Coping with The Crisis: ’s Experience

DR Bambang Susantono Deputy Minister for Infrastructure and Regional Development Coordinating Ministry for Economic Affairs ABSTRACT 1. Up to now, the Indonesia macroeconomic performance is quite robust 2. The effect of Global Financial Crisis to PPP is not significant/ difficult to be measured since only limited PPP projects are under construction and most are under preparation 3. Stimulus Package on Infrastructure is designed to maintain the overall economic performance and not for PPP projects directly 4. The future of PPP role highly depends on the government policy and commitment Exchange Rate and Stock Market Rupiah has been appreciating steadily, meanwhile the stock price indices has increased. Condition

As per Oct. 5th 2,480.41

As per Oct. 5th 9,575

3 Consumption Domestic Consumption increases…..

4 Indonesia’s Sovereign Bond Moody’s Credit Rate

Ba2

Ba3 Ba3

B1

Oct‐07 Dec‐09 Feb‐08 Sep‐09

Indonesia’s credit rate showed a betterbetter performanceperformance from periodperiod to period for thethe past two years.years. A betterbetter rate means that thethe riskrisk level of investing environmentenvironment in Indonesia is decreasing.decreasing.

5 Source: World Bank, 2009

Indonesia marked 4% economic growth in 2nd of 2009 or higher than several industrial Countries such as Britain, US, South Korea, and Russia.

Page 6 Mega Kuningan Bombing effects to severalseveral Indonesia’s macroeconomic indicators

Indonesia’s Exchange Rates Movement May 1st – July 18th 2009 Indonesia economic fundamental is strong IHSG Movement enough to prevent the bad effect of JW Marriot July 1st –24th 2009 and Ritz Carlton bombing getting worsen. The bombing effects to IHSG only in short term. On A week after the bombing, Rupiah’s exchange the day when the bombing happen, IHSG fell to rate was appreciated. 2000 but a week after IHSG increased to the level of 2100.

Page 7 Indonesia’s Infrastructure Index Movement July 1st –24th 2009 Infrastructure index was not affected at all. It Indonesia’s Property Index Movement even increased 1.36 points on the day of the July 1st –24th 2009 bombing. Property sector index was slightly affected. On the day of the bombing, it fell 0.37 point but increased 2.59 points again 3 days after the bombing.

Page 8 Page 9 Infrastructure Policy STATUS Infrastructure Road Map 2005‐2009 DONE

Policy and Sectoral Restructurization (Rearranging for Regulator and Operator) ON GOING RegulationRegulation Reformation New Sectoral Laws DONE New Implementation Regulation ON GOING

Improving State Budget ON GOING Improving Improving State Budget the Multi‐year contract for priority projects ON GOING Effectivity of State Budget E‐Procurement to accelerate the procurement ON GOING Projects Implementation of Medium Term Expenditure Framework (MTEF) ON GOING

Infrastructure Fund (PT. Sarana Multi Infrastruktur) DONE Risk Management Unit under Ministry of Finance DONE

Government Guarantee Fund (PT. Penjaminan Infrastruktur Indonesia) ON GOING Support for PPP projects Land Revolving Fund and Land Capping ON GOING (Public‐Private Land Freezing and Independent Land Appraisal ON GOING Partnership) Project Development Facility –PDF to improve FS quality ON GOING

Guidelines of Doing Business in Infrastructure NOT STARTED Page 10 1400

US$25B Allocation on Gov.Budget 2009 = 2 times of Allocation on Gov.Budget 2005 1200 APBN 17% (Rp.225T)

1000 US$30bn Domestic (Rp.270T) Fund 21% 800 US$ 88.611 145B Donor US$10B 600 (Rp.90T) 79.122 (Rp1305T) US$90B Funding Private 64.387 400 (Rp810T) Gap Sector (62%) US$80B (Rp720T) 200 47.813 41.868

0 *Calculated for Indonesia Infrastructure Summit 2005

Increasing government fund

Notes: 1. This figure doesn't include APBN for Ministry of Agriculture and Ministry of National Education. 2. Included Ministry: Ministry of Public Works, Ministry of Transportation, Ministry of Energy and Mineral Resources, Ministry of Communication and Information, State Ministry of Public Housing. 3. State Owned Included: Angkasa Pura 1 & 2, Pelindo 1 & 2, Jasa Marga, PGN, Telkom and PLN. 11 REGULATIONS Completed In Progress

LAW Law No. 7/2004 on Water Resources Law No. 38/2004 on Road and Toll Road Law No. 23/2007 on Railways Law No. 30/2007 on Energy Law No. 11/2008 on Information & Electronic Transaction Law No. 17/2008 on Sea Transportation Law No. 18/2008 on Garbage Management Law No. 1/2009 on Aviation Law No.4/2009 on Mineral and Coal Law 22/2009 on Road Traffic Law on Electricity (approved by DPR) Government GR No.1/2008 on Government Investment GR Draft on Operational of Information GR No.38/2008 on Asset Management and Electronic Transaction Regulation GR No. 42/2008 on Natural Resources Management GR Draft on Lawful Interception GR No. 43/2008 on Ground water GR Draft on Strategic Data Processing GR No. 75/ 2008 on Capital Injection of Government of Indonesia for Establishment of Infrastructure Financing GR Draft on Swam Corporation GR Draft on River GR No. 35/2009 on Capital Engagement of Government GR Draft on Basin and Dam of Indonesia for Establishment of Infrastructure GR Draft on Operational on Railways Guarantee Corporation Infrastructure GR No. 15/2005 on Toll Road GR Draft on Railways Traffic GR No. 28/2005 on Non‐Tax Government Revenue GR 16/2005 on Drinkwater Provision System GR Draft on Navigation Development GR Draft on Seaport GR No. 3/2005 on Electricity Provision and Utilization GR Draft on Water Transportation

Page 12 Infrastructure Competitiveness 2008‐2009 World Competitiveness Report, 2008 – 2009 (134 countries) World Competitiveness Report, 2009 – 2010 (133 countries)

Argentina Indonesia Philippines Brazil Korea China Vietnam Malaysia

2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009

Infrastructure 89 94 96 96 94 98 98 81 18 20 58 66 97 111 19 27

Roads 89 84 105 94 94 104 110 106 13 14 51 50 102 102 17 24

Railroad 76 78 58 60 85 92 86 86 7 8 28 27 66 58 17 19

Port 92 85 104 95 100 112 123 127 29 36 54 61 112 99 16 19

Air Transport 123 113 75 68 89 100 101 89 26 21 74 80 92 84 20 27

Electricity 102 97 82 96 82 87 58 55 21 21 68 61 104 103 71 39

Telephone 57 52 100 79 105 103 62 61 17 23 47 49 37 36 31 72

Source: World Competitiveness Report 2008‐2009 World Competitiveness Report 2009‐2010 Page 13 Indonesia : Overall Ranking and Competitiveness Factors

2005 2006 2007 2008 2009

Overall 50 52 54 51 42

Economic Performance 51 53 55 52 41 Government Performance 45 45 46 38 33

Business Efficiency 50 49 45 44 38

Infrastructure 51 53 54 53 55 Source: IMD World Competitiveness Book 2009

Page 14 15 Surabaya – Madura Bridge ( total span 5,4 km, longest span 818 m, approach access 11,4 km in Madura side and 5,4 km in Surabaya side , total investment Rp. 5,4 T (US$ 500 million), operated in June 2009) 16 Trans Jawa Toll Road

DKI 652,32 KM Serang Jakarta

Cikampek 397,20 KM 177,12 KM 78,00 KM 1 Palimanan

Pejagan Pemalang Semarang Ciranjang Kanci 2 (K) Demak 3 4 Batang 5 Ngawi Jawa Tengah Surabaya Jawa Barat (K) 6 Solo Mojokerto 10 7 8 9 Kertosono Gempol Pasuruan Yogyakarta Pandaan Probolinggo DIY Jawa TimurMalang

Banyuwangi

Kanci Pejagan Toll Road Project Land Project Project Preparation Acquisition Operation Tender (Toll Roads Only) Construction

Project Guarantee Fund Land Revolving Fund Infrastructure Fund Development Facility

Land Freezing

Land Capping

Land Revolving Fund is used for funding To Prepare for To handle contingent land acquisition for To foster Infrastructure liability of toll roads projects infrastructure Project’s Transaction Infrastructure If there is a cost financing availability. under PPP scheme Project difference above Fund might be 10% of initial land available for bridging cost estimation, will loan, equity or be covered by Land others Capping Page 17 1. Land Capping; ‰ The Government of Indonesia has allocated APBN with the total amount of IDR 4.89 T to support the Land Acquisition Process for 28 toll roads; (Based on MPW regulation No. 12/PRT/M/2008, dated 28 July 2008) ‰ In 2008, the realization of Landcapping is IDR 264.937 B, which is used by 3 section (Bogor Ring Road, Semarang – Solo, and Cinere‐Jagorawi ); ‰ In 2009, IDR 1 T has been allocated, and the rest will be allocated in 2010 (Ministry of Public Work has proposed to extend it until 2013). ‰ From IDR 1 T, IDR 178.42 Mhas been used for Cinere‐Jagorawi (IDR 62.89 M) and Semarang‐Solo (IDR 115.53 M) Policy and 2. Land Revolving Fund; ‰ To support the land acquisition process, GoI also has prepared the instruments to Land Revolving Fund; accelerate the ‰ The allocation for the Land Revolving Fund is IDR 1.44 T; land that will be used to financing 23 Toll Road section; acquisition (based on the agreement between BPJT (MPW) –PIP (MoF)) that will ‰ Until now, IDR 800 B has been allocated, and IDR 647 B has been support disbursed. 3. Land Freezing infrastructure Land that has been appointed to be used as a project by government isn’t development allowed to be traded unless there is a permission from governor/major

Page 18 Indonesia Infrastructure Fund (PT. SMI) Minister of Finance PP 66/2007 Juncto PP 75/2008 100% ownership PT. SMI

Third Parties: Founder: JV JV IIFF* •Public, private sector •PT. SMI

•State Owned Enterprises *Indonesia •ADB Infrastructure •Banking Financing •IFC Facility •Local Government •DEG Benefits of the third parties involvement: •Multilateral Organization •Other Private (World Bank, ADB, etc.) • Increase the capability of financial sources Sector Investors •Private Funds • Increase the reputation & credit rating • Absorb the expertise, experience & other resources Page 19 PT. SMI and IIFF Funding Scheme

100 Loan (In US$ Million) 100 Loan (tentative) Government WB DEG ADB KPA : DG State Asset Management, MoF

100 SLA 100 Equity 100 SLA

PT. Sarana Multi Infrastruktur (SOE 100 % Govt) 100 Subordinated 60 Equity 100 Subordinated Loan Loan

20 Equity 40 Equity 40 Equity (tentative) PT. IIFF (tentative) (Private)

Investors

20 Improving the capacity of the Infrastructure Development Acceleration

Related Parties PT SMI Goals

Regulator: FACILITATOR/CATALYSATOR Government for Project Owner & Investors Job Creation Bodies I Internal Capacity Building •Fund Management N Project Owner: D •Ministry/Bureau •Fund Raising F E Poverty Reduction •Local Government •Development of the fee­based income, R e.g.: Investment advisory V •SOE/LGOE A •BPJT E External Capacity Building S •etc L •Identification of Infrastructure Project T Human Resources O Priority R Development •Inter­departmental Coordination P Investors: U •Partnership with other entities to form M •Lenders JVs specializing in the infrastructure C E Industrial •Local Investor financing T •Foreign Investor N Competitiveness •Direct financing to other legal entities, in U •Multilateral the form of loan or equity T Improvement R •Private Sectors •Partnership with other parties in the •Banking form of BOT or BOO E •Infrastructure •Socialization on the infrastructure Distribution Pool of Fund financing activities Improvement •PIP

Page 21 Why Private Guarantee ?

¾ Private investments are required to accelerate infrastructure provision and government can only provide about 31% from USD 120 B required

¾ Experience shows that government support/guarantees is required to mobilize private capital, for example: Monorail Program 10.000 MW Stage I IPP JORR II Toll Road project

(*source: Bappenas 2009)

Page 22 In the Past Current Policy Looking Forward

PMK 38/2006; MOF PLN Contracting Agency PMK 30/2007; MOF (eg. PLN) PMK 44/2008: • No more blanket PPA guarantees; risks to be guaranteed are defined Guarantee Letter of • Guarantees are given Letter of IPP Agreement Support IPP considering fiscal capacity Investors of the state GF (eg. IPP) • Risk Management Unit (RMU) was established to oversee guarantee process • Manage fiscal risk by setting • Blanket support • Need to further enhance aside and independently • No safeguard to cover policy to improve managing budget for guarantees. fiscal risk creditworthiness of • Enhance creditworthiness by guarantees and to better increasing certainty of payments manage fiscal risk of claim (in terms of timing and amount)

Page 23 ¾GF is established as a separate legal MOF entity (SOE) Risk Management Unit ¾GF is fully owned by the Government and the initial capital will be provided Set up Policies from APBN. Proposal for ¾The RMU will focus on setting policies Guarantees (eg. risk sharing, valuing CL, operation Guarantee Contracting of GF) and on supervising the GF. Fund Agency Approvals ¾The GF will review proposals, calculate Management PPP CL, decide the guarantee provision, Contractor Contract enter into guarantee contracts, Appendix manage assets, prepare financial Guarantee Contract reports to the MoF and public, pay Investors Guarantee claims, and monitor CL of projects Backstop ¾The MoF will be the GMS (RUPS) and Facility

will appoint BoD and BoC of the GF. Counter Multilateral ¾Multilateral Development Agencies Development will provide backstop facility. Agency Page 24 Stimulus Fiscal Policy in Several Countries…

China

14 U.S.A 12 10.1 Philippines 10 8 9

% 6 4 6.8 2 9 3.5 8 0 3 7 06 07 08 Q4 6 4.4 2.5 2.1 5 5 08 4 2 % 3 4.5

% 1.5 2 1 1 Deficit 08 ; 0,2% 09 1,9% 0 0.5 0.7 06 07 08 Q4 0 08 -0.5 06 07 08 Q4-0.2 Stimulus 0,9% 08 Deficit 08 1,4%; 09 1,2% Deficit 08 ; 5,8% 09 9,5% U.K Stimulus 2,78% Stimulus 1,2%

4 3 1.7 2

% 1 0.3 0 Japan -1 06 07 08 Q4 08 -2 -1.8 -3 4 3 2 0.7 Deficit 08 ; 5,3% 09 8,55% 1 % 0 -0.2 -1 06 07 08 Q4 -2 Stimulus 1,1% 08 -3 -4 -5 -4.6

Deficit 08 0,25%;

Stimulus 1%

Indonesia Malaysia

8 6.3 Singapore 7 6 5 4.7 6.42 4 7 % 3 6 6.41 14 2 2.7 12 10.1 1 5 10 0 8 9 4 5.2 06 07 08 Q4

% 6 08 4 6.8

% 3 2 2 0 Deficit 08 3,1%; 09 4,8% 1 06 07 08 Q4 0 08 Stimulus 4,4% 06 07 08 Q4 Deficit 08 ; 0,2% 09 1,9% 08 Stimulus 0,9% Deficit 08 ; 1% 09 2,5%

StimulusStimulus 1,4%1,5 % Page 25 Indonesia's Stimulus Package Compared to Other Economies The fiscal stimulus package that Indonesia has put in place is in line with rest of the world 2009 GDP 2009 Fiscal Growth Stimulus Country Projection (%) (% of Outlook Original Outlook GDP) Malaysia 4.8 0.2 4.4 Thailand 4.5 2 1.8 Australia 2.2 1.7 1.5 Indonesia 6.0 4.7 1.5 USA 0.1 -0.8 1.2 UK -0.1 -1.3 1.1 Singapore 3.5 -5 1.1 Japan 0.5 -0.2 1.0 South Korea 3.5 2.5 0.9 Central Bank of Indonesia has India 6.9 6 0.9 published the latest GDP growth projection at about 3.5 – 4 %. China 9.3 8 0.6

Source: CEIC, Bloomberg Page 26 StimulusStimulus ProgramProgram ThroughThrough TheThe CentralCentral GovernmentGovernment BudgetBudget 20092009 1. Tax Saving o Tariff of PPh + Individual Person + PTKP Î Rp 43 T (0,8 %PDB) 2. Tax Subsidy of BM/DTP to business entities/RTS o PPN Oil & gas exploration Î Rp 3,5T (0,07 %PDB) o Admission Charge for Raw Material & Equity Î Rp 2,5T (0,05 %PDB) o PPh Employee Î Rp 6,5T (0,12 %PDB) o PPh Power Community ÆRp 0,8 T (0,02 %PDB) 3. Subsidy+Government Budget for business entities/job creation o Decreasing the oil price (Gasoline Subsidy) Î Rp 2,8T (0,05 %PDB) o Discount for Industrial Electric Fee Î Rp 1,4T (0,03 %PDB) o Additional Budget for InfrastructureÆ Rp. 12,2T (0,2% PDB) o Widening the PNPM Æ Rp. 0,6T (0,01 % PDB) TOTAL Î Rp 73,3 T ( 1,5%PDB) Page 27 Job Creation of Infrastructure Development

Generating Multi-Year Development and Contracts and Transmission Rehabilitation Road electrical of Airports Growth Project network

Support Development Development Development economic of traditional and and growth market rehabilitation rehabilitation infrastructure railway of seaport

Rehabilitati Development on of of self Development Basic Needs natural sufficient of Housing of rural road disaster electricity in and irrigation Fulfill basic impact village standard Development Development of Development and of special distribution rehabilitation of housing for piped water main irrigation fisherman, and system and system remote areas treatment plant Page 28 Stimulus Fiscal Realization (as of October 2009)

Ministry of Public Work Ministry of Labour and Transmigration Ministry of Transportation Ministry of Health Ministry of Energy and Mineral Resources Ministry of Trade State Ministry of Public Housing Ministry of Cooperation and SME Ministry of Marine and Fishery Ministry of Agriculture Page 29 •• Government purchase land used for projectsGovernment purchase land used for projects •• Government build some sections/part of the Government build some sections/part of the projects and the rest are done by privateprojects and the rest are done by private •• Government build all section with O & M Government build all section with O & M (Operation and Maintenance) contracts for (Operation and Maintenance) contracts for privateprivate •• EPC modelEPC model——Private builds all project, Private builds all project, government then will repay for a certain government then will repay for a certain periodperiod

Page 30 31 Page 31 Public Private Partnership (PPP) Book

Projects Ready to Offer Total Project Total Investment (US$ 000) Toll Road 1. Medan –Binjai (USD 129 mio) 2. Medan ‐ Kualanamu ‐ Tb. Tinggi Project 8 Project 4,518,000 (USD 476 mio) Ready to Offer 3. Cileunyi ‐ Sumedang –Dawuan (USD 395 mio)

Sea Transportaton 4. Tanah Ampo Ferry Terminal, Karangasem (USD 24 mio) Priority Project 18 Project 3,094,000 Railway 5. Palaci – Bangkuang (USD 740 mio) 6. Soekarno Hatta Airport‐ Manggarai (USD 700 mio) 26,527,500 Potential Project 61 Project Water 7. Bandung Municipal Water Supply, Cimenteng (USD 54 mio)

Electricity/Power TOTAL 87 Project 34,139,500 8. Power Plant (2000 MW) (USD 2 Billion)

32 Source : Bappenas Public Private Partnership (PPP) Book Project List

Projects Ready to Offer Priority Projects Toll Road 1. Pekanbaru ‐ Kandis ‐ Dumai Toll Road 2. Palembang ‐ Indralaya 1. Medan –Binjai 3. Tegineneng ‐ Babatan 2. Medan ‐ Kualanamu ‐ Tb. Tinggi 4. Sukabumi ‐ Ciranjang 3. Cileunyi ‐ Sumedang –Dawuan 5. Pasir Koja ‐ Soreang 6. Pandaan ‐ Malang Sea Transportaton 7. Serangan ‐ Tanjung Benoa 4. Tanah Ampo Ferry Terminal, 8. Manado ‐ Bitung Karangasem Water Railway 9. Medan Municipal 5. Palaci – Bangkuang 10. Bandar Lampung Municipal 6. Soekarno Hatta Airport‐ Manggarai 11. DKI Jakarta ‐ ‐ Karawang 12. West Cikarang & Cibitung Water 13. 7. Bandung Municipal Water Supply, 14. Cimenteng 15. 16. Cirebon Electricity/Power 8. Central Java Power Plant (2000 MW) Sanitation 17. Integrated Solid Waste Final Disposal & Treatment Facility for greater Bandung Area ‐ 18. Integrated Solid Waste Final Disposal & Treatment Facility for Bogor & Area ‐ West Java (Nambo) Public Private Partnership (PPP) Book Project List Potential Projects Potential Projects Toll Road Land Transportation 1. Kisaran ‐ Tebing Tinggi 25. Bojonegara ‐ Ketapang (Jawa ‐ Sumatera) Ferry Terminal 2. Bukit Tinggi ‐ Padang Panjang ‐ Lubuk Alung ‐ Padang 3. Batu Ampar ‐ Muka Kuning ‐ Bandara Hang Nadim Marine Transportation 4. Terbanggi Besar ‐ Menggala ‐ Pematang Panggang 26. Bojonegara Port 5. Bakauheni ‐ Terbanggi Besar 27. Expansion of Kumai Port, Kotawaringin Barat Regency 6. Cilegon ‐ Bojonegoro 28. Development Lupak Dalam Port, Kapuas Regency 7. Kamal ‐ Teluk Naga ‐ Batu Ceper 29. Expansion of Teluk Sigintung Port, Seruyan Regency 8. Kemayoran ‐ Kampung Melayu 30. Expansion of Anjir Kelampan & Anjir Serampan Canal 9. Sunter ‐ Rawa Buaya ‐ Batu Ceper 10. Ulujami ‐ Tanah Abang Railways 11. Pasar Minggu ‐ Casablanca 31. Kualanamu 12. Sunter ‐ Pulo Gebang ‐ Tambelang 32. West Sumatera 13. Duri Pulo ‐ Kampung Melayu 33. Simpang ‐ Tanjung Api‐api 14. Tanjung Priok Access 34. Tanjung Enim ‐ Batu Raja 15. Terusan Pasteur ‐ Ujung Berung ‐ Cileunyi 35. Lahat ‐ Kertapati 16. Ujung Berung ‐ Gedebage ‐ Majalaya 36. Railway Facilities ‐ Blue & Green Line () 17. Semarang ‐ Demak 37. Gedebage, Bandung Municipal, Integrated Terminal 18. Yogyakarta ‐ Bawen (Railway) 19. Yogyakarta ‐ Solo 38. Bangkuang ‐ Lupak Dalam 20. Bandara Djuanda ‐ Tanjung Perak 39. Kudangan ‐ Kumai 21. Probolinggo ‐ Banyuwangi 40. Puruk Cahu ‐ Kuala Pembuang 41. Tumbang Samba ‐ Nanga Bulik Air Transportation 42. Kuala Kurun ‐ Palangkaraya ‐ Pulau Pisau ‐ Kuala Kapuas 22. Kertajati International 43. East Kalimantan Railway (Puruk Cahu ‐ Balikpapan 23. Sentani 24. Juwata Tarakan Public Private Partnership (PPP) Book Project List Potential Projects Water Supply 44. Pondok Gede, Bekasi Municipal 45. Surakarta ‐ Sukoharjo Central Java Province 46. Klungkung Regency (Tukad Unda) 47. Maros Regency 48. West Bandung (Alternative 1), Water Conveyance 49. West Bandung (Alternative 2), Water Conveyance 50. East Bandung (Alternative 1), Water Conveyance 51. East Bandung (Alternative 2), Water Conveyance 52. Semarang (Alternative 1), Water Conveyance 53. Semarang (Alternative 2), Water Conveyance 54. Semarang (Alternative 3), Water Conveyance

Power 55. New North Sumatera Coal Fired Steam Power Plant (2 X 200 MW) 56. New Coal Fired Steam Power Plant (200 MW) 57. North Sulawesi Coal Fired Steam Power Plant (2 X 55 MW) 58. North Sulawesi New Coal Fired Steam Power Plant (55 MW) 59. North Sumatera (Infrastructure) (2 X 100 MW) 60. Sumatera Mine Mouth HFDC Coal Fired Steam Power Plant (2 X 200 MW) 61. East Kalimantan (Infrastructure) Coal Fired Steam Power Plant (2 X 65 MW)