Boosting Infrastructure Financing through Risk Mitigation Instruments

Transcription

1 Boosting Infrastructure Financing through Risk Mitigation Instruments Financing Sources for Public-Private Partnerships Forum Kuala Lumpur, 25 November 2015 Dr Armand Hermawan CFO Indonesia Infrastructure Guarantee Fund Printed: 20/11/2015

2 Indonesia infrastructure context Total infrastructure stock 2012, % of GDP 100 Roads Rail Ports Airports Power Water Telecom ~ Brazil 1 UK Canada India USA Germany Spain China Poland South Indonesia 2 Africa 1 For Brazil, road data contains all of transport. The estimate shown is based on data provided courtesy of Dr. Armando Castelar. 2 Indonesia transport stock is an expert estimate and ranges approx. 5-10% of GDP in 2012 Source: various national statistics; McKinsey Global Institute analysis 2

3 Indonesia infrastructure context Bn USD, real 2013 Investment gap ESTIMATES Investment required to meet the 70% rule of thumb for infrastructure stock ~ 1,160-1,170 1 ~ ~ MP3EI plan New investment needed 2025 GDP value (USD billion, real 2013) E1.Estimate based on Global Insights GDP growth forecast in , ranging from 5,1% to 6%. All data are in real base An additional ~US$ 277 bn (1.5-2% GDP) would be needed to include capex depreciation Source: Indonesia Coordinating Ministry For Economic Affairs, Global Insights, McKinsey analysis 4

4 Indonesia infrastructure context 5

5 Indonesia infrastructure PPP context Bn USD, real 2013 PPP potential ESTIMATES ~ ~ 1,160-1, ~ ~ MP3EI plans New investment needed 2025 GDP value (USD billion, real 2013) Estimate based on Global Insights GDP growth forecast in , ranging from 5,1% to 6%. All data are in real base An additional ~US$ 277 bn (1.5-2% GDP) would be needed to include capex depreciation Source: Indonesia Coordinating Ministry For Economic Affairs, Global Insights, McKinsey analysis 6

6 four fundamental benefits by closing the infrastructure investment gap Increased efficiency Private sector has financial interest to deliver on time Optimise life-cycle cost (investment vs. ops cost) Meet budgets (known outputs for known cost) Competition between bidders drive price down Appropriate Risk allocation Risk allocated to party best able to manage it Risk reduction by redefining relationship between parties Maintains quality of service through effective incentive system Leverage Private sector Strengths Maximised use of private sector skill Execution and delivery expertise New sources of financing Injection of private capital and ability to raise additional capital Makes projects affordable if borrowing is limited Project can be funded off-balance sheet 1 7

7 fiscal initiatives and supporting institution Government of Indonesia Land Fund Viability Gap Fund Capital market and regulatory reform Infrastructure Fund Private Investors / Lenders Land Acquisition & Clearance Viability Risk Policy (Bankabaility) Risks Cost of financing Project Financing Refinancing Preparation Bidding Construction Operation 8

8 Indonesia Infrastructure Guarantee Fund Established: December 30, 2009 Authorized Capital: IDR 9 Trillion 100% Government-owned Core Mandate: Single Window for Infrastructure Guarantees 9

9 benefits of the Guarantee to PPP projects INVESTMENT Sustainability of investment Joint project supervision with the Government CREDIBILITY The project is more credible in the eyes of the private sector Increasing competition more competitive rates RISK Professional and efficient risk management Workable and clear risk mitigation plan BANKABILITY Lenders confident to lend Competitive interest rate due to guaranteed term 11

10 a case study: Central Java Power Plant PPP project Project Location Ultra super critical coal fired power plant, 2x1000 MW Batang Regency, Central Java Province, Indonesia COD 2019 Gurarantee Guarantee Agreement for ofidr 300 Bio Central Java Power Project 2x1000 MW; ~US$ 4 bio 6 October 2011 PPA Tenor PPP Structure Developer Guarantee Structure 25 years Build, Operate, Transfer (BOT) PT Bhimasena Power Indonesia, an SPV of consortium: ADARO: 34% (Indonesia) J-POWER: 34% (Japan) ITOCHU: 32% (Japan) Guarantee Agreement: Project Co. with IIGF & GOI Coverage: political risks, force majeure affecting PLN & PLN EOD Guarantee Tenor: Equity : 16 years Debt : 21 years 12

11 however, there s challenges that need to be addressed PPP-specific 1 Issue No end-to-end ownership Challenged Government 2 capacity in pre-fs and project prep Description Misaligned incentives among GCAs and PPP agencies No single unit accountable from origination to completion Lack of mandate from highest authority Varying awareness and capabilities on what it takes to do a PPP Stringent procurement process limits access to world-class advisory firms for project preparation 3 Opaque project selection criteria Opaque criteria for selection and prioritization of PPPs Limited consideration of financial viability during project selection results in projects tendered without viable fiscal support Relevant Conflicting 4 regulatory framework Over 30 laws and regulations govern PPPs Contradicting stipulations across sectors; and between national and local governments 13

12 ..resulting in 5 corresponding actions to unlock PPP potential Recommendation Description 1 2 Authoritative and credible PPP center Mainstreaming PPPs as an infrastructure delivery mode Serve as control tower, ensuring that PPPs reach financial close PPP champion, driver of transformation, owner of reforms Define robust criteria to determine when PPP is most suitable delivery mode Adopt value-for-money (VFM) principles Project development fund for 3 accelerating procurement of world-class advisory services Pool all resources to ensure allocation across projects are maximized Develop readily available roster of technical, financial and legal advisors to support transactions 4 Capability-building program across the bureaucracy Develop programs to address three key areas: Awareness-raising PPP Basics Specialized transaction skills 5 Debottleneck regulations Conduct regulatory audit Propose specific amendments 14

13 Thank You 15