CITY DEVELOPMENT PROJECTS: PPP Scheme Maximised

June 11, 2015, Bisnis Indonesia, Page 8, Section: Regional

JAKARTA – The contract scheme between the government and private parties (public private partnership/ PPP) has been deemed to be one of the solutions of financing in the implementation of infrastructure development [projects] in Jakarta.

Senior Fellow on Infrastructure Finance Initiative of New Cities Foundation, Julie Kim, said that the PPP scheme can improve the efficiency of spending. This is because development projects that are fully implemented by the private sector typically require substantial funding.

“The government has development funds in the regional revenue and expenditure budget [APBD]. Allocations for the use of APBD funds are very diverse. Business actors simply look at the opportunities,” she said during the 2015 New Cities Summit in Jakarta, Wednesday (10 June). 

She explained that local governments have the priority projects related to the livelihood of many people, such as water management, energy supply, and transportation.

According to her, these sectors can be optimised for the PPP scheme. According to her, not all business people are willing to take high risks for the sake of getting big payoff (high risk, high return). Moreover, Julie said that the PPP scheme offers lower business risks, but with stable investment return (low risk, high return).

In addition to the allocation of risks, she added that the advantages of the PPP schemes include refinancing, which can be completed after the construction process is done. “Nevertheless, the government must maintain security and economic stability for the private parties. In any case, entrepreneurs need certainty,” she said.

RESPONSIBILITY
Head of Water and Municipal Infrastructure of the International Finance Corporation (IFC), Elena A. Bourganskaia, said that the government and the private sector should map their respective responsibilities related to the contract. “Any cooperation must have a value. The government and the business actors should conduct continuous dialogue for the sake of transparency to the public,” she said.

DKI Jakarta Governor, Basuki Tjahaja Purnama, said that the government is ready to cooperate with the private sector to work on development projects in Jakarta. 

Ahok, the name Basuki is familiarly called, began cooperating with businesses, which comprise BUMDs and companies in certain fields to handle several vital projects of the government. 

“I locked in a few key programmes implemented by the local government work units [SKPDs] and transfer these to BUMDs. Why? Because the SKPDs have worked already for a long time and the results have been unclear,” he said.

According to him, the PPP scheme gives many benefits to both sides, including guarantee for the lowest market prices, lowering financing costs, reducing the risk of project failure, and increasing the willingness of financial institutions to provide financing, to the extent possible without any government guarantee.

Based on the record of Bisnis, Ahok has offered several schemes of cooperation between DKI Provincial Government and the private sector this year. Some of the proposed concepts of cooperation intersect with infrastructure and public facilities, such as the management and construction of rail-based transport mode of the light rail transit (LRT), sports stadium (GOR), low-cost rental flats (Rusunawa), parking area, Ragunan Zoo, as well as integrated child-friendly spaces (RPTRA). For the LRT project, the provincial government is in the process of establishing a Regional Public Service Agency who will have the authority to organise a project tender for entrepreneurs.

Meanwhile, Ahok also has handed over the management of Ragunan Zoo to the CEO of  Mayapada Group, Datuk Sri Tahir. 

“We will give an injection of government capital participation [PMP] funds to the BUMD. Whatever amount is needed we will provide it. The funds are to be used to carry out purchases and to serve as the main capital for construction. However, we would also want the BUMD to be profitable quickly,” he said.

Mayor of Bogor, Bima Arya, said that his administration has yet to implement the PPP cooperation scheme. Nevertheless, he has begun to explore the potentials of public private partnership.

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