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Financing for infrastructure

2016-12-21 11:19:47

How can Indonesia ensure adequate funding for infrastructure projects?  This was one of the questions posed to panelists at the Ministry of Finance conference, Unlocking Public and Private Investment: Role of the Financial Sector, held on 8-9 December 2016. 

Panel moderator and AIPEG Facility Director, Mr David Nellor, noted that with limited space in Indonesia’s budget, a balance of public and private investment in infrastructure is needed.  Mr Robert Pakpahan, Director-General of Financing and Risk Management at the Ministry of Finance agreed.

Mr Pakpahan noted that the infrastructure projects under the Medium-Term Development Plan 2015?2019 have financing needs of around Rp 4,800 trillion (AUD 480 billion).  The government budget can only support around 40 percent of Indonesia’s infrastructure needs, leaving a large gap for alternative financing mechanisms. The Ministry of Finance is developing several financial facilities to attract more private participation, as well as increase the capacity of State Owned Enterprises in developing public infrastructure. 

At the session, participants also heard from Mr Chris Heathcote, Chief Executive Officer of the Global Infrastructure Hub. The Global Infrastructure Hub was set up under Australia’s G20 Presidency in 2014 to grow the global pipeline of quality, bankable infrastructure projects.

Mr Heathcote spoke of the role of both the government and private sector in financing public projects.  In particular, it is important to understand where each adds value – the private sector is not the answer to all infrastructure needs but it can play a valuable role as a financial contributor, asset owner or just expert adviser on infrastructure development.  For investors, a critical issue is equitable, and predictable risk sharing.  The private sector seeks clear regulatory frameworks and confidence in infrastructure as an asset class.

Standardising risk allocation, contracting and procurement can help speed up private sector participation, as well as setting targets which proved very effective in the United Kingdom. In a similar session, Mr Luca Tonello, Head of Project Finance from Sumitomo Mitsui Banking Corporation, echoed this sentiment, “investors do not like the novelty factor, once a framework is set up, replicate it”.

Mr Tonello noted that in Indonesia: overcoming complexity in approvals due to decentralization; greater certainty in land procurement (already improving); clarity about government support mechanisms; and standard documentation are key to unlocking private investment.

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