Can PPP Contracts Improve the Performance of the National Road Sector? | 27 - 52
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Josep Bely Utarja | Can PPP Contracts Improve the Performance of the National Road Sector? | 27 - 52 ISSN: 2599-1086 | e-ISSN: 2656-1778 | Vol. 2 | No. 1 Can PPP Contracts Improve the Performance of the National Road Sector? Josep Bely Utarja Universitas Prasetiya Mulya, Jakarta Corresponding author: [email protected] ABSTRACT This article aims to provide answer to two questions related to the use of whether Public-Private Partnership (PPP)- typed contract for national road preservation projects. The first question is whether this type of contract can be easily adopted by this sector. The second is how value for money can be achieved by using this type of contract. To answer those questions, firstly, the article begin with highlights of the institutional environment of national road preservation project contracts. After that, types of contracts that have been used in this sector are discussed. PPP-typed contract is then compared with those contracts based on its characteristics and its potential to achieve value for money. Quantitative value for money assessment using Public Service Comparator (PSC) is then discussed to provide additional basis to identify when the PPP-typed contract gives value for money. The last section provides conclusion on how PPP-typed contract can increase the value for money of a national road preservation project. This article argues that in order to be able to implement PPP-type contract, both the public and the private sector should focus on service level agreement from the project rather than inputs for the project. Value for Money can be achieved using the contract if risks transferred from the Government to business / private entity is significant enough so that the combination of both incentives and the entity’s capability can reduce the total cost of risks more than to compensate the difference between the entity’s cost of capital and the Government cost of capital. In this case, the scale of the project is also important, given the complexity of PPP contract resulted in relatively higher transaction costs compare to other types of contracts. Keywords: PPP, performance-based contract, Value for Money, risk allocation, public service comparator SARI PATI Artikel ini bermaksud memberikan jawaban atas dua pertanyaan terkait penggunaan jenis kontrak Kerjasama Pemerintah dan Swasta (PPP) untuk proyek pemeliharaan jalan nasional. Pertanyaan pertama adalah apakah jenis kontrak ini dapat dengan mudah diadopsi oleh sektor ini. Yang kedua adalah bagaimana optimalisasi pemanfaatan anggaran pemerintah (value for money) dapat dicapai melalui penggunaan jenis kontrak ini. Untuk menjawab pertanyaan-pertanyaan itu, pertama, artikel mengulas lingkungan kelembagaan dari suatu kontrak proyek pemeliharaan jalan nasional. Setelah itu, dibahas jenis-jenis kontrak yang telah digunakan di sektor ini. Jenis kontrak PPP kemudian dibandingkan dengan jenis-jenis kontrak-kontrak yang telah ada di sektor ini berdasarkan karakteristik dan potensinya untuk mencapai value for money. Asesmen value for money kuantitatif menggunakan Pembanding Sektor Publik (PSC) kemudian dibahas, untuk memberikan basis tambahan mengenai bagaimana jenis kontrak PPP berpeluang memberikan value for money. Di bagian terakhir disimpulkan tentang bagaimana kontrak PPP dapat meningkatkan value for money pada proyek pemeliharaan jalan nasional. Artikel ini berpendapat bahwa untuk bisa mengimplementasikan jenis kontrak PPP, sektor publik dan swasta harus dapat bersama-sama lebih fokus pada standar tingkat layanan yang harus disediakan oleh proyek, dibandingkan pada input yang harus dimiliki oleh proyek. Value for money dapat dicapai melalui jenis kontrak PPP apabila risiko-risiko yang dialihkan dari pemerintah kepada swasta cukup signifikan, sehingga kombinasi insentif dan kemampuan swasta dalam mengurangi total biaya risiko, dapat 27 Journal of Infrastructure Policy and Management | Vol. 2 No. 01 (2019) lebih mengkompensasi besar selisih antara biaya modal swasta dengan biaya modal pemerintah. Dalam hal ini, skala proyek juga menjadi penting, mengingat kompleksitas kontrak PPP menyebabkan biaya transaksi yang relatif lebih tinggi dibandingkan dengan jenis-jenis kontrak lainnya. Kata Kunci: Kontrak PPP, kinerja berbasis kontrak, Value for Money, alokasi risiko, pembanding sektor publik Copyright © 2019, Journal of Infrastructure Policy and Management INTRODUCTION previous maintenance activities. Those factors In order to fulfill its obligation to provide public – added with limited available budget - are services, the Government of Indonesia (GOI) also making it difficult to make appropriate builds infrastructure. One of the most important expenditure planning to avoid delays in infrastructures provided by the Government maintenance. As a result, the roads remaining is the national road. Through the provision service life are becoming shorter than planned of roads, the GOI provides basic services of performance and the long run costs to preserve mobility that can encourage interactions, steady roads conditions are becoming higher. collaborations, and transactions in the society. Those fruitfull activities from the basic services This has been the concern of the Directorate will in turn promote the country’s economic and General of Highways (DGH) for many years. social growth. DGH has been developing norms, standards, criteria, procedures, coordinates with related Over the period of 2015 - 2019, the GOI has a stakeholders and implements certain types target to build 2,650 km of roads, improve 3,073 of contracts with business entities. This type km of road and reach 47,017 km of maintained of contracts are aimed at optimizing the value road. In 2019, the GOI also has a target to reach: of every one rupiah budget used for roads 98% of roads in stable condition, 2.2 hours / 100 construction, improvement and preservation. km travel time in the main corridors, and 133 Traditionally the type of contract used is billion vehicle kilometres of traffic flow level. swakelola (direct labor-based force account system). However, due to large coverage The estimated total budget required for areas and the existence of regional autonomy maintaining, improving and constructing policies, this centralistic system should be more roads over the above period is Rp. 221.3 selectively used. Types of contracts that are trillion (Ministry of Public Works and Public commonly used – by using local resources - are Housing (MPWPH)’s Strategic Plan for 2015- Design-Bid-Build (DBB) contract. In this contract, 2019, 2015). Nevertheless, it is recognized the scope of work of the business entities that accurate estimations of road maintenance includes reconstruction, rehabilitation and then budget, especially in the two main corridors, continued with 1 to 3 years maintenance period. is not easy to be done. The reason is that In 2011, DGH decided to conduct trial of there are risks factors that increase the costs Performance-Based Maintenance Contract required to maintain the roads conditions, such (PBMC). With this type of contract, it was as: overloading, inadequate quality of design expected that innovations emerging from the and construction, poor drainage conditions, competition can help DGH to save national road unfavorable weather conditions and ineffective maintenance budget. However, due to variable 28 Josep Bely Utarja | Can PPP Contracts Improve the Performance of the National Road Sector? | 27 - 52 remaining service life of road segments, the latter regulatory environment makes it more scope of the contract is then expanded to possible to apply performance-based contracts include construction work (betterment or that are not based on inputs or methods3. reconstruction). Trials were done on several Efficiency and effectiveness - or in this case national road segments in North Java and one often referred to as Value for Money (VfM) - is road segment in Central Kalimantan. the goal of PPP contract implementation by way of optimal allocation of risk. In PPP contract, Based on the trial experiences, it turns out that the scope of work of business entity includes: it was not easy to formulate a performance- design, finance, construction and maintenance; based contract that is clear for both contracting in a relatively long period of time. The business parties and in accordance with road conditions entity will receive payment in the form of as well as the existing regulatory environment. Availability Payment (AP) if the service provided The DGH finally decided not to use this type of complies with the specified standard stipulated contract, at least in the near future. In addition, in the PPP agreement. the National Audit Board (Badan Pemeriksa Keuangan / BPK) requested the MPWPH to The question is, whether the application of PPP reconsider the utilization of this type of contract contract can be easily done in the national road because it was not supported by the existing sector? The second question is, how far the legal framework. PPP scheme can increase VfM of the national road maintenance budget? To answer both To replace the PMBC contract, DGH decided to questions, this article discuss related issues in use the Long Segment contract. The duration of the following order: (1) an overview of national this contract is shorter than the PMBC contract - road sector institutional environment; (2) types that can reach 10 years -, ie 1 to 3 years. Selected of road maintenance contracts that have been business entities are expected to undertake used by DGH; (3) PPP and VfM definition