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Legal Updates | An Eye on PPP in Indonesia

Public-private partnerships (“PPPs”) interest infrastructure investors in Indonesia for a number of reasons. PPP sets forth the arrangement for cooperation between the Government and private business entities in infrastructure procurement to accelerate the development of adequate and needed infrastructure. There are advantages to the PPP scheme, including the availability of government support and guarantees for the relevant infrastructure project.

With the intention to improve the development of PPP projects in Indonesia and to make PPP arrangements more appealing to investors, the Government recently issued Presidential Regulation No. 38 of 2015 regarding Cooperation Between the Government and Enterprises in Infrastructure Procurement (March 20, 2015) (“PR 38”). This new regulation revokes previous regulations on PPP, namely Presidential Regulation No. 67 of 2005, as lastly amended by Presidential Regulation No. 66 of 2013 (“PR 67”).

PR 38 introduces a number of new types of infrastructure to the list set out in PR 67 of infrastructure that can be developed through PPP. These new types of infrastructure under PR 38 are energy conservation, city facilities, educational facilities, sports and arts facilities, public infrastructure, tourism facilities, correctional facilities and public housing infrastructure.

An interesting change introduced by PR 38 that was not in previous PPP regulations is the possibility to bundle two or more types of infrastructure to be developed by the business entity using a PPP arrangement. In such a scheme, the business entity will cooperate with more than one government institution that will be the Government Contracting Agency (“CGA”). PR 38 requires the government institutions involved to enter into a memorandum of understanding to, among other issues, decide on which government institution will be the CGA coordinator of the bundled project. Such requirement is in the best interest of the business entity to avoid any confusion over which government entity will be the lead CGA in the PPP project.

To entice investors to develop infrastructure using PPP, PR 38 offers the possibility for the PPP to be granted government support in the form of viability support or a tax incentive. A Government guarantee is also available in the form of an Infrastructure Guarantee, which will be further regulated by a separate President Regulation. PR 38 also introduces the possibility of the CGA to co-fund part of the infrastructure development.

Unfortunately, PR 38 does not provide procurement rules or procedures for procuring infrastructure projects using the PPP arrangement. Further provisions concerning the procedures for the implementation of PPP will be established by the minister who holds the responsibility for government affairs in the field of national development planning, while procurement rules or procedures will be stipulated separately by the relevant institution responsible for government affairs in the field of procurement of government goods and/or services. Both shall be further regulated no later than 30 days after the introduction of PR 38.

PR 38 is relatively new and will require the introduction of implementing regulations to become a force for the development of infrastructure projects under the PPP arrangement. Investors should keep a close eye on the development of PPP regulations promised by PR 38.

SSEK - 21st April 2015

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Indonesia Property Snapshot - Infrastructure

Average Government Spending: 2.9% of GDP (2015)
Investment Required: $500 billion USD (2015-19, RPJMN)
Global Infrastructure Ranking: 63/160 (WB 2016)
Infrastructure Quality Score: 2.65 (ASEAN Average 4)
Main Project Areas Under PPP: Toll roads & railways, power generation, water supply & waste management.
Government Bodies: BAPPENAS, BKPM, Ministry of Public Works and Housing, KPPIP.
Relevant Law: Law No. 2 of 2012 on Acquisition of Land for Development in the Public Interest, Presidential Regulation No. 38 of 2015 on Cooperation Between the Government and Business Entities in the Provision of Infrastructure, and Presidential Regulation No. 78 of 2010.