Guideline for Risk Allocation of Infrastructure Projects under PPP Scheme in Indonesia. Version Indonesia Infrastructure Guarantee Fund

Transcription

1 Guideline for of Infrastructure Projects under PPP Scheme in Indonesia Version Indonesia Infrastructure Guarantee Fund

2 1 PPP in Indonesia: Guideline REMARKS BY THE MINISTER OF FINANCE OF THE REPUBLIC OF INDONESIA In implementing Public Private Partnership (PPP) scheme for infrastructure development in Indonesia, the establishment of risk allocation is an important part of the scheme and also its main feature which differentiates it with other infrastructure project schemes. By establishing the risk allocation, segregation of duties between the government and the private sector is well defined, therefore the accountability on the success of the construction work, cost efficiency and the service quality to the public during the operations are transparent and measurable. The establishment of risk allocation that is clear and credible could attract the private sectors to participate in providing capital and seeking financing for infrastructure projects which in turn will support the sustainability of a good state budget. In accordance to the mandate stipulated in the Minister of Finance Regulation No. 260 year 2010 on The Implementing Guideline for Infrastructure Guarantees in PPP, as amended by Minister of Finance Regulation No. 8 year 2016, Indonesia Infrastructure Guarantee Fund (IIGF) develop the Guideline for infrastructure annually which is widely published to be utilised as reference by all stakeholders. This Guideline is developed by considering the inputs from eperts and other stakeholders in order to consistently accommodate the current development in infrastructure projects in Indonesia, and at the same time improving the participation of the Contracting Agency (CA) and other stakeholders in implementing PPP scheme in infrastructure projects. In the development since its first publication, the utilisation of the guideline is not limited only in the project planning or structuring the project agreement phases, but it is also used as the reference in the monitoring of infrastructure projects to safeguard the consistency of PPP scheme from construction to operational phase. Ministry of Finance is confident that IIGF shall always give the best efforts to continuously improve this Guideline as it has been the case in the previous years. The established risk allocation stipulated in this Guideline Book needs to be followed up by the CA and the private sectors by developing comprehensive risk mitigation plans which are consistently implemented in a regular basis, in order to achieve the goal of providing high quality and reliable infrastructure services to the public for the advancement of our nation. Sri Mulyani Indrawati Minister of Finance, Republic of Indonesia

3 2 PPP in Indonesia: Guideline FOREWORD As part of an effort to accelerate the infrastructure development in Indonesia while maintaining the credible state budget, the Government encourages the participation of private sectors in developong national infrastructure through government supports, fiscal instrument and frameworks. To support that, on December 30, 2009 the Government of Indonesia has established Indonesia Infrastructure Guarantee Fund or IIGF, as a State-Owned Enterprises (SOEs) under the Ministry of Finance which is mandated on providing government guarantees for infrastructure projects developed under the Public Private Partnership (PPP) scheme. The critical roles of IIGF are: As the GoI s contingent support provider through provision of government-related contractual risk guarantees; Enhancing the quality of the PPP transaction; and Encouraging standardized and accountable approach for PPP implementation as being the single window processor for guarantee provision. Through IIGF, the guarantees are made available with the aim of providing more certainty in achieving the necessary financial closing, by way of improving the creditworthiness or bankability of the PPP projects. IIGF business models heavily relies on the current PPP and guarantee regulatory framework which should emphasize on : Project feasibility (technical, legal, economic, financial, social and environmental); Contracting Agency s readiness for implementation of PPP scheme; and Ability of Contracting Agency to manage project risks which properly allocated to them. With regards to the emphasis on the proper risk allocation, this Guideline, which has been released previously until this latest 9 th edition, becomes very essential as a key reference in assessing and allocating risks for the purpose of guarantee provision, as mandated by the regulation. This Guideline is also intended to be a key reference for: Contracting Agencies in developing the PPP Contracts as well as the Guarantee Application Package (GAP) to be submitted to IIGF for guarantee provision; and Investors and financiers in assessing their potential investment and financing for PPP projects in Indonesia. This Guideline can be utilised in each phase of PPP since the planning, preparation, transaction and until the project implementation. Nevertheless, it is important to note that during implementation, some risk allocations may have variations to what have been outlined in this Guideline, as they are subject to actual project and/or sector specific conditions, or agreed commercial position between the parties. This Guideline is continuously improved and reviewed periodically, minimum once for every 12 months, by way of gathering feedbacks from key stakeholders as has been conducted when developing this Guideline. Armand Hermawan President Director Indonesia Infrastructure Guarantee Fund

4 3 PPP in Indonesia: Guideline TABLE OF CONTENTS REMARKS FROM MINISTER OF FINANCE REPUBLIC OF INDONESIA... 2 FOREWORD PRESIDENT DIRECTOR, INDONESIA INFRASTRUCTUREGUARANTEE FUND... 3 TABLE OF CONTENTS... 4 LIST OF FIGURES... 6 LIST OF TABLES... 8 DOCUMENT LOG AND REVISION TABLE... 9 DEFINITIONS AND GENERAL TERMS GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA PPP STRUCTURES IN INDONESIA GENERAL PPP STRUCTURE Usage-based PPP (Wholesale infrastructure) Availability-based PPP (Retail Infrastructure) Operation and Maintenance (O&M) Contract based PPP SECTORAL PPP STRUCTURE PPP Structure in Water Supply Sector PPP Structure in Waste Management Sector PPP Structure in Toll Road Sector PPP Structure in Power Sector PPP Structure in Energy Conservation Sector Oil and Gas PPP Sector PPP Structure Railway Sector PPP Structure in Bus Rapid Transit (BRT) Sector PPP Structure in Seaport Sector PPP Structure in Airport Sector PPP Structure in Telecommunication Sector PPP Structure in Urban Facilities Sector PPP Structure in Public Housing Sector PPP Structure in Hospital Sector PPP Structure in Education Sector PPP Structure in Sport Sector PPP Structure in Tourism Sector PPP Structure in Correctional Sector EVALUATION OF RISK ALLOCATION ASPECT FOR PPP PROJECT AND INFRASTRUCTURE GUARANTEE ROVISION RISK ALLOCATION PRINCIPLE IN THE CONTEXT OF PPP PROJECT IMPLEMENTATION Implementation in the Preparation and Transaction of a PPP Project Implementation in the Provision of Guarantee to PPP Project by IIGF INFRASTRUCTURE RISK ALLOCATION GUIDELINE PPP RISK CATEGORY... 44

5 4 PPP in Indonesia: Guideline 4.2 RISK MATRICES BY PPP SECTOR Risk Matri for PPP Water Supply Sector Risk Matri for PPP Waste Management Matri in Road Sector Matri in Electricity Sector Matri in Energy Conservation Sector Matri in Oil and Gas Sector Matri in Railway Transportation Sector Matri in Bus Rapid Transit (BRT) Sector Matri in Seaport Sector Matri in Airport Transportation Sector Matri in Telecommunication Sector Matri in Urban Facilities Sector Matri in Health Sector Matri in Public Housing Sector Matri in Education Sector Matri in Sport Facility Sector Matri in Tourism Sector Matri in Correctional Sector SUMMARY

6 5 PPP in Indonesia: Guideline LIST OF FIGURES Figure 1. Usage-based PPP or Wholesale Infrastructure Figure 2. Availability-based PPP or Retail Infrastructure Figure 3. Water BOT Structure Figure 4. Waste Water Management BOT/BOOT and AP Structure Figure 5. PPP Waste Water Management Structure Figure 6. Toll Road Full Concession Structure Figure 7. Toll Road O&M Structure Figure 8. Combination of Toll Road Concession and O&M Structure Figure 9. Toll Road and Non Toll Road AP Structure Figure 10. Non-cash Toll Road Payment System BOT Structure Figure 11. Electricity BOT Structure Figure 12. Electricity BOO Structure Figure 13. Minemouth BOT Stucture Figure 14. Street Lighting (PJU) or Energy Efficiency Figure 15. Oil Refinery BOT Structure Figure 16. Railway Full Concession Structure Figure 17. Railway O&M Structure Figure 18. BRT Full Concession Structure Figure 19. BRT O&M Structure Figure 20. Seaport Full Concession Structure Figure 21. Airport Full Concession Structure Figure 22. Airport O&M Structure Figure 23. Fiber Optic Network AP Structure Figure 24. High Throughput Satellite (HTS) AP Structure Figure 25. Public Market BOT Structure Figure 26. Public Market AP Structure Figure 27. Public Housing BOT Structure Figure 28. Public Housing AP Structure Figure 29. Hospital AP Structure Figure 30. School/Colleges AP Structure Figure 31. Indicative structure of AP Payment Scheme of PTN-BH... 34

7 6 PPP in Indonesia: Guideline Figure 32. Sport BOT Structure Figure 33. Sport AP Structure Figure 34. Tourism AP Structure Figure 35. Prison AP Structure Figure 36. Prison AP Structure Figure 37. Region AP Structure Figure 38. Bundling Project BOT Structure Figure 39. Bundling Project AP Structure Figure 40. Sequence of PPP Logic Figure 41. IIGF Guideline and the Prevailing PPP and Infrastructure Guarantee Framework... 44

8 7 PPP in Indonesia: Guideline LIST OF TABLES Table 1. Features of PPP Structure Options Table 3. Risk Matri for Water BOT Table 4. Risk Matri for Solid Waste BOT Table 5. Risk Matri for Wastewater Sector Table 6. Risk Matri for Toll and Non-Toll Road Table 7. Risk Matri for Electricity Sector Table 8. Risk Matri for Energy Conservation Sector Table 9. Risk Matri for Oil and Gas Sector Table 10. Risk Matri for Railway Sector Table 11. Risk Matri for BRT Sector Table 12. Risk Matri for Seaport Sector Table 13. Risk Matri for Airport Sector Table 14. Risk Matri for Telecommunication Sector Table 14. Risk Matri for High Throughput Satellite (HTS) Sector Table 15. Risk Matri for Urban Facitilities (Market) Sector Table 16. Risk Matri for Health Sector Table 17. Risk Matri for Public Housing Sector Table 18. Risk Matri for Education Sector Table 19. Risk Matri for Sport Facility Sector Table 20. Risk Matri for Tourism Sector Table 21. Risk Matri for Correctional Sector Table 22. Risk Matri for Regional Sector Table 23. Risk Matri for Bundling Project Sector

9 8 PPP in Indonesia: Guideline DOCUMENT LOG AND REVISION TABLE Version Description Notes March 2011 First edition A dedicated workshop for gathering the inputs was conducted on February April 2012 Second edition A dedicated workshop for gathering the inputs was conducted on March The improvements include: update on the PPP regulation (as enactment of Presidential Regulation 56/2011) update/add diagram describing PPP risk allocation implementation framework in relation to infrastructure guarantee provision and to basic risk management process update on risk matrices, including additional column on specific conditions related to risk allocation add new PPP structures (and their risk matrices): o Electricity: BOT minemouth o Toll road: Combination of Concession and O&M o Waste Management: BOT wastewater April 2013 Third edition Based on inputs gathered thru discussions (e.g. face to face, mail, and website), the improvements include: additional (and sharpening) risk event and mitigation strategy for the risk matrices, such as: o land tenure risk (duplication of land ownership) o culture risk o operational risk failure on project management (by PC) o operational risk failure on project control & monitoring (by PC or CA) March 2014 Fourth edition A dedicated workshop for gathering the inputs was conducted on March The improvements include: update on the PPP regulation (as enactment of Presidential Regulation 66/2013 and VGF regulation) update on the description of cooperation scheme for water supply sector, waste management sector, toll road sector, railway sector, seaport sector and airport sector additional (and sharpening) risk event and mitigation strategy for the risk matrices, such as o limited workspace risk (for the project that needs lengthwise location) o local culture risk -> social and culture risk o tariff related risk: the needs for regulatory support (regulation for CA regional) o demand and revenue risk: socialization and eligibility support program o Epropriation: that contrasted to the takeover with compensation (nationalization) March 2015 Fifth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from February 2 to 27, The improvements to the previous version, include: Description on the preferences of the PPP scheme in RPJMN , overview of sectors and structures that may be undertaken in cooperation with the PPP scheme as in the just recently updated PPP regulation; Adjustment of narration about reference on contet of the elimination of Law No. 7 of 2004 on Water Resources; Additions / adjustments of narration about cooperation of port sector and other sectors; Some adjustments to the specific contet and the typo in the matri Adjustment of additional risks in the matri March 2016 Sith edition Based on inputs gathered from stakeholders, both written and through discussion in the period from March 1 to 28, The improvements to the previous version, include: Eplanation on the overview of sector and structure that may be undertaken in cooperation with PPP scheme as in the just recently updated PPP regulation;

10 9 PPP in Indonesia: Guideline Version Description Notes Improvement in PPP project structure figures; Additions eplanation of the recently updated regulation, particularly related to Availability Payment (AP) and Water Supply sector; Additions / adjustments of narration about risk management process; Some adjustments on specific contets and typo in matri; Adjustments of risk category in matri; and Simplify the presentation of risk in one sector. April 2016 Seventh edition Based on inputs gathered from stakeholders, both written and through discussion in the period from April 1-29, The improvements to the previous version, include: Improvement of risk allocation matri for Toll Road concession scheme, especially related to revenue risk during the ramp up period; and Addition figure for indicative structure of AP Payment Scheme of PTN-BH (State University with Legal Entity status). March 2017 Eighth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from Februari 8 March 8, The improvements to the previous version, include: Additions definition of BOOT; Adjustment of PPP scheme definition and scope of works; Improvement of risk allocation matri, especially for electricity sector and oil and gas sector; Additions of structure and risk matrices for bus rapid transit sector and correctional sector; Additions of narration on project structure eplanation in minemouth, water supply sector, and solid waste sector; and Additional (and sharpening) of risk event and mitigation strategy for risk matrices. March 2018 Ninth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from Februari 8 March 8, The improvements to the previous version, include: Additions of narrative on O&M payment and contract scheme of PPP project; Utilization of Guidelines in every phase of PPP project; Additions of project structure and risk matrices in region sector, toll road non-cash payment system, High Throughput Satellite (HTS), and BRT bus concession; Eplanation project structure and risk matrices in Bundling Project; Adjustment of Energy Conservation project structure and risk matrices; Adjustment of risk matrices related to environment, financial, and operations; Adjustment of risk matrices in water supply and oil and gas sector.

11 10 PPP in Indonesia: Guideline DEFINITIONS AND GENERAL TERMS BOO BOT Build Operate Own- a PPP contract under which the private party is responsible for the design, construction, operation and transfer of ownership of the facility upon epiration of the contract period Build Operate Transfer a PPP contract under which the private party is responsible for design, financing, construction, operation of the infrastructure facility and for which it retains ownership during and after the contract period. BOOT Build Operate Own Transfer - a PPP contract under which the private party is responsible for design, financing, construction, operation and own an infrastructure facility during the contract period and then transfer the ownership at the epiry of the contract. PC Financial Close IIGF (Full) Concession Project Company; private business entities in the form of a limited liability Company, State-Owned Enterprises (BUMN), Regional-Owned Enterprise (BUMD), and cooperatives which is the Contracting Agency (CA) s or Government Contracting Agency (GCA) s counterparty under the PPP contract.which is the Contracting Agency (CA) s counterparty under the PPP contract The date at which all project contracts and financing documentations have been signed, and conditions precedent to initial drawing of the debt have been fulfilled. Indonesia Infrastructure Guarantee Fund a government-owned entity bearing mandate for infrastructure guarantee provision. Also known as PT Penjaminan Infrastruktur Indonesia (Persero) (PT PII) a PPP in which the private sector collects revenue for service fees directly from end users, general public in the form of tolls, fares or other charges for using the facility. PPP Off-taker CA Public Private Partnership or Kerjasama Pemerintah dan Badan Usaha.as stipulate in the current regulation (i.e. Presidential Decree No 38/2015); Purchaser of infrastructure service in a PPP contract, usually the public utility company as part of the CA. Contracting Agency the project owner or the public sector counterparty in a PPP contract (as stipulated by the prevailing regulations). Also known as Public Authority or Implementing Agency or Penanggung Jawab Proyek Kerjasama (PJPK) or Public Authority (PA) or Implementing Agency (IA). Based on current regulation, the CA can be a Minister or Chairman of the Institution/Regional Head, or State-Owned Enterprises (BUMN), Regional-Owned Enterprise (BUMD) in terms of regulation, provision of infrastructure organized or conducted by BUMN/BUMD.

12 11 PPP in Indonesia: Guideline GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT The infrastructure challenges in Indonesia are imminent. As Government budget has its limitation, hundreds of trillions Rupiah are epected to come from private sectors within a couple of years to help infrastructure development. Related to this need, the Government of Indonesia (GOI) has provided the regulatory and institutional framework to attract interests from private sector, including participation in infrastructure projects under Public Private Partnership (PPP) schemes. Citing the National Medium Term Development Plan , the PPP scheme is epected to be the backbone of development financing is cost-recovery, especially in areas where people's purchasing power has been able to implement the user pay principle as in urban areas. Public funding will be prioritized to finance development in areas of low income communities, accelerating the development of regional priorities and the services that are social or non-cost recovery. Policy funding will also be directed to open up opportunities for hybrid financing that combine the potential of funding from the public sector, private and society. The combination of the financing will be done in a variety of innovative in an effort to accelerate the development in various fields In the contet of the provision of fiscal support for those infrastructure projects, in December 2009, GOI has established PT Penjaminan Infrastruktur Indonesia (Persero) (PT PII), or Indonesia Infrastructure Guarantee Fund (IIGF), a state-owned enterprises that are mandated to provide guarantees for private sector risks of not-compliance with the financial obligation of the public or Contracting Agency (CA) under the PPP contract which may be thriggered by breach of contract and changes in laws and regulations, IIGF and its guarantees are designed to increase investment comfort to private investors and lenders, and to ultimately accelerate PPP project implementation in Indonesia. 1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA In order to improve the creditworthiness of infrastructure projects as an effort to encourage private sector participation in the provision of infrastructure, the government guarantee can be granted to infrastructure projects provided under PPP scheme, as just recently stipulated in Presidential Regulation No. 38 year 2015 on cooperation among Government and private entity in the provision of infrastructure (replace Presidential Regulation No. 67 of 2005 and its amendment) ("PPP Regulation"). As stated in the regulations, the provision of government guarantees may be given by the Minister of Finance (MoF) through a Government established entity to provide infrastructure guarantees (Business Entity for Infrastructure Guarantee). Based on Government regulations No. 35 Year 2009, IIGF is established through state capital injection with the purpose of providing guarantees to infrastructure. Provision of infrastructure guarantee through IIGF is regulated further through the Presidential Regulation No. 78 of 2010 on Infrastructure Guarantees for Public Private Partnership Projects through the Infrastructure Guarantee Entity for ("Presidential Regulation 78/2010"), and Minister of Finance Decree No. 260/PMK.011/2010 on Implementation Guidelines for Infrastructure Guarantees in PPP Projects ("MoFD 260/2010"). In this book, these regulations are defined as Infrastructure Guarantee Regulation. Further, the Government through the Minister of Finance Regulation No. 223/PMK.011/2012 has issued regulation about providing feasibility support (viability gap fund) as a form of Government support for the project that economically viable but has limited financial feasibility. Lastly, the Government, through the Minister of Finance Regulation No. 190/PMK.08/2015 about the payment of the availability of services in cooperation between the Government and business entities in the provision of infrastructure. Clause 11 of MoFD 260/2010 mandates IIGF to develop a guideline on infrastructure risk category and its allocation between the public and private sector ( Guideline for Allocation or simply Risk Guideline ), as a key reference for the CA in developing PPP contracts, as well as preparing and proposing Guarantee Application Package (GAP) to IIGF, and for investors and financiers in assessing their investment and financing in Indonesia opportunities PPP project. It is important to note that during implementation, some risk allocations may have variations to what have been outlined in this Guideline, as they are subject to actual project and/or sector spesific conditions, the generally accepted practice, sectoral regulatory contets or agreed commercial position between the parties.

13 12 PPP in Indonesia: Guideline The Risk Guideline is developed through consultation with key stakeholders, e.g. MoF, Bappenas, BKPM, relevant CAs (Ministries, Regional Governments), investors/developers, banks, multilateral development agencies, and other parties with competencies in the field of infrastructure risk. This guideline is also part of publication series by IIGF and is complementary to the IIGF Guarantee Provision Guideline. These document serve as key references for IIGF in assessing the viability of the GAP submitted by the CAs to IIGF. 2 PPP STRUCTURES IN INDONESIA In developing this Guideline, relevant PPP structures eligible under prevailing regulation in Indonesia serve as the basis to identify infrastructure risks. Besides the generic, cross-sectoral PPP structure, specific PPP sectors are identified to be included in this Guideline. Such sectors include: 1. Water supply 5. Energy conservation 9. Seaport 13. Health 17. Bus Rapid Transit 2. Waste management 3. Toll road 4. Power supply 6. Oil and gas 7. Railway transport 8. Airport 10. Telecommunication 11. Urban facilities 12. Public housing 14. Education 15. Sports 16. Tourism 18. Correctional 19. Region Additional identification was also applied to Bundling Project, a bundled project of 2 types of infrastructure. 2.1 General PPP Structure Based on PPP Regulation, referring to the respective sector regulationthe CA can be the Minister or Head of Agency or Head of Regional Government, and in terms of legislation of the public infrastructure provision is carried out by Central SOE or regional SOE, then the CA role is bourne by the said Central/Regional SOE, thus the CA is the Central/Regional SOE (BUMN/BUMD). The CA along with public institution that affect PPP are stakeholders from government side. In this Guideline, structure that is presented is a generic form which is a reference only and is not rigid, by considering the regulation dynamic, as well as the situation and condition of projects reviewed. Furthermore, element of stakeholders from the private sector is generally divided into private, the supporting of construction and operation aspects, and the supporting financing aspects. Private is a contracting party of PPP and is responsible for the infrastructure and services provided in accordance with the output specifications which contained in the contract. The supporting of construction and operation aspects, consist of design consultant, contractor, and operator. The function of design consultants and contractors can be unified by selecting the Company s Engineering, Procurement, and Construction (Engineering, Procurement, Construction EPC). The supporting parties of construction and operation aspects have engagement contract with the private sector aims to make available infrastructure and the services provided under the PPP contract. The supporting of the financing aspects are the Project Sponsor and the Lenders. The Project Sponsor are persons/companies individual/consorsium companies/cooperatives that provide private capitalization in accordace with the requirements of the PPP contract, or also called investor. Generally, the project financing will not be fully sourced from the capital, but there is also financing from the Lenders. Lenders are financial or banking institution either single or syndication which provides loans for project financing. Private do the loan agreement with the Lenders that aims to finance project can be fulfilled and Private can be able to repay in accordance with specified requirements. Fulfillment of project financing (financial close) is a key factor for early and sustainability of a project. Therefore, financial close become one of an indicator that must be met in Consitions Precedent (CP) prior to the commencement of the contract effectively. The Government could provide various forms of support such as the viability gap funding (VGF), ta incentives, partial construction support, etc. Beside that, the Government guarantee may also be given to the projects through IIGF.

14 13 PPP in Indonesia: Guideline Based on Presidential Regulation No. 38 of 2015, private return on investment could be sourced from payment by the user in the form of tariff (user payment), availability payment, and/or other form of payment as long as it is not in conflict with the prevailing regulations. In the PPP project with AP scheme, private companies can only accept AP payment and not from other sources. Revenues from other sources belong to PJPK. As for the user pay payment scheme or other forms, private companies can accept one or combination of the two payment schemes in accordance with the scope of duties in the PPP Project. For the purpose of developing this Guideline, the PPP structure is classified based on the nature of service and inherent risks transfer inherent in the PPP contract. The modalities of basic PPP project structure are Usage-based PPP and Availability-based PPP structure, which the application is based on an assessment on option of cooperation scheme to formulate a business case to the scope of the project Usage-based PPP (Wholesale infrastructure) In this structure, the scope for PPP is basically the entire works that previously be the responsibility of the public sector. As shown in the figure below, Private directly providing infrastucture services to retail customer/end-users, which the Government act more as a regulator. This structure has known as Full Consessions model (in Indonesia known as Consession model) and is generally used in the toll road sector, the transport sector (e.g. railway, seaport) and the utility sector (e.g. waste water). As shown, the CA contractually agrees to provide the PC a concession right for delivering the wholesale service during the PPP period. In certain sectors where eploitation by the private sector is still considered sensitive (e.g. water supply), the implementation of this scheme needs to be eamined more carefully, especially in the preparation of the concession agreement includes coverage of a certain area that are not served by the eisting services of the public sector entity. Figure 1. Usage-based PPP or Wholesale Infrastructure Availability-based PPP (Retail Infrastructure) In these structure, the scope of work in this PPP structure only includes portions of entire works that previously be the responsibility of the public sector. Most of this type of services include business process services as part of the infrastructure. Type of the services provision may include the the provision of generating units/processors ( facility ), transmission provision of raw materials for the facilities, construction, and operations of major facilities to support services (such as education and health sectors), or the output distribution facility to the main network to the subscriber.

15 14 PPP in Indonesia: Guideline Figure 2. Availability-based PPP or Retail Infrastructure As shown in the Figure, Private receives periodic payments from Private during the contract period for the availability of facilities and infrastructure services. Components include the periodic payments of the return on investment (CAPEX), operating costs, and Return on Investment (ROI). As users pay services to the Government and also through work units which apply the Financial Management Formula for Public Service Agency (Pola Pengelolaan Keuangan Badan Layanan Umum / PPK BLU ). The contractual structure in this type of PPP applied in Build Operate Transfer (BOT) scheme or other scheme which permitted by regulation as long as the status of ownership of the asste at the end of the concession belongs to the government. In that scheme, the Private is typically responsible for design, construction, financing and operation and maintenance of the facility, of which the result will be utilised/purchased by the public sector s CA Operation and Maintenance (O&M) Contract based PPP In addition to the above 2 (two) structures, based on the PPP Regulation as also relevant to the potential applications especially in transport sector, the Operation and Maintenance (O&M) contract could also be discussed further in this guideline. As it does not include the implementation and financing of construction facility, O&M contract may refer to a Lease contract which enables the PC to be responsible for the management, operations and specific renewals of the contracted facility. During the PPP contract, it is the private sector who is responsible to provide the infrastructure services, but the ownership of the facility is kept by the public sector as a party to make a capital investment. In other countries, the O&M contract can be shaped as affermage contract and lease contract. The similarity is the Government invests in service assets, however the risk allocation of the tariff collection also has an impact on the payment of an assest rental costs which determines the type of contract applied, which are the affermage contract (the Governement risk and rental cost depends on the success rate of tariff collection) and lease contract (private risk and rental fi costs, does not depends on the success rate of tariff collection). Below is the description of features of the various PPP structures. Table 1. Features of PPP Structure Options Activities Availability-based Usage-based O & M Ownership of asset during contract Private Private (ecept BTO) Government Investment / Funding Private Private Government Construction Private (+ Government, if regional project) Private (+ Government) Government Operation & Maintenance Private Private Private

16 15 PPP in Indonesia: Guideline Activities Availability-based Usage-based O & M Services and tariff collection to retail consumers / end users Private/Government (depends on project scope) Private Private/Government (depends on project scope) Contract length (typically, by sectors) <20 years years 5-15 years Customers Single customer/ca Retail customer/end-user Single customer/ca or Retail customer/end-user Source of cash flow Payments by CA Payments from consumers Percentages of revenue from tariff 2.2 Sectoral PPP Structure PPP Structure in Water Supply Sector Structure of PPP in water supply sector refers to applicable regulation regarding water supply system and PPP Regulation. Based on Presidential Regulation No. 122 of 2015 on Water Supply System, Central SOE/Regional SOE (PDAM/PDAB) in water supply is the CA of SPAM development. In terms of Central SOE/Regional SOE financing capacity to fulfill the needs of SPAM Operation with a piping network inside and outside the service area is inadequate, Central SOE/Regional SOE can cooperate with PC based on the principles that covering: Water Intake Permit which is owned by Central SOE/Regional SOE and SPAM Operation by prioritizing low-income communities. Cooperation with PC can only be done in the form of: 1. Investments of SPAM Development and/or SPAM Management of the raw water and production units; 2. Investments of distribution units which is further operated and managed by related Central SOE/Regional SOE; and/or 3. Investments of operating technology and maintenance in order to provide an effective and efficient of SPAM Operation with performance-based contracts mechanism. However, for areas outside of the Central SOE/Regional SOE services, Government or Local Government can establish the Technical Services Unit (UPT) or Local UPT (UPTD). In line with the regulations and the current projects implementation, the PPP structure which can be applied only an availability-based structure with BOT scheme. In terms of inadequate PDAM financing capacity is is and to provide comfort in investment for PC, the Regional Head can be involved in PPP agreement in accordance with its authority. This because the CA s credibility play an important role for the successful project implementation Water BOT The Private can invest in a one or combination of the build, operate, and maintain the water unit and production unit, build the distribution unit up, and/or hold, operate, and maintain the operation and maintenance technology system, but not taking the demand risk or retail tariff collection tasks. In the bulk water sales agreement, the resulted water from process done by the PC then sold to CA where PC will get compensation for the water treatment services.

17 16 PPP in Indonesia: Guideline Figure 3. is the generic form of Water BOT scheme with PDAM/PDAB as CA. The project structure adopted an Availability Payment scheme. In this case of services, CA specified in the contract to be able to provide a certain quantity, with the required quality of service, and continuity is assured during operation period. SPAM development of inter-district/city is the responsibility of the Provincial Government, such as the Umbulan Regional SPAM Project.Another important thing, the success key of project transaction is the Private sector (particularly lenders) need to be convinced that CA demonstrate good creditworthiness in fulfilling the periodic payment obligation during the contract period PPP Structure in Waste Management Sector Figure 3. Water BOT Structure In waste management, the project structure can use an availability-based PPP structure with BOT scheme. As for the solid waste management sector can use the usage or availability-based PPP structure with BOT or BOOT scheme. The CA in this sector, in accordance with regulation, would be the Central Government or Regional Government (i.e. city or municipal government or provincial government) depends on scope of of the project Solid Waste BOT/BOOT By referring to applicable PPP regulation, one of the scope of cooperation is the downstream side of waste treatment, which is built dan operate the waste treatment facility at Final Disposal facility. Besides allowed by regulation, the scope of cooperation in the upstream side of waste management (waste transportation) or downstream side (final disposal) are quiet attractive for investors (as long as not including the billing collection), due to the public awareness to make payments of waste retribution is still low and the waste problem not yet considered as important issues.

18 17 PPP in Indonesia: Guideline Figure 4. Waste Water Management BOT/BOOT and AP Structure The Regional Government as the CA (usually as the waste supplier which collects from the domestic and non-domestic customers) would pay a tipping fee for the service provided by the PC either in transporting waste and through the Final Disposal facility in form of tipping fee or customs gate. Depending on the selection of technology applied, the output from the process done by the PC could be utilized or sold to generate additional revenue to the PC (e.g. the electricity to be sold to PLN-state utility company or sales of processed products such as compost or brick). If adopted the AP payment scheme, the sales of solid waste management output become Government income. At the end of the BOT/BOOT contract period, the ownership of the Final Disposal facility shall be handed over to the CA. Nambo Regional TPPAS Project in West Java and Waste to Energy (WTE) of Batam Project are an eample of the PPP projects implementation in this sector BOT Waste Water Management (Centralized or Local) Similar to the Solid Waste sector, the project can be done in BOT structure. In this case, PC only responsible build, operate, and maintain the Wastewater Treatment Plant (IPAL), while the construction, operation, and maintenance of the main pipeline and collection network including billing to retail customers commonly become Government responsibility. However, this scope can be change depends on character of customer served (residential industrial).

19 18 PPP in Indonesia: Guideline Government as CA provide payment for services provided by PC. At the end of the BOT contract period, the ownership of the infrastructure shall be handed over to CA. Based on an early understanding on the current regulations, the regional utility company such as PDAM (according to Presidential Regulation No. 122/2015) or PD PAL in Jakarta can act as the CA as long there is an assignment from the Head of Region. In contrast to waste management, the output of waste water is still in the form of water and sludge. The utilization of waste water can only be used for the surrounding environment, has not for the commodity that could be able increase a revenue yet. The PPP project in waste water management sector that currently running (preparation stage) in Jakarta PPP Structure in Toll Road Sector PPP can be run in toll road sector, as it is currently running and also in non-toll road sector. For toll road sector, so far the PPP is perfomed through a wholesale infrastructure (usage-based type) scheme. The CA in toll road sector would be Toll Road Authority (BPJT) in Ministry of Public Works and Housing, in the name of Minister. As for the non-toll road sector, PPP scheme in the form of availability-based scheme. CA in a non-toll road sector refers to road classes (national roads, provincial roads, district/city roads). In the toll road sector there is also known a Supporting BOT (SBOT) scheme, which is applicable for toll road projects with BOT scheme that get the Government support in form of Viability Gap Funding (VGF) or construction of certain sections of the toll road. This scheme is also called as Combination of Concessions and O&M scheme (Hybrid) Toll Road BOT Figure 5. PPP Waste Water Management Structure In this structure, the users pay for the toll road services to the PC as the concession (right) holder which is responsible for the design, construction, operation and maintenance of the facility until end of contract period. The concession is typically granted to the PC with BOT type of structure. Demand risk and tariffrelated risk is most concerned risks for PC. For new roads where the volume of vehicle users are still limited and uncertain, PC typically require fiscal support to demand risk, either directly or indirectly. Figure 6. Toll Road Full Concession Structure

20 19 PPP in Indonesia: Guideline Toll Road O&M In this scheme, the PPP scope is the operation and maintenance of the available facilities. Therefore, design, construction and financing of the toll road which is not included facility as the scope of PC works. This structure can be chosen on a case: A toll roads are not able to achieve a good commercial viability if the investment costs included in the scope of PPP offered; or A toll roads infrastructure which has been shifted to the Government after the end of concession period. PC as operator (in this type of contract) will maintain the facility and collect toll fee from users on behalf of the Government (as the owner of the toll roads). In practice, PC can pay a concession fee to CA and keep the residual payment from the collected tolls as the PC income, or revenue sharing scheme between Government and PC in accordance with agreement as stipulated in the contract SBOT (Combination of Full Concession and O&M Hybrid) This combination structure, also known as the hybrid scheme, can be applied as the solution for a toll road network consisting sections which are built and financed by various financing sources. In this scheme, scope of work to be covered as PPP is separated by different section, but included as one contract. Thus, the risk profile for each party involved will be distinguished based on the section being concerned. In this scheme, other than revenue risk and tariff risk, the interface risk is also need to be concerned by the PC. Toll road projects such as Cileunyi- Sumedang-Dawuan (Cisumdawu), Balikpapan-Samarinda, and Manado-Bitung are kinds of project that applied this scheme. Figure 7. Toll Road O&M Structure Figure 8. Combination of Toll Road Full Concession and O&M Structure

21 20 PPP in Indonesia: Guideline Toll Road and Non-Toll Road - Availability Payment (AP) This scheme can be applied to the toll road which is not financially viable, but economically viable and non-toll road. The implementation of this scheme on the toll road is also called as Performance Based Annuity Scheme (PBAS), due to the opening of the toll road access can accelerate the isolated region development, equitable development, or other strategic issues. The implementation in a non-toll roal intended for the fulfillment of minimum service standards for non-toll roads, so the comfortness level, security, and safety of users can be improved. In the AP structure, the PC s income is only from AP s payment. Figure 9. Toll Road and Non Toll Road AP Structure In a Toll Road case, UPT BLU responsible of payment collection from users, as the PMU in maintain the BU s performance, and make a AP payments according to PC s performance. If E-Toll system has apllied and runs in PPP with AP scheme at the entire toll gates, the revenue of electronical ticket payment can be deposited to Treasury Funds directly. In a Non-Toll Road case, the Government appointed the PMU to maintain the PC s performance, and ake a AP payments according to PC s performance. The PC s scope includes design, build, and maintain the non-toll road or only maintain the roads during a certain period. The selected PC should be a competent contractor in road development and maintainance so the cost and sub-contractor risk can be minimilize Non-cash Toll Road Payment System - BOT Structure The implementation of e-money for payment throughout the toll roads has started since October This policy has been outlined in Minister of Public Work and Public Housing Regulation No. 16/2017. The implementation of this system is an effort to overcome the congestion at the toll gate, service to all the toll road users, and the development of non-cash technology transaction systems based on electronic and non-touching money cards. This systems has to be implemented as of 31 December 2018.

22 21 PPP in Indonesia: Guideline The PC s scope includes design, build, provide, operate, and maintain the facilities and non-cash toll road payment system facilities, including reconciliation and settlement, also the handover to the Government at the end of concession. In this scheme, PC receive the payment from Toll Roads Private Company (BUJT). The specific risks that need an etra attention are technology risk, network risk, and settlement risk. Perjanjia n Regres PJPK 1 Sistem Transaksi Tol 2 Perjanjian KPBU IKU 3 Perjanjian Kerjasama 4 Perjanjian BUJT dengan BUP BUJT Badan Usaha Pelaksana Pengembalia n Investasi BUP Pengembalian Investasi BUJT Sistem Transaksi Nirsentuh Penyediaan Sistem Transaksi Nirsentuh Tarif Tol Masyarakat Perjanjian Penjaminan PPP Structure in Power Sector Figure 10. Non-cash Toll Road Payment System BOT Structure In electricity sector, the PPP has been implemented only in the electricity generation part through the IPP (Independent Power Producer) scheme, instead of other parts of the infrastructure provision service (e.g. transmission, distribution, tariff collection). Although, can uses either a BOT or a BOO scheme, Indonesia's PPP project are likely to use BOT scheme which the ownership of assets transferred to the public sector (PLN) after the epiry of the PPP contract (during the contract period the power plant is owned by the private IPP). The AP scheme is considered and need further assessment, especially for off-grid electricity infrastructure (outside the network). Currently, this Guideline only discuss about the BOT and BOO scheme in the electricity sector Electricity BOT Contractually, PC or the IPP is responsible for the design, construction, financing and operation and maintenance of the electricity generating facility (the plant), then transfer the asset s ownership to the Government at the end of concession period. The electricity generated by the plant is then sold by the PC to the PLN as the State-Owned Company (BUMN) in an electricity sector and also as the CA in a Power Purchase Agreement (PPA). Figure 11. Electricity BOT Structure The PLN as the single off-taker pays for the electricity to PC in periodical basis using a take-or-pay arrangement during PPA period. Thus, the credibility of the PLN in serving the financial obligation has always been the most concerned risk. PLTU Batang Project is the eample of IPP or the Electricity PPP which is currently under preparation for construction.

23 22 PPP in Indonesia: Guideline Electricity BOO Contractually, BOO scheme is not much different with BOT scheme. The differences lies in the asset ownership status at the end of the concession, the asset ownership remains at PC. The electricity that power generated still sold by PC to PLN as the single buyer (single off-taker) and also as the CA through the PPA. PLN payments are conducted regularly on the take-or-pay payment basis during the PPA. Therefore, the risk of fulfillment of PLN s financial obligation will remains as a major risk. The project which is suitable with BOO scheme generally is renewable energy projects Minemouth BOT A minemouth power plan project is basically a coal-fired power plan with below features: Figure 12. Electricity BOO Structure - it is built with the rationale of minimizing the risks stemming from supply uncertainty and price escalation of the coal as the fuel; - coal transport cost component is relatively low due to the proimity of the coal mining location to the plant; - relatively low quality of the coal as the fuel requires the plant to have an etra facility/technology to improve the coal quality. This will eventually cause the plant construction and operation cost to be relatively higher than the other plant; and - the plant location is typically remote from the main transmission line which requires further cost for etra transmission facility. As a PPP project, the variation toward the risk allocation scheme in Figure 13. Minemouth BOT Stucture this minemouth plant is not only depending on the chosen PPP structure. The issues of ownership of the coal mining and determination of both mining and plant s location will be very important variables influencing the risk allocation scheme in the project. As an illustration in developing the risk matri, the PPP structure for the selected minemouth project option is a BOT (considering higher technology required by the plant) and where the location of coal mining is determined by (and then owned by) PLN as the CA. As seen from the above structure, the scope of work as PPP is similar to he typical BOT scheme which is design detail, construction, operation, and maintenance of generating facilities in order to provide electricity for the purchsed periodically and distributed by PLN to customers. The main distinction

24 23 PPP in Indonesia: Guideline would be on the risk profile to the parties involved, mainly the coal supply uncertainty and the coal price escalation (in addition to the risk related to the mine acquisition and the mine operation to PLN in this minemouth project option). Beside that, the transmission network connectivity risk should also be considered. The mitigation to be done is the clarity about who would bear the costs and the risk related to the development of additional transmission line to be connected with the main transmission network, should be stipulated in the contract between PLN and IPP. The PLTU Sumsel 9 and 10 project is one of eample of the PPP projects that being prepared with this scheme PPP Structure in Energy Conservation Sector In Energy Conservation Sector, the output of PPP project is the efficiency in energy usage. Energy efficiency projects, among others can be PJU electrical efficiency by using LED lights and/or solar energy use, or energy efficiency of a building. Generally, PC is making an investments to provide, operate, and maintain the infrastructure facilities and services during a certain period. Considers current regulation, the Availability Payment (AP) scheme be an PPP scheme option in this sector Energy Conservation AP Street Lighting (PJU) This scheme applied to PPP Public Street Lighting (PJU) by considering that PJU services is not user charge, although people pay PJU ta collected by PLN, but the service availability. PJU collected ta is a retribution which can not be an income for PC. Therefore, the AP scheme can be an option. PPP project is highly depends on the road status and the assets located there, so it is necessary to study the legal aspects first. Figure 14. Street Lighting (PJU) or Energy Efficiency

25 24 PPP in Indonesia: Guideline Oil and Gas PPP Sector In the Oil and Gas Sector, PPP can be applied for processing, storage, transportation, and/or distribution infrastruktur. PPP projects in this sector is currently none in Indonesia. The Bontang Refinery PPP Project that was planned to be run as PPP project is converted into direct assignment to PT Pertamina (Persero) in accordance with the Decree of the Minister of Energy and Mineral Resources No K/10/MEM/2016 on assigment to PT Pertamina in the Development and Operation of Oil Refinery in Bontang, East Kalimantan Province, dated December Oil Refinery BOT Based on the Pre-Feasibility Study results on development of Oil Refinery in Bontang compiled by KPPIP in 2015, one option of project structure states that PC scope includes the provision of crude oil supply, build, operate, and maintain facilities and services the oil refinery, sells an oil product to Pertamina (as a Government representative), and sells petrochemical products to the market. The main risk of Bontang Refinery project is the low economic of the project. To deal with the low economy needs a low interest loans and long tenor. The other main risk is the condition of the market, where the domestic market price of gasoline based on import parity price, while the domestic market price of diesel for eport based on eport parity price. Figure 15. Oil Refinery BOT Structure PPP Structure Railway Sector Resembling to other (land) transport sectors, the infrastructure PPP can be pursued with usagebased type scheme. In accordance with applicable regulation, the CA in this sector would be Directorate General of Railway, Ministry of Transportation (MoT) Railway Full Concession In the full concession scheme, the Government can grants the authority to PC to collect the revenue directly from retail customers/end-users. The PC is responsible for design, Figure 16. Railway Full Concession Structure

26 25 PPP in Indonesia: Guideline construction, operation and maintenance of railway facllity and infrastructure until the end of the contract period. With the concerns huge investment cost and regulated tariff, eperiences in other countries show that the project will eperience difficulties in achieving the acceptable financial viability level if the scope includes the facility and infrastructure, ecept its including the scope of commercial utiization for area around the station or transit-oriented developmet (TOD) concept, and availability of Government support Railway O&M Similar to O&M scheme in toll-road project, the PPP is typically designed for infrastructure projects that have been built, so need the PC which can operate and maintain the railway facility and infrastructure. PC will maintain the facility and infrastructure and collect toll on Figure 17. Railway O&M Structure behalf of the Government (as the owner of the railway infrastructure). The revenue is then calculated as portion of the collected toll PPP Structure in Bus Rapid Transit (BRT) Sector Law No. 22 Year 2009 on Traffic and Road Transport become the basis of bus rapid transit (BRT) system provision. As in the railway sector, the BRT infrastructure PPP can be run with an usage-based scheme. Accordance with the applicable regulations, the CA of this sector would be the Directorate General of Land Transportation, Ministry of Transportation/Governor/Regent/Mayor in accordance with their authority BRT Full Concession In full concession scheme, the Government may grants the authority to the PC to collect the revenue directly from the retail customers/end-users. The PC is responsible for the design, construction, operation, and maintenance of the BRT facility until the end of contract period. Figure 18. BRT Full Concession Structure

27 26 PPP in Indonesia: Guideline Related to large investement cost and tariff regulated, the eperience of other contries indicates the project would be very difficult to meet the financial viability when the scope of the concession only covers the infrastructure facilities, unless the scope include commercial utilization of the area around the station or the transit-oriented development (TOD) concept and government support is available. The Government need to ensure the availability of required permit BRT O&M In this scheme, the PC has the scope to provide, operate, and maintain the BRT bus in accordance with the regulations issued by the Government as the manager of the system. The PC accept payment in form of Rp/km. The Rp/km costs has includes the cost of leasing bus, OM, and profit. Tariff adjustment also conducted periodically to reflect the inflation or a spesific formula agreed in the contract. Figure 19. BRT O&M Structure PPP Structure in Seaport Sector In this sector, regulatory framework of seaport sector in Indonesia allows PPP structure using usage-based type scheme (or a concession), where the CA in this sector would be the Port Authority of the Ministry of Transportation (MoT). Full concessions can be made by the assignment or PPP. Until now, granting the full concession in seaport sector is generally in the form of assignment to Business Entity Ports (BUP) that already eist. The PPP scheme that already implemented in seaport sector is the West Shipping Channel of Surabaya PPP Project, Tanjung Perak Port, Surabaya Seaport Full Concession In the full concession structure, type of end-users in the project can be retail passengers, shipline companies and/or companies handling goods (i.e. cargo or container). The CA for projects proposed or designated by Figure 20. Seaport Full Concession Structure the Ministry of Transportation through the Directorate General of Sea Transportation would be the Ministry of Transportation or the Directorate General of Sea Transportation with the eecuting agency from Port Operator either the Port Authority, Airport and Port Authority and the Port Operator Unit.

28 27 PPP in Indonesia: Guideline Refers to a business model that is prevalent as a PPP scheme in this sector, the scheme that can be the implementation option is LPA (Landlord Port Authority) which the government can lease the land or get a concession fee on the control over eisting port and related facilities the PC. In this case, the PC can build or develop the eisting port infrastructure (e.g. warehousing, storing) to improve infrastructure services in its operation,and obtain payment from users for the port services. In this scheme, which generally demand risk will be absorbed by the private sector, Government (as the 'landlord') may receive lease payments or concession fees from PC. Thus funds can be used to recover partial or all of the cost of land acquisition and supporting facilities (e.g. break water, access roads and other supporting facilities) which be the government's obligation of PPP scheme. The amount of the lease or concession fee is usually be a winner determination criteria in PPP auction, in other words, is determined by how much the interest of investors. In terms of the concession period has epired, port facilities as the result of concession switch or handed over to the organizers of the port in accordance with the agreement taken into account for a period of concession, then the management of land and port facilities that have already switched to the organizers of the port can be given to the Business Entity Ports (BUP) for the provision and services of vessel, passengers, and goods based on the joint use of which is conducted in accordance with the regulation. This LPA model are still rather difficult to implement, especially for current conditions in Indonesia, because of the limited capacity of the government budget to finance large investment in basic infrastructure. Another thing to consider is the access to/from the port PPP Structure in Airport Sector In this sector, so far there has been no projects implemented with the scheme in accordance with PPP regulation. Referring to Law No. 1 of 2009 on Aviation article 235, airport service can be performed by Airport Enterprise (BUBU) based on concession and or other scheme (including BOT and management contract). The CA in this sector would be the Directorate General of Civil Aviation, Ministry of Transportation. As general, the scope of work and its type of infrastructure can be divided into: Airport infrastructure, consist of: o Air-side: runway, taiway, apron, air traffic control (ATC) o Land-side: terminal o Commercial area around the airport Transportation access infrastructure o Train access o Road access Figure 21. Airport Full Concession Structure

29 28 PPP in Indonesia: Guideline Regarding cooperation option through the PPP scheme, because certain types of infrastructure are not commercial in nature (especially Air-side), is necessary to evaluate the needs of PC role, both brownfield area (the airport is already operating) or greenfield areas (airports in new location). For eample, to involve the PC in greenfield areas, the Government should first provide transportation access infrastructure adequately, including building anair-side infrastructure through other funding sources Airport Full Concession In the full concession structure, PPP in airport sector may include provision and operation both airport facilities and services. The Government may grants the authority to PC to collect the revenue directly from the retail customers/end-users i.e.retail passengers, shipline companies and/or companies handling goods (i.e. cargo or container). Full concession is usually given to the PC using BOT structure, particularly in the contet of epansion in the brownfield area. The scope of work of the PC, as set out in the regulations, is to develop and operate both airport infrastructure and eisting services, so it also possible to include the scope of the commercial utilization of the airport area to PC. For greenfield area, the PPP scheme is more likely to not include air-side infrastructure development as the scope of cooperation with PC. Figure 22. Airport O&M Structure Airport O&M Similar to the O&M structure in other transportation projects, the PPP is typically for a brownfield project which means that it does not involve design, construction and financing of the airport facility. The scope of work of the PC are to operate and maintain the infrastructure. In other case, PC also assigned to manage the commercial area at the airport which also can be revenue source for PC. The O&M operator as the PC maintains the facility and collects toll on behalf of the government. The revenue is then calculated as portion of the collected tolls PPP Structure in Telecommunication Sector PPP in the telecommunication sector can be the development of fiber optic networks, satelite, or the e-government system. The first PPP project in telecommunication sector is the Palapa Ring project which is the construction of national fiber-optic backbone network. This project connects the entire archipelago and divides into three territory packages, there are West, Central, and East. This project uses an Availability Payment (AP) scheme.

30 29 PPP in Indonesia: Guideline In addition, the Ministry of Communication and Informatics is planning to implement a development of Government Mulitfunction Satellite ( Satellite ) project using the PPP scheme. The purpose of this Satellite is to provide the facilities for Government to address the gaps in information dissemination in all regions of Indonesia and become the complement of the Palapa Ring project. Given the characteristic of information and communication technology sector is quite same, then the project structure of Satellite project is potentially similar to the Palapa Ring project Fiber Optic Networks Availability Payment (AP) AP scheme is applied to this project because its economically viable, but it is not financially viable if it is fully operated by PC. The Minister of Communication and Information as CA is fully responsible for demand risk. BP3TI as regulatory agencies in telecommunication and information Figure 23. Fiber Optic Network AP Structure sector acts as Project Management Unit (PMU) in charge to collect the tariff payment from network users, monitor the PC performances, and make an AP payment in accordance to PC performances. The scope of PC includes the design, build, operate, and maintain the telecommunication networks for a certain period High Throughput Satellite (HTS) Availability Payment (AP) AP scheme is applied to this project because of its economically viability, but it is not financially viable if it is fully operated by PC. The Minister of Communication and Information as CA is fully responsible for demand risk. PC s scope are includes: - Design, build, and launch the satellite; - Design, and build the control station (on earth); - Operate, and maintain the satellite and control station (on earth); - PC is having an agreement contract of satellite capacity rental with telecommunications service provider that will deal directly with an end users, namely Ministries/Institutions with points in the USO region. - Transfer the satellite and control station (on earth) to the Government at the end of concession. Figure 24. High Throughput Satellite (HTS) AP Structure

31 30 PPP in Indonesia: Guideline In this scheme, PC receive the AP payment from Bakti. The specific risks that needs an attention by PC are risk of delay in obtaining allocation of frequency spectrum and orbital slots, risk of assembly failure, risk of launch failure, risk of orbital failure, operational risk, shorter risk of satellite age, ineffective risk of satellite capacity utilization, risk of obsolette technology on segment ground PPP Structure in Urban Facilities Sector PPP in urban facilities sector including the utilities system and public markets. The types of urban infrastructure facilities in this Guideline is a public market, due to the need for traditional market developmet is quite high. The eistence of public market became one of tools to monitor and stabilize the basic needs prices in the community. Development and operation of traditional markets is the responsibility of district/city governments in accordance to a regional autonomy regulation, ecept Jakarta became the responsibility of Governor. The regulator for market sector is the Ministry of Home Affairs related to management and empowerment of traditional market, while the Minister of Commerce organize the arrangement of traditional market, shopping centers, and modern shops. Figure 25. Public Market BOT Structure The CA on this project is the Governor (DKI Jakarta in particular), Regent, or Mayor in line with their authority. BUMD, such as PD Pasar, can be the CA if there is a delegation from the Regional Head. Cooperation scheme for market development can use the BOT scheme or an Availability Payment. However, the BOT scheme currently became an option because the PC can have more fleibility to innovate to attract tenants and buyers. In addition, this scheme is quite attractive to the private sector. AP scheme would be highly appropriate if the Government wants to intervene related to rental tariff for tenants, in order to to achieve the level of ability and willingness of traders Public Market BOT In this scheme, the PC pay a fied contribution to the government on the use of assets and concession rights. Specific risks that related to market management are the location risk, the demand risk (tenant), and competition risk. The location risk which is particularly related to broad market affordability and market accessibility. The demand risk for tenant interests is also became a concern. In addition, their market competitors around the area will also affect the traffic level and purchasing power that will impact the tenant risk. Site conditions becomes an aspects that should be assessed comprehensively at the beginning of the study as mitigation. The demand risk becomes the main focus of the PC.

32 31 PPP in Indonesia: Guideline Public Market AP In this scheme, the PC do the construction, operation, and maintenance, as well as the assets diversion after the contract epires. The demand risk becomes a main focus of Government, so it needs a comprehensive review as mitigation PPP Structure in Public Housing Sector An availability of housing for lower middle class society is an issue that must be overcome in order to realize a more humane city. The PPP implementation in public housing sector can help accelerate the development. The CA on this project are the Minister, the Governor, the Regent, or the Mayor in accordance Figure 26. Public Market AP Structure with their authority. Cooperation scheme for public housing development using the BOT or the Availability Payment scheme. However, currently the BOT scheme becomes an option because the PC can be more fleible to do a trasaction process with buyers using the more fleible financing schemes/ residential mortgage loan. Housing infrstructures that can be implemented using PPP scheme are public flats, special flats, and state flats which are used by rent Public Housing BOT In this scheme, the PC pay a fied contribution to the Government for asset usage. Specific risks related to public housing are location risk, demand risk (occupants or tenants), and the default risk of the owner/tenant occupancy/room payments. The location risk especially related to accessibility (transportation), availability of public and social facilities around occupancy, or else. The demand risk for tenants interest is also a concern. In addition, the default risk of the owner/tenant occupancy/room on the rent or maintenance costs. Site conditions becomes an aspects that should be assessed comprehensively at the beginning of the study as mitigation. The demand and default risk of the owner/tenant occupancy/room payment become the focus aspect of the PC. Figure 27. Public Housing BOT Structure

33 32 PPP in Indonesia: Guideline Public Housing AP In this scheme, the PC does not take the responsibility of demand risk and payment of owner/tenant occupancy/room default. The development of rental or owned modest apartment ( rusunawa or rusunami ) with the concept without a down payment or relief on payments by the residents can be applied so as to accelerate the government programs in order to provide decent and affordable housing. Those risks become the main focus of Government PPP Structure in Health Sector Figure 28. Public Housing AP Structure The health sector is a major concern of Government, particularly related to service levels. The high demand should be offset by an increase in health care facilities, such as hospitals. Therefore, the PPP in health sector is one of the way to accelerate the development in health sector. The National BPJS services also support the health services improvement for the community. scheme. The CA of this projects are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme for health sector using the Availability Payment Hospital AP In this scheme, the PC receive payments for their services periodically from the Government during the concession period. The PC scope covers building, provide, operate, and maintain the facilities and hospital support services, and transfer it to the Government at the end of the concession period. The Government is responsible for the entire hospital management, including doctors and nurses management. Specific risks that related to the hospital is the delays risk in medical equipment delivery, medical data risk, IT system and technology risk, medical treatment risk, and ecess patient risk. These risks are Figure 29. Hospital AP Structure

34 33 PPP in Indonesia: Guideline the main focus of the PC depends on the scope of project. For the brownfield project, the risk of disruption of an eisting hospital service becomes an important matter. Pavilion Pirngadi Medan Hospital project may become a PPP pilot project which is being prepared this year PPP Structure in Education Sector The constitutional mandate that the Government is obliged to educate Indonesian citizen becomes a basis for allocation of 20% of the government budget to the education sector. Compusory Education Program 9 years and now become 12 year, as well as the School Operational Assistance (BOS) is a form of Government support in this sector. Educational needs is a primary need of society. The Ministry who is responsible for national education system is the Ministry of Education and Culture. In addition, the Ministry of Research Technology Higher Education is responsible for universities, and the Ministry of Religious Affairs is responsible for madrassas, boarding schools, and Islamic colleges. The CA on this project are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Under the law, the primary and junior secondary education is the responsibility of the Regent/Mayor, the senior high school and vocational education are the responsibility of the Governor, whereas the college is the responsibility of the Minister. At - Legal Entity of State University (PTN-BH) and State University-General Service Agency (PTN-BLU), the rector is allows to be the CA by first reviewing their legal aspects of fleibility/autonomy. Cooperation scheme for education using the Availability Payment scheme. The CA for the frimary and secondary education are the district head as their authority. Cooperation structure for the primary/secondary education generally use the AP scheme, so it can refer to structure and risk matrices for college. The college PPP Project presented in this Guideline is a generic model for the provision of teaching and learning facilities. As for the facilities such as hospital or business incubator, need to pay attention to the sectoral condition and peculiarities of the facility School/College AP Scope of the PC covers build, provide, operate, and maintain facilities and schools/colleges services, and transfer it to the Government at the end of the concession period. The Government is responsible for the entire school/colleges management services, including the curriculum and teachers management. In this scheme, the CA receive payments for their services periodically from the Government during the concession period. Specific risks related to the education sector are the disfunction of teaching media, delays in the delivery of teaching materials, student data leakage risk, IT system and technology risk, and Figure 30. School/Colleges AP Structure

35 34 PPP in Indonesia: Guideline facility performance risk. Those risks are the main focus of CA which depends on the scope of the project. Figure 31. Indicative structure of AP Payment Scheme of PTN-BH PPP Structure in Sport Sector The availability of sport facilities for the communities both athletes and the public, are necessary. This highly affects the achievement of Indonesian sport at the world level and also have an impact on the public health quality. The acceleration of the availability of sport facilities can be done with PPP scheme. The CA on this project are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme for sport sector using the Availability Payment scheme or Usage-based scheme.

36 35 PPP in Indonesia: Guideline Sport Stadium/Facility BOT Scope of the PC covers build, provide, operate, and maintain facilities and stadium/sport facility services, the shift it to the Government at the end of the concession period. The PC also allocate the use of stadium for athlete training needs. In this scheme, revenue of the PC is fully derived from sport facilities rental and from the supporting buildings, such as hotels. The specific risk that must be considered by the PC is Non- risk, which is the absence of income source when there is no event or after a big event, such as PON, SEA Games, Asian Games, and Olympics. The stadium operating and maintaining cost are very large, so the income sources only from events is not enough, it needs other income from support facilities which would be the main income. The stadium operating and maintaining cost are very large, so the proceeds from the events only is not enough, need revenue from supporting facilities which would be a major sources Stadium/Sport Facility AP Scope of the PC covers build, provide, operate, and maintain facilities and stadium/sport facility services, and transfer it to the Government at the end of the concession period. The PC is also allocate the use of stadium for athlete training needs. The other utilization of the stadium beyond the athlete s needs can be used as a income source for government. In this scheme, the PC receive payments for their services periodically from Government during the concession period. Specific risks that must be considered by Government is Non- Risk, which is the absence of the income source when there is no event or after a big event, such as PON, SEA Games, Asian Games, and Olympics. The stadium operating and maintaining cost are very large, so the income sources only from APBN/APBD is not enough. Turning on the stadium throughout the year is a major challenge. Specific risk that must be considered by the PC are the facilities performance risks, IT system and technology risks, and safety and security risks (especially when the activities take a place). Figure 32. Sport BOT Structure Figure 33. Sport AP Structure

37 36 PPP in Indonesia: Guideline PPP Structure in Tourism Sector The PPP in tourism sector are tourism supporting facilities such as the promotion center and tourism marketing products, tourism information center, and others. The Minister of Tourism became the regulator of this sector. The CA of this projects are the Minister, the Governor, the Regent, or the Mayor in accordance with their authority. Cooperation scheme for tourism sector using the Availability Payment scheme. The Tourism Region developed by PPP scheme is a part of the PPP regional infrastructure that has its own risk distinctiveness depends on how their provision. Some eamples of tourism area tobe developed are 10 priority tourism destinations, such as Toba Lake, Mandalika, and Borobudur Information and Promotion Center and Tourism Marketing AP The PC scope covers build, provide, operate, and maintain the Information Center facilities and services, and transfer it to the Government at the end of the concession period. In this scheme, the PC receive payments for their services periodically from the Government during the concession period. Revenue from the successful promotion and marketing product could be an incentive for the PC. Specific risks that must be considered are the facility performance risks, IT system and technology risks, and promotion and marketing risks (depends on the scope of the project). Those three risks needs to be considered by the PC. Figure 34. Tourism AP Structure PPP Structure in Correctional Sector The correctional infrastructure, especially prison or correctional institution ( Lapas ) is the priority needs due to the 470 out of 476 prison have ecess capacity. The function of prison is to provide guidance, so there is training facility for prisoners to get useful skills when assimilated back in the community. Prison has already eperience in cooperation with the third party, but not in the PPP scheme. The CA of this project would be the Minister of Law and Human Rights in accordance with his authority. Cooperation scheme for prison sector generally use the Availability Payment scheme, but the full concession is also open to do.

38 37 PPP in Indonesia: Guideline Prison BOT Scope of the PC covers build, provide, operate, and maintain facilities and prison facility services, and transfer it to the Government at the end of the concession period. The correctional facilities is also known as industrial prison that combined the guidance function and production function as a single unit. Spesific risk that must be considered by PC are security risk from possible runaway and inherent risk of the production function. The eample of prison is being planned to be developed with BOT scheme is Nusakambangan prison Prison AP Scope of the PC covers build, provide, operate, and maintain facilities and prison facility services, and transfer it to the Figure 35. Prison AP Structure Government at the end of the concession period. In this scheme, PC received payment for their services from the government periodically during the concession period. Specific risk that must be considered by the PC is security risk from possible runaway and inherent risk of industrial used. Figure 36. Prison AP Structure

39 38 PPP in Indonesia: Guideline PPP Structure in Zone Sector The zone referred in this sector can be industrial zone, tourism zone, or special economic zone whose management applies the land lord concept, that is, the manager is obliged to provide basic infrastructures and receives incomes from land leases, utility services, and other sources. Zone infrastructure is the provision of basic infrastructures such as roads, drinking water systems, solid waste, waste water systems, electricity, telecommunications, transportation, and others that function as the main support of zone operations Zone Availability Payment (AP) Scope of the PC covers build, provide, operate, and maintain facilities and basic regional infrastructure facilities services, and transfer them to the Government at the end of the concession period. In this scheme, PC receives payment for their services from the government periodically during the concession period. Specific risks that must be considered by the PC are operational risk and inherent risk of industrial used PPP Structure in Bundling Project Bundling project is the infrastructure provision that bundled 2 (two) or more type of infrastructures. Ministers/Institution Head/District Head who has an authority over the infrastructure sector which is cooperated based on the laws and regulations act together as the CA. the agreement of both CA outlined in Memorandum of Understanding which at least contains: - Agreement from the party who become the CA coordinator; - Agreement regarding of tasks and budget allocation for PPP preparation, transaction, and management; - Period of PPP implementation; and - Project structure Bundling Project BOT Scope of the PC covers design, build, provide, operate, and maintain 2 types of infrastructures, and transfer them to the Government at the end of the concession period. Specific risks that must be considered by the PC are demand risk, operational risk, other related infrastructure specific risk, and bundling project risk Bundling Project Availability Payment (AP) Scope of the PC covers design, build, provide, operate, and maintain the infrastructures. In this scheme, the PC receives AP payment from the CA. Specific risks that must be considered by the PC is infrastructure specific risk, and bundling project risk. Figure 37. Region AP Structure

40 39 PPP in Indonesia: Guideline Figure 38. Bundling Project BOT Structure Figure 39. Bundling Project AP Structure 3 EVALUATION OF RISK ALLOCATION ASPECT FOR PPP PROJECT AND INFRASTRUCTURE GUARANTEE ROVISION 3.1 Principle in the contet of PPP Project Implementation At the PPP project preparation stage, the suitability of the risk allocation become the substance of risk analysis in the pre-feasibility study. Based on the contet of PPP implementation, definition and formulation of CA obligation to be included in the PPP contract needs to be based on the risk allocation principle. An optimal contractual risk allocation is proportional to the maimum value for money. The common principle for risk allocation is that (please also see Error! Reference source not found.), A risk should be allocated to party which is elatively able to manage the risk, or having the least cost of absorbing such risk. If this principle is implemented properly, it is epected that the risk premium and the project cost would be lower leading to positive impact to the project stakeholders.

41 40 PPP in Indonesia: Guideline Figure 40. Sequence of PPP Logic The implementation eamples of such principle in the market are as follow (can also use Key Questions as in Tet Bo 1): o Risks which have not been managed well in the past by government, should be transferred if cost-effective (contruction, operation), should be borne by private sector; o Risks which are outside the control of either party, or equally influenced by both parties (e.g. certain force majeure events) should be shared; and o Risks that the government can manage well, or is in a more informed position to control than the private sector (e.g. planning approvals, legislation risks) should be retained; o There may also be some risks that, while transferred, may possibly remain an eposure for the public sector (e.g. risk of sponsor default). If an event cannot be resolved satisfactorily, the government steps in and assumes full responsibility for the risk (or the project as a whole). Potential project case: delivery of critical social infrastructure and associated services.

42 41 PPP in Indonesia: Guideline Tet Bo 1: Key Questions for Deciding which Risks to Allocate Some questions to be answered from both perspective of the public agency and the private entity, first can be by asking: To what etent can the public agency Manage the likelihood of this risk occurring? Manage the impact of this risk? Absorb the impact of the risk? Take specific measures to manage the risk? Logically, the same questions can be asked on the private entity s ability in a PPP. Finally then we can answer: Who is best able to manage and absorb this risk? In addition to the above considerations, checks should be made to answer the following: Similar contracts: Are there specific reasons to deviate from the risk allocation chosen in earlier transactions and described in the model PPP contracts? Marketability: Are there any reasons to assume that the private sector will not accept the risk or price the risk at an unreasonably high value? Incentives: Do any of the potential risk allocation mechanisms create unintended incentives for the private sector? Holistic approach: Do any of the potential risk allocation mechanisms create gray areas in terms of responsibility? Implementation in the Planning, Preparation and Transaction of a PPP Project In general, as in Tet Bo 2, the application of risk allocation is initiated from the PPP preparation stage, mainly through a key factor of the value of project benefit analysis (includes the risk that will be transferred to the PC) as part of the feasibility study. Further, an individual and deeper risk analysis is carried out at project preparation stage as a part of prefeasibility study project (later to be used as the basis for drafting the PPP agreement). In general, the utilization of risk allocation guideline in a PPP process as depicted on the table below: Utilization of PPP Risk Allocation Guideline Study Preparation & Supporting Documents Table 2. Utilization of Guideline in each PPP Stage PPP Stage Planning Preparation Transaction Implementation Preparation of Outline Preparation of Agreement Agreement Amendment - Post Business Case (OBC): Documents: Transaction: Technical Study (SPM Structuring/Drafting CA Changes in scope and risk Establishment). Commercial (AP (Coordination Agreement) project amount), and Environment Preparation of Feasibility Study: PPP form plan project undertaking Project Investment Returns Scheme Risk Transfer in VfM Project Analysis Public Consultation: Scope of service and project structure of PPP Project risk study and CA risk mitigation Preparation of Final Business Case (FBC): Finalization of risk analysis and project support Public Consultation: Structuring/Drafting GA (Guarantee Agreement) Structuring/Drafting RA (Recourse Agreement) Development of Risk Mitigation Plan and KRI Changes on feasibility of Cape/ Ope Adjustment of Financial Obligation

43 42 PPP in Indonesia: Guideline Utilization of PPP Risk Allocation Guideline Public Consultation and Market Sounding Request for Government Feasibility Support/ Guarantee PPP Stage Planning Preparation Transaction Implementation Eplanation of Risk Sharing to Eplanation of Risk Sharing to public public Market Sounding: Market Interest Assessment: Market Confirmation: Eplanation Risk Sharing to Potential Bidders Eplanation of Risk Sharing to Potential Bidders Request for Government Support/Guarantee : SPM determination and estimation of AP amount Preparation of Viability Gap Funding (VGF) Risk Study Preparation of Fatal Flaw Guarantee CTP Study Discussion of Risk Sharing with CA and Potential Bidders Tet Bo 2: Process, timing, information, and epertise needed for PPP Process: Risk allocation is at the core of the structuring of any delivery method, and requires transaction eperience and market knowledge. Timing: The initial risk allocation has to be determined before the drafting of the PPP agreement is completed. In practice, the process of drafting the agreement often triggers discussions on risk allocation, and this can be facilitated by a sound risk assessment. Information: Optimal risk allocation in a PPP is by definition project-specific and evolves over time. A good starting point is to look at earlier transactions to understand the considerations in the risk allocation. Optimal risk allocation in a PPP evolves over time; need to look at more recent contracts. Epertise: As in all other steps in risk assessment, risk allocation requires input from a range of disciplines: o Technical, environmental, permitting, and traffic and revenue eperts to determine the risk measures and manageability by risk type. o Costing eperts, to determine the costs of risk mitigation measures. o Insurance eperts, to determine insurability of certain risks (facilitating risk transfer to the private sector). o Legal eperts, to provide the risk allocation framework to be defined in the P3 agreement. o Finance eperts, to determine the marketability of certain risks. Preferably these eperts have also been involved in project risk identification to ensure a good understanding of the specific risks. In evaluating the risk allocation, as part of the tender document during the transaction stage, the draft PPP agreement will reflect how the identified and evaluated risks are allocated between parties (PC and CA) in the form of contractual clauses. From that contract clause, the risk can be described based o the triggering events, occurrence period and the consequences to each party upon the risk occurrence, either as financial obligations or as non financial obligations, as depicted in the Table 3:

44 43 PPP in Indonesia: Guideline Table 3. Ilustration of in the PPP Agreement Risk Type in the PPP Agreement CA Shared PC Risk A Risk B* Risk C Risk D* Risk E Risk F* *: Risk that leads to certain financial obligation of the bearer As a note, contractual financial obligation arise from a risk event compensation event and not of the nature of 'relief event' (just need time etention, without financial compensation). Defining the optimal risk allocation through a discussion together with stakeholders. Participants are asked to jointly answer the key questions as described in Tet Bo 1. It is important to jointly determine a convincing argument for a risk allocation for each of the risks. Net step is to define the mechanisms reflecting this risk allocation. Most mechanisms like the definition of, compensation for, and supervening events are standard, that have been used in most prior PPP transactions. However, project-specific considerations may lead to adjustments in these mechanisms. In a PPP contract, the typical allocation of risks between parties are as below: o PC normally bear the risk related to financing, design, construction, procurement, operation andmaintenance (then transfer some of the risk to other party, either consultant, designer, contractor, supplier, operator or user); o CA representing government typically handle political risk, including change of law which the trigger is (relatively or better) controlled by the government or public sector; o Both parties are sharing risk related to Force Majeure events Implementation in the Provision of Guarantee to PPP Project by IIGF Basically, IIGF guarantee covers the financial obligations of the CA under PPP Agreement where the budget allocation of CA and its financial mechanism need to be established to ensure the fulfillment of their financial obligations. The IIGF decision in providing guarantee for risks in a PPP project is made after evaluation of, among others the conformity of the draft PPP Agreement with the risk allocation principles (reflected in this IIGF Guideline), as depicted below:

45 44 PPP in Indonesia: Guideline Against to guarantee infrastructure coverage by IIGF, Infrastructure Guarantee Fund Regulation defines that the CA financial obligations under the PPP contract cause a rsk due to triggering events following: a) Action or inaction of the CA or Government other than the CA in matters which by law or PPP regulations CA or Government other than the CA have the authority to take these actions; b) The policy of CA or Government other than the CA; c) The unilateral decision of CA or Government other than the CA; d) The inability of the CA to perform an obligation assigned to them by PC based on PPP agreement breach of contract. Figure 41. IIGF Guideline and the Prevailing PPP and Infrastructure Guarantee Framework 4 INFRASTRUCTURE RISK ALLOCATION GUIDELINE This IIGF Guideline provides 1) Risk Category and 2) Matri to be used as a reference for CA in preparing risk allocations of the PPP project, which serves as the basis for CA s preparation for guarantee proposal to IIGF as well as to enhance the implementation of the risk management frameworkfor PPP project. 4.1 PPP Risk Category The Risk Category Checklist is developed as a generic list of risk groupings which is epected to be used for generating identified risk events in each specific PPP project. The identified risk events can be used further for risk assessment stage and developing risk allocation matri/strategy. This checklist is not meant to be ehaustive, therefore particular circumstances in each specific PPP project should also be considered. 1. Site risk is the risk that the project land will be unavailable or unable to be used at the required time, in the manner or at the cost anticipated, or that the site will generate unanticipated liabilities.thus, risks included into this category are: a). Land Acquisitionrisk: risks related to the acquisition process of the required land for the project which may include potential cost and time over run from the prolonged transaction process;

46 45 PPP in Indonesia: Guideline b). Landsite Unsuitability risk: risks that the proposed landsite may not be used for the project which the causes may include contamination, discovery of artefacts, delays/rejection in achieving planning approvals, native title, etc; c). Environmental Risk: risk of liability for losses caused by environmental damage arising (i) from construction or operating activities during the Project Term, or (ii) from pre-transfer activities whether undertaken by the CA to the activities of the PC or the Subcontractors. d). Risk related to an unepected location: the risk of difficulties due to a utilization of site soil conditions that can not be detected earlier, including geological conditions or other matters relating to underground conditions at these locations. 2. Design, construction and commissioning risk is the risk that the design, construction or commissioning of the facility or certain elements of each of these processes, are carried out in a way which results in adverse cost and/or project delivery consequences. Risks included into this category are: a) Planning risk: risk that the proposed use of the project site in terms of the PPP Agreement and, in particular, the construction of the facilities on the project site will fail to comply with any applicable laws relating to planning, land-use or building or any consent required pursuant thereto, or that any such consent will be delayed or cannot be obtained or, if obtained, can only be implemented at a greater costs then originally projected; b) Design risk:the risk that PC s design may not achieve the required output specifications; c) Completion risk: risk that the completion of the works required for a project may be (i) delayed so that the delivery of the services cannot commenceat the scheduled Commercial Operation Date (COD), or (ii) delayed, unless greater costis incurred to keep to Scheduled COD, or (iii) delayed due to variations; d) Cost overrun risk: the risk that during the design and construction phase, the actual Project costs will eceed projected costs; e) Commissioning risk: risk that the commissioning date is delayed or the results do not meet specifications of the CA or other relevant authorities; 3. Sponsor risk is the risk where the PC unable to fulfil their contractual obligations to the CA as a result of the actions of private investors as the project sponsor, the PC failure to meet the requirements of the lender, or the lender s failure to provide the loans. 4. Financial risk is ther risk related to financial viability aspects of the project. This may refers to a number of risks including the following: a) Financing risk: risk that the financiers (debt and equity) will not provide or continue to provide funding to the project; b) Financial parameter risk:risk that financial parameters e.g. inflation rate, echange rate, market conditionsafter condition changes prior to the contractor fully committing to the project, potentially adversely affecting project cost; and c) Financial structure risk: risk that the financial structure is not sufficiently robust to provide fair returns to debt and equity holders over the life of the project, and hence calls into question the continuing viability of the project; d) Insurance risk: any risk that is insurable as at the signing date pursuant to the agreed project insurances but later become remains insurable however with significant increase of insurance premium. 5. Operating risk is the risk that the process for delivering the contracted services or an element of that process (including the inputs used within or as part of that process) will be affected in a way which prevents the PC from delivering the contracted services according to the agreed specifications and/or within the projected costs. Risks included into this category are: a) Maintenance risk: risk that (i) the cost of maintaining assets in the required conditions may vary from the initial projected maintenance costs, or (ii) adverse input caused by failure to carry out maintenance properly; b) Latent defect risk: risk of losses or damages arising from latent defects in the facilities included in the project assets;

47 46 PPP in Indonesia: Guideline c) Technology risk: risk that (i) the technology inputs fail to deliver the required output specifications, or (ii) technological improvements may render technology inputs out-of-date ( technology obsolescence risk ); d) Utilities risk: risk that (i) the utilities (e.g. water, electricity or gas) required for the operation of a project may not be available, or (ii) the project will be delayed because of delays due to the removal or relocation of utilities located at the project sites; e) Resource or input risk: the risk of failure or shortage in the supply of the inputs or resources (for eample, coal or other fuels) required for the operation of a project including in the quality of available supplies; f) Industrial relations risk: risk of any form of industrial action including strikes, lockouts, work bans, work-to-rules, blockades, picketing, go-slow action and stoppages occurring in a way which, directly or indirectly, adversely affects commissioning, service delivery or the viability of the project. 6. Revenue risk is the risk that the project revenue is unable to meet the projected level of financial viability, due to the unepected changes to either the demand or the agreed tariff or combination of both. In the case, where the PC revenue is derived from service payments by CA (for eample, schemes BOT / Partial Concession, Performance-Based Availability schemes or Availability Payment Scheme), the risk of non-payment can be included into the category of political risk (sub-sovereign or parastatal risk). Therefore, risks included into this category are: a) Demand risk: risk that the demand for a service is unepectedly lower than that initially projected, due to: 1) triggers (actions, decision / policy, regulation) of the Government, or 2) the mistakes made by private parties either in the estimation of demand volume and the associated decline in the quality of service; and b) Tariff risk: risk that the tariff for a service is lower than that initially projected, due to: 1) the periodical tariff adjustment is not performed as planned or the level of the adjusted tariff is lower than the projection, or 2) miscalculation of the tariff estimates or the standard level for requesting tariff adjustment is not met. 7. Network connectivity risk is the risk that the government-controlled network(s) needed for the PC to deliver the agreed services are removed, not adequately maintained or otherwise changed. This may prevent or frustrate the delivery of the contracted services, affect the quality of specified outputs or affect the viability (value for money) of the project. Risks included into this category are: a) Connectivity with the eisting network risk: the risk that the access to the eisting network is not developed as planned; b) Network development risk: risk that the required additional network is not developed as planned; c) Competing facility/competitor risk: risk that facility/infrastructure is built which eventualy competes with the delivery of the contracted services. 8. Interface risk is the risk that the method of project implementation by stakeholders or standard of delivery of the contracted services will prevent or in some way frustrate the delivery of the public sector delivered facilities and infrastructure services or vice versa. The risk includes when the quality of work done by government do not conform or not suitable with specification which us needed by the PC to produce the specific output according to PPP contract, or vice versa. 9. Political Risk is the risk of unforeseeable action/inaction by the CA or any other government authority that materially and adversely affects the epected Return on Equity, debt service or otherwise results in increased costs to the PC. Risks included into this category are: a) Transferability risk: risk that the revenue/profit from the project could not be converted to the foreign currency and /or repatriated to the investor s home country b) Epropriation risk: risk that the government seizes (including nationalisation of) the project assets either directly or indirectly which may trigger termination of the project contract. This indirect epropriating action type of risk may overlaps with some financial risks (e.g. ta rate change risk).

48 47 PPP in Indonesia: Guideline c) Change in Law (legislative and government policy) risk: risk of a change in legislation, which are discriminatory and specific that it can directly reduce the level of financial feasibility project (can be triggered by the actions of the CA or non-ca);. d) Sub-sovereign or Parastatal risk: risk that the subsovereign or parastatal entity which act as the CA in the project has failed to perform its financial or other material obligations in contract triggered by the associated status as a givernment entity, including a legal status changes or PPP organization refer to the related regulations. e) Regulatory consent risk: risk that consents required from other government authorities can not be obtained or, if obtained, can only be implemented at a greater cost than originally projected. f) Ta rate change risk:risk that changes in applicable ta rates (income ta rate, VAT) or new taes may decrease the anticipated return on equity. 10. Force majeure risk is the risk that a specified event entirely outside the control of either party (e.g. act of god, man-made catastropic event) occurs and will result in a delay or default by the PC in the performance of its contractual obligations. 11. Asset ownership risk is the risk that events such as loss events (e.g. contract loss, force majeure), technological change, construction of competing facilities or premature obsolescence occur, with the result that the economic value of the asset may deteriorate, either during or at the end of the contract term. 4.2 Risk Matrices by PPP Sector After the use of the PPP Risk Category, the identified risk events for each risk category is then evaluated using the risk allocation matri provided for each PPP sector and structure ( PPP Risk Matri ). In developing such matrices, risk allocation principles and best practices, including relevant regulatory framework in Indonesia were used as references. Furthermore, as eplained in section 3.2.1, this matri is only a reference and is not rigid, as the eventual risk allocation needs to take into account the specific circumstances in the project being evaluated Risk Matri for PPP Water Supply Sector The risk matrices are refers to a watrer project with BOT (Built, Operate, Transfer) contract as identified in Chapter 2 that covers Transmission or Production or Operation and Maintenance or Distribution or any combination thereof, ecluding the retail Tariff Collection.

49 48 PPP in Indonesia: Guideline 1. SITE RISKS Land acquisition delay and costs overrun Land acquisition can't be performed entirely Land cannot be used after land acquisition Description [Pre-Construction/Construction/Operation] Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process, such as waqf land (land relinquished for religious facility), Village Cash Land (TKD), and forestry that takes a long time [Pre-Construction Difficulties access to the land due to social disruption [Construction Table 4. Risk Matri for Water BOT Public Private Shared The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost plan has referred to SPI306 Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Water BOT Land requirement for intake location, WTP and transmission network has been identified clearly The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities The intake location, WTP, and transmission network suggested to avoid a dense residential area to reduce the social costs that arised from the project Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land risk Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process

50 49 PPP in Indonesia: Guideline Water BOT Comple resettlement process Land tenure risk Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Contamination/pollution to the site environment Description [Pre-Construction/Construction/Operation] Costs overrun and delay due to a complicated resettlement process [Pre-Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Contamination/pollution to the environments that interfere the project implementation [All 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Time and cost overruns due to unclear output specification [Pre-Construction Design faults Technical commissioning leads to discovery of design faults [Pre-Construction & Construction Public Private Shared Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form. Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed The utility identification at planning stage supported by an adequate data Involvement of Warga Terkena Proyek (WTP) in a resettlement planning Good construction methods and if it not possible, the other land leases are applied Socialization by government Land use historical data and land investigation Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Clarification during the tender process; Capacity of good design The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Good and eperienced design consultant or EPC Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help CA output specification should refer to best practice Usually identified at technical operational test

51 50 PPP in Indonesia: Guideline Water BOT Fail to maintain security and safety within the location Delay in completing construction works Increase in construction cost Contractors/subcontractors bad performances Default od contractors/subcontractors Commissioning & testing risk Change in scope of works after the contract signing 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender Description [Pre-Construction/Construction/Operation] Highly accidental rates during the construction works [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Default of contract settlement by contractors/subcontractors due to internal & financial management factors [Construction Incorrect time/cost estimates of technical commissioning [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Public Private Shared Implementation of a good work security and safety (K3) toward Zero Accident Competent and eperienced EPC Penalty clause for K3 violation in the contract Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damage. Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders 4. FINANCIAL RISKS

52 51 PPP in Indonesia: Guideline Water BOT Fail to achieve financial close Delay in Government support risk (incentive, subsidy), etc VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Description [Pre-Construction/Construction/Operation] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts fund disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance risk Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] 5. OPERATING RISKS Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Public Private Shared Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit. Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Implement people-oriented community engagement program Community empowerment National scale demonstration that led to the national work strikes can be considered in the force majeure category

53 52 PPP in Indonesia: Guideline Water BOT Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient plant Irregular availability of required utilities Shortfall of input quantity Decrease of input quality Uncertainty of input continuity Shortfall of output quantity Decrease of output quality Uncertainty of output continuity Losses of water quantity in transmission network Losses of water quantity in distribution network Change in scope of works after the contract signing 6. REVENUE RISKS Absorb level risk in the initial period Decrease in the demand volume on project output Description [Pre-Construction/Construction/Operation] Failure or inability to manage operational aspect of the Project [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation Raw water deficit due to reasons under public sector control [Operation Declining water quality due to reasons under public sector control [Operation Uncertainty of input continuity due to raw water capacity changes [Operation Shortfall of output quantity due to operation process performance [Operation Decrease of output quality due to operation process performance [Operation Uncertainty of output continuity due to operation process performance [Operation Leakage/contamination in transmission network [Operation Leakage/contamination in distribution network [Operation Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Output is unabsorbed in the initial operational period due to the implementation is under the planning target [Operation Resulted in a decrease in water sales revenue and the deficit for PC [Operation Public Private Shared Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity backup facilities/other utilities Sound regulation and good coordination of the agencies Sound regulation and good coordination of the agencies Sound regulation and good coordination of the agencies Competent operator; Penalty mechanism Competent operator; Penalty mechanism Competent operator; Penalty mechanism Good standard of work and maintenance Good standard of work and maintenance Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Due to take or pay clause in water purchase contract Good marketing program; NRW reduction program; PDAM Financial Management More frequent of maintenance than epected Usually this should be anticipated as earliest as possible Depending on water source location Transmission networks still include production unit system PC involvement in downstream can only build and handover, the Government operation

54 53 PPP in Indonesia: Guideline Water BOT Failure in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the user tariff estimates Miscalculation of the bulk water tariff estimates Description [Pre-Construction/Construction/Operation] Due to users affordability and willingness are under the feasible rate [Operation On tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation User tariffs are too optimistic or its above of consumers willingness to pay [Operation Bulk water tariffs are set too low so it cannot covers the operational costs and to return the investment costs 7. NETWORK CONNECTIVITY RISKS Network connectivity and Breach of authority s obligation to build and connecting facilities risk maintain the required network and build connecting facilities [Operation Distribution network Limitations of distribution network management management risk constructed by private [Operation Competitors facilities risk Breach of authority s obligation not to build a competing facilities; or Law enforcement of underground water utilization (ABT) is not working [Operation 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Public Private Shared Feasibility support (VGF); Regulation related to tariff mechanism and incentive Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Assumption and calculation (financial model) of an accurate projections of PC Good contract understanding by public sector Construction synchronization Increase in the capacity management of distribution networks Good contract understanding by public sector Availability of ABT utilization regulation Law enforcement mechanisms are available & running well Law enforcement team of ABT utilization is formed and works well Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Coordination with Indonesian Army, Police, and Attorney in law enforcement process

55 54 PPP in Indonesia: Guideline Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Description [Pre-Construction/Construction/Operation] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Public Private Shared Etreme weather Due to climate changes or other factors [All Stages] Prolonged force majeure If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] 11. ASSET OWNERSHIP RISK Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Water BOT In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Either party should be able to terminate Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers As shown in the matri, there are some risks which are specific to this structure and sector, while other risks are applicable accross sectors. The specific sectoral risks in this structure are revenue risk (i.e. Absorb level risk in the initial period), those related to the raw water input to the facility (i.e. quality, quantity and continuity), the parastatal risks (i.e. breach of offtaker s contractual obligations and the privatisation of the offtaker) and the demand risk which is basically minimized through a take or pay clause in the water purchase agreement with the CA.

56 55 PPP in Indonesia: Guideline Risk Matri for PPP Waste Management Solid Waste BOT Risk matri below refers to a BOT contract with the usage-based and AP scheme which the PC is responsible for Production, Operation and Maintenance (i.e.build and operate the Final Disposal facility), but not taking either the waste collection or the retail Tariff Collection tasks. For the usage-based scheme, as the reference is income from the tipping fee and selling of a waste processing products. 1. SITE RISKS Land acquisition delay and costs overrun Land acquisition can't be performed entirely Table 5. Risk Matri for Solid Waste BOT Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process, such as waqf land, Village Cash Land (TKD), and forestry that takes a long time [Pre-Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost plan has referred to SPI306 Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Solid Waste Sector Land requirement for temporary dump (TPS) and landfills (TPA) has been identified clearly The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Public rejection of waste treatment activities due to negative impacts, such as: odor, eliminating health due to disease, and deterioration of environmental aesthetics Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased

57 56 PPP in Indonesia: Guideline Land cannot be used after land acquisition Comple resettlement process Land tenure risk Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Contamination/pollution to the site environment Society distress Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Contamination/pollution to the environments that interfere the project implementation [All Due to potential discomfort from the process/output [Operation Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form. Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods and if it not possible, the other land leases are applied Socialization by government Land use historical data and land investigation Comply with good environment impact analysis Socialization to those impacted Solid Waste Sector Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help

58 57 PPP in Indonesia: Guideline Failure to apply environmental permits PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL [Pre-Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Time and cost overruns due to unclear output specification [Pre-Construction Design faults Failure to maintain security and safety within the location Delay in completing construction works Increase in construction cost Contractors/subcontractors bad performances Default od contractors/subcontractors Commissioning & testing risk Technical commissioning leads to discovery of design faults [Pre-Construction & Construction Highly accidental rates during the construction works [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Default of contract settlement by contractors/subcontractors due to internal & financial management factors [Construction Incorrect time/cost estimates of technical commissioning [Construction Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Competent environment aspects specialist consultant Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Good and eperienced design consultant or EPC Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Good communication & coordination between contractor, consultant testers, and the right operators Eperienced testing and commissioning consultant Solid Waste Sector CA output specification should refer to best practice Usually identified at technical operational test

59 58 PPP in Indonesia: Guideline Solid Waste Sector Change in scope of works after the contract signing 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations

60 59 PPP in Indonesia: Guideline Insurance risk 5. OPERATING RISKS Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Solid Waste Sector Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Disruption of transportation routes and schedules certainty Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability to manage operational aspect of the Project [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation Route and schedule changes to transport the garbage due to traffic conditions and more [Operation Leaking of licit water/splattered at the time of the process of hauling trash [Operation Pollution of licit water in transportation Shortfall of input quantity Due to the low ability of hauling trash [Operation Decrease of input quality Decrease of output quality due to waste (waste composition) composition changes [Operation Processed output quantity does not fulfill the standard The resulting output is not in accordance with the plans and specifications in the quantity [Operation Implement people-oriented community development program Community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Good management on waste transportation system Service level criteria; Procedure transportation systems Solid waste guarantee; Waste management socialization Restrict the scavenger role against the waste composition Solid waste guarantee; Operation running optimally and efficiently National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible Government can help even the transportation done by PC In the case of PC have met the service level The scavenger role can change the waste composition Especially for technology that produce that is sold/distributed

61 60 PPP in Indonesia: Guideline Processed output quality does not fulfill the standard Categorization as Waste Residue B3 6. REVENUE RISKS Revenue Risk below applied to BOT schemes The risk of discrepancies of input supply in the initial period Decrease of demand volume of project output Decrease in electricity sales tariff (output) Mis-estimation from previous model The resulting output is not in accordance with the plans and specifications in the quantity [Operation As a result, needs to the residues processing in particular (B3) [Operation The input supplied in the operational period does not meet with the feasibility study [Operation Resulted decreasing of revenue and deficit for the PC [Operation Resulted decreasing of revenue and deficit for the PC [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Miscalculation of the tariff estimates Tariffs determination of waste processing products are too optimistic [Operation Failure to pay the tipping fee in Government cannot make an in time payment time [Operation Revenue Risk below applied to AP schemes Decrease of demand volume Resulted decreasing of revenue and deficit for of project output the CA [Operation Decrease in electricity sales Resulted decreasing of revenue and deficit for tariff (output) the CA [Operation Mis-estimation from previous model Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Miscalculation of the tariff estimates Tariffs determination of waste processing products are too optimistic [Operation Leakage of tariff payment Due to failure/non-optimality of payment collection collection system [Operation Failure of AP s in time Government cannot make an in time payment payment [Operation Revenue Risk below applied to BOT and AP schemes Solid waste supply guarantee; Operation running optimally and efficiently The 3R implementation (Recycle, Reuse, Reduce) Labs testing to decide waste categorize at Pre-Construction and Construction Stage Due to take or pay clause in water purchase contract Consistency and an in line regulation with the objective of the project Consistent and an aligned policies with the project objectives Cross-ministerial coordination related to waste management Survey the right and tested heat waste, and cover various climates Competent consultant and laboratory Market surveys are needed PT PII guarantee may be submitted and implemented Policy is consistent and in line policy with the objective of the project Consistent and an aligned policies with the project objectives Cross-ministerial coordination related to waste management Survey the right and tested heat waste, and cover various climates Competent consultant and laboratory Market surveys are needed Collection system and good operational performance The IIGF guarantee may be submitted and implemented Solid Waste Sector Especially for technology that produce that is sold/distributed, ecept the electricity This risk especially for processing solid waste by incinerator Especially for technology that produces electricity to sell If triggered by the Government activities, a guarantee of minimum income can be considered Especially for technology that produces electricity to sell If triggered by the Government actions, a guarantee of minimum income may be considered

62 61 PPP in Indonesia: Guideline Fail in the initial tariff determination Failure in submission of tariff adjustment (both tipping fee or AP) Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected 7. NETWORK CONNECTIVITY RISK Network connectivity and connecting facilities risk Competitors management risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Due to users affordability and willingness are under the feasible rate [Operation Due to the PC cannot fulfill the agreed minimum standard On tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Breach of authority s obligation to build and maintain the required utilities network (electricity/gas) and build connecting facilities [Operation Breach of authority s obligation not to operates the old facilities or build the new facilities - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Feasibility support (VGF); Regulation related to tariff mechanism and incentive Good operational performance Supporting legal framework Good operational performance Supporting legal framework Good operational performance Supporting legal framework Good contract understanding by public sector Construction synchronization Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Mediation, negotiation Political risk insurance Government guarantee Solid Waste Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Especially for processing technology that produces electricity or gas Supporting legal framework, can be a regional regulation In addition to having a clear contractual provisions, including compensation

63 62 PPP in Indonesia: Guideline Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Solid Waste Sector The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not Insurance, to etent possible covered by the insurance, then it taken over by the Government. Either party should be able to terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers In the waste management sector the sector-specific risks are revenue risk (falure of tipping fee payment or selling price of output (electricity, RDF)) environmental risk (i.e. society distress due to potential discomfort from the process/output, failure to apply EIA (Environment Impact Assessment)/AMDAL), operating risks (i.e. quantity short fall of waste as input, waste composition risk, incompliance of output quality), network risks (i.e. uncertainty in eisting waste collection network, non-fulfilment of authority s obligation to maintain required waste collection network and to develop required facilities) and interface risk (i.e. unsynchronized between Government support works with the PC). Interesting fact is highlighted as a legitimate action of government to reduce waste production (i.e. 3R programme: Recycle, Reuse, Reduce) may actually hinder the PC to obtain sufficient volume of waste to be treated. Generally, the Government waste management funds sourced from the waste retribution tariff (i.e. for the waste management service). However, the ability to collect waste retribution is too low that it cannot meet the needs of collecting operational costs (upstream) and waste management (downstream). Therefore, the Government (CA) needs to prepare the additional budget for tipping fee payment to the PC Wastewater BOT

64 63 PPP in Indonesia: Guideline Below risk matri refers to a project with BOT contract where PC is repsonsible for construction, operation and maintenance (construct and operate the waste treatment plant/wtp, may include the transmission network), but not responsible for collecting the wastewater and tariff collection from end users. 1. SITE RISKS Land acquisition delay and costs overrun Land acquisition can't be performed entirely Table 6. Risk Matri for Wastewater Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process, such as waqf land, Village Cash Land (TKD), and forestry that takes a long time [Pre-Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost plan has referred to SPI306 Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Wastewater Sector Land requirement for intake location, WTP and transmission network has been identified clearly The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN)

65 64 PPP in Indonesia: Guideline Land cannot be used after land acquisition Comple resettlement process Land tenure risk Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Contamination/pollution to the site environment Society distress Difficulties access to the land due to social Project communication strategy, disruption [Construction including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Costs overrun and delay due to a complicated resettlement process [Pre-Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Contamination/pollution to the environments that interfere the project implementation [All Due to potential discomfort from the process/output [Operation Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods and if it not possible, the other land leases are applied Socialization by government Land use historical data and land investigation Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Socialization to those impacted Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Wastewater Sector Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help

66 65 PPP in Indonesia: Guideline Failure to apply environmental permits PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL [Pre-Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Design faults Failure to maintain security and safety within the location Delay in completing construction works Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Operation & commission testing Time and cost overruns due to unclear output specification [Pre-Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction The rate of accident during works are going high [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Mis-estimation of time/cost in technical operation testing [Construction X Monitoring and managing the environment in accordance with RKL and RPL Competent environment aspects specialist consultant Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Clarification when the tender process; Capacity of good design The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Good and eperienced design consultant or EPC Implementation of a good work security and safety (K3) toward Zero Accident Competent and eperienced EPC Penalty clause for K3 violation in the contract Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Good communication & coordination between contractor, consultant testers, and the right operators Wastewater Sector CA output specification should refer to best practice Usually identified at technical operational test

67 66 PPP in Indonesia: Guideline Wastewater Sector Change in scope of works after the contract signing Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU fund availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations

68 67 PPP in Indonesia: Guideline Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Wastewater Sector Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Shortfall of input (waste) quantity Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability to manage operational aspect of the Project [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The waste volume that channeled does not according to plan [Operation Implement people-oriented community development program Community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Waste supply agreement Waste management socialization Regulations related to the obligation of having the independent processing system or connection to waste water networks Periodic checks and law enforcement related to management of waste water National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible Supporting legal framework, can be a regional regulation

69 68 PPP in Indonesia: Guideline The quality of processed output did not fulfill the requirement Leakage/contamination in wastewater networks 6. REVENUE RISKS Absorb level risk in the initial period Failure in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISK Wastewater network connectivity and connecting facilities risk Wastewater distribution network management risk Competitors facilities risk Decrease in output quality due to the process performance in operation [Operation Leakage/contamination in the main pipe network and wastewater collectors [Operation Output is unabsorbed in the initial operational period due to the implementation is under the planning target [Operation Due to users affordability and willingness are under the feasible rate [Operation On tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network and build connecting facilities [Operation Limitations of wastewater distribution network management by Government [Operation Breach of authority s obligation not to build a competing facilities - [Operation facilities in commercial and industrial users Competent operator; Penalty mechanism Good standard of work and maintenance Due to take or pay clause in water purchase contract Feasibility support (VGF); Regulation related to tariff mechanism and incentive Good operational performance; Regulation that regulated the rate and adjustment of tariff period Good operation performance; Regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization Increase in the capacity management of distribution networks Good contract understanding by public sector Wastewater Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS

70 69 PPP in Indonesia: Guideline Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Disparity of the time and quality works done by Coordination and integration of government (as fiscal support) and by PC project implementation schedule [Construction Remedial action by party who has lower quality of works Substantial reworks due to different standard/ Agreement on the applied method of delivery [Construction standard/method of delivery Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Wastewater Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not Insurance, to etent possible

71 70 PPP in Indonesia: Guideline Prolonged force majeure 11. ASSET OWNERSHIP RISK If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Either party should be able to terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Wastewater Sector covered by the insurance, then it taken over by the Government. In wastewater management sector, the specific risks are similar to those of waste sector. In this sector, volume and quality of waste supply usually do not vary very much. Other than that, it is depending on the applied technology and perception of output user candidates (processed clean water), which output is not commercial in nature Matri in Road Sector Toll and Non-Toll Road Sector The risk matrices are provided for the 4 identified PPP structures for toll road and non-toll road sector, namely: (1) Full Concession Toll Road, (2) O&M Toll Road, (3) Combination of Full Concession and O&M, (4) Availability Payment in Toll and Non-Toll Road. For Full Concession Toll and Non-Toll Road scheme is a combination of Full Concession Toll Road matri and O&M Toll Road which is depend on the selected segment. Risk matri below refers to a toll and non-toll road project is according to the selected scheme. 1. SITE RISKS Site Risk below applied to BOT, SBOT, and AP schemes Land acquisition delay and costs overrun Table 7. Risk Matri for Toll and Non-Toll Road Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction X Mitigation Strategy based on Best The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the Toll and Non-Toll Road Land requirements are usually massive and affected by planned traces The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Road trace planning is recommended to avoid the residential and trading areas to avoid the social cost project

72 71 PPP in Indonesia: Guideline Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Unable to acquire project land site due to difficult land acquisition process, such as waqf land, Village Cash Land (TKD), and forestry that takes a long time [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Mitigation Strategy based on Best requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost plan has referred to SPI306 Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation Improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation for and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the Toll and Non-Toll Road RTRW discrepancy risk Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small

73 72 PPP in Indonesia: Guideline Mitigation Strategy based on Best compensation scheme and form Toll and Non-Toll Road Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Site Risk below applied to BOT, O&M, SBOT, and AP schemes Land structure risk Land tenure risk Contamination/pollution to the site environment Disruption of biodiversity of forest/conservation area Obstruction of access to the public transportation Project location passes through the fault area, so it s potential to have a plate movement that can be affect the road quality [Construction & Operational Stages] Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] Project which cut the residential areas may cause impact of communication access and X The utility identification at planning stage supported by an adequate data X X Good construction methods; Socialization by government Land use historical data and land investigation Geology survey Calculation of maintenance costs must be calculated to be quite safe in a calculation of investment feasibility Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct studies of biodiversity for impacts mapping AMDAL implementation Monitoring and managing the environment in accordance with RKL and RPL Develop a new transportation access that mutually agreed Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL This condition can be related with cultural aspects in an area

74 73 PPP in Indonesia: Guideline Disruption of the community conveniences around the project area economic society disruptions [Construction & Operation Stages] Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Design, Construction, and Commissioning Risks below applied to BOT, SBOT, and AP scheme Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Mitigation Strategy based on Best Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Clarification during the tender process; Capacity of good design The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Good and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Toll and Non-Toll Road where the project is implemented CA output specification should refer to best practice Design, Construction, and Commissioning Risks below applied to BOT, O&M, SBOT, and AP scheme

75 74 PPP in Indonesia: Guideline Design faults Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing Caused design etra/revise which asked by operator [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Mitigation Strategy based on Best Good and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, consultant testers, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Toll and Non-Toll Road Usually identified at technical operational test 3. SPONSOR RISKS Default by the PC PC s default leading to termination and/or step-in by financiers [All Stages] Consortium is supported by credible and solid sponsors Default of project sponsor Sponsor (or a member of consortium) s default [All Stages after Financial Close] PQ process to select credible sponsors Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) May be caused by conditions precedence are not fulfilled

76 75 PPP in Indonesia: Guideline VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Mitigation Strategy based on Best Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Toll and Non-Toll Road Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural risk Failure of project management Failure of project control and monitoring Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational aspect of the Project [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of National scale demonstration that led to the national work strikes can be considered in the force majeure category

77 76 PPP in Indonesia: Guideline O&M cost overrun Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of toll road services in technology and information systems Traffic accident or safety issues 6. REVENUE RISKS Mis-estimation of O&M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation [Operation Revenue Risks below applied to BOT, O&M, and SBOT scheme Lack of project revenue s risk in ramp up period Changes in the traffic demand projection Mis-estimation from previous model Toll collecting company fails to collect tolls Mitigation Strategy based on Best the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Choose the competent technology and the right vendor Highly traffic accident - [Operation Third party liability insurance The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation. Resulted in a decrease in revenue and the deficit for PC [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Revenue Risks below is only applied to AP scheme Changes in demand volume projection Mis-estimation from previous model Toll collecting company fails to collect tolls Failure of AP s in time payment Resulted increase on revenue and deficit for Government Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation When risk absorbed by public sector, the Government can provide certain funds if the revenue in the ramp up period is not adequate Accurate traffic survey Soft loans in initial operation Accurate traffic survey Soft loan at the initial operation Collection system and good operational performance Accurate traffic survey Soft loans in initial operation Accurate traffic survey Soft loan at the initial operation Collection system and good operational performance Government cannot make an in time payment The escrow account mechanism which combine the revenue of toll tariffs Revenue Risks below applied to BOT, O&M, SBOT and AP scheme Toll and Non-Toll Road More frequent of maintenance than epected Usually this should be anticipated as earliest as possible If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered This risk is highly depends on scope of the PC

78 77 PPP in Indonesia: Guideline Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Road and transportations network connectivity Non-Toll networks management risk Competitors facilities risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the nontoll traffic which impacts to toll road management performance [Operation Breach of authority s obligation not to build a competing routes - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Mitigation Strategy based on Best Good operational performance Supporting regulation Good operational performance; Regulation that regulated the rate and adjustment of tariff period Good operational performance; Regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization The traffic management with consider pattern of the transport movement through toll and nontoll roads Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Toll and Non-Toll Road Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 9. POLITICAL RISKS Currency inconvertibility Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Local financing Off-shore account Guarantee from central bank

79 78 PPP in Indonesia: Guideline Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISKS Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset Ownership Risks below applied to BOT, O&M, SBOT, and AP scheme Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset Ownership Risks below applied to BOT, SBOT, and AP scheme Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Asset Ownership Risks below especially applied to O&M scheme Mitigation Strategy based on Best Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Toll and Non-Toll Road In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Either party should be able to Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers

80 79 PPP in Indonesia: Guideline Toll and Non-Toll Road Mitigation Strategy based on Best Transferred business and the eisting toll road assets management Uncertainty of business condition after the transfer from previous operator and an anticipated of eisting toll road conditions Good and complete prefeasibility business study The Full Concession of toll road sector-specific risks are site risks (i.e. land acquisition-related), revenue risks (i.e. traffic demand risk and tariff risk) and network risk (i.e. connectivity issue, competing route). As a note, the risk events listed above is still limited to at-grade (on ground) type of road and fly-over (above ground) type (i.e. not include under-ground/ tunnel). The specific risks in toll road O&M structure (i.e. land acquisition-related), design, construction and comissioning risks and also the toll road business/ asset transfer risks. On other toll road sector-specific risks (i.e. demand risk, networkand interface risk), they are still main concerns of the PC. Especially for interface risks, the eposure is relatively higher. In this combined structure, as there is a minor difference with the previous 2 matrices, the interface risk will be fully borne by the PC. Therefore, the construction contract to contractor (also for operations) from both public sector and private sector must be aligned in defining the epected quality of the work towards the whole toll road sections as one integrated network. As a note, for Availability Payment (AP) scheme, the main specific risk is revenue risks (i.e. payment failure by the Government) due to the AP payment is the only income sources of PC Non-Cash Toll Road Payment System Sector The risk matrices are provided for BOT (Build, Operate, Transfer) with an user pay scheme. The PC build, operate, maintain, and sell the product. Table 8. Risk Matri for Non-Cash Toll Road Payment System Sector Mitigation Strategy based on Best Non-Cash Toll Road Payment System Sector 1. SITE RISKS Unforeseen difficulties of site conditions Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction X The utility identification at planning stage supported by an adequate data Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Time and cost overruns due to unclear output specification [Pre-Construction Clarification during the tender process; Capacity of good design The tender documents should be presented clearly and CA output specification should refer to best practice

81 80 PPP in Indonesia: Guideline Design faults Failure to maintain security and safety within the location Delay in completing construction works Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Operation & commission testing Change in scope of works after the contract signing Caused design etra/revise which asked by operator [Pre-Construction & Construction Highly accidental rates during the construction works [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Mitigation Strategy based on Best easily to understand to improve the competition and lower the cost of the project. Good and eperienced design consultant or EPC Implementation of a good work security and safety Good and eperienced EPC Penalty clause for K3 violation in the contract Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Good communication & coordination between contractor, consultant testers, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Non-Cash Toll Road Payment System Sector Usually identified at technical operational test

82 81 PPP in Indonesia: Guideline 3. SPONSOR RISKS Default by the PC PC s default leading to termination and/or step-in by financiers [All Stages] Mitigation Strategy based on Best Consortium is supported by credible and solid sponsors Non-Cash Toll Road Payment System Sector Default of project sponsor Sponsor (or a member of consortium) s default [All Stages after Financial Close] PQ process to select credible sponsors Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations

83 82 PPP in Indonesia: Guideline Insurance risk 5. OPERATING RISKS Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Mitigation Strategy based on Best Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Non-Cash Toll Road Payment System Sector Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural risk Failure of project management Failure of project control and monitoring O&M cost overrun Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Prolonged downtime Latent detect risk Technology failure risk Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational aspect of the Project [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O&M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The operation suspended due to technical disorder aspects, maintenance, or other issues related [Operation The risk of loss or damaged due to latent defect in facilities which include as a project assets [Operation The technology used could potentially fail to give the required output specifications [Operation Implement people-oriented community development program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Spare part availability and guarantee from vendors Strict control to the procurement of project assets and forcing the BUP to replace the damaged Before the signing of agreement contract, the bidders of agreement contract, the bidders already familiar about the National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible

84 83 PPP in Indonesia: Guideline Intellectual Property (IP) risk Technology obsolescence Interoperability risk 6. REVENUE RISKS Changes in demand volume on project output End (retail) consumers does not pay Failure in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Connectivity with the eisting network and connecting facilities risk The IP technology which applied has not obtained the license from the IP holder or has ended his license permit [Construction & Operation Stages] The development of technology that make the technology used becomes obsolete (the technology obsolescence risk) - [Operation The system cannot operate interbank transactions, thus disrupting transportation flow - [Operation Volume on output demand is increase or decrease - [Operation Due to users affordability and willingness are under the feasible rate - [Operation Due to users affordability and willingness are under the feasible rate [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network and build connecting facilities [Operation X X Mitigation Strategy based on Best consequences of punishment if breaking the deal The license for the used IP must be owned and become the main requirement in testing & commissioning License permits are requested during concession period Utilization of other technologies, if it cannot be etended Verify for technology used fulfill the current standard Verify that the technology used can operate interbank transaction Understanding of technology capabilities to produce electricity by PC Good contract understanding by both parties Subsidy(especially tariff) Good socialization to public Feasibility support (VGF); Regulation related to tariff mechanism and incentive Good operational performance; Regulation that regulated the rate and adjustment of tariff period Good operational performance; Regulation that regulated the rate and adjustment of tariff period Accurate users ability and willingness survey Good contract understanding by public sector Construction synchronization Non-Cash Toll Road Payment System Sector Changes in demand volume on the project outputs, depend on the PC s scope of project End (retail) consumers does not pay Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation

85 84 PPP in Indonesia: Guideline Network developments risk Competitors facilities risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk System transition risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk The risk that additional networks are needed are not (yet) build according to plan [Operation Breach of authority s obligation not to build a competing routes - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Transition period allows changes in the use of payment system technology so that disrupt operations - [Operation Phase] Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker Mitigation Strategy based on Best Good contract understanding by public sector Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Ensure to use the technology that meets with the eisting smart card used now Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Non-Cash Toll Road Payment System Sector Supporting legal framework, can be a regional regulation In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning

86 85 PPP in Indonesia: Guideline 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISKS The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Mitigation Strategy based on Best Non-Cash Toll Road Payment System Sector Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Either party should be able to Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Generally in BOT scheme which use a massive telecommunication and infomatic technology, the technology fail and obsolescense risk become a specific risk in this sector. Changes in telecommunication and infomatic technology are growing very rapidly, so it needs an understanding of technology development and also needs of users to avoid the design errors Matri in Electricity Sector The risk matrices are provided for 2 identified PPP structure, namely: Electricity BOT and BOO, and Minemouth Power Plant BOT. Risk matri below refers to a BOT contract (Built, Operate, Transfer) of the power plant project. The PC (typical known as the IPP) sell the genereted power to PLN as the off-taker during the Power Purchase Agreement (PPA) period and shall return the plant to the PLN after the contract ends. As a note, in BOO (Build, Own, Operate) asset transfer does not occur. 1. SITE RISKS Table 9. Risk Matri for Electricity Sector Electricity Sector

87 86 PPP in Indonesia: Guideline Land acquisition delay and costs overrun Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process such as waqf land, Village Cash Land (TKD), and forestry that takes a long time [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds Government needs to ensure the availability of team that conduct the land acquisition process Government needs to ensure that the land acquisition process could be run in accordance to the regulation Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Improvement of the regulation of waqf land and TKD X Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Electricity Sector Land requirement for the plant has been identified clearly Especially for Mine mouth Power Plant, the project land requirement is also depends on the selected mine site The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not

88 87 PPP in Indonesia: Guideline Land tenure risk Limitation of construction working space Damaged of artifacts and antiquates in the site Contamination/pollution to the site environment Society distress Failure to apply environmental permits Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Contamination/pollution to the environments that interfere the project implementation [All Due to potential discomfort from the process/output [Operation PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL [Pre-Construction Site Risks below has a different risk allocation that depends on PPP project types Unforeseen difficulties of site conditions Electricity BOT, BOO Delay due to uncertainty of geotechnical site condition [Construction Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Good construction methods; Socialization by government Land use historical data and land investigation Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Socialization to those impacted Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Monitoring and managing the environment in accordance with RKL and RPL Competent environment aspects specialist consultant Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Land use historical data and land investigation Electricity Sector etensively large, social impact is relatively small Especially for Minemouth Power Plant, usually remote mine sites so that these issues are relatively manageable If there is a public rejection, the Government can help As land requirement is not etensively large geotechnical risk may relatively be managed. The difficulties that impossible to identified at the planning stage

89 88 PPP in Indonesia: Guideline Minemouth Power Plant BOT Due to uncertainty of ground conditions, either plant or coal mining [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Design faults Failure to maintain security and safety within the location Delay in completing construction works Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Operation & commission testing Time and cost overruns due to unclear output specification [Pre-Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction Highly accidental rates during the construction works [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Mis-estimation of time/cost in technical operation testing [Construction Land use historical data and land investigation Clarification when the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Competent and eperienced design consultant Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violationin the contract Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Good communication & coordination between contractor, consultant testers, and the right operators Eperienced testing and commissioning consultant Electricity Sector will be taken over by the Government Risk allocation to public sector as mine ownership option is by public sector CA output specification should refer to best practice Usually identified at technical operational test

90 89 PPP in Indonesia: Guideline Change in scope of works after the contract signing 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely the budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Electricity Sector May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations

91 90 PPP in Indonesia: Guideline Insurance risk 5. OPERATING RISKS Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Electricity Sector Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural risk Failure of project management Failure of project control and monitoring O&M cost overrun Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Prolonged downtime Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational aspect of the Project [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O&M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The operation suspended due to technical disruptions, maintenance, or other issues [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Spare part availability and guarantee from vendors National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible Operation Risks below has a differences of description and mitigation which depends on PPP project types Increase in fuel costs Electricity BOT, BOO Minemouth PLTU BOT This risks may be triggered by fuel price increase in the eport market [Operation This risks may be triggered by coal price increase in the eport market [Operation Long-term fuel supply contract Long-term fuel supply contract Good mine operator Coal price regulation Also under this option mine is owned by public sector, fuel

92 91 PPP in Indonesia: Guideline Shortfall of supply or decrease of fuel quantity Electricity BOT, BOO Fuel supply reduced/stopped or decrease of fuel quantity [Operation Minemouth PLTU BOT This risks may be triggered by coal price increase in the eport market [Operation Uncertainty of fuel availability Fuel supply in this contet the coal is not available until the end of the concession [Operation Electricity BOT Uncertainty of continuity in fuel availability [Operation Minemouth PLTU BOT This risks may be triggered by mismatch between production and power plant operational schedules [Operation 6. REVENUE RISKS Changes in the demand volume on project output End (retail) consumers does not pay Failure in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates Volume on output demand is increase or decrease [Operation Due to users affordability and willingness are under the feasible rate [Operation Due to users affordability and willingness are under the feasible rate [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Long-term fuel supply contract Long-term fuel supply contract Good mine operator Coal price regulation Especially for Minemouth PLTU, feasibility study conducts properly and implementation process is running well Long-term fuel supply contract Long-term fuel supply contract Good mine operator Coal price regulation Understanding the technological capability to produce electricity by the PC Good contract understanding by both parties Feasibility support (VGF); Supportive regulation. Feasibility support (VGF); Regulation related to tariff mechanism and incentive Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Tariffs are too optimistic [Operation An accurate of Cost Production calculation that considered various aspects Electricity Sector supply risk is closely related to mine operation Also under this option mine is owned by public sector, fuel supply risk is closely related to mine operation Also under this option mine is owned by public sector, fuel supply risk is closely related to mine operation Changes in the demand volume on project output End (retail) consumers does not pay Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 7. NETWORK CONNECTIVITY RISKS Electricity network connectivity and connecting facilities risk Breach of authority s obligation to build and maintain the required network and build connecting facilities [Operation Good contract understanding by public sector Competent PMO Commitment and transmission development budget from PLN Construction synchronization

93 92 PPP in Indonesia: Guideline Electricity distribution network management risk Competitors facilities risk 8. INTERFACE RISK Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Limitations of electricity distribution network management by Government [Operation Breach of authority s obligation not to build a competing facilities - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker [All Stages] Increase in the capacity management of distribution networks Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Electricity Sector Supporting legal framework, can be a regional regulation In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning

94 93 PPP in Indonesia: Guideline Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Electricity Sector The occurrence of natural disasters and Insurance, to etent possible Shared together is that the force therefore cannot operate normally [All Stages] majeure risk is covered by s of war, riots, civil disturbance [All Insurance, to etent possible Private as long as there are an Stages] insurance that cover those Due to climate changes or other factors [All Insurance, to etent possible events. On the portion that not Stages] covered by the insurance, then it If above 6 to 12 months, may cause economic Either party should be able to terminate taken over by the Government. problems on the affected party (esp. if insurance the contract and trigger an early not eist) [All Stages] termination Asset Ownership Risks below applied to all BOT & BOO scheme Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset Ownership Risks below applied to Electricity BOT & Minemouth BOT scheme Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Generally, in this electricity BOT structure, the specific risks are asset transfer risk at the end of the PPA period. Those risk is distinguishing between BOT and BOO which is not make asset transfered. In addition to that, the sector-specific risks are parastatal risks (i.e. breach of offtaker s contractual obligations and the privatisation of the offtaker). From the above risk matri, in relation with the selected minemouth KPS project structure options, it is seen that there are some new risks appeared as a result of coal mine ownership by PJPK namely land risks (related cost of mine acquisition process and mine geotechnical risks). Other than that, although this structure is selected to minimize power plant fuel availability risk (subset of operational risks), increased cost and availability of coal supply risks are very much related to mine operation. Furthermore, fuel supply risk may also be triggered by the disharmony between mine production and power plant operation. As a mitigation measure, other thanthe involvement of credible mine operator and long-term supply contract, supply and minemouth coal price arrangements are also required in relation with supply transfer potentials as a result of coal price increase in eport or other industry market Matri in Energy Conservation Sector Risk matri below is applied to Public Street Lighting (PJU) project and also energy efficiency which is done with AP scheme. Both of prorojects does not need the massive site (PJU) or in site where owned by the Government (the building which will be applied to energy efficiency), so the location risks that related to status and land acquisition has a very low risk value, almost none.

95 94 PPP in Indonesia: Guideline 1. SITE RISKS Limitation of construction working space Table 102. Risk Matri for Energy Conservation Sector Related to the provision of land for working space during construction [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Design faults Failure to maintain security and safety within the location Delay in completing construction works Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Operation & commission testing Change in scope of works after the contract signing Time and cost overruns due to unclear output specification [Pre-Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction Highly accidental rates during the construction works [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Good construction methods; Socialization by government Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Good and eperienced design consultant or EPC Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Good communication & coordination between contractor, consultant testers, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs Energy Conservation Sector CA output specification should refer to best practice Usually identified at technical operational test

96 95 PPP in Indonesia: Guideline Energy Conservation Sector There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability of funds with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions

97 96 PPP in Indonesia: Guideline Energy Conservation Sector and substantial increases in rates which insurance premiums are calculated - [All Stages] 5. OPERATING RISKS Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies May be by operator, subcontractors, or suppliers staff Vandalism risk Service facility damage due to vandalism - [Operation Failure of project management Failure of project control and monitoring O&M cost overrun Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Uncertainty of energy source continuity B3 waste generation (lights that have been damaged / unused) 6. REVENUE RISKS Changes in the demand volume on project output Failure or inability of the PC to manage operational aspect of the Project [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O&M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation Electricity source continuity, either from PLN or solar panels are not guaranteed [Operation B3 waste generation (lights that have been damaged / unused) [Operation Volume on output demand is increase or decrease [Operation Socialization of the importance of maintaining public facilities to public Law enforcement of vandalism Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities A comprehensive study Anticipate acts: electricity back up facility/other utilities Conduct B3 waste management through licensed and eperienced third parties Prepare a safe temporary B3 waste storage area. Understanding the technological capability to produce electricity by the PC National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible Usually should be anticipated as early as possible

98 97 PPP in Indonesia: Guideline Failure of AP payment in timely manner Failure in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Electricity network connectivity and connecting facilities risk Electricity distribution network management risk The Government cannot make a payment in timely manner [Operation Due to users affordability and willingness are under the feasible rate [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network and build connecting facilities [Operation Limitations of electricity distribution network management by Government [Operation Good contract understanding by both parties The escrow account mechanism which combine the revenue of PJU taes Feasibility support (VGF); Regulation related to tariff mechanism and incentive Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization Increase in the capacity management of distribution networks Energy Conservation Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 8. INTERFACE RISK Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee

99 98 PPP in Indonesia: Guideline General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Energy Conservation Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Either party should be able to terminate Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Generally, in Public Street Lighting AP and structure, the specific risks are revenue risk (i.e. failure in payment by the Government), the assets transfer risk after the Power Purchase Agreement (PPA) ends. The other sector-specific risks are parastatal risks (i.e. breach of offtaker s contractual obligations and the privatisation of the offtaker) Matri in Oil and Gas Sector The risk matrices provided to PPP BOT (Build, Operate, Transfer) structuer. The PC are bulding, operating, maintaning, and selling the oil and gas products.

100 99 PPP in Indonesia: Guideline 1. SITE RISKS Land acquisition delay and costs overrun Land acquisition can't be performed entirely Land cannot be used after land acquisition Table 113. Risk Matri for Oil and Gas Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Oil and Gas Sector Land requirement for refinery has been identified clearly The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process

101 100 PPP in Indonesia: Guideline Comple resettlement process Land tenure risk Limitation of construction working space Damaged of artifacts and antiquates in the site Contamination/pollution to the site environment Disruption of the community conveniences around the project area Disruption of biodiversity of forest/conservation area Failure to apply environmental permits Unforeseen difficulties of site conditions Costs overrun and delay due to a complicated resettlement process [Pre-Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Time and cost overruns due to unclear output specification [Pre-Construction Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form. Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Good construction methods; Socialization by government Land use historical data and land investigation Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Conduct studies of biodiversity for impacts mapping AMDAL implementation Monitoring and managing the environment in accordance with RKL and RPL Competent environment aspects specialist consultant The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Clarification during the tender process; Capacity of good design; Oil and Gas Sector If there is a public rejection, the Government can help The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government CA output specification should refer to best practice

102 101 PPP in Indonesia: Guideline Oil and Gas Sector Design faults Failure to maintain security and safety within the location Delay in completing construction works Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS Default by the PC Technical commissioning leads to discovery of design faults [Pre-Construction & Construction Highly accidental rates during the construction works [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Competent and eperienced design consultant or EPC Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Agreement on volume and threshold changes approval procedures Provide the calculation price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Good communication & coordination between contractor, consultant testers, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors Usually identified at technical operational test

103 102 PPP in Indonesia: Guideline Oil and Gas Sector Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions 5. OPERATING RISKS Availability and quality of inputs Risk that related to difficulties in selection and procurement of a crude oil that affect the quality of refinery products quality [Operation Planning process and a well-designed of supply chain

104 103 PPP in Indonesia: Guideline Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Oil and Gas Sector May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Prolonged downtime Safety and health of works risk during the operation The risk of cessation of operation facilities due to unepected factors 6. REVENUE RISKS Changes in the demand volume on project output The PC does not pay in timely manner Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability to manage operational aspect of the Project [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The operation suspended due to technical disorder aspects, maintenance, or other issues related [Operation An accident or health disorder of workers [Operation The operation facilities are stopped due to fire or other aspects Volume on output demand is increase or decrease [Operation Due to bureaucracy process and the PC s performances [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Spare part availability ad guarantee from vendors Properly, good, and integrated of K3 implementation programs Penalty clause for K3 violation in the contract Insurance Good contract understanding by both parties Good contract understanding by both parties National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible Failure in the initial tariff determination Due to users affordability and willingness are under the feasible rate [Operation Feasibility support (VGF); Regulation related to tariff mechanism and incentive Supporting legal framework, can be a regional regulation

105 104 PPP in Indonesia: Guideline Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISK Oil pipeline and/or natural gas network connectivity Oil and/or natural gas network management risk Refinery products distribution risk Competitors facilities risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic so it s beyond the parity price prediction [Operation Breach of authority s obligation to build and maintain the required network and build connecting facilities [Operation Limitations of oil and/or natural gas network management by Government [Operation Unreadiness of refinery products distribution conducted by the Government [Operation Breach of authority s obligation not to build a competing facilities - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] 9. POLITICAL RISKS to all PPP projects scheme and type Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period The calculation factorial needs to be agreed Good contract understanding by public sector Construction synchronization Increase in the capacity management of oil and/or natural gas networks Developing the system of a competent supply chain distribution Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee A regular socialization to the PC Oil and Gas Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation

106 105 PPP in Indonesia: Guideline Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents Delay in gaining access to the site Parastatal risk In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker 10. FORCE MAJEURE RISKS - to all PPP projects scheme and type Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset Ownership Risks below applied to all PPP projects scheme and type Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset Ownership Risks below applied to all PPP project scheme and type, besides BOO Asset transfer after the PPP The asset transfer process has been hampered contract ends because there is a difference in the mechanism of transfer or assessment [Operation Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Oil and Gas Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. Either party should be able to terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Generally, in Oil Refinery and Natural Gas BOT structure, the specific risks are operational risk (i.e.remember the strategical industries and more concern on etra management), the network connectivity risk, and parastatal risk (i.e. breach of offtaker s contractual obligations and the privatisation of the offtaker) Matri in Railway Transportation Sector The identified risks are more relevant to a railway project providing transportation service for passengers rather than for cargos. Design and construction risks in this sector are typically higher compared to other transportion modes (i.e. road, bridge) due to the compleity of the applied technology and the required

107 106 PPP in Indonesia: Guideline specification to a specific service level of the output. For risks associated with the cooperation scope with TOD scheme, not be the scope of the principal project risk. The PPP scheme in railway sectors, generally used the full concession and O&M. Full concession involves design, construction, financing, operation, and maintanance of a whole railway transport facility, including the fare collection from end-users. In addition of O&M scheme is only operation and maintenance of a railway facilities. 1. SITE RISKSee Site Risk below applied to all Full Concession scheme Land acquisition delay and costs overrun Land acquisition can't be performed entirely Table 12. Risk Matri for Railway Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Railway Sector Land requirement are usually massive and influenced by planned trase The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased

108 107 PPP in Indonesia: Guideline Land cannot be used after land acquisition Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Site Risk below applied to Full Concession and O&M scheme Land tenure risk Disruption of biodiversity of forest/conservation area Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Railway Sector Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL

109 108 PPP in Indonesia: Guideline Obstruction of access to the public transportation Disruption of the community conveniences around the project area Project which cut the residential areas may cause impact of communication access and economic society disruptions [Construction & Operation Stages] Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Design, Construction and Commissioning Risks below applied to Full Concession scheme Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Design, Construction and Commissioning Risks below applied to Full Concession and O&M scheme Design faults Delay in completing construction works Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Develop a new transportation access that mutually agreed Monitoring and management of the environment Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Railway Sector This condition can be related with cultural aspects in an area where the project is implemented CA output specification should refer to best practice Usually identified at technical operational test

110 109 PPP in Indonesia: Guideline Railway Sector Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations

111 110 PPP in Indonesia: Guideline Railway Sector Hedging instruments; such as future contract and currency options Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of toll road services in technology and information systems of railway service Traffic accident or safety issues Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Choose the competent technology and the right vendor Highly traffic accident - [Operation Third party liability insurance National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible

112 111 PPP in Indonesia: Guideline 6. REVENUE RISKS Lack of project revenue s risk in ramp up period Changes in the traffic demand projection Mis-estimation from previous model Toll collecting company fails to collect tolls Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISK Road and transportations network connectivity Non-Toll networks management risk Competitors facilities risk The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation. Resulted in a decrease in revenue and the deficit for PC [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the non-toll traffic which impacts to toll road management performance [Operation Breach of authority s obligation not to build a competing routes - [Operation Prepare for the capital or other fund source as bailout Accurate traffic survey Soft loans in initial operation Accurate traffic survey Soft loan at the initial operation Collection system and good operational performance Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization The traffic management with consider pattern of the transport movement through toll and non-toll roads Good contract understanding by public sector Railway Sector If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered This risk is highly depends on scope of the PC Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS

113 112 PPP in Indonesia: Guideline Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Railway Sector 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of law regulation to the PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not Insurance, to etent possible

114 113 PPP in Indonesia: Guideline Prolonged force majeure 11. ASSET OWNERSHIP RISK If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset Ownership Risk below applied to all Full Concession and O&M scheme Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset Ownership Risk below applied to Full Concession scheme Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Asset Owner Risk below especially applied to O&M scheme Business transferred and an eisting railway assets management and currently built Uncertainty of conditions upon transfer from earlier operator and unanticipated condition of railway eisting condition Either party should be able to terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers A robust business due to diligence (in PFS) Railway Sector covered by the insurance, then it taken over by the Government. As seen from the above table, in railway concession there some specific risks embedded (which some are similar to risks in the toll road full concession), namely: land acquisition risk, demand and tariff risks, and interface risk. The special risks of O&M Railway structure (compared with Railway Full Concession) are design construction & commissioning risks and the business/asset transfer risks. On the other toll road sector-specific risks (i.e. demand risk, tariff risk, network risk, and interface risk), they are still main concerns of the PC, albeit of lesser magnitude than that in the concession structure Matri in Bus Rapid Transit (BRT) Sector The most specific risk in BRT sector is the interface risk the transision of the eisting transportation to a mass transportation system. Intensive socialization and communication with all of the stakeholders, especially the drivers and the transportation owners must be done to have a same understanding for a better public service provisions. A success of transision process will determine the success of procurement and operation in the future. The PPP scheme in BRT sectors, generally used the full concession and O&M. Full concession covers design, construction, financing, operation, and maintanance of a whole BRT facility, including the fare collection from end-users. In O&M scheme is only covers operation and maintenance of a BRT facilities, while the other facilities directly managed and/or cooperate with third party through Non-PPP mechanism.

115 114 PPP in Indonesia: Guideline 1. SITE RISKS Site Risk below applied to all Full Concession scheme Land acquisition delay and costs overrun Land acquisition can't be performed entirely Land cannot be used after land acquisition Table 13. Risk Matri for BRT Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract agreement regarding the BRT Sector Land requirement are usually massive and influenced by the planned corridor for greenfield The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on;

116 115 PPP in Indonesia: Guideline Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Site Risk below applied to Full Concession and O&M scheme Land tenure risk Contamination/pollution to the site environment Disruption of the community conveniences around the project area Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form. The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment BRT Sector o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS

117 116 PPP in Indonesia: Guideline Design, Construction and Commissioning Risks below applied to Full Concession scheme Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Design, Construction and Commissioning Risks below applied to Full Concession, Bus Concession and Bus O&M scheme Design faults Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk BRT Sector CA output specification should refer to best practice Usually identified at technical operational test

118 117 PPP in Indonesia: Guideline BRT Sector Good understanding of the contract by both parties Contract amendment 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions

119 118 PPP in Indonesia: Guideline Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies BRT Sector May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of toll road services in technology and information systems of railway service Traffic accident or safety issues 6. REVENUE RISKS Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation [Operation Revenue Risk below applied to Full Concession scheme Lack of project revenue s risk in ramp up period Changes in the traffic demand projection Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Choose the competent technology and the right vendor Highly traffic accident - [Operation Third party liability insurance The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation. Resulted in a decrease in revenue and the deficit for PC [Operation Prepare for the capital or a other source as bailout Accurate traffic survey Soft loans in initial operation An application of push & pull transport regulation, such as Electronic Road Pricing (ERP), an epensive parking tariff, etc National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible If triggered by Government actions, guarantee request may be considered

120 119 PPP in Indonesia: Guideline Mis-estimation from previous model Toll collecting company fails to collect tolls Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Revenue Risk below applied to Full Concession, Bus Concession and Bus O&M scheme Fail in the tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISK Road and transportations network connectivity Non-Toll networks management risk Competitors facilities risk 8. INTERFACE RISKS Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the nontoll traffic which impacts to toll road management performance [Operation Breach of authority s obligation not to build a competing routes - [Operation Accurate traffic survey Modelling consultant who has eperience in mass transportation Collection system and good operational performance Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization Traffic management of the BRT lines Good contract understanding by public sector BRT Sector If triggered by Government actions, guarantee request may be considered Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Interface Risk below applied to Full Concession, Bus Concession and Bus O&M scheme Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk Public transportation transition risk Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Fail in transition of the eisting transport process, then it becomes the BRT bus operator [All Stages] Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Government prepare a transition plan and milestones that agreed together with the entrepreneur party and the transport drivers A strike of public transportation due to the absence of an agreement on the transition mechanisms.

121 120 PPP in Indonesia: Guideline BRT Sector 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker Intensively of Organda involvement in transition process The drivers moved become BRT driver with payroll system The entrepreneur had the chance to become bus operator that paid Rp/km BUP provides a service training of users oriented to operators and all doers Provision of financing scheme that simplify an eisting operator to become a BRT bus operator Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee BUP doesn t perform the contractual obligations to recruit an eisting driver, then it becomes a risk allocation in PC s side. In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning 10. FORCE MAJEURE RISKS Natural disasters Political force majeure The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those

122 121 PPP in Indonesia: Guideline Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK BRT Sector Due to climate changes or other factors [All Insurance, to etent possible events. On the portion that not Stages] covered by the insurance, then it If above 6 to 12 months, may cause economic Either party should be able to terminate taken over by the Government. problems on the affected party (esp. if insurance the contract and trigger an early not eist) [All Stages] termination Asset Ownership Risk below applied to all Full Concession and O&M scheme Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset Ownership Risk below applied to Full Concession scheme Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Asset Owner Risk below especially applied to O&M scheme Business transferred and an eisting railway assets management and currently built Uncertainty of conditions upon transfer from earlier operator and unanticipated condition of railway eisting condition The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers A robust business due to diligence (in PFS) As seen from the above table, a ful concession structure of BRT has some sectoral risks (which similar to risks in the railway full concession), namely: land acquisition risk, demand risk, tariff risk, and interface risk. The specific risks of O&M Railway structure (compared with Railway Full Concession) are operation risk, tariff risk, and asset ownership risk. On the other specific sectoral risk (demand risk, network and interface risk ), still become the PC s attention, but the eposure may not as large as a full concession projects Matri in Seaport Sector Risk matri below refers to a seaport project with a concession structure that involves design, construction, operation and maintenance of the seaport facility, including tariff collection from customers. 1. SITE RISK Land acquisition delay and costs overrun Table 14. Risk Matri for Seaport Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction The Government clears project landsite before PC procurement process through: Seaport Sector Land requirement are usually massive depends on the design

123 122 PPP in Indonesia: Guideline Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Unable to acquire project land site due to difficult land acquisition process, such as waqf land, Village Cash Land (TKD), and forestry that takes a long time [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Government conductng the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost plan has referred to SPI306 Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Seaport Sector The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively

124 123 PPP in Indonesia: Guideline Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form. The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Seaport Sector large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help Contamination/pollution to the site environment Disruption of biodiversity of forest/conservation area Contamination/pollution to the environments that interfere the project implementation [All Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct studies of biodiversity for impacts mapping AMDAL implementation Monitoring and managing the environment in accordance with RKL and RPL The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL Disruption of the community conveniences around the project area Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment accordance with RKL and RPL

125 124 PPP in Indonesia: Guideline Seaport Sector Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment CA output specification should refer to best practice Usually identified at technical operational test

126 125 PPP in Indonesia: Guideline 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Seaport Sector May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions

127 126 PPP in Indonesia: Guideline Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Competent operator; Clear output specifications; Reward and punishment mechanism. Good human resources and industrial relation policies Seaport Sector May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of toll road services in technology and information systems of seaport service Traffic accident or safety issues 6. REVENUE RISKS Lack of project revenue s risk in ramp up period Changes in the traffic demand projection Mis-estimation from previous model Toll collecting company fails to collect tolls Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation [Operation Highly traffic accident in both land-side or seaside - [Operation The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation [Operation Resulted in a decrease in revenue and the deficit for PC [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Choose the competent technology and the right vendor Third party liability insurance Prepare for the capital or other fund source as bailout Accurate traffic survey Soft loans in initial operation Accurate traffic survey Soft loan at the initial operation Collection system and good operational performance National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered

128 127 PPP in Indonesia: Guideline Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Road and transportations network connectivity Non-Toll networks management risk Competitors facilities risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the nontoll traffic which impacts to toll road management performance [Operation Breach of authority s obligation not to build a competing routes - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization The traffic measurement with consider the vehicle movement pattern through the toll and non-toll Good contract understanding by public sector X Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Seaport Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation

129 128 PPP in Indonesia: Guideline Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Seaport Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Either party should be able to terminate Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. the contract and trigger an early termination 11. ASSET OWNERSHIP RISK Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers In the seaport full concession structure, similar to the railway full concession, the specific risks are land acquisition risk, certain operating risk (i.e. traffic accident or public safety concerns), demand and tariff risks, and interface risk (i.e. on standard delivery and technology) Matri in Airport Transportation Sector Risk matri below refers to an airport project with a full concession and O&M structure that involves design, construction, operation and maintenance of the airport facility, including tariff collection from customers.

130 129 PPP in Indonesia: Guideline 1. SITE RISKS Site Risk below applied to Full Concession scheme Land acquisition delay and costs overrun Land acquisition can't be performed entirely Land cannot be used after land acquisition Table 15. Risk Matri for Airport Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Airport Sector Land requirement for intake location, WTP and transmission network has been identified clearly The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB)

131 130 PPP in Indonesia: Guideline Airport Sector Prepare alternative access to location Corrective: the Government involve in mediation process Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Site Risk below applied to Full Concession an O&M scheme Land tenure risk Contamination/pollution to the site environment Disruption of biodiversity of forest/conservation area Obstruction of access to the public transportation Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] Project which cut the residential areas may cause impact of communication access and economic society disruptions [Construction & Operation Stages] Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form. The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis Monitoring and managing the environment in accordance with RKL and RPL Conduct studies of biodiversity for impacts mapping AMDAL implementation Monitoring and managing the environment in accordance with RKL and RPL Develop a new transportation access that mutually agreed Traffic management in the settlement Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL This condition can be related with cultural aspects in an area where the project is implemented

132 131 PPP in Indonesia: Guideline Disruption of the community conveniences around the project area Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Design, Construction and Commissioning Risks below applied to Full Concession scheme Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Airport Sector CA output specification should refer to best practice Design, Construction and Commissioning Risks below applied to Full Concession and O&M scheme Design faults Delay in completing construction works Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Usually identified at technical operational test

133 132 PPP in Indonesia: Guideline Airport Sector Operation & commission testing Change in scope of works after the contract signing Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions

134 133 PPP in Indonesia: Guideline Airport Sector and substantial increases in rates which insurance premiums are calculated - [All Stages] 5. OPERATING RISKS Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of toll road services in technology and information systems of railway service Traffic accident or safety issues on air-side 6. REVENUE RISKS Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation [Operation Highly traffic accident on air-side - [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Choose the competent technology and the right vendor National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible Third party liability insurance These depends on causes of the accident and the cope of cooperation agreement, remember that the Government take a control of ATC, while the possibility of operational on field it s by the PC

135 134 PPP in Indonesia: Guideline Mis-estimation from previous model Failure in tenant and/or Aeropolis reaps Toll collecting company fails to collect tolls Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates Incorrect parameter inputs and model development so as a estimation result is distorted [Operation The PC failed to obtain tenants or buyer [Operation Due to failure/non-optimality of payment collection system [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Accurate traffic survey Soft loan at the initial operation Comprehensive planning on feasibility study Strategical and implementation of a competent marketing Collection system and good operational performance Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Airport Sector If triggered by Government actions, guarantee request may be considered Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 7. NETWORK CONNECTIVITY RISK Road and transportations network connectivity Non-Toll networks management risk Competitors facilities risk Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the nontoll traffic which impacts to toll road management performance [Operation Breach of authority s obligation not to build a competing routes - [Operation Good contract understanding by public sector Contract synchronization Traffic management in and out of airport with the consideration of vehicle traffic pattern through toll and non-toll Good contract understanding by public sector Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS

136 135 PPP in Indonesia: Guideline Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Disparity of the time and quality works done by Coordination and integration of government (as fiscal support) and by PC project implementation schedule [Construction Remedial action by party who has lower quality of works Substantial reworks due to different standard/ Agreement on the applied method of delivery [Construction standard/method of delivery Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Airport Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not Insurance, to etent possible

137 136 PPP in Indonesia: Guideline Prolonged force majeure 11. ASSET OWNERSHIP RISK If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset Ownership Risk below applied to all Full Concession and O&M scheme Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset Ownership Risk below applied to Full Concession scheme Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Asset Owner Risk below especially applied to O&M scheme Business transferred and an eisting railway assets management and currently built Uncertainty of conditions upon transfer from earlier operator and unanticipated condition of railway eisting condition Either party should be able to terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers A robust business due to diligence (in PFS) Airport Sector covered by the insurance, then it taken over by the Government. Similar to the seaport and railway concessions,the specific risks embedded in airport concession, are land acquisition risk, demand and tariff risks, and interface risk (i.e. on standard delivery and technology). Similar to toll road sector, specific risk in O&M Aiport structure (compared to airport full concession) are site risks (i.e. land acquisition-related), design construction & commissioning risks and the asset ownership/transfer risks. On other sector-specific risks (i.e. demand risk, network risk and interface risk), they are still main concerns of the PC, albeit of lesser magnitude than that in the full concession structure Matri in Telecommunication Sector Fiber Optic (FO) Network Sector The risk matrices are provided for AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC are building, operating, maintaining, and selling the products. 1. SITE RISKS Land acquisition delay and costs overrun Table 16. Risk Matri for Telecommunication Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction The Government clears project landsite before PC procurement process through: Fiber Optic (FO) Network Sector Land requirement is not massive and has already identified clearly The duration of the issuance of Location Determination

138 137 PPP in Indonesia: Guideline Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation Fiber Optic (FO) Network Sector ( Penetapan Lokasi ) by authorities Discrpancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small

139 138 PPP in Indonesia: Guideline Land tenure risk Limitation of construction working space Damaged of artifacts and antiquates in the site Contamination/pollution to the site environment Society distress Failure to apply environmental permits Disruption of biodiversity of forest/conservation area Unforeseen difficulties of site conditions Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Contamination/pollution to the environments that interfere the project implementation [All Due to potential discomfort from the process/output [Operation PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL [Pre-Construction Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction eecutor or provider including the compensation scheme and form Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Good construction methods; Socialization by government Land use historical data and land investigation Comply with good environment impact analysis (AMDAL) AMDAL implementation Monitoring and managing the environment in accordance with RKL and RPL Competent environment aspects specialist consultant Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Monitoring and managing the environment in accordance with RKL and RPL Competent environment aspects specialist consultant Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Conduct studies of biodiversity for impacts mapping AMDAL implementation Monitoring and managing the environment in accordance with RKL and RPL The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Fiber Optic (FO) Network Sector If there is a public rejection, the Government can help The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage

140 139 PPP in Indonesia: Guideline 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS All PPP projects scheme and type Unclear output specifications Design faults Failure to maintain security and safety within the location Delay in completing construction works Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Operation & commission testing Change in scope of works after the contract signing Time and cost overruns due to unclear output specification [Pre-Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction Highly accidental rates during the construction works [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Good and eperienced design consultant or EPC Implementation of a good work security and safety Competent and eperienced EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Fiber Optic (FO) Network Sector will be taken over by the Government CA output specification should refer to best practice Usually identified at technical operational test

141 140 PPP in Indonesia: Guideline Fiber Optic (FO) Network Sector 3. SPONSOR RISKS Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU fund availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions

142 141 PPP in Indonesia: Guideline 5. OPERATING RISKS Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Fiber Optic (FO) Network Sector May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Resource or input risk Prolonged downtime Latent defect risk Failure in technology risk Technology obsolescence Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The risk of failure or shortage in the supply of the inputs or resources (for eample, coal or other fuels) required for the operation of a project including in the quality of available supplies [Operation The operation suspended due to technical disorder aspects, maintenance, or other issues related [Operation The risk of loss or damaged due to latent defect in facilities which include as a project assets [Operation The technology used could potentially fail to give the required output specifications [Operation The development of technology that make the technology used becomes obsolete (technology obsolescence [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities The PC provide an alternative solution, includes the back up Spare part availability ad guarantee from vendors Strict control to the procurement of project assets and forcing the BUP to replace the damaged Before the signing of agreement contract, the bidders already familiar about the consequences of punishment if breaking the deal Verify for technology used fulfill the current standard National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible

143 142 PPP in Indonesia: Guideline 6. REVENUE RISKS Changes in the demand volume on project output End (retail) consumers does not pay Failure in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISK Connectivity with an eisting network and connecting facilities risk Network development risk Volume on output demand is increase or decrease [Operation Due to users affordability and willingness are under the feasible rate [Operation Due to users affordability and willingness are under the feasible rate [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Risk that additional networks which needed are not build up (yet) as planned [Operation Understanding the technological capability to produce electricity by the PC Good contract understanding by both parties Feasibility support (VGF); Supportive regulation. Feasibility support (VGF); Regulation related to tariff mechanism and incentive Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization Good contract understanding by public sector Fiber Optic (FO) Network Sector Changes in the demand volume on project output End (retail) consumers does not pay Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Competitors facilities risk Breach of authority s obligation not to build a competing routes - [Operation Good contract understanding by public sector Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties 9. POLITICAL RISKS

144 143 PPP in Indonesia: Guideline Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Fiber Optic (FO) Network Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. Either party should be able to terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers

145 144 PPP in Indonesia: Guideline Generally in AP scheme of Telecommunication BOT structure, the obselescence and failure of technology risk becomes a very specific risk in this sector. Telecommunications and informatics changes very quickly, so it needs to be an understanding on the technology development and also the user needs in order to avoid the design errors High Throughput Satellite (HTS) Sector The risk matrices are provided for AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC are building, operating, maintaining, and selling the products. 1. SITE RISKS Land acquisition delay and costs overrun Land acquisition can't be performed entirely Table 17. Risk Matri for High Throughput Satellite (HTS) Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD High Throughput Satellite (HTS) Sector Land requirement is not massive and has already identified clearly, especially for ground (earth) station The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased

146 145 PPP in Indonesia: Guideline Land cannot be used after land acquisition Comple resettlement process Land tenure risk Limitation of construction working space Damaged of artifacts and antiquates in the site Contamination/pollution to the site environment Society distress Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Contamination/pollution to the environments that interfere the project implementation [All Due to potential discomfort from the process/output [Operation Project communication strategy, including social issues mapping, and related key figures A clear agreement contract agreement regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Good construction methods; Socialization by government Land use historical data and land investigation Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Competent environment aspects specialist consultant Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Monitoring and managing the environment in accordance with RKL and RPL High Throughput Satellite (HTS) Sector Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process If there is a public rejection, the Government can help

147 146 PPP in Indonesia: Guideline Failure to apply environmental permits Disruption of biodiversity of forest/conservation area Unforeseen difficulties of site conditions PC did not obtain the environmental permissions due to cannot fulfill the requirements of AMDAL [Pre-Construction Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS All PPP projects scheme and type Unclear output specifications Design faults Failure to maintain security and safety within the location Delay in completing construction works Increase in construction cost Time and cost overruns due to unclear output specification [Pre-Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction Highly accidental rates during the construction works [Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Increases due to workload changes or material prices [Construction Competent environment aspects specialist consultant Mature planning of an implementation schedules in order to fulfill the AMDAL requirements Conduct studies of biodiversity for impacts mapping AMDAL implementation Monitoring and managing the environment in accordance with RKL and RPL The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Good and eperienced design consultant in HTS technology Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages High Throughput Satellite (HTS) Sector The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government CA output specification should refer to best practice Usually identified at technical operational test

148 147 PPP in Indonesia: Guideline Contractors/subcontractors bad performances Default by contractors/subcontractor Delay in obtaining allocation of frequency spectrum and orbit slots Failure in assembly Incident or accident at the assembly process and/or transportation The satellite is lost or fails to reach the specified orbit Satellite component do not work Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS Default by the PC Default of project sponsor Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Delays due to the duration in obtaining allocation of frequency spectrum and orbit slots that match with the needs [Pre-Construction Manufacturing failure that cause increased costs and delays [Construction Unepected accident that cause damage to satellite, either during assembly or transportation from manufacture location to the launch site [Construction The satellite has been successfully launched, but has not succeeded in being in a specified orbit [Construction When it reaches in orbit, it has the component of satellite that does not work [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation PC is required to provide the frequency spectrum and orbit slots that match with the service needs PC ensure that the assembly failure risk is allocated and noted in the contract with the manufacture Risk transfer to the manufacture company Insurance Penalty clause Launch insurance High Throughput Satellite (HTS) Sector Insurance If malfunction cause a partial loss, claims are made according to the agreement If it causes a total loss, an insurance claim for making the same insurance Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors

149 148 PPP in Indonesia: Guideline Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU fund availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies High Throughput Satellite (HTS) Sector May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff National scale demonstration that led to the national work strikes

150 149 PPP in Indonesia: Guideline High Throughput Satellite (HTS) Sector can be considered in the force majeure category Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Resource or input risk Prolonged downtime Latent defect risk Failure in technology risk Technology obsolescence in ground segment Satellite age risk is shorter than designed 6. REVENUE RISKS Satellite capacity utilization is less effective Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The risk of failure or shortage in the supply of the inputs or resources (for eample, coal or other fuels) required for the operation of a project including in the quality of available supplies [Operation The operation suspended due to technical disorder aspects, maintenance, or other issues related [Operation The risk of loss or damaged due to latent defect in facilities which include as a project assets [Operation The technology used could potentially fail to give the required output specifications [Operation The development of technology that make the technology on the ground segment used becomes obsolete (technology obsolescence [Operation Satellite cannot function anymore due to the economic value has been ehausted [Operation Too optimistic projection so there is an unused capacity [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities The PC provide an alternative solution, includes the back up Spare part availability ad guarantee from vendors Strict control to the procurement of project assets and forcing the BUP to replace the damaged Before the signing of agreement contract, the bidders already familiar about the consequences of punishment if breaking the deal Verify for technology used fulfill the current standard Insurance for the epiration of the age of satellite under 15 years Understanding the technological capability to produce electricity by the PC More frequent of maintenance than epected Usually this should be anticipated as earliest as possible

151 150 PPP in Indonesia: Guideline Failure of AP payment in time manner Failure in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISK Connectivity risk with an eisting network and connecting facilities Network development risk Government cannot make a payment in time manner [Operation Due to users affordability and willingness are under the feasible rate [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Risk that additional networks which needed are not build up (yet) as planned [Operation Good contract understanding by both parties The escrow account mechanism which combine the revenue of toll tariffs Feasibility support (VGF); Regulation related to tariff mechanism and incentive Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization Good contract understanding by public sector High Throughput Satellite (HTS) Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Competitors facilities risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk Breach of authority s obligation not to build a competing routes - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Supporting legal framework, can be a regional regulation

152 151 PPP in Indonesia: Guideline General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc [Operation Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee High Throughput Satellite (HTS) Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. Either party should be able to terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers AP scheme with the BOT structure of HTS project has the specific risk in the failure risk of every stage of satellite development until the operation stage, also the obsolence technology risk. Telecommunications and informatics changes very quickly, so it needs to be an understanding on the technology development and also the user needs in order to avoid the design errors Matri in Urban Facilities Sector Risk matrices are provided for BOT (Build, Operate, Transfer) and AP of PPP structure. In both schemes, the PC has the scope of works that includes building, operating, maintaining, and assets transfer. The differencies of demand risk aspect, due to the AP scheme is not allocated to the PC.

153 152 PPP in Indonesia: Guideline 1. SITE RISK Land acquisition delay and costs overrun Land acquisition can't be performed entirely Land cannot be used after land acquisition Table 4. Risk Matri for Urban Facitilities (Market) Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract agreement regarding the involvement of local residents in the project Urban Facilities (Market) Sector Land requirement are usually massive and influenced by the planned design The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB)

154 153 PPP in Indonesia: Guideline Urban Facilities (Market) Sector Prepare alternative access to location Corrective: the Government involve in mediation process Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Contamination/pollution to the site environment Disruption of biodiversity of forest/conservation area Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Time and cost overruns due to unclear output specification [Pre-Construction Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct studies of biodiversity for impacts mapping AMDAL implementation Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL CA output specification should refer to best practice

155 154 PPP in Indonesia: Guideline Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors Urban Facilities (Market) Sector Usually identified at technical operational test

156 155 PPP in Indonesia: Guideline Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Urban Facilities (Market) Sector May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff National scale demonstration that led to the national work strikes

157 156 PPP in Indonesia: Guideline Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of technology and information service systems Traffic accident or safety issues 6. REVENUE RISKS Revenue Risk below applied to all BOT scheme Changes in the traffic demand projection Mis-estimation from previous model Tariff collecting company fails to collect Revenue Risks below applied to all AP scheme Changes in the traffic demand projection Mis-estimation from previous model Tariff collecting company fails to collect Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used cannot be reliable, so disturbed the operation [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Choose the competent technology and the right vendor Highly traffic accident - [Operation Third party liability insurance Resulted in a decrease in revenue and the deficit for PC [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Resulted in a decrease in revenue and the deficit for PC [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Accurate traffic survey Soft loans in initial operation Accurate traffic survey Soft loan at the initial operation Collection system and good operational performance Accurate traffic survey Soft loans in initial operation Accurate traffic survey Modelling consultant who has eperience in market planning Collection system and good operational performance Urban Facilities (Market) Sector can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered This risk highly depends on scope of the PC Failure of AP payment in time manner Government cannot make a payment in time manner [Operation The escrow account mechanism which combine the revenue from the tenant rent and non-rent

158 157 PPP in Indonesia: Guideline Revenue Risks below applied to AP & BOT scheme Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Road and transportations network connectivity The smoothness of transportation system risk Competitors facilities risk Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the traffic on around the site which impacts to service performances [Operation Breach of authority s obligation not to build a competing routes - [Operation Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization The traffic management with consider pattern of the transport movement Good contract understanding by public sector Urban Facilities (Market) Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Market tenant transition risk (brown field) Relation risk 9. POLITICAL RISKS Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Due to unclear transition process, cause a worries of an eisting tenants in attempted, so that it can cause a social disruption [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Socialization and discussion about the project development plan with the eisting tenant and stakeholder related with transparency and aspirational, includes a temporary relocation Agreement with an eisting tenants has been reached before the auction Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Government ensure the agreement with tenants can be reached before the auction launched to bidders Implementation risk become the PC s responsibility

159 158 PPP in Indonesia: Guideline Urban Facilities (Market) Sector Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] X Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Either party should be able to terminate Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers

160 159 PPP in Indonesia: Guideline Generally in Market BOT structure, the specific risks are asset transfer after the end of contract period and demand risk. In addition of AP scheme, the operatioan and asset transfer risks gain the special attention by the PC Matri in Health Sector Risk matrices are provided for BOT (Build, Operate, Transfer) of AP scheme. The PC responsible of build, operate, and maintain the hospital facilities, also switched to the end of concession period. 1. SITE RISK Land acquisition delay and costs overrun Land acquisition can't be performed entirely Table 195. Risk Matri for Health Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysiswhere the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Health Sector Land requirement are usually massive and influenced by the planned design The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Delay of appraisal result by the National Land Agency (BPN)

161 160 PPP in Indonesia: Guideline Land cannot be used after land acquisition Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Contamination/pollution to the site environment Difficulties access to the land due to social Clear land legal status and disruption [Construction procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract agreement regarding the involvement of local residents in the project Prepare alternative access to location The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Health Sector Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help

162 161 PPP in Indonesia: Guideline Disruption of the community conveniences around the project area Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Delay in completing construction works Disruption in eisting services (brownfield) Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction An eisting service disrupted due to the construction [Construction Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, consultant testers, and the right operators Qualified contractors and standard contract clauses, including the Health Sector CA output specification should refer to best practice Usually identified at technical operational test

163 162 PPP in Indonesia: Guideline Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] penalty clauses of Liquidity Damages Good communication & coordination between contractor, consultant testers, and the right operators Eperienced testing consultant and commissioning Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Health Sector May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations

164 163 PPP in Indonesia: Guideline Hedging instruments; such as future contract and currency options Health Sector Inflation and interest rate risk Insurance risk Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions 5. OPERATING RISKS Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of technology and information systems of health service Delay on tools delivery and medical needs Data leakage and management risk Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used (such as E-Toll Gate) cannot be reliable, so disturbed the operation [Operation The risk of delay in delivery that becomes PC s responsibility - [Operation Patient medical data is not well recorded and leaked - [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Choose the competent technology and the right vendor Integrated and competent of planning, communication system, logistic system, and control system Integrated, competent, and equipped of tested scurity systems of planning, National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible

165 164 PPP in Indonesia: Guideline Technology obsolescence The development of technology that make the technology used becomes obsolete (technology obsolescence [Operation communication system, logistic system, and control system Verify for technology used fulfill the current standard Medical treatment risk Accident during the medical treatment Implement the medical treatment procedures according to the SOP Ensure the competency of technology /systems before the medical treatment process is done Pollution of medical waste risks that is hazardous toic material (B3) 6. REVENUE RISKS Decrease in the demand volume projection (patient) Increase in demand volume projection (patient) Mis-estimation from previous model Tariff collecting company fails to collect Failure of AP payment in timely manner Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Road and transportations network connectivity The smoothness of transportation system risk The operational activities of hospital/health facility could potentially cause environmental pollution from medical waste produced [Operation Resulted in a decrease in revenue and the deficit for the Government [Operation Patient visits are beyond the epected on the study and contracts which affect the operating performance, including the costs rises [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Government cannot make a payment in timely manner [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the traffic on around the site which impacts to service performances [Operation Comprehensive AMDAL studies Making the medical waste management facility that fulfill the regulatory standards Accurate traffic survey Soft loans in initial operation Good contract understanding by public sector The PC and Government discussion related to contracts Accurate traffic survey Soft loan at the initial operation Collection system and good operational performance X The escrow account mechanism which combine the revenue of toll tariffs Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization The traffic management with consider pattern of the transport movement Health Sector This risks are depends on the cause that refers to scope of the cooperation Medical waste management could be done by certified third party from authorized agency (KLHK) If triggered by Government actions, guarantee request may be considered Basically it becomes the PC responsibility, but only when it reaches the upper limit of volumes If triggered by Government actions, guarantee request may be considered This risk is highly depends on scope of the PC Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation

166 165 PPP in Indonesia: Guideline Competitors facilities risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk Breach of authority s obligation not to build a competing routes - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Health Sector Supporting legal framework, can be a regional regulation 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning

167 166 PPP in Indonesia: Guideline Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Health Sector The occurrence of natural disasters and Insurance, to etent possible Shared together is that the force therefore cannot operate normally [All Stages] majeure risk is covered by Private s of war, riots, civil disturbance [All Insurance, to etent possible as long as there are an insurance Stages] that cover those events. On the Due to climate changes or other factors [All Insurance, to etent possible portion that not covered by the Stages] insurance, then it taken over by If above 6 to 12 months, may cause economic Either party should be able to terminate the Government. problems on the affected party (esp. if insurance the contract and trigger an early not eist) [All Stages] termination Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment P [Operation The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Generally in Hospital AP structure, the specific risks are the technology obsolescence risk, work and technology interface risk, medical treatment risk, medical waste management risk as B3, and data leakage and management risk Matri in Public Housing Sector Risk matrices are provided for BOT (Build, Operate, Transfer) PPP structure. The PC scope of work involve building, operating, and inrfastructure maintaining, also asset transfer after the end of cooperation period. 1. SITE RISK Land acquisition delay and costs overrun Table 206. Risk Matri for Public Housing Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Public Housing Sector Land requirement are usually massive and influenced by the planned design The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities

168 167 PPP in Indonesia: Guideline Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Unforeseen difficulties of site conditions Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Public Housing Sector Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government

169 168 PPP in Indonesia: Guideline Public Housing Sector Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly importantsupport of the relevant authorities (BPN, Agency of Demography, etc.) is highly important If there is a public rejection, the Government can help Contamination/pollution to the site environment Disruption of the community conveniences around the project area Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier CA output specification should refer to best practice

170 169 PPP in Indonesia: Guideline Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Delay in completing construction works Operation & commission testing 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, consultant testers, and the right operators Eperienced tester consultant and commissioning Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Public Housing Sector Usually identified at technical operational test May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations

171 170 PPP in Indonesia: Guideline Public Housing Sector Hedging instruments; such as future contract and currency options Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Increase in energy costs - due to inefficient unit Good unit specifications and quality Irregular availability of required Anticipation measures: Electricity utilities back-up facilities/other utilities Security and safety risk Highly of accident and losses - [Operation Good implementation of security and safety systems Third party liability insurance 6. REVENUE RISKS Revenue Risk below applied to BOT scheme National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible

172 171 PPP in Indonesia: Guideline Changes in the demand volume projection Mis-estimation from previous model Tariff collecting company fails to collect Revenue Risk below only applied to AP scheme Changes in the demand volume projection Mis-estimation from previous model Tariff collecting company fails to collect Failure of AP payment in timely manner Resulted in a decrease in revenue and the deficit Accurate market survey by for the Government [Operation eperienced consultant Soft loans in initial operation Incorrect parameter inputs and model Accurate market survey by development so as a estimation result is eperienced consultant distorted [Operation Due to failure/non-optimality of payment Collection system and good collection system [Operation operational performance Resulted in a decrease in revenue and the deficit for the Government [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Government cannot make a payment in timely manner [Operation Accurate market survey by eperienced consultant Soft loans in initial operation Accurate market survey by eperienced consultant Collection system and good operational performance The escrow account mechanism which combine the revenue of toll tariffs Public Housing Sector If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered This risk is highly depends on scope of the PC If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered This risk is highly depends on scope of the PC Revenue Risk below applied to BOT and AP scheme Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Road and transportations network connectivity The smoothness of transportation system risk Competitors facilities risk Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the traffic on around the site which impacts to service performances [Operation Breach of authority s obligation not to build a competing routes - [Operation Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization The traffic management with consider pattern of the transport movement Good contract understanding by public sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS

173 172 PPP in Indonesia: Guideline Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Disparity of the time and quality works done by Coordination and integration of government (as fiscal support) and by PC project implementation schedule [Construction Remedial action by party who has lower quality of works Substantial reworks due to different standard/ Agreement on the applied method of delivery [Construction standard/method of delivery in Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Public Housing Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the

174 173 PPP in Indonesia: Guideline Prolonged force majeure 11. ASSET OWNERSHIP RISK If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Either party should be able to terminate the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Public Housing Sector insurance, then it taken over by the Government. Generally in Public Housing BOT structure, the specific risks are the demand and operation risk. Meanwhile on AP scheme, the demand risk is allocated to the Government Matri in Education Sector Risk matrices are provided for BOT (Buil, Operate, Transfer) PPP structure, the PC is responsible in buil, operate, and maintain the education facilities, also asset transfer at the ends of cooperation period. 1. SITE RISK Land acquisition delay and costs overrun Table 21. Risk Matri for Education Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Education Sector Land requirement are usually massive and influenced by the planned design The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities

175 174 PPP in Indonesia: Guideline Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Education Sector Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help

176 175 PPP in Indonesia: Guideline Contamination/pollution to the site environment Disruption of the community conveniences around the project area Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Failure to maintain security and safety within the location Disruption in eisting services (brownfield) Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction An eisting service disrupted due to the construction [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation Good communication & coordination between contractor, consultant testers, and the right operators Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Education Sector CA output specification should refer to best practice

177 176 PPP in Indonesia: Guideline Design faults Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk financial management factors [Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Education Sector Usually identified at technical operational test May be caused by conditions precedence are not fulfilled

178 177 PPP in Indonesia: Guideline Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Education Sector Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity backup facilities/other utilities National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible

179 178 PPP in Indonesia: Guideline Incompetent of technology and information systems of education service Delay on tools delivery and teaching and learning needs Data leakage and management risk Technology obsolescence 6. REVENUE RISKS Decrease in the demand volume projection Curriculum changes Mis-estimation from previous model Tariff collecting company fails to collect Failure of AP payment in timely manner Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Road and transportations network connectivity The technology used cannot be reliable, so disturbed the operation [Operation The risk of delay in delivery that becomes PC s responsibility - [Operation Students data is not well recorded and leaked - [Operation The development of technology that make the technology used becomes obsolete (technology obsolescence [Operation Resulted in a decrease in revenue and the deficit for the Government [Operation The curriculum changes which affects to the increase in operating cost [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Government cannot make a payment in timely manner [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority s obligation to build and maintain the required network [Operation Choose the competent technology and the right vendor Integrated and competent of planning, communication system, logistic system, and control system Integrated, competent, and equipped of tested scurity systems of planning, telecommunication and infromation system, and control system Verify for technology used fulfill the current standard Accurate market survey by eperienced consultant Soft loans in initial operation Good contract understanding by public sector The PC and Government discussion related to contracts Accurate market survey by eperienced consultant Collection system and good operational performance The escrow account mechanism which combine the revenue of toll tariffs Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization Education Sector This is depends on the PC s scope of cooperation If triggered by Government actions, guarantee request may be considered Basically it becomes the PC responsibility, but only when it reaches the upper limit of volumes If triggered by Government actions, guarantee request may be considered This risk is highly depends on scope of the PC Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation This can be happen for the construction of schools in underdeveloped areas or borders, for eample a connecting suspension bridge is not available.

180 179 PPP in Indonesia: Guideline Education Sector The smoothness of transportation system risk Limitations of Government in manage the traffic on around the site which impacts to service performances [Operation The traffic management with consider pattern of the transport movement 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Eisting activities transition risk (brown field) Relation risk Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Due to unclear transition process, cause a worries of an eisting users, so that it can cause a social disruption [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Socialization and discussion about the project development plan with the eisting tenant and stakeholder related with transparency and aspirational, includes a temporary relocation Agreement with an eisting users has been reached before the auction Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Government ensure the agreement with tenants can be reached before the auction launched to bidders Implementation risk become the PC s responsibility Eisting activities in the form of Teaching and Learning Activities (PKBM) and Support Facilities, such as Canteens.

181 180 PPP in Indonesia: Guideline 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Education Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then Either party should be able to terminate the it taken over by the contract and trigger an early termination Government. The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers

182 181 PPP in Indonesia: Guideline Generally in Education BOT structure, the students data leakage risk, availability of utilities are the risk that gain a special concern by the PC Matri in Sport Facility Sector Risk matrices are provided for full concession and AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC scope of works including building, operating, and maintaining the infrastructure, also asset transferring at the ends of concession period. The full concession scheme can be implemented if the commercial facility being built is quite attractive and worth supporting investment and OM cost of sport facility. The selected commercial facility surely has its own type of risk that need to be further assessed. The risk in commercial facility were not assessed in this guidelines. 1. SITE RISK Land acquisition delay and costs overrun Land acquisition can't be performed entirely Table 22. Risk Matri for Sport Facility Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Sport Facility Sector Land requirement are usually massive and influenced by the planned design The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land

183 182 PPP in Indonesia: Guideline Sport Facility Sector Delay of appraisal result by the National Land Agency (BPN) Land cannot be used after land acquisition Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Contamination/pollution to the site environment Disruption of the community conveniences around the project area Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help

184 183 PPP in Indonesia: Guideline Threat to the eistence of indigenous peoples Threat to natural habitat 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Projects can threaten indigenous peoples such Conduct screening and social studies as loss of identity, culture and livelihood - [Pre- to evaluate potential positive and Construction adverse project effects on vulnerable indigenous peoples If the project triggers, it is necessary to develop a Vulnerable Indigenous Peoples Plan The project has the potential to cause changes Conduct screening to determine if the (loss) or degradation of natural habitat - [Preconstruction project has the potential to cause - Construction Operation changes or degradation of natural habitat If the project triggers, the impact assessment of the project on natural habitats is important as part of the Environmental Assessment process Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety toward Zero Accident Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Sport Facility Sector CA output specification should refer to best practice Usually identified at technical operational test

185 184 PPP in Indonesia: Guideline Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, testing consultant, and the right operators Eperienced testing and commissioning consultant Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Sport Facility Sector May be caused by conditions precedence are not fulfilled

186 185 PPP in Indonesia: Guideline Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Sport Facility Sector Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of technology and information systems of sports facility service 6. REVENUE RISKS Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used cannot be reliable, so disturbed the operation [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity backup facilities/other utilities Choose the competent technology and the right vendor National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible This conditions are depends on the class of the sports facilities that provided

187 186 PPP in Indonesia: Guideline Revenue Risk below applied to Full Concession and AP scheme Lack of project revenue s risk in ramp up period Changes in the demand volume projection Mis-estimation from previous model Tariff collecting company fails to collect Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates Revenue Risk below applied to AP scheme Changes in the demand volume projection Mis-estimation from previous model Tariff collecting company fails to collect Failure of AP payment in timely manner 7. NETWORK CONNECTIVITY RISKS The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation. Resulted in a decrease in revenue and the deficit for the Government [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Resulted in a decrease in revenue and the deficit for the Government [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Government cannot make a payment in timely manner [Operation Network Connectivity Risk below applied to Full Concession scheme Network connectivity of product marketing risk The smoothness of supplier system risk PC cannot managed the markets [Operation PC cannot guarantee the supplier system [Operation Prepare the capital or the other source as a bailouts Accurate market survey by eperienced consultant Soft loans in initial operation Accurate market survey Eperienced model consultant in commercial facility designed Collection system and good operational performance Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Accurate market survey by eperienced consultant Soft loans in initial operation Accurate market survey Eperienced model consultant in commercial facility designed Collection system and good operational performance The escrow account mechanism which combine the revenue of toll tariffs Good contract understanding by public sector Contract with main buyer since early on Construction synchronization Supportive government policies Contract with measured suppliers Sport Facility Sector If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered i.e. quota of beef imports

188 187 PPP in Indonesia: Guideline Competitors facilities risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk Breach of authority s obligation not to build a competitor facility that similar to commercial facility - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Sport Facility Sector Supporting legal framework, can be a regional regulation 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning

189 188 PPP in Indonesia: Guideline 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Sport Facility Sector Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then Either party should be able to terminate the it taken over by the contract and trigger an early termination Government. 11. ASSET OWNERSHIP RISK Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Generally in Sports Facility BOT structure, the specific risks are operational risk and asset transfer risk after the ends of the cooperation period. In addition, the other specific risks are parastatal risk (i.e. breach of the off-taker s contractual obligations and privatization of the off-taker). Especially for full concession, the inherent risk from the commercial facilities built needs be considered. As for the AP structure, the demand risk become the responsibility of the government, so the governement needs to make a long-term and annual marketing plan / sport calender that can maimize the use of stadium/gor to be built Matri in Tourism Sector Risk matrices are provided for AP scheme with BOT (Build, Operate, Transfer) structure for the development projects of information centre, service, and tourism promotion types. The PC is responsible to building, operating, and maintaining the infrastructure, also asset transferring at the ends of concession period. 1. SITE RISK Land acquisition delay and costs overrun Table 23. Risk Matri for Tourism Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Tourism Sector Land requirement are usually massive and influenced by the planned design The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities

190 189 PPP in Indonesia: Guideline Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Unforeseen difficulties of site conditions Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form The utility identification at planning stage supported by an adequate data Tourism Sector Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The

191 190 PPP in Indonesia: Guideline Tourism Sector Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Contamination/pollution to the site environment Disruption of the community conveniences around the project area Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help Threat to the eistence of indigenous peoples Threat to natural habitat Projects can threaten indigenous peoples such as loss of identity, culture and livelihood - [Pre- Construction The project has the potential to cause changes (loss) or degradation of natural habitat - [Preconstruction - Construction Operation 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Time and cost overruns due to unclear output specification [Pre-Construction Conduct screening and social studies to evaluate potential positive and adverse project effects on vulnerable indigenous peoples If the project triggers, it is necessary to develop a Vulnerable Indigenous Peoples Plan Conduct screening to determine if the project has the potential to cause changes or degradation of natural habitat If the project triggers, the impact assessment of the project on natural habitats is important as part of the Environmental Assessment process Clarification during the tender process; Capacity of good design; CA output specification should refer to best practice

192 191 PPP in Indonesia: Guideline Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, consultant testers, and the right operators Eperienced tester consultant and commissioning Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors Tourism Sector Usually identified at technical operational test

193 192 PPP in Indonesia: Guideline Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Tourism Sector May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff National scale demonstration that led to the national work strikes

194 193 PPP in Indonesia: Guideline Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of technology and information systems of tourism facility service 6. REVENUE RISKS Decrease in the demand volume projection Mis-estimation from previous model Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used cannot be reliable, so disturbed the operation [Operation Resulted in a decrease in revenue and the deficit for the Government [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity back-up facilities/other utilities Choose the competent technology and the right vendor Accurate market survey by eperienced consultant Soft loans in initial operation Accurate market survey by eperienced consultant Tourism Sector can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible This conditions are depends on the class of the tourism facilities that provided If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered Tariff collecting company fails to collect Failure of AP payment in timely manner Fail in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Due to failure/non-optimality of payment collection system [Operation Government cannot make a payment in timely manner [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Collection system and good operational performance The escrow account mechanism which combine the revenue of toll tariffs Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey This risk is highly depends on scope of the PC Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation

195 194 PPP in Indonesia: Guideline Tourism Sector Road and transportations network connectivity The smoothness of transportation system risk Competitors facilities risk Breach of authority s obligation to build and maintain the required network [Operation Limitations of Government in manage the traffic on around the site which impacts to service performances [Operation Breach of authority s obligation not to build a competing routes - [Operation Good contract understanding by public sector Construction synchronization The traffic management with consider pattern of the transport movement Good contract understanding by public sector Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning

196 195 PPP in Indonesia: Guideline Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Political risk insurance Government guarantee Tourism Sector Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Either party should be able to terminate Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then it taken over by the Government. the contract and trigger an early termination The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Generally in Tourism BOT structure, the specific risks are operational risk and asset transfer risk after the ends of the cooperation period. In addition, the other specific risks are parastatal risk (i.e. breach of the off-taker s contractual obligations and privatization of the off-taker) Matri in Correctional Sector The correctional institution not only about the prison building but also include coaching facilities. The coaching facilities that has a commercial aspect can become a sources of investement return. Risk matrices provided for full concession and AP scheme with BOT (Build, Operate, Transfer) PPP structure. The PC is responsible to building, operating, and maintaining the infrastructure, also asset transferring at the ends of concession period. The selected coaching facility surely has its own type of risk that need to be assessed. The risk in coaching facility were not assessed in this guidelines. Table24. Risk Matri for Correctional Sector 1. SITE RISK Land acquisition delay and costs overrun Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction The Government clears project landsite before PC procurement process through: Correctional Sector Land requirement are usually massive and influenced by the planned design

197 196 PPP in Indonesia: Guideline Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form Correctional Sector The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small

198 197 PPP in Indonesia: Guideline Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Contamination/pollution to the site environment Disruption of the community conveniences around the project area Unidentified of utilities and difficulties on utilities The utility identification at planning reallocation process, resulting delays and the stage supported by an adequate data possibility of route change [Construction Involvement of WTP in a resettlement planning Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Correctional Sector Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help Threat to the eistence of indigenous peoples Threat to natural habitat Projects can threaten indigenous peoples such as loss of identity, culture and livelihood - [Pre- Construction The project has the potential to cause changes (loss) or degradation of natural habitat - [Preconstruction - Construction Operation Conduct screening and social studies to evaluate potential positive and adverse project effects on vulnerable indigenous peoples If the project triggers, it is necessary to develop a Vulnerable Indigenous Peoples Plan Conduct screening to determine if the project has the potential to cause changes or degradation of natural habitat If the project triggers, the impact assessment of the project on natural habitats is important as part of the Environmental Assessment process

199 198 PPP in Indonesia: Guideline 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Technical commissioning leads to discovery of design faults [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for b K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, consultant testers, and the right operators Eperienced tester consultant and commissioning Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Correctional Sector CA output specification should refer to best practice Usually identified at technical operational test

200 199 PPP in Indonesia: Guideline 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Security and safety of Breach of security and/or safety, i.e. runaway correctional facility prisoners Availability of facilities Due to the facilities cannot be developed [Construction Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Integrated and tight security system Competent contractor Correctional Sector May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions

201 200 PPP in Indonesia: Guideline Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Competent operator; Clear output specifications Good human resources and industrial relation policies Correctional Sector May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Incompetent of technology and information systems of sports facility service 6. REVENUE RISKS Revenue Risk below applied to BOT scheme Lack of project revenue s risk in ramp up period Changes in the demand volume projection Mis-estimation from previous model Revenue Risk below applied to AP scheme Fail in the initial tariff determination Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation The technology used cannot be reliable, so disturbed the operation [Operation The project is financially viable but not bankable due to lack of cash flow in the ramp up period of operation. Resulted in a decrease in revenue and the deficit for the Government [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity backup facilities/other utilities Choose the competent technology and the right vendor Prepare the capital or the other fund source as a bailouts Accurate market survey by eperienced consultant Soft loans in initial operation Accurate market survey Eperienced model consultant in commercial facility designed Good operational performance Supporting regulation National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible This conditions are depends on the class of the sports facilities that provided If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered Supporting legal framework, can be a regional regulation

202 201 PPP in Indonesia: Guideline Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates Changes in the demand volume projection Tariff collecting company fails to collect Failure of AP payment in timely manner 7. NETWORK CONNECTIVITY RISKS i.e. on tariff indeation to agreed inflation rate Good operational performance; [Operation regulation that regulated the rate and adjustment of tariff period Especially after tariff indeation and tariff Good operation performance; regulation rebasing [Operation that regulated the rate and adjustment of Tariffs are too optimistic or its above of consumers willingness to pay [Operation Resulted in a decrease in revenue and the deficit for the Government [Operation Due to failure/non-optimality of payment collection system [Operation Government cannot make a payment in timely manner [Operation Network Connectivity Risk below applied to Full Concession scheme Network connectivity of product marketing risk The smoothness of supplier system risk Competitors facilities risk 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Breach of authority to buy prisoners products or cancellation of the main buyer [Operation PC cannot guarantee the supplier system [Operation Breach of authority s obligation not to build a competitor facility that similar to commercial facility - [Operation Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] tariff period Accurate users affordability and willingness survey Accurate market survey by eperienced consultant Soft loans in initial operation Collection system and good operational performance The escrow account mechanism which combine the revenue of toll tariffs Good contract understanding by public sector Contract with main buyer since early on Construction synchronization Supportive government policies Contract with measured suppliers Good contract understanding by public sector Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Correctional Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation If triggered by Government actions, guarantee request may be considered i.e. quota of beef imports Supporting legal framework, can be a regional regulation

203 202 PPP in Indonesia: Guideline Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Matri in Regional Sector Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Correctional Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then Either party should be able to terminate the it taken over by the contract and trigger an early termination Government. The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers

204 203 PPP in Indonesia: Guideline PPP in regional sector is the form of cooperation between the government and PC in the provision of basic infrastructure. The investment return use the AP scheme and risk matrices which provide is for AP scheme. The PC is responsible to build, operate, and maintain the infrastructure, also transferring the asset at the ends of concession period. 1. SITE RISK Land acquisition delay and costs overrun Land acquisition can't be performed entirely Land cannot be used after land acquisition Table 25. Risk Matri for Regional Sector Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW) analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures Regional Sector Land requirement are usually massive and influenced by the planned design The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on;

205 204 PPP in Indonesia: Guideline Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Land tenure risk Contamination/pollution to the site environment Disruption of the community conveniences around the project area Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Regional Sector o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help

206 205 PPP in Indonesia: Guideline Threat to the eistence of indigenous peoples Threat to natural habitat 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Delay in completing construction works Projects can threaten indigenous peoples such Conduct screening and social studies as loss of identity, culture and livelihood - [Pre- to evaluate potential positive and Construction adverse project effects on vulnerable indigenous peoples If the project triggers, it is necessary to develop a Vulnerable Indigenous Peoples Plan The project has the potential to cause changes Conduct screening to determine if the (loss) or degradation of natural habitat - [Preconstruction project has the potential to cause - Construction Operation changes or degradation of natural habitat If the project triggers, the impact assessment of the project on natural habitats is important as part of the Environmental Assessment process Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Caused design etra/revise which asked by operator [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Regional Sector CA output specification should refer to best practice Usually identified at technical operational test

207 206 PPP in Indonesia: Guideline Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Good communication & coordination between contractor, consultant testers, and the right operators Eperienced tester consultant and commissioning Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Regional Sector May be caused by conditions precedence are not fulfilled Can be shared with the Government when etreme fluctuations

208 207 PPP in Indonesia: Guideline Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Inherent risk of basic service infrastructure Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Basic infrastructure provided cannot operate due to the inherent risk of infrastructure sector, such as the provision of water and electricity Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Clarity of risk regulation or any infrastructure provided. Availability of back-up resources to support basic infrastructure service performance. Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Regional Sector Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation Implement people-oriented community engagement program; community empowerment Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity backup facilities/other utilities National scale demonstration that led to the national work strikes can be considered in the force majeure category More frequent of maintenance than epected Usually this should be anticipated as earliest as possible

209 208 PPP in Indonesia: Guideline Incompetent of technology and information systems of sports facility service 6. REVENUE RISKS Changes in the demand volume projection Mis-estimation from previous model Tariff collecting company fails to collect Failure of AP payment in timely manner Failure in the initial tariff determination Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Road and transportation network connectivity risk The smoothness of transportation system risk Competitors facilities risk The technology used cannot be reliable, so disturbed the operation [Operation Resulted in a decrease in revenue and the deficit for the Government [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Government cannot make a payment in timely manner [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation i.e. on tariff indeation to agreed inflation rate [Operation Especially after tariff indeation and tariff rebasing [Operation Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority to build and maintain the necessary transportation access [Operation Limitations of Government in manage the traffic on around the site which impacts to service performance [Operation Breach of authority s obligation not to build a competing routes - [Operation Choose the competent technology and the right vendor Accurate market survey by eperienced consultant Soft loans in initial operation Accurate market survey Eperienced model consultant in commercial facility designed Collection system and good operational performance The escrow account mechanism which combine the revenue of toll tariffs Good operational performance Supporting regulation Good operational performance; regulation that regulated the rate and adjustment of tariff period Good operation performance; regulation that regulated the rate and adjustment of tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization The traffic management with consider pattern of the transport movement Good contract understanding by public sector Regional Sector This conditions are depends on the class of the sports facilities that provided If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS

210 209 PPP in Indonesia: Guideline Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Disparity of the time and quality works done by Coordination and integration of government (as fiscal support) and by PC project implementation schedule [Construction Remedial action by party who has lower quality of works Substantial reworks due to different standard/ Agreement on the applied method of delivery [Construction standard/method of delivery in advance Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Regional Sector In addition to having a clear contractual provisions, including compensation The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then

211 210 PPP in Indonesia: Guideline Prolonged force majeure 11. ASSET OWNERSHIP RISK If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation The specific risk in Regional Sector is the specific basic infrastructure risk which can affect the services. Regional Sector Either party should be able to terminate the it taken over by the contract and trigger an early termination Government. The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers Matri in Bundling Project Sector The bundling project have a high compleity consider there is a 2 or more of the CA which have the project. The form of cooperation between the government and PC in a bundling project of basic infrastructure can be BOT (Build, Operate, Transfer) with the investment return or AP. The risk matri displayed is quite generic because of the many variations of project bundling that can be done. Table 26. Risk Matri for Bundling Project Sector 1. SITE RISK Land acquisition delay and costs overrun Delay and costs increase due to unclear and then prolonged land acquisition process [Pre- Construction The Government clears project landsite before PC procurement process through: Government conducting the suitability of the spatial location of the project with the documents (RTRW)analysis where the project will be implemented Government needs to determine the project location and ensure all the requirements has been fulfilled in accordance with the laws before applying for a Location Determination Permit ( Izin Penetapan Lokasi ) Government needs to ensure the availability of land acquisition funds and the amount of cost Bundling Project Sector Land requirement are usually massive and influenced by the planned design The duration of the issuance of Location Determination ( Penetapan Lokasi ) by authorities

212 211 PPP in Indonesia: Guideline Land acquisition can't be performed entirely Land cannot be used after land acquisition Comple resettlement process Unforeseen difficulties of site conditions Limitation of construction working space Damaged of artifacts and antiquates in the site Unable to acquire project land site due to difficult land acquisition process [Pre-Construction Difficulties access to the land due to social disruption [Construction Costs overrun and delay due to a complicated resettlement process [Pre-Construction Unidentified of utilities and difficulties on utilities reallocation process, resulting delays and the possibility of route change [Construction Related to the provision of land for working space during construction [Construction The destruction of artifacts and antiquates which found in the location during construction [Construction Government needs to ensure the availability of team that conduct the land acquisition process; Government needs to ensure that the land acquisition process could be run in accordance to the regulation. Clear land legal status and procedure in project land clearance Prioritize a clearance of waqf land, Village Cash Land (TKD) and forestry Regulation improvement of the regulation of waqf land and TKD Project communication strategy, including social issues mapping, and related key figures A clear agreement in contract regarding the involvement of local residents in the project Prepare alternative access to location Fair compensation and good communication with those impacted Coordination with the related parties in determining compensation eecutor or provider including the compensation scheme and form The utility identification at planning stage supported by an adequate data Involvement of WTP in a resettlement planning Good construction methods; Socialization by government Land use historical data and land investigation Bundling Project Sector Discrepancy risk in RTRW Unissued of the location determination or location permit risk by the Local Government Unissued of the Borrow and Use Forest Area Permit ( Izin Pinjam Pakai Kawasan Hutan ) risk Land owned by State cannot be purchased Unissued of the permit from Ministry of Religion for the waqf land Delay of appraisal result by the National Land Agency (BPN) Preventive: o Government and PC have to socialize the project early on; o Provision cost (buy/rent) of alternative access is counted on Joint Budget Plan (RAB) Corrective: the Government involve in mediation process Land requirement for this kind of project is usually not etensively large, social impact is relatively small Unavailable of utilities data, which just known during ecavation process. Generally at the pipe installation process. The difficulties that impossible to identified at the planning stage will be taken over by the Government If there is a public rejection, the Government can help

213 212 PPP in Indonesia: Guideline Bundling Project Sector Land tenure risk Contamination/pollution to the site environment Disruption of the community conveniences around the project area Multiple land ownership certificates were discovered when the project is implemented [Pre-Construction Contamination/pollution to the environments that interfere the project implementation [All Project could cause the disruption of health & convenience, i.e. civilian s house damaged due to construction activity [Construction Implement validation and completion of land tenure; Support of the relevant authorities (BPN, Agency of Demography, etc.) is highly important Announcements were made in the village after the inventory and identification process was completed Comply with good environment impact analysis (AMDAL) Implementation of AMDAL Monitoring and managing the environment in accordance with RKL and RPL Conduct comprehensive AMDAL studies and implement them well Monitoring and managing the environment Disruption of biodiversity of forest/conservation area Project through the forest/conservation area could potentially cause disruption to flora & fauna, especially endemic and protected status [All Stages] Conduct studies of biodiversity for impacts mapping AMDAL implementation Monitoring and managing the environment in accordance with RKL and RPL The CA responsible for conduct studies of biodiversity, and the PC implements the AMDAL 2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS Unclear output specifications Failure to maintain security and safety within the location Increase in construction cost Time and cost overruns due to unclear output specification [Pre-Construction Highly accidental rates during the construction works [Construction Increases due to workload changes or material prices [Construction Clarification during the tender process; Capacity of good design; The tender documents should be presented clearly and easily to understand to improve the competition and lower the cost of the project. Implementation of a good work security and safety Competent and eperienced EPC Penalty clause for K3 violation in the contract Agreement on volume and threshold changes approval procedures Provide the calculation of price escalation factor on the contract Good relationship with supplier Penalty clauses of Liquidity Damages CA output specification should refer to best practice

214 213 PPP in Indonesia: Guideline Contractors/subcontractors bad performances Default by contractors/subcontractor Design faults Delay in completing construction works Operation & commission testing Change in scope of works after the contract signing 3. SPONSOR RISKS All PPP scheme Default by the PC Default of project sponsor Default of project lender 4. FINANCIAL RISKS Fail to achieve financial close Delay in Government support risk (incentive, subsidy, etc) Contractors/subcontractors cannot fulfill their works as well as the contract [Construction Failure of the contract completion by contractors/subcontractors due to internal & financial management factors [Construction Caused design etra/revise which asked by operator [Pre-Construction & Construction May include impact of bad quality of Human Resources epertise, lack of material & tools availability, delay in returning site access [Construction Mis-estimation of time/cost in technical operation testing [Construction Change in CAPEX and/or OPEX caused by change in a scope of works of the Government and/or PC demand [All PC s default leading to termination and/or step-in by financiers [All Stages] Sponsor (or a member of consortium) s default [All Stages after Financial Close] Default by financial/banking institution (or syndicate) due to changes in policy/trust of PC or due to an internal issues [All Stages after Financial Close] Inability to achieve financial close due to market uncertainty or the project capital structure is not optimal [Pre-Construction The implementation of Government support cannot be done in accordance with the promised time, so it disrupts the development and/or operational service [Construction & Operational The selecting process of a credible contractors & subcontractors Penalty implementation The selecting process of a credible contractors & subcontractors Penalty implementation Competent and eperienced design consultant or EPC Qualified contractors and standard contract clauses, including the penalty clauses of Liquidity Damages Good communication & coordination between contractor, consultant testers, and the right operators Eperienced tester consultant and commissioning Good project preparation and answer the public needs There is an amendment clause regarding this risk Good understanding of the contract by both parties Contract amendment Consortium is supported by credible and solid sponsors PQ process to select credible sponsors The selecting process of a credible lenders PC performances to fulfill the contract Eligibility lenders Good coordination and consortium with potential and credible lenders Ensure timely budgeting process To support part of construction, the government ensure the auction process runs timely, including the auction schedule before the budget is set (conditional auction) Bundling Project Sector Usually identified at technical operational test May be caused by conditions precedence are not fulfilled

215 214 PPP in Indonesia: Guideline VGF disbursement risk Refund of land bailout fund risk Foreign echange rate risk Inflation and interest rate risk Insurance risk 5. OPERATING RISKS Inherent risk of basic service infrastructure Bundling project risk VGF partially disbursement cannot be done on time [Construction Land bailouts disbursement by the Government to the PC is late [Construction (Non-etreme) fluctuation of foreign echange rate - [All Stages] Increase of inflation rate used for estimating lifecycle costs and interest rate - [All Stages] Insurance cover for a certain risk is no longer available from reputable insurers in the market and substantial increases in rates which insurance premiums are calculated - [All Stages] Basic infrastructure provided cannot operate due to the inherent risk of infrastructure sector, such as the provision of water and electricity New risks arising from the bundling of projects, such as changes in demand risk due to the integration of LRT and BRT - [Operation Availability of facilities Due to the facilities cannot be developed [Construction Poor performance of services Due to lack of facilities project cannot operate [Operation Industrial action Industrial actions (strike, lockout, go slow, etc) [Operation Provide the bailout funds that managed by the BLU unit Ensure timely budgeting process Provide the bailout funds that managed by the BLU unit Certainty of Land BLU funds availability with the certainty of additional funding from the state budget if reached a certain threshold Financing in Rupiah Purchase price inde taking into accounts currency fluctuation Hedging instruments; such as future contract and currency options Tariff indeation factor; interest rate hedging Consult with insurance specialists/brokers Clarity of risk regulation or any infrastructure provided. Availability of back-up resources to support basic infrastructure service performance. Comprehensive analysis, especially related to a new risk which possibly arise Insurance if possible Government guarantee, if possible Competent contractor Competent operator; Clear output specifications Good human resources and industrial relation policies Bundling Project Sector Can be shared with the Government when etreme fluctuations Can be shared with the Government when etreme fluctuations Especially for insurance risk coverage under force majeure conditions May be by operator, subcontractors, or suppliers staff Social and cultural Risk Risks arising from not considering the culture or social condition of local communities during the project implementation [All Stages] Implement people-oriented community engagement program; community empowerment National scale demonstration that led to the national work strikes can be considered in the force majeure category

216 215 PPP in Indonesia: Guideline Failure of project management Failure of project control and monitoring O&M cost overrun risk Mis-estimation of life cycle ependiture Increase in energy costs - due to inefficient unit Irregular availability of required utilities Failure or inability of the PC to manage operational of Guarantee Agreement [Operation Irregularities were not detected due to the failure of the control and monitoring by the PC or the CA [All Stages] Mis-estimation of O& M costs or an unepected increase [Operation Mis-estimation of cost due to cannot get fi and current price from the supplier [Operation Increases of energy cost due to inefficiency of operation performance [Operation Availability of utilities, such as irregular electricity and internet [Operation Develop operations management plan and to be performed professionally Develop control and monitoring plans and periodic evaluations of the design and implementation effectiveness Competent operator; Contract escalation factor Deal/contract with suppliers as earliest as possible Good unit specifications and quality Anticipation measures: Electricity backup facilities/other utilities Safety and security risk High accident or loss [Operation Implementation of good security and safety system Third party liability insurance 6. REVENUE RISKS Revenue Risk below applied to BOT scheme Changes in the demand volume projection Mis-estimation from previous model Tariff collecting company fails to collect Revenue Risk below is only applied to AP scheme Changes in the demand volume projection Mis-estimation from previous model Tariff collecting company fails to collect Failure of AP payment in timely manner Resulted in a decrease in revenue and the deficit for the PC [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Revenue Risk below is applied to BOT & AP scheme Fail in the initial tariff determination Resulted in a decrease in revenue and the deficit for the government [Operation Incorrect parameter inputs and model development so as a estimation result is distorted [Operation Due to failure/non-optimality of payment collection system [Operation Government cannot make a payment in timely manner [Operation Due to PC cannot fulfill the minimum standard that agreed [Operation Accurate market survey by eperienced consultant Soft loans in initial operation Accurate market survey by eperienced consultant Collection system and good operational performance Accurate market survey by eperienced consultant Soft loans in initial operation Accurate market survey by eperienced consultant Collection system and good operational performance The escrow account mechanism which combine the revenue of toll tariffs Good operational performance Supporting regulation Bundling Project Sector More frequent of maintenance than epected Usually this should be anticipated as earliest as possible If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered If triggered by Government actions, guarantee request may be considered

217 216 PPP in Indonesia: Guideline Delay in periodical tariff adjustment Level of the adjusted tariff is lower than initially projected Miscalculation of the tariff estimates 7. NETWORK CONNECTIVITY RISKS Road and transportation network connectivity risk The smoothness of transportation system risk Competitors facilities risk i.e. on tariff indeation to agreed inflation rate Good operational performance; [Operation regulation that regulated the rate and adjustment of tariff period Especially after tariff indeation and tariff Good operation performance; regulation rebasing [Operation that regulated the rate and adjustment of Tariffs are too optimistic or its above of consumers willingness to pay [Operation Breach of authority to build and maintain the necessary transportation access [Operation Limitations of Government in manage the traffic on around the site which impacts to service performance [Operation Breach of authority s obligation not to build a competing route - [Operation tariff period Accurate users affordability and willingness survey Good contract understanding by public sector Construction synchronization The traffic management with consider pattern of the transport movement Good contract understanding by public sector Bundling Project Sector Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation Supporting legal framework, can be a regional regulation 8. INTERFACE RISKS Disparity of the time and quality of work risk Differences of service standard /method risk Relation risk 9. POLITICAL RISKS Currency inconvertibility Currency non-transfer Epropriation risk General change in law (include ta) Discriminatory or project specific change in law (including ta) Disparity of the time and quality works done by government (as fiscal support) and by PC [Construction Substantial reworks due to different standard/ method of delivery [Construction Miscommunication of internal and eternal organization, including cause delays/failures of process due to lack of eperience in PPP/Project Financing project [All Stages] Unavailability and/or inconvertibility of local currency to the investor's home currency [All Stages] Inability to transfer funds in foreign currency to the investor's home country [All Stages] Nationalization/epropriation without compensation (adequately) [All Stages] Can be considered as business risk [All Stages] In form of ta policy by the relevant authority (central or regional) [All Stages] Coordination and integration of project implementation schedule Remedial action by party who has lower quality of works Agreement on the applied standard/method of delivery in advance Communication and coordination system is designed, agreed, and socialized properly to all relevant parties Local financing Off-shore account Guarantee from central bank Local financing Off-shore account Guarantee from central bank Mediation, negotiation Political risk insurance Government guarantee Socialization of related regulations to PC Mediation, negotiation Political risk insurance Government guarantee In addition to having a clear contractual provisions, including compensation

218 217 PPP in Indonesia: Guideline Delay in achieving planning approval Fail or delay in obtaining necessary consents (ecl. Planning) Delay in gaining access to the site Parastatal risk 10. FORCE MAJEURE RISKS Natural disasters Political force majeure Etreme weather Prolonged force majeure 11. ASSET OWNERSHIP RISK Only if it caused by the public sector's unilateral/improper decision [Pre-Construction & Construction Only if it caused by the public sector's unilateral/improper decision [All Stages] Only if it caused by the public sector's unilateral/improper decision [All Stages] Breach of off taker s contractual obligations Due to privatization of the Off taker or default by the PC [All Stages] The occurrence of natural disasters and therefore cannot operate normally [All Stages] s of war, riots, civil disturbance [All Stages] Due to climate changes or other factors [All Stages] If above 6 to 12 months, may cause economic problems on the affected party (esp. if insurance not eist) [All Stages] Asset loss event risk Fire, eplosion, etc Insurance Asset transfer after the PPP contract ends The asset transfer process has been hampered because there is a difference in the mechanism of transfer or assessment [Operation Clear contract provisions including the compensations Clear contract provisions including the compensations Clear contract provisions including the compensations Political risk insurance Government guarantee Bundling Project Sector The initial planning or design changes due to construction work Usually related to issues other than planning Insurance, to etent possible Insurance, to etent possible Insurance, to etent possible Shared together is that the force majeure risk is covered by Private as long as there are an insurance that cover those events. On the portion that not covered by the insurance, then Either party should be able to terminate the it taken over by the contract and trigger an early termination Government. The making of the contract that governing the matter of transfer of assets The assessment carried out by mutually agreed independent appraisers In a bundling project, the main risk is a political risk related to different policies of the CA and the specific risks of each infrastructure. The CA and PC need to assess the new risks that arise or disappear due to the merger of projects as early anticipation in project management.

219 218 PPP in Indonesia: Guideline 5 SUMMARY From the discussions above, especially on each sector and each PPP structure risk allocation, there are some similarities and differences on how the risks are allocated between the public and private sector, including when the risk should be shared between the two parties. The summary of similarities and differences is shown in Table 24 below. Table 7. Risk Matri Summary for all PPP Sectors Allocation Similarity Difference Public Sector Site risk (land acquisition and land status-related) Political risk - Currency inconvertibility and Non transferability - Epropriation - Discriminatory and Specific Change of Law (incl.ta) - Regulatory consent - Parastatal risks - Authority s default Operational risk - Input quantity, quality and continuity Revenue risk - Tariff adjustment breach - Project viability Network connectivity risk - Competing route & connectivity Revenue risk - Demand risk (Water BOT, Solid Waste BOT, Wastewater BOT, Electricity BOT, Mine-mouth BOT) Private Sector Shared Site risk (ground conditions-related) Design, construction and commissioning - Default by contractors and sub-contractors Operating risks - Output quantity and quality Political risk - General Change of Law Revenue risk Financial risks Sponsor risks - Default by the PC Force Majeure risk Interface risk - Disparity of the quality of the works Revenue risk - Demand risk (Full concession of Airport, Seaport) Revenue risk - Demand risk (Full concession and O&M for toll road, railway, airport sector) depends on who triggers the risk

220 219 PPP in Indonesia: Guideline