Public-Private Partnerships: An Alternative Financing Scheme for Better Indonesian Infrastructure (Part I)

The development of public infrastructure has become the primary objective of the President Joko Widodo administration. The multiple positive effects which will accrue as a result of adequate public infrastructure should strengthen both the nation’s economy as well as its welfare. However, such development undoubtedly requires huge amounts of investment, and to rely solely on the state budget in order to fund such development objectives will ultimately lead nowhere. Thus, the participation of the private sector is seen as vital.Infrastructure investment, as a percentage of government expenditure in Indonesia, decreased sharply following the Asian financial crisis of 1998, from just below 10% to a figure of only around 4%.[1]However, Indonesia’s annual infrastructure-investment needs are estimated to be around 6.2% of GDP (this breaks down by sector as follows: 3.9% of GDP for transport, 1.0% of GDP for energy, 1.0% of GDP for telecommunications, and 0.4% of GDP for water and sanitation). Improving the quality of the country’s infrastructure will also require an increased level of public investment in infrastructure, which will need to be boosted from an average figure of 1.5% of GDP between 2008 and 2012. Increased participation from the private sector in public-infrastructure projects will also need to be increased from an average figure of just 0.6% of GDP between 2008 and 2012.[2]The Global Competitiveness Report 2013-2014 revealed that while the Indonesian economy ranked 38^thin the world overall during this period, the country’s infrastructure only managed to achieve 61^stposition, which indicates that it is still in need of much improvement.[3]In order to attract private investors to develop Indonesia's public infrastructure, the government is now focusing upon boosting the implementation of so-called Public-Private Partnerships (“PPP”). Through such cooperation schemes, it is hoped that the government will be able to achieve its objectives and boost Indonesia’s public infrastructure, while the private businesses which become involved will benefit through an investment-return scheme. With these issues in mind, this week’s edition of Indonesian Law Digest (ILD) is the first of two ILDs which will focus on matters relating Public-Private Partnership schemes within Indonesia. This first PPP-themed ILD will be confine its discussions to the following topics: