Indonesia has secured US$140 million in investment from the ADB to support the development of infrastructure projects.
The Asian Development Bank said Wednesday that these investment funds will go to the government-backed Indonesian Infrastructure Financing Facility (IIFF) to support “urgent” infrastructure development in Indonesia, adding that infrastructure is highly important to boost the economy.
IIFF is expected to start operations in May, with 30 percent of the stakes contributed by the government and the rest coming from the World Bank, ADB and other international financial institutions.
IIFF will provide financial assistance in the form of long-term debt instruments, equity, or guarantees for infrastructure projects. It aims to attract a multiplier of up to six or seven times its original capital base from private-sector investment to help fund infrastructure projects.
“There is a huge gap between needed infrastructure investment and the available financing. That has significantly constrained the expansion of crucial infrastructure in Indonesia; this project is expected to help close the gap,” said Arjun Thapan, the director general of ADB’s Southeast Asia Department.
ADB’s investment will comprise up to $40 million for a 20 percent equity stake in IIFF and a 25-year loan of up to $100 million to the government-sanctioned infrastructure holding company PT Sarana Multi Infrastruktur (SMI).
SMI will then re-lend the loan to IIFF as subordinated debt. The loan will have a grace period of five years.
“IIFF will finance commercially viable infrastructure projects by offering long-term financing and by providing the intellectual capital needed to catalyze public-private partnerships,” said Philip Erquiaga, the director general of ADB’s Private Sector Operations Department.
“By limiting its exposure to 20 percent of the cost of any project, IIFF is expected to finance up to $5.5 billion of projects in its first five years of operations,” he added.
Dedy S. Priyatna, the deputy minister for infrastructure at the National Development Planning Agency (Bappenas), said earlier Indonesia had also secured $100 million in loans from the World Bank.
He expected the Japan Bank for International Cooperation (JBIC) would also inject another $100 million in loans to add to the capitalization of IIFF.
Without these loans, IIFF would have “too small” a critical mass in terms of capital base to fund essential infrastructure projects, he said.
Indonesia needs a total of Rp 1,429 trillion ($123 billion) for infrastructure projects up until 2014. The government can only provide a maximum of Rp 451 trillion with the rest from public-private partnerships.
Power outages, transportation bottlenecks and other critical infrastructure shortages are considered to be holding back economic growth and poverty reduction in Indonesia, but private-sector investment has been low due to the lack of long-term financing from banks or through the capital market, ADB said.
