Improving Creditworthiness and Project Quality in Ensuring The Implementation of Government-Business Infrastructure Project Muhammad Wahid Sutopo Executive Business Director PlanoCosmo, ITB Bandung, 2 April 2018 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 2018 www.iigf.co.id
Agenda 1 Challenges in Attracting Private Financing for Infrastructure Project: Creditworthiness and Risk Associated to Government 2 Addressing Infrastructure Project s Creditworthiness with PPP and Government Support 3 IIGF s Government Guarantee: The Mechanic for Creditworthiness 4 IIGF Role in Enhancing Infrastructure Project Quality through PPP 5 IIGF Projects Lessons Learned 2018 PT Penjaminan Infrastruktur Indonesia (Persero)
Challenges in Attracting Private Financing for Infrastructure Project: Creditworthiness and Risk Associated to Government 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 3
Current & Needs Gap Indonesia s Infrastructure Need: Closing the Gap Closing Infrastructure Gap to bolster Competitiveness ASEAN Infrastructure Investment Gap Infrastructure Quality Rank 1.8 1.6 1.4 1.2 1.6 1.7 1.80 1.60 1.40 1.20 Country Rank 17/18 Rank 16/17 Singapore 2 2 Malaysia 22 24 Thailand 43 49 Indonesia 52 60 Brunei 60 78 Vietnam 79 79 1 0.94 0.95 0.89 1.00 Source: The Global Competitiveness Report 2016-2017 0.8 0.80 0.6 0.4 0.2 0 0.61 0.49 0.5 0.5 0.46 0.43 0.38 0.39 0.37 0.31 0.28 0.23 0.25 0.16 0.11 0.09 0.05 0.06 0.02 0.08 0.12 0.10 0.07 0.11 0.10 0.01 0.03 Singapore Malaysia Myanmar Thailand Philippines Cambodia Vietnam Indonesia Current Investment Investment Need GDP Gap 0.60 0.40 0.20 - Currently with the largest GDP and population in ASEAN, Indonesia needs to develop its infrastructure stock and quality to secure Indonesia s GDP steady growth and to stay competitive in ASEAN market. 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 4
INFRASTRUCTURE NEEDS (2015 2019) Financing Indonesia s Infrastructure Need Shifting from Public Budget to Private Investment with PPP Sector US$ Bio FINANCING SOURCE PLAN Road 54.7 Railway 16.86 Air Transport 10.75 Sea Transport 44.12 STATE BUDGET $ 147.7 Bio 1 41,3% Realized & Allocation: 2015: $ 19.1 Bio 2016: $ 23,7 Bio 2017: $ 28.9 Bio Gap to 2019: $ 76 Bio Water Resources 33.65 Housing 24.44 Urban Transport 6.42 Land Transport (incl Ferry) 3.5 Power 74.6 SOE $ 79.6 Bio 2 22,2% Include Equity Injection to SOE from Government budget allocation Energy 37.8 Waste Management 30.07 ICT 20.9 TOTAL 358 PRIVATE $ 130.7 Bio 3 36,5% Promoting Public Private Partnership (PPP) With expected USD 358 billion need and increasing state budget gap, GoI would rely on the private investment to close the gap by promoting Public Private Partnership (PPP) scheme 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 5
Investment target 2015-2019 Indonesia s Infrastructure Need & Financing GoI s Fiscal Policy and Support Available for Private Investment through PPP scheme APBN/ APBD 41.3% SOE US$ 80 Bn US$ 148 Bn 22.2% Private Sector US$ 131 Bn 36.5% Closing the GAP Fiscal tools for PPP Scheme 1. Project Development Fund 2. Viability Gap Funding 3. Availability Payment 4. Guarantee 5. Infrastructure Financing 6. Land Acquisition Support US$ 358 Bn 225 National Strategic Project 30 National Priority Project Social Infrastructure Project Others 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 6
Creditworthiness: Lender s Perspective How Lenders asses creditworthiness of project based on 5 Creditworthiness Critera CAPACITY Will revenue from the project be enough to repay the loan instalment by itself? Will the user pay for usage of the service? Will there be any payment from the government/ca? Does the CA has the fiscal capacity to perform the payment? Is there any government support available? CONDITIONS What critical conditions that the project will face during the project cycle? Is there any environmental or social condition that may influence the project? What is the condition of the project industry? How is the economic condition? Can the user afford to pay for the infrastructure service? CAPITAL Will the project investor have sufficient capital to invest into the project? Does the investor has technical and managerial capacity to CHARACTER Who s key person behind the investor? Does the investor have sufficient expertise and track record to develop and manage such project? Who s key influential person within the CA? COLLATERAL If there is payment from government to investor, will there be guarantee to secure loan payment to lenders? What kind of risk will be covered under the guarantee? What happen if the government terminate the contract? Can the project asset become collateral/security for the loan? 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 7
Addressing Infrastructure Project s Creditworthiness with PPP and Government Support 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 8
Improving Creditworthiness of Infrastructure Project How GoI s policies and supports addressing the issues Lack of Financial Feasibility Some PPP projects has often lack of financial feasibility, nevertheless with high economic/social benefit for the public such as social infrastructure (hospital, education, university etc) High Risk & High Cost of Financing Investor view potential high risk for contract/concession termination due to change of regime/government especially in municipalities level Uncertainty in regulatory and permit issuance Coordination issue between line Ministries and CAs Lenders view the political risk may interrupt repayment of their loans to investor especially if there is scheduled payment liability from the government to investor. Lack of Rating for CAs For PPP project developed by municipal government as CA, investor often has difficulties in assessing the repayment risk and political risk due to lack of municipal credit rating 2018 PT Penjaminan Infrastruktur Indonesia (Persero) Viability Gap Fund (VGF) When project is not financially feasible nevertheless is economically viable, GoI through MoF provide VGF covering of up to 49% of project investment cost, to close project feasibility gap to a level of investor will accept. Availability Payment (AP) scheme For certain project of which revenue from user could not cover sufficient repayment or where user demand is limited, CA will assume the repayment of private investment using CA budget during the concession period. AP scheme allows CA to pay in instalments to private for its infrastructure service delivery to the public. Government Guarantee through IIGF IIGF, an SOE under MoF, is mandated as Single Window provider of Government Guarantee for national PPP project. IIGF guarantee cover financial liability of the CAs under PPP agreement with coverage for risks: Termination risk, Gov. payment risk (Availability Payment), and other Risk from Government. IIGF only provide guarantee for Feasible projects. IIGF is also rated BBB (sovereign rating) by Fitch effectively increase rating of any projects developed by CAs with IIGF guarantee regardless 9
Government Support for Infrastructure Facilities and entity available to support PPP Projects in Indonesia Project Preparation Bidding Process Project Construction Facilities Project Development Facility Viability Gap Funding Availability Payment Guarantee Fund Land Acquisition Financing Managing Entity KPPIP/CAPID, PT SMI and PT IIF, Ministry of Finance Ministry of Finance (GCA Request) Ministry of Finance Ministry of Agrarian and Land Spatial ; LMAN PT SMI 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 10
IIGF s Government Guarantee: The Mechanic for Creditworthiness 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 11
IIGF Overview PT. PII COMPANY Mandate Portfolio Regulation 100% Owned by Government of Indonesia Under direct supervision of the MoF Formed as a State-Owned Enterprise (SOE) as a Single Window in providing guarantees for infrastructure projects Providing Government guarantees for infrastructure projects. Providing support and assistance for infrastructure project preparation and transaction Provides guarantees for 16 PPP projects with total projects value of Rp176 trillion Aiming for Rp210 trillion guarantee project value by end 2018 Presidential Regulation No. 38/2015 Presidential Regulation No. 78/2010 Ministry of Finance Regulation No. 8/PMK.08/ 2016 amending MoF Regulation No.260/PMK.011/2010 2018 PT Penjaminan Infrastruktur Indonesia (Persero)
Why IIGF s Guarantee? SAFEGUARD IIGF guarantee to ensure the continuation of the project through a careful analysis of safeguard. RISK IIGF guarantee process will ensure fair risk allocation between government and private investor and implement clear risk mitigation (Mirroring World Bank Safeguard Policy) As written in IIGF Operation Manual BANKABILITY IIGF Guarantee to provide more comfort for financier to support the project, thus reducing the cost of fund for project financing. VALUE PROPOSITION TRANSPARENCY IIGF guarantee will increase the project credibility to the bidders thus increasing bidding competition resulting the most optimal project investment ACCOUNTABILITY IIGF guarantee provision process can be verified ensuring project accountability. 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 13
IIGF s Role in Speeding Up National Infrastructure IIGF play strategic role in providing solutions and assistance for stakeholders PPP Guarantee IIGF guarantees the performance of the Contracting Agencies under PPP Agreement, aimed at improving the bankability/creditworthiness of the projects to attract more private investments Capacity Building IIGF provides PPP Capacity Building program for project key stakeholders (officers, regional leaders, lawmakers etc) to enable them in planning and preparing PPP project. The program is jointly organized by IIGF Institute and Indonesia PPP Office (located in the premise of IIGF) IIGF helps CA s to develop comprehensive and measurable PPP project development process through IIGF s professional and advisory service under the assignment of Ministry of Finance 14 Project Development Advisory 2018 PT Penjaminan Infrastruktur Indonesia (Persero)
IIGF s Capacity and Performance IIGF is professionally managed with guarantee capacity backed up by Ministry of Finance 22X LEVERAGING RATIO Rp36T GUARANTEE COVERAGE +227 bps FUND MANAGEMENT 0 Potential (State) Loss 82,6 GCG SCORE Rp178.9 T Gearing Ratio of 3.47X Rp705 B BPK BPKP Value of projects guaranteed compares to equity Guarantee coverage compares to equity Investment rate of return over 6 months treasury yield (SPN) All recommendations from Supreme State Auditors (BPK) had been fulfilled Awarded Good attribute for GCG Practices 2018 PT Penjaminan Infrastruktur Indonesia (Persero)
IIGF Guarantee Coverage Typical Risk Covered under IIGF guarantee across PPP project cycle Pre-construction Construction Operation Payment risk Tariff adjustment risk Discriminatory change in law (project specific) Delays in necessary approval (Early) termination by government Land acquisition Project s Budget approval 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 16
IIGF Guarantee Business Model Lender/ Creditor Sponsor Debt Equity Contracting Agency (Ministry/Agency Provincial/Municipal Government) PPP Agreement SPV/ Implementation Entity Guarantee Application Risk Mitigation Plan Recourse Agreement Guarantee Agreement Ministry of Finance Guarantee Regulation Equity Co-Guarantee Liquidity Facility Multilateral Agency Counter Guarantee 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 17
19 Infrastructure Sectors supported by IIGF Guarantee According to Presidential Regulation no 35 year 2015 on PPP 18 Sport Facility Health Industrial Estate Transportation Public Housing Correctional Facility Urban Facility Tourism Energy Conservation Roads Electricity Water & Irrigation Drinking Water Telecommunication Waste Education Sewage Treatment Sewage Treatment (Centralized) (Local) Oil & Gas Renewable Energy 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 18
PPP Modality/Schemes IIGF provides guarantee for both schemes 19 PPP Scheme FLOW OF SERVICE & REVENUE RISK ALLOCATION - Demand USER PAY e.g. Toll Road (BOT Scheme) Implementing Entity Service Tariff Users On Private (Projects with commercial risks profile) GCA AVAILABILITY PAYMENT e.g. Regional Hospital AP Implementing Entity Tariff On Public (Project with sub-commercial risk profile) Service Users 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 19
IIGF Role in Enhancing Infrastructure Project Quality through PPP 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 20
IIGF Solution in PPP Project Cycle IIGF provide assistance to CA s from planning to transaction to ensure quality project preparation PLANNING PREPARATION TRANSACTION OPERATION Project Development Facility MoF PQ RfP Bid Award Fin. Close IIGF Support for CA s Project Identification and Assesment for PPP Preliminary Study Capacity Building Outline Business Case (OBC) Final Business Case (FBC) Alokasi & Rencana Mitigasi Risiko Capacity Building for Preparation & Transaction Stages Bid preparation Negotiation Lenders coordinati on Assistance and Risk Mitigation Framework for the CA s IIGF Guarantee Project Screening for Guarantee Underwriting Guarantee Agreement Process Guarantee Monitoring Guarantee Consultation Appraisal 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 21
Better in Governance with PPP and IIGF Guarantee IIGF Promote Governance in Project Process Improving Project Quality Public & Market Consultation Transaction Advisory & Probity Local Parliament Oversight Appraisal and monitoring Audit oversight & GCG Practices PPP PPP PPP IIGF IIGF Allows for stakeholder oversight and project transparency. Allowing investor to prepare for project Help to better prepare for the bidding and selection and ensuring compliance by independent party PPP Scheme requires consent from the local parliament for subnational PPP projects Ensuring compliance, environmental and social impact and project sustainability Fully complied with BPK (Government Accountability Office) and yearly GCG review ASEAN RISK Awards and Best SOE Under MoF Award 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 22
Comprehensive Set of Regulation Provide Foundation for PPP and IIGF Guarantee PRESIDENTIAL DECREE NO 38 YEAR 2015 AVAILABILITY PAYMENT MINISTER OF PLANNING REGULATION NO 4/2015 GOVERNMENT GUARANTEE MOF REGULATION NO 260 YEAR 2016 Decree on Public Private Partnership format and mechanics Regulation on the mechanics of project planning and preparation; including the selection, screening and preparation of outline and final business case Governmental Decree no 78 year 2010 governing the establishment of Guaranteeing Entity/IIGF and its mechanics MoF Regulation NO 260 Governing the support of MoF in the form of Project Development and Viability Gap Fund MOF Regulation no 260/2016 Minister of Home Affair Regulation no 96/2016 for AP by Local Government 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 23
PPP Joint Office Government of Indonesia Collaboration of key Ministries and IIGF for PPP project acceleration and debottlenecking PPP Office members Relevant Stakeholders NATIONAL DEVELOPMENT & PLANNING AGENCY (BAPPENAS) PRIVATE SECTOR IIGF GOVERNMENT CONTRACTING AGENCY MINISTRY OF FINANCE INDONESIA INVESTMENT COORDINATING BOARD NATIONAL PUBLIC (BKPM) PROCUREMENT AGENCY (LKPP) INVESTOR, BANK & MULTILATERAL AGENCY COORDINATING MINISTRY OF ECONOMICS (CME) MINISTRY OF HOME AFFAIR 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 24
PPP Joint Office Government of Indonesia Support from PPP Joint Office members available for PPP projects and stakeholders 1 Publication BKPM; Co-PIC: IIGF 9 Monitoring & Evaluation (Monev) MoF, IIGF 2 Consultation Bappenas, Ministry of Home Affairs & IIGF 8 Debottlenecking & Coordination Coord. Ministry of Economic 3 Capacity Building IIGF 4 Initial Study Guidance Bappenas 5 OBC Facilitation Bappenas; CMEA; BKPM Transaction Guidance LKPP 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 25 6 7 FBC & Project Development Facility Ministry of Finance Secretariat Address: PPP Joint Office Capital Place, 8 th Floor Jalan Gatot Subroto Jakarta (IIGF S office)
IIGF Projects - Lessons Learned 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 26
Indonesia PPP Project with IIGF Guarantee 15 PPP Infrastructure Projects in 4 sectors valued USD 8,6 billion with IIGF guarantee of USD 3.6 bio TOLL ROAD SER-PAN 83,9 KM USD 395* Million WATER LAMPUNG CITY 750 Lt/second USD 80 Million PALAPA RING WEST 1980 KM USD 95 Million PALAPA RING CENTRAL 2647 KM USD, 103 Million TOLL ROAD MANADO BITUNG 39 KM USD 254 Million PALAPA RING EAST 8454 KM USD 380 Million TOLL ROAD JAK-PEK II 36,4 KM USD 1,09 Billion TOLL ROAD CISUMDAWU 60,27 KM USD610 Million TOLL ROAD BAT-SEM 75 KM USD 820 Million CENTRAL JAVA POWER PLANT 2 x 1000 MW USD 3,1 Billion TOL ROAD PAN-MAL 38 KM USD 418 Million WATER UMBULAN 4000 Lt/second USD TOLL ROAD KR-LG-BU-MN 38,2 KM TOLL ROAD BAL-SAM 98 KM Billion 2018 PT Penjaminan Infrastruktur Indonesia (Persero) 27 157 Million USD 673 Million USD 455 Million TOLL ROAD Probowangi 172,9 KM USD 1.5 *est.project value in USD
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