Coordinating Ministry for Economic AffairsThe Republic of Indonesia

Seoul, September, 2007

Bambang SusantonoDeputy Minister for Infrastructure and Regional Development

Investment Needs for Infrastructure in Indonesia

Government’s ability has been limited by budgetary constraints.

Current economic circumstances dictate the need to resort to private sector participation

Infrastructure Annual Investment Needs 2005-2010

Average Annual Investment Needs

(US$ 22 billion)

7 – 8 % of

GDPAverage Central and Local GovernmentBudget Allocation (US$ 4.2 billion)

Annual Funding Gap (US$ 17.8 billion and will be filled by Private Sector)

4 – 5 %Of

GDP

3 %Of GDP

Indonesia : Macroeconomic OutlookEconomic Growth

2000-2003

3- 4 %

4 - 5 %5.48 %

6.8%

% Change in GDP

2004-2005 2006 2007- 2008

6.3 %

0%15%

30%45%

60%75%

2003 2004 2005 2006 2007

Public Debt Ratio

% of GDPDomestic

External

**) based on RAPBN 2008*) based on RAPBN-P 2007

4

Policy Packages 2006

InvestmentClimate

Improvement

Infrastructure

Financial

1 Investment Law & Procedure

2 Tax & Custom Reform

3 Labor & Immigration

4 Trade Licenses

5 Cross Sector Strategic Policy Reform

6 Sector Restructuring, Corporatisation and Policy Reform

7 Regulation on natural monopoly & investment protection

9 Coordination Monetary & Fiscal Authority

10 Financial Institution (Banking & Non Banking)

11 Capital Market and SOE Privatization

8 Clear separation on the role of policy maker, regulator, contracting agency, and operator

Presidential Instruction (Inpres) 6/2007

• As a continuation or carry over from the policy package 2006 on various areas such as:

• Investment Climate Policy Package;• Infrastructure Policy Package; • Finance Policy Package

• Additional focus in 2007 is a Small-Medium Scale Enterprises Policy Package

• Consist of various mid and long term programs and policies that should be completed by end of 2007

6

KKPPI - National Committee on Accelerating Infrastructure ProvisionPresidential Regulation No. 42/2005

Tasks1.To formulate strategies

on the coordination for acceleration of infrastructure provision

2.To coordinate and monitor the implementation of policies for Infrastructure provision in the various ministries and local government

3.To formulate policies on the implementation of Public Service Obligation on the infrastructure provision

4.To determine efforts required to solve various issues relating to infrastructure development

ChairmanCoordinating Minister for Economic Affairs

Executive ChairmanState Minister of National Planning –

Head of Bappenas

Secretariat

1st Secretary

2nd Secretary

Board of Member

Minister of

Finance

Minister ofPublic Works, Minister of

Transportation, Minister of MEMR, Minister of Communication

CIIF R&D PPP Center

Risk Management

Unit

Communication P3 Nodes

Deputy for Infrastructure & Regional Devt, CMEA

Deputy for Infrastructure, Bappenas

Secretary of Cabinet

Minister ofSOE

Minister ofHome Affairs

7

Modes

of Cooperation

PPP Framework - Presidential Regulation No. 67/2005

Provides a clear and sound framework for the preparation and contracting of PPP projects;

As a replacement of previous Presidential Decree No. 7 / 1998;

Basic principles of competition, transparency, accountability and fairness

Perpres 67/2005, issued on 9 November, 2005, defines the cross-sector regulatory framework for the private provision of infrastructure

Public – Private PartnershipBusinesses License

ProcurementCompetitive basisUnsolicited project

Proper

Due Diligence

Consistency with medium term national planConsistency with spatial planAssessment with regional infrastructure

development plan

Project SettingPreparation DocumentProject Prioritization

Tariff & SubsidySetting & Adjustment tariffCompensation level for economic & social project

Government

SupportRisk Allocation FrameworkAdmission of Fiscal Support

Operation Guideline

& Manual (OGM)

8

Risk Management FrameworkMinister of Finance Regulation No. PMK 38/2006

Government is willing to bear or share, namely certain types of political, project performance, and demand risks;

Government could consider some types of contingent support, and provide criteria to be used in deciding the form and amount of Government support;

Government has provide the procedures to be followed in evaluating and responding to requests for Government support, including making the needed budgetary provision;

Requirements for monitoring and reporting on the evolution of project risks. Fiscal support is admissible:

Fiscal support must be affordable;

Annual quota for fiscal support will be variable, depending on the country’s fiscal position

Ministries / Non Ministerial

Agencies

Contracting Agencies

SOE

KKPPISecretariat

P3 Center

KKPPI

RiskManagement

Unit

MinisterOf

Finance

Propose forGovt Support

Eligibility & Priority *) Risk Allocation&

Fiscal Risk

DecisionOn

Govt Support

*) CMEA Regulation No. 4/2006 MoF Regulation No. PMK 38/2006

9

Infrastructure Sector Policy Highlight

Road & Toll Road Water & Sanitation

New Road Law Law No. 38/2004

GR on toll road GR No.15/2005

Law on Water Resources

Law No.7/2004

GR on Supply GR No.16/2005

Telecommunication

Interconnection regulation

MCI regulation No. 8/2006

Regulation on Retain Revenue

GR No. 28/2005

Energy & Power

GR on electricity procurement & utilization

GR No. 3/2005

Establishment New Electricity Law

Submitted to parliament

New Energy Law Law no 30/2007

Transportation

New Rail Transport Law

Law no 23/2007

Draft new laws on sea, air, and land transport

Submitted to parliament

Land & Government Investment

New Land Acquisition Law

Presidential Regulation No.36/2005 & No.65/2006, Per Ka BPN 3/2007

New Government Investment Regulation

Government Regulation No. 8/2007

10

Infrastructure Fund, Land Acquisition Fund, and Guarantee Fund

Land Acquisition Fund Provision government seeds of capital in the form of

revolving fund to finance land acquisition

Badan Layanan Umum, Public Service Agency as a unit within Toll Road Regulatory Body (BPJT) will run the service

Guarantee Fund To reduce the cost of finance to infrastructure projects in Indonesia

A commercially-managed fund to be able more flexible and responsive, while following best commercial practice

The RMU is in charge in designing the concept, including setting up the legal vehicle, identification of assets, obtaining technical assistance, and procuring management fund.

Infrastructure FundAs an alternative sources of fund for infrastructure financing

To attract different sources of capital : Bilateral/multilateral, domestic capital market, private equity fund,etc

Establishment a financial institution within MOF – work is on going

Seed capital from state budget has been set aside and will be enhanced gradually over time

Project Preparation

Project Biddings

Construction

Operation

Key elements to attract private participation (provisional until Indonesia becomes investment grade)

Important as a complement to mobilize additional capital (will expand after investment grade)

11

Creation of PPP Network

PPP Center under KKPPI Secretariat

Centralized capacity to coordinate, consolidate, and enhance public-private transactions;

Provide a strategic infrastructure development plan and a road map for investment;

Provide Best Practice Guidelines for PPP transactions;

Create and manage a Project Development Facility;

Networking and coordinating with the Ministerial PPP Nodes;

Study Independent Regulatory Body to dismantle dual function of SOEs.

KKPPI

Secretariat

PPP Center

RiskManagement

Unit

PPP Nodes

MoF

Line Ministry

MoF Regulation No.PMK 38/2006

Risk Management Unit

PPP Nodes

Permenko 01/M.EKON/05/2006

12

Future

P3 UnitMPW

P3 UnitMOC

P3 UnitMEMR

P3 Centre (CMEA,BAPPENAS, MOF)

SOE LOC GOVT

BKPM

P3 UnitMin

Com & INfo

Now

P3 UnitMPW

P3 UnitMOC

P3 UnitMEMR

P3 UnitCMEA

P3 UnitBAPPENAS

P3 UnitMOF

Public-Private Partnership Network (P3 Network)

13

Infrastructure : Project Development Facilities (PDF)

Project ProposalFrom Local Government

Project Tender

FS

PDF Support for PPP Project Preparation

Project Development Facilities aims to improve the quality of project preparation which will be executed using the Private Public Partnership (PPP)

Approved byTechnical Ministries

KKPPI List of priority project

BappenasApproval for PDF allocation

Tender prep

Negotia-tion

Implemen-tation

Increasing Local Government Contribution:FS: 25% ; Tender prep: 50%; Negotiation: 75%

Decreasing PDF Support:FS: 75% ; Tender prep: 50%; Negotiation: 25%

14

Status of 91 Projects offered in Indonesia Infrastructure Summit 2005

Sector Planning Preparation to PrequalificationRequest for PQ,

PQ & Request for Proposal

Award & Concession Agreement

Construction Operation TOTAL

Electricity / Power Plant 1 5 4 2 - - 12

6

10

24

38

1

91

Gas Pipeline - 3 - 3 - -

Transportation 5 3 - - 2 -

Drinking Water 17 2 1 1 2 1

Toll Road 7 4 3 20 4 -

Telecommunication 1 - - - - -

TOTAL 31 17 8 26 8 1

15

10 Model Projects

Sector Project SpecificationInvestment Cost (USD

Miilion)Status

Margagiri -Ketapang Ferry Terminal

1.2 mil pax/year

350 m berth

177.12 km

16 km

900 l/s

450 l/s

500 l/s

500 MW

600 MW

30,000 km fibreoptic network

Transportation

Recruitment of consultant for preparing tender document

Lamong Bay Container Port (Ext of Tanjung Perak)

95.0

179.0

870.0

167.0

33.7

30.7

44.0

275

1200

Feasibilty and Legal studies are still ongoing

Solo – Kertosono Negotiation with the preferred qualified winner

Medan - Kualanamu Preparation for market sounding

Tangerang Water Supply

Selection process

1,500

Bandung Water Supply

Tender document & concession preparationWater Supply

Dumai Water Supply

Tender document & concession agreement preparation.

Pasuruan Gas supply study is still on going

PowerCentral Java Coal Fired

Finalization agreement with IFC

TelecommunicationPalapa Ring Finalization of business model

Toll Road

Coordinating Ministry For Economic Affairs - 200716

Infrastructure Priority Action Plan 2007

RegulatoryFramework

1. Acceleration of amendment of Transport Laws (MoT):Sea, Air, and Land Transport

2. Acceleration of amendment of Electricity Law (MEMR)

Project Preparation1. 10 Model Project Execution2. Operationalization of Project Development Facility

(Bappenas)

GovernmentSupport

1. Implementation of Infrastructure Fund (MoF)2. Implementation of Guarantee Fund (MoF)3. Implementation of Land Acquisition Fund (BLU MPW)

Institutional

1. Regular Communication with stakeholders: chief editorsmeeting, KADIN, foreign chamber of commerce, investmentclimate working groups and other stakeholders

2. Strengthening of KKPPI Secretariat, P3 Center and P3 Nodes3. Capacity Building of Executing Agencies (line ministries

and agencies)

Coordinating Ministry For Economic Affairs - 200717

Coordinating Ministry for Economic AffairsRepublic of Indonesia

Korea, October 2007

Investment Needs for Infrastructure in IndonesiaPresidential Instruction (Inpres) 6/2007Risk Management Framework�Minister of Finance Regulation No. PMK 38/2006Infrastructure Sector Policy HighlightCreation of PPP NetworkFuture10 Model Projects