Hope For Success High In Pina Infrastructure Financing Scheme

JAKARTA, Nov 27 (Antara) - Limited fiscal room has forced the government to look for a breakthrough to finance its ambitious infrastructure projects. The cash strapped government of President Joko Widodo (Jokowi) will not likely to go alone to carry out its program, which requires a huge fund. It has to rely more on the involvement of the private sector. Under the National Mid Term Development Plan (PJMN) 2015-2019, the infrastructure development program of the government will need around Rp4,769 trillion. The government through state budget (APBN) and regional budgets (APBD) will put up only around Rp1,978.6 trillion or 41.3 percent, state companies (BUMNs)are expected to contribute Rp1,066.2 trillion with the private sector expected to cover the remaining Rp1,751.5 trillion or 36.5 percent. Early this year, the government announced a new alternative financing scheme called Non-Budgetary Investment Financing Program (PINA). PINA is an equity financing for priority and strategic investment projects. This program will encourage and facilitate participation of the private sector. PINA is expected to be a successful breakthrough to cope with limited financing capacity of the government. The funds under PINA program could come from capital market, insurance, banks and other legal sources of funds. The PINA scheme has been successfully used in the development of a toll road of Waskita Toll Road valued at Rp3.5 trillion in February 2017. The PINA scheme is also to be used in the construction of an international airport in West Java and a number of toll road projects including Trans Java, and other toll roads in the Greater Jakarta area and outside Java and power generating plants totally valued at Rp10 trillion. Currently a number of toll road projects and power generating projects have been included in the list of projects to be built under the PINA scheme and area ready to offered to foreign investors. Meanwhile, new financial instruments have been introduced like Limited Participation Mutual Fund (RDPT) as an example of creative financing. One example of successes in the PINA program through RDPT instrument is the financing of the West Java International Airport (BIJB) or known as Kertajati International Airport. Kertajati International Airport, also known as Majalengka Airport, is an airport under construction on the northeastern coast of West Java. The project is estimated to cost Rp2.6 trillion with equity financing and loan financing. Equity financing is valued at Rp936 billion from investor of RDPT Ekuitas. There is also Rp796 billion in contribution from the West Java administration and from PT Jasa Saran totaling Rp12.5 billion. Meanwhile, loan financing came from a syndicate of sharia banks totaling Rp906 billion. Chief Executive of PT BIJB Virda Dimas Ekaputra has said that in order to accelerate development of infrastructure , involvement of the private sector is important. The government is aggressive in promoting infrastructure projects abroad. The government hopes to be able to use long term funds from a number of countries especially advanced nations to finance its infrastructure projects. Head of the National Development planning Board/Minister for National Development Plan Bambang Brodjonegoro said countries like Japan, Australia, Canada and the Netherlands are known to have strong long term funds. "We hope to attract those nation to invest the funds to finance our infrastructure projects," Bambang said. The Indonesian Chamber of Commerce and Industry (Kadin) also supports the government policy of putting high priority in infrastructure development and in using the PINA scheme. "I am very positive with the PINA financing alternative. I see the equity will be high in demand especially after we get the investment grade from all major international rating agencies," Kadin general chairman Rosan Roeslani said. Apart from PINA, the government also encourages the use of the Corporate Government Cooperation financing (KPBU) scheme. The government regulation No 38 of 2015 on KPBU turned out to be effective to carry out projects, which have been left idle since the previous government. One breakthrough in the implementation of the Presidential Regulation No.38/2015 is expansion of infrastructure the types that could use the KPBU scheme including social infrastructure such as schools, hospitals and penitentiaries. Another breakthrough in the Presidential Regulation is 'hybrid financing' scheme which allows implementation of projects by companies that win auction with fund provided by the agency responsible for Cooperation Project (PJPK) that the quality of development could be equitable. KPBU has four project schemes and the ones already implemented include KPBU scheme with government guarantee such as for the 2x1000 megawatt steam power generating plant in Batang, Central Java valued at Rp54 trillion; KPBU scheme with investment return expected from tariffs and viability gap fund such as having been used for the Umbulan Drinking Water Supply project in East Java valued at Rp2.1 trillion; the KPBU scheme with investment return expected through "availability payment" such as being use for the telecommunication Palapa Ring of West, Central and East Packages valued at Rp7.76 trillion; and the KPBU scheme with such as having been used for the Solo-Kertosono toll road project valued at Rp7.7 trillion, the Cisumdawu toll road valued at Rp14 trillion, Balikpapan-Samarinda toll road valued at Rp14.9 trillion and Manado-Bitung toll road project valued at Rp8.7 trillion. The government said it would make use of the momentum with the availability of alternatives to carry out infrastructure with the KPBU schemes. Under the KPBU schemes there have been 12 infrastructure projects now under construction, with six other project in the phase of transaction, and 27 projects in the process of preparations and one already in the financial closing. The projects under construction are valued almost US$9 billion. In 2018, the government will offer 10 Quick Win Projects with the KPBU schemes such as the Nambo regional garbage management project, Probowangi toll road, Bandar Lampung drinking water supply facility, Serang Panimbang toll road, Jakarta-Cikampek toll road, Jatiluhur drinking water supply facility, West Semarang drinking water supply facility, Suramadu toll bridge, Pekanbaru drinking water supply facility, and Sidoarjo hospital project. The government hopes there would be many investors interested in the projects. Economic observer from the Institute for Development of Economics and Finance Abra Talattov said financing is a still a challenge facing the implementation of the infrastructure projects. The private sector has not played enough role in financing the projects. The reasons is that the private sector still sees infrastructure projects as having high risk, Abra said. The low interest shown by the private sector in infrastructure projects is obvious from the gap between plans and investment realization in the infrastructure projects. Data at the Capital Investment Coordinating Board (BKPM) showed that realization of direct investment by domestic investors (PMDN) and foreign investors (PMA) has continued to decline in the infrastructure sector -- from 34 percent valued at Rp126.53 trillion in 2014 to 17.6 percent or Rp144.77 trillion in 2015 to 10.35 percent or Rp85.08 trillion in 2016 of the total plans. Therefore, the government is forced to look for a breakthrough to attract more investors into investing more in infrastructure projects such as with the PINA scheme. Abra said the PINA scheme is expected to attract more investors into doing business in infrastructure projects. Unlike the Public Private Partnership (PPP) scheme or KPBU, the PINA scheme promises higher profit. Generally projects funded with the PINA scheme have high commercial value with reliable feasibility study . In addition, under the PINA scheme, the investors could become a shareholder in the project through equity financing. For example, when PT Waskita Toll Road (WTR), a subsidiary of state-owned construction company PT Waskita Karya, received a capital injection of Rp2 trillion through the PINA scheme from PT Taspen and Rp1.5 trillion from PT Sarana Multi Infrastruktur (SMI), the two investors became 16.6 percent shareholder and 12.4 percent shareholder of PT WTR respectively. This means the stake of PT Waskita Karya was 29 percentage points less in WTR. The Rp3.5 trillion toll road project of PT Waskita Toll Road has been in the phase of financial closing and the first phase of the toll road project become a pilot project under the PINA scheme. Five other projects under construction using the PINA scheme include three toll roads of PT Waskita Tol Road phase II valued at US$2 billion, the Kertajati international airport (BIJB) valued at US$170 million, and the steam power generating plant (PLTU) of PT PP Energi valued at US$570 million. More important still is before determining infrastructure financing scheme, proper feasibility study should be carried out first for any project. The financing scheme to be used should be based on the result of the feasibility study. "Not the other way around by determining the financing scheme and feasibility study comes later. The risk of failure is too high. Projects financed with PINA not based on proper feasibility study are potential to end in failure," Abra said. Financial support is indeed crucial to accelerate infrastructure development. The PINA and KPBU programs are designed to meet financing requirement for infrastructure projects that need large investment. The two programs are expected to be more profitable commercially. The success in financing infrastructure projects through PINA scheme is expected to create snow balling effect encouraging greater involvement of the private sector in priority and strategic infrastructure projects in the future. PT Sarana Multi Infrastruktu dan PT Taspen become new shareholders of PT Waskita Toll Road, which holds a concession of 15 toll roads totaling 1,050 kilometers. Chief Executive of Waskita Toll Road Herwidiakto said the company earned Rp3.5 trillion from the share divestment. The fund would be used to strengthen the equity of WTR in carrying out the projects of 15 sections of toll road this year. Waskita Toll Road would need Rp100 trillion to build the 1,050 kilometer toll roads. The fund would include Rp30 trillion in equity and the rest in bank loans.