx 7 millions)

Successful projects can generate growth and thus fiscal revenues that can be redistributed throughout the country  The bigger the pie, the larger the slices for everyone  Need a clear fiscal transfer policy with local governments

Java is the gateway from Indonesia to the world

 So the pie can be even bigger than the domestic market alone

45 Inter-island freight flow

> 100 Million Ton I Billion Ton 50 Million – 100 Million Ton 15 Million – 50 Million Ton 750 Million - 1 Billion Ton 1 Million – 15 Million Ton 250 Million – 750 Million Ton 0 – 1 Million Ton 50 Million – 250 Million Ton 1 Million – 50 Million Ton

46 Reducing the cost of Inter-island shipping

 Trend back to regulation over past decade

 New Shipping Law (2008) reinforces regulatory powers, including cabotage . Protects domestic industry rather than promoting domestic trade . But also simplifies licensing of shipping . And provides scope for separating port regulation and operation, and competition between terminals and ports

 A lot will depend on how the Law is interpreted in regulations

 Port innefficiencies are also part of the problem

47 Connecting Eastern Indonesia

 Case for subsidized pioneer shipping services for Eastern Indonesia . But don’t distort the whole shipping industry . Provide subsidies transparently in the budget with competitive bidding (PSO) . Doesn’t need major port development (look at the example of RO-RO services in the Philippines)

 Similar arguments may apply for telecommunications . Extending Palapa Ring to . Building network backbone to interior

48 Six Economic Corridors Development

49 Thank You

50