Basic Concept of Availability Payment (AP) and Budgeting Implication

Transcription

1 JICA Technical Assistance Basic Concept of Availability Payment (AP) and Budgeting Implication July 26, 2017 KPPIP Support Facility

2 Table of Content 1. Basic Concept of Availability Payment (AP) 2. AP Scheme Implementation Issues relating to Budgeting 2

3 Overview of Public Private Partnership What is PPP? In Indonesian context, based on Perpes 38/2015, PPP is the cooperation between government and Business Entity in infrastructure provision for the public interest in accordance with the specification previously determined by the Minister/Head of Institution/Head of Region/State Owned Enterprise/Regional Owned Enterprise, which partially or fully uses Business Entity s resources, with particular regard to the allocation of risk between the parties. Type of Return on Investment User Pay Availability Payment (AP) Tariff is determined to ensure a return on investment that covers capital cost, operational cost, and profit within a determined period of time. 3

4 Purpose and Definition of Availability Payment (AP) Scheme What is the purpose of applying AP Scheme? AP Scheme is a method to deliver high quality of public services while minimizing financial burden of public sector. How is the Indonesian context? Based on PMK No. 260/2016 Availability Payment Scheme is defined as periodical payment made by Minister/ Head of Agency/ Head of Local Area to the Implementing Enterprise for Infrastructure Services delivery based on the quality and/or criteria as decided in PPP Agreement. In Indonesia, AP Scheme is applied for project which is not financially selfsustainable, thus the support from government/gca is essential to increase the project attractiveness for private sector. 4

5 Difference between PPP User Pay and AP Scheme PPP TYPE SERVICE and REVENUE DEMAND RISK User Pay e.g. Toll Road BOT Project Company Service Tariff/ Fee Users Typically, demand risks resides with PRIVATE SECTOR AP Scheme (Public Pay) e.g. Hospital GCA AP Project Company Service Tariff/ Fee Users Typically, demand risks resides with PUBLIC SECTOR 5

6 Conventional Scheme and AP Scheme Conventional (APBN/APBD) AP Scheme Fiscal Burden/ Payment Schedule Amount ($) Top Heavy Amount ($) Flat Time Time Typical Contract Year Financial Source for Construction Typical Risk Allocation Procurement Construction Operation Construction Operation Construction (1-3 years) Maintenance (Every year) Public Public Several (Design, Construction, Operation) Years Private *Risks are transferred to Private Only One (Single PPP Contract) *Actual figure may have fluctuation based on inflation adjustment 6

7 Image of AP Payment Availability payment (AP) is made from GCA to SPC as a reward of ensuring availability of the facility and providing specified services under a PPP (AP) contract. As AP, a fixed amount is paid throughout the operation period, with a possible deduction in case SPC fails to fulfill certain requirements. The AP amount essentially covers all the costs (construction cost, O&M cost, project financing cost etc.) and return for investors. The simple cash flow structure of SPC is shown in the figure below: (2 years) (X years) AP (Capex) AP (O&M) O&M by Hospital or SPC Construction Period Operation Period *O&M might be taken over by Hospital or continued by SPC from X+ th years of operation. 7

8 Table of Content 1. Basic Concept of Availability Payment (AP) 2. AP Scheme Implementation Issues relating to Budgeting 8

9 Budgeting related Issues in the Last PPP AP Capacity Building at MOF Training Center During the last PPP AP capacity building at the Training Center from April 25 th -28 th, the following issues were raised. 1) The most suitable account that should be used, whether capital expenditure, good and service expenditure, or debt expenditure; 2) Thresholds amount that should be allocated by the line ministries (AP Ceiling); 3) The possibility of line ministry to secure the AP budget during concession period; 4) The possibility of Government to pay for Availability Payment before the asset is owned by the Government; 5) The risk if there is deduction of yearly budget Today s Discussion Topics 9

10 AP Budget Categorization AP Categorization in Indonesia The AP budget is categorized as good and service expenditure but neither capital expenditure nor debt expenditure in Indonesia. Therefore, facility ownership during concession period is assumed to belong to private (facility related risk also transferred from gov t to private). As a result, future AP payment would not be considered as debt (off-balance). International Experience (UK) Background: Ratification of Maastricht Treaty 1992 for Euro Convergence Area imposed limits on government public spending. This was dictated through limits on government debt as a proportion of gross domestic product (GDP). The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year. Budget Categorization of AP: * Under the above-mentioned circumstance, AP is categorized as Service Expenditure in UK. It involved the private financing of capital assets that bundled together the provision of additional related services with these assets. Also, the AP payment is off-balanced. * In Japan, AP would be divided into service and capital expenditure portion. Capital potion is usually considered as lease obligation (depending on risk allocation). Therefore AP in Japan is on-balanced. => Categorization of AP as good and service expenditure is in line with the context of PPP AP (Public Service Purchase). 10

11 AP Ceiling International Experience (UK) AP is categorized as Service Expenditure and off-balanced. However, Annual AP is capped under 2% of annual budget of national government in UK. International Experience (Japan) AP is categorized as Lease Obligation and on-balanced. For local government, the AP obligation is controlled by Actual Public Bond Ratio. (See Appendix for detail calculation.) => Since AP is not considered as debt in Indonesia, it would not shown on balance sheet. However, AP has similar characteristics of debt. AP budget ceiling should be considered in order to avoid the situation that AP increase beyond the Government Contracting Agency (GCA) s fiscal capacity. => This AP ceiling management issue become more important for the AP projects of Local Government GCA, which fiscal capacity is much weaker than Central Government GCA. 11

12 Utilization of BLU for Smooth AP Disbursement <Typical structure using BLU for AP Scheme> Top up GCA Recourse agreement IIGF PPP/AP agreement Guarantee agreement BLU AP payment SPC Tariff Users Service delivery 12

13 Utilization of BLU for Smooth AP Disbursement Gap-fill mechanism maybe best suit to ensure smooth disbursement of AP payment GCA BLU Project XYZ Accounts Project DEF Accounts Initial budget pool to cover for working expenses Project ABC Accounts User Tariff Service fee revenue escrow account excess Cash pool Gap-fill account SPC AP AP disbursement process Necessary Gap-fill / liquidity 13

14 Merits of Utilizing BLU Scheme 1 Less yearly parliament budget approval concern (especially for Local Government) By using BLU, pool of fund can be created and thus minimizing the concern of yearly budget approval by Parliament (especially for the Local Government project) Therefore, GCA can secure the budget for AP payment more easily than going through yearly budget approval process 2 Flexibility of financial management BLU can receive tariff from users and pool it on behalf of GCA BLU can be a buffer for unforeseen budget reduction and therefore enhancing liquidity for AP disbursement 14

15 Questions to be Further Considered 1 How to estimate the future shortage that needs to be covered by GCA? Future shortage needs to be estimated and manage for future budget allocation 2 How to budget for top-up portion by GCA? Whether contingent budget could be made available for the top-up portion. 3 How to incentivize BLU to maximize income from users? BLU may not have sufficient incentive in maximizing income from users because the shortage of the AP payment is not a responsibility of BLU and GCA will top-up. 4 Should the BLU be established in every project? Considering the lengthy process and costs for the establishment of BLU, should BLU be established in every project? Is there any other alternative? (for example, to establish only one umbrella BLU for multiple AP projects). 15

16 Appendix 16

17 Appendix: Project Scheme of Palapa Ring Project Regres Agreement Guarantee Agreement Equity/ Sponsor Kominfo-BP3TI Availability Payment Business Enterprise Network Services Creditor Access Charge Network Users 17

18 Appendix: Fiscal Control Measures on Availability Payment Commitment through Actual Public Bond Raio in Japan AP commitment of Local Gov t is treated as one of obligation similar to public bond and controlled by Actual Public Bond Ratio as follows; (A+B) (C+D) Actual Public Bond Ratio = (E D) Where; A: Total repayment of public bond (interest and principal) (3 yr average) B: Repayment obligation similar to public bond (PFI Availability Payment Obligation, and obligation related to local public corporation, etc) C: Special local income which could be allocated to repayment of public bond (urban planning tax, etc) D: Central government support for repayment of public bond allocated in local tax revenue payment from central government E: Standard Fiscal Size (Standard Fiscal Size = Standard local tax revenue + Central government tax revenue allocation) APB Ratio Measure 1. APBR > 18% Issuance approval is necessary from central government or from provincial government, improvement proposal must be submitted 2. APBR > 25% Bond issuance for local project is constrained 3. APBR > 35% Bond issuance for joint project with central government is constrained 18