Innovative Infrastructure Financing Through Value Capture in Indonesia

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Innovative Infrastructure Financing Through Value Capture in Indonesia Innovative Infrastructure Financing through Value Capture in Indonesia Indonesia needs significant infrastructure investment to sustain its economic growth. However, the coronavirus disease (COVID-19) pandemic has further limited the fiscal space of the government. This report proposes a new method to increase infrastructure investment based on the concept of value capture. The report studies how Indonesia’s existing policies and regulations can be used to build a value capture framework that ensures the maximization of the social, economic, and environmental value of infrastructure investments. The framework focuses on strategies to deliver infrastructure projects that create greater value CAPTURE IN INDONESIA VALUE FINANCING THROUGH INFRASTRUCTURE INNOVATIVE and, at the same time, generate funding for up-front investment. About the Asian Development Bank ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members —49 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. INNOVATIVE INFRASTRUCTURE FINANCING THROUGH VALUE CAPTURE IN INDONESIA MAY 2021 ASIAN DEVELOPMENT BANK 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines ASIAN DEVELOPMENT BANK www.adb.org Coordinating Ministry for Economic Affairs Republic of Indonesia INNOVATIVE INFRASTRUCTURE FINANCING THROUGH VALUE CAPTURE IN INDONESIA MAY 2021 Coordinating Ministry for Economic Affairs Republic of Indonesia Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2021 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 8632 4444; Fax +63 2 8636 2444 www.adb.org Some rights reserved. Published in 2021. ISBN 978-92-9262-852-9 (print); 978-92-9262-853-6 (electronic); 978-92-9262-854-3 (ebook) Publication Stock No. SPR200093-2 DOI: http://dx.doi.org/10.22617/SPR200093-2 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at https://www.adb.org/terms-use#openaccess. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda. Notes: In this publication, “$” refers to United States dollars, “Rp” refers to Indonesian rupiah, unless otherwise stated. ADB recognizes “Hong Kong” as Hong Kong, China. Cover design by Rhommell Rico. Photo credits (clockwise from left): South Central Business district in Jakarta by AsiaTravel/Shutterstock.com; Jakarta MRT Bundaran HI Station by Shalstock/Shutterstock.com; View of Ampera bridge in Palembang by wide in creative/ Shutterstock.com; Jakarta LRT by Joko SL/Shutterstock.com. iii Contents Contents ................................................................................................................................................................................ iii Tables and Figures ................................................................................................................................................................ v Foreword.............................................................................................................................................................................. viii Acknowledgments ............................................................................................................................................................... ix Abbreviations .........................................................................................................................................................................x Foreign Exchange Rates .................................................................................................................................................... xiv Executive Summary ............................................................................................................................................................ xv 1. Introduction: A Whole-of-Government Approach to the Funding and Financing of Urban and Transport Infrastructure .................................................................................................................. 1 1.1. Challenges ..........................................................................................................................................................1 Challenge #1: Addressing the need for Urban and Transport Infrastructure ................................... 1 Challenge #2: Fiscal Constraints ............................................................................................................... 2 Challenge #3: Project Viability ................................................................................................................... 3 Challenge #4: Silos Within Government .................................................................................................. 4 1.2. Solution: The Virtuous Value Cycle ............................................................................................................... 4 Definitions to Provide a Common Vocabulary ........................................................................................ 4 Virtuous Value Cycle ....................................................................................................................................6 Introduction to the Seven Principles of Value Creation and Value Capture ..................................... 8 Framework for Assessing Value Capture Readiness .............................................................................16 1.3. Outcomes .........................................................................................................................................................17 Alignment with the United Nations Sustainable Development Goals .............................................17 Improved Project Viability and Improved Investor Confidence ........................................................18 Fiscal Discipline and Fiscal Stability .......................................................................................................19 2. The Regulatory and Institutional Frameworks for Value Capture Implementation in Indonesia ............................................................................................................................................. 20 2.1. Regulatory Frameworks .................................................................................................................................20 Regulatory Framework for Public Finance .............................................................................................20 Regulatory Framework for the Planning of Urban and Transit Infrastructure .................................24 Regulatory Framework for Land Management ......................................................................................30 Regulatory Framework for Building Management ...............................................................................34 Regulatory Framework for Investment ...................................................................................................36 2.2. Institutional Framework .................................................................................................................................37 2.3. Identified Barriers, Constraints, and Challenges ......................................................................................37 3. The Value Creation Framework............................................................................................................. 40 3.1. Economic Theory of Value Creation ...........................................................................................................40 3.2. Case Studies of Value Creation ....................................................................................................................41
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