Can Public-Private Partnerships Still be Expected?

Harun al-Rasyid LUBIS

Lecturer at  Faculty of Civil and Environmental Engineering, ITB ; Chairman Infrastructure Partnership and Knowledge Center

The policy environment of infrastructure business throughout the world is now increasingly exposed to the economic elements of competition, private ownership and or tendering for operation and maintenance contract. By doing so government is aiming at improving the efficiency of public sector delivery and reduce amount of state subsidies. Although the recent infrastructure laws intended to end public monopolies and open the infrastructure market to private entities, only certain market such as telecommunication grew rather rapidly,then power and waters.
Toll roads seem to develop very slowly, all too often are hampered by land acquisition, while other sectors such as ports, airports and railways are even slower.
To appreciate the current debate on the issue and in order to safeguard the interests of public at large, the elements and the nature of infrastructure market should first be addressed.

More than two decades Public-Private Partnership (PPP) has been a very fashionable concept in infrastructure discourse in Indonesia. In 1991 the World Bank began offering loan TAP4I (Technical Assistance Project for Public & Private Provision of Infrastructure) to the Government of Indonesia, then continues with various ADB loans such as PPITA (Private Provision of Infrastructure Technical Assistance) and recently IRSDP (Infrastructure Reform Sector Development Project) through the ADB loan. Total financing of hundreds of millions of dollars has been absorbed, but the realization of PPP is still nowhere. Having hit twice by financial crises in 1998 and 2008, infrastructure investment has not recovered to pre-crisis levels, though the nominal has been increasing up to 3.2% GDP: compared with China 8.5% and India 4.7%, Vietnam 10%. The recent Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) and the technocratic draft of upcoming Five Year Development Plan (RPJMN 2015-2019) provide huge infrastructure pipelines, and they still heavily rely on private participation to fill the funding gap.

Until now bilateral and multilateral supports for the PPP continues to flow, however, the process moves very slowly and when PPP project lists were brought to the market, transaction is hardly occurred. But many still believe that PPP will accelerate infrastructure provision, ease fiscal constraint and spur economic growth. In the local PPP market, there remains a missing link between the huge demands and the huge availability of capital market. The slow progress is due to some fundamental reasons, predominantly bad project planning and preparation, more specifically unsatisfying risk-reward ratio to investors. What went wrong and lacking? This article is an academic view resulting from a series of discussions with the actors: public, bureaucrats, private and knowledge institution.

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