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Indonesia – Infrastructure Investment To Grow.

2 December, 2014

 

Legal News & Analysis – Asia Pacific – Indonesia – Energy & Project Finance

 

A man of the people who is affectionately known as Jokowi, President of Indonesia Joko Widodo came from a humble background and had to work during his primary school years to pay for his school materials. After graduating with a degree in forestry engineering, Jokowi was a property and furniture businessman. In 2005, he was elected Mayor of Surakarta, and in 2012, he was elected Governor of Jakarta. In both positions, Jokowi worked hard to establish direct connections with his electorate, regularly meeting with people—especially in the poorer districts—and listening to their criticisms of government and their requests for services. During these “blusukan” visits, he wore simple clothing and walked randomly along city lanes to chat with people about their problems.

 

In both Surakarta and Jakarta, Jokowi upgraded the selection process for bureaucrats, making it more competitive and transparent. In Jakarta, he introduced Indonesia’s first e-procurement system for government tendering, a system which supports transparency and accountability and reduces collusion and corruption. Also, Jokowi introduced housing and health insurance initiatives and upgraded public transport. In 2013, he initiated dredging and reservoir projects for Jakarta to reduce the city’s flood problems.

 

Jokowi is signalling that he will follow a similar agenda as President of Indonesia, focusing on the people’s needs, making the nation’s bureaucrats accountable and investing in transport and social infrastructure, especially in schools and hospitals. To achieve this, he is expected to turn to several powerful institutions that were established under his predecessor, President Susilo Bambang Yudhoyono.

 

President Yudhoyono’s government decided to prioritize infrastructure investment in order to accelerate economic growth in Indonesia. It formulated the National Medium‐Term Development Plan 2010–2014 (RPJMN) and the Masterplan for the Acceleration and Expansion of Indonesia’s Economic Development Plan (MP3EI 2011–2025). Under these plans, the Indonesian government set targets for infrastructure funding that to a large extent will be financed by the private sector, including through a public-private partnerships (PPP) scheme.

 

Three government-owned institutions established by President Yudhoyono’s government are anticipated to play a pivotal role in implementing PPP projects. The Indonesia Infrastructure Guarantee Fund (IIGF) was established to provide government guarantees to support infrastructure PPP projects. PT Sarana Multi Infrastruktur (SMI) was established to accelerate the supply of infrastructure financing through partnerships with banks and multilateral financial institutions by developing showcase PPP projects, assisting in their preparation and negotiation and providing advisory services for infrastructure projects. Finally, the Indonesian Infrastructure Fund (IIF) was formed as a private non-bank financial institution with a focus on investing in commercially feasible infrastructure projects to address the constraints on the flow of private investments in infrastructure. IIF has substantial support from multilateral banks and funding from the World Bank and the Asian Development Bank.

 

Observers anticipate that the RPJMN and MP3EI 2011–2025 masterplans largely will be implemented by the Jokowi administration. In the lead-up to his election, President Jokowi’s agenda included building 2,000 km of roads (including toll roads), 10 seaports, 10 airports and 5,000 traditional markets; establishing a bank especially for financing agriculture and infrastructure development; developing renewable energy; and developing science and techno parks in the regions. Also, recently, the government signalled that it will push ahead with two rail projects, each valued around USD 5bn, the rail link PPP between Jakarta City and the Soekarno Hatta international Airport and the 530-mile Japanese Shinkansen bullet train project from Jakarta to Bandung, Cirebon and Surabaya.

 

Geoffrey Grice of our Singapore office is working closely with Fadjar Kandar and local Indonesian law firm Kandar & Partners on a range of infrastructure and PPP projects. This coincides with a shift toward infrastructure investment in Indonesia and follows the election of Joko Widodo as President of Indonesia on 20 October 2014.

 

Duane Morris Selvam LLP

 

For further information, please contact:

 

Geoffrey Grice, Director, Duane Morris & Selvam

ggrice@duanemorrisselvam.com

 

Energy & Project Finance Law Firms in Indonesia

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