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LAND ACQUISITION AND PPP RULES TO BE REVISED

Posted on February 19, 2015 on 17:07:02 WIB


The government is finalizing revisions to two presidential regulations on land acquisition and public-private partnership (PPP) that are expected to boost infrastructure projects and help accelerate growth.

The new administration under President Joko "Jokowi" Widodo has laid out a number of mega infrastructure projects within his five-year term, including 24 new seaports, power plants to generate 35,000 megawatts, 1,000 kilometers of toll roads and expansion of railroads to 8,692 km from 5,424 km at present, a giant step to enable the economy to grow above 7 percent each year.

Coordinating Economic Minister Sofyan Djalil said Monday that under the planned revision of the land acquisition ruling, private investors would be able to acquire land as contractors on behalf of the government. At present, development projects funded by the state budget have to wait until land acquisition issues are settled by the government, which has been slow and time consuming, forcing many projects into a hiatus. Sofyan further said that under the second ruling, PPPs would be more attractive for investors and new incentives were also provided. "Why haven't our PPPs work as expected? The incentives were not that appealing, while the plans are also not applicable. By revising the rulings, I believe PPPs will become attractive opportunities for investors," he said in a discussion on Indonesia-China relations hosted by PricewaterhouseCoopers (PwC). Revisions to both regulations are expected to be finalized in the coming weeks, Sofyan added.

Existing presidential regulations on land acquisition and PPPs have yet to solve bottlenecks in major infrastructure projects in the country. Land acquisition has been the key obstacle to building strategic infrastructure projects, such as the 2x1,000 megawatt coal-fired power plant in Batang, Central Java, set to be Southeast Asia's biggest power plant. The US$4 billion project has been delayed for years due to opposition from local residents on environmental concerns.

The assistant to the coordinating economic minister for infrastructure and regional development, Luky Eko Wuryanto, said the new regulation on PPPs would make the bidding process shorter and faster by allowing the selection of the best bidders according to certain criteria, such as project cost, bidders' reputation and financial guarantee. Apart from that, the government would also hand over a sum of cash to private investors willing to carry out a project with a slim margin, defined as having a profit of less than 15 percent of total project value, in work done under the viability gap funding (VGF) program.

Currently, to allow investors a higher margin the government assists them by taking over some parts of the projects and appointing third parties. "Now that the government provides the money, investors can appoint contractors they consider capable to complete part of a project," Luky told The Jakarta Post over the phone. He further said that the government would also roll out a new PPP program — availability payment — in which the private partner would receive payment based on availability of the designed infrastructure at a specified performance level.

Source: The Jakarta Post, 21 January 2015


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