Harun al-Rasyid LUBIS & Nik Nasir MAJID
Since 1991 Public Private Partnership (PPP) has been a very fashionable concept in infrastructure discourse in Indonesia. It is strongly believed by many that PPP will accelerate infrastructure provision, ease fiscal constraint and spur economic growth. Having hit twice by financial crisis in 1998 and 2008, infrastructure investment has not recovered to pre-crisis levels, though the nominal has been increasing up to 3.2% GDP. The recent Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) and the upcoming Five Year Development Plan (RPJMN 2015-2019) provide huge infrastructure pipelines, and they are heavily relying 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. There exist a missing link between the huge demands also the huge availability of capital market. The slow progress is due to some fundamental reasons, predominantly bad project
planning and preparation, more specifically on proper risk-return arrangement between the public and the private entities.
The purpose of this paper is to find out how PPP feasibility or value assessment be best conducted during its preparatory stage. Some existing value assessment methods will be reviewed, an appropriate procedure for PPP value assessment framework will be proposed and finally some research areas on institutional and regulatory aspect to improve the current PPP procedure will be outlined.
It is recommended that value assessment for both social and economic infrastructure must include qualitative, quantitative and market comparison. Not only it will ensure all aspects of value for money are considered, but also doability of the project. Moreover, PSC-PPP comparison, due to complexity in risk allocation and estimation, is not applicable for economic infrastructure.
Affordability should be part of the assessment process, as value should be realized within the limit of financial capability. To be able to conduct a proper value assessment during the PPP preparatory stage, the administration needs to establish a dedicated PPP center of excellence out of the routine tasks of line ministries, whereby PPP projects cycles are properly managed starting from the planning, preparation to market and closing. Download Paper