Interview: Bambang Brodjonegoro
What role do you see foreign investment playing in infrastructure development?
BAMBANG BRODJONEGORO: There are a very good prospects for foreign direct investment (FDI) in infrastructure development. First of all, we know that we are way behind in infrastructure – both in terms of quality and quantity. In our five-year development plan for 2014-19, we estimated the total need for infrastructure to be around $400bn. From our calculations, only around 33% can be fulfilled by central or local government budgets, while 20-22% can be developed by state-owned enterprises (SOEs). The other 45% will have to come from the private sector.
FDI is particularly relevant for infrastructure initiatives when compared to, for example, the manufacturing sector or services sector, where the competition is very stiff. We invite the private sector to be involved as much as possible, and the ways to invest are very diverse. We encourage their involvement in projects that are 100% commercially viable for the private sector on its own, these include large-scale airports and seaports, natural-gas transmission, power plants and toll roads, among others.
How can the government further encourage public-private partnerships (PPPs) in infrastructure?
BRODJONEGORO: Funds allocation from the annual government budget should be prioritised for projects which do not interest the private sector. This would include basic infrastructure such as arterial and village roads, irrigation, water distribution, sanitation, and small-scale airports and seaports. Those types of projects are often not very attractive to the private sector, so the government certainly needs to take more responsibility in these areas.
We should encourage PPPs that have the potential to interest private sector actors. PPP schemes give room for the private sector to invest, but with government involvement that can provide guarantees and financial support through viability gap funding. The state can complete 30% of a toll road, for example, while the remaining 70% is completed by the private sector. Another option is using availability payments, meaning that the private sector will do the financing and development of the infrastructure project itself. After it is completed and comes into operation, then the government can start paying the private sector for the services it provided.
How can the government ensure that profitable projects are awarded to the private sector?
BRODJONEGORO: SOEs have been present for a long time, having managed some of the biggest infrastructure projects in the country. Even when there was no interest from private actors, they were already in the sector trying to develop their business.
What we are trying to do now is reduce government support by minimising the amount of capital injection given. In the first two years of this administration, there was significant government investment in SOEs so they could basically take over the biggest projects by themselves. This means that there will then be room for the private sector to be involved in various profitable infrastructure projects.
The president also allows SOEs through its subsidiaries to divest from projects. If there is a very profitable toll road in Jakarta owned by an SOE, for example, they can share this with private sector actors, i.e. via asset securitisation. During that period they will get funds that can be used to develop other projects. This is a sort of self-raising capital injection that can be used instead of relying on government support.
This is the direction we are working towards as we know that SOEs cannot handle all the infrastructure needs in Indonesia alone, and that cooperation with the private sector is a must. However, we need to organise these initiatives in a transparent way in order to attract high-quality construction projects.
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