D

espite the importance of the public private partnership (PPP) scheme in developing major infrastructure projects in Indonesia, there were still many weaknesses in its implementation, a senior researcher said.

Indonesian Institute of Sciences (LIPI) senior researcher Latif Adam said in Jakarta on Thursday that overlapping regulations and a lack of commitment remained big problems in the development of infrastructure projects.

“There are still many regulations that overlap one another. For example, the geo-thermal law overlaps with the protected forest law. Geo-thermal resources are mostly located in forests while the forest law forbids exploitation within forest areas,” he said in a seminar on the outlook of Indonesia’s infrastructure development.

The lack of the government’s guarantee for the delay in infrastructure projects had also impeded PPP projects, he said.

“If a toll road project is protested against by the residents, it can be halted. It often takes place in infrastructure development, but investors cannot receive financial guarantees for the delay caused by such protests,” he added.

Such regulatory weaknesses and lack of commitment caused infrastructure development in Indonesia to remain inefficient despite a significant increase in the government’s spending on development projects within the last six years.

Latif said that from 2005 to 2011, the government had increased its spending on infrastructure projects by 25.5 percent a year. “However, the ratio of infrastructure spending to gross domestic product was still far below the ideal level of 5 percent,” he added.

In 2005, the government spent Rp 32.9 trillion on infrastructure development. This represented only 1.2 percent of the total gross domestic product that year. Six years later, the government spent Rp 141 trillion on infrastructure while the gross domestic product stood at Rp 6,840.4 trillion. This means that the ratio of infrastructure development in comparison to gross domestic product stood only at 2.1 percent in 2011. Latif also said that infrastructure development inefficiencies were mainly caused by three factors.

“First, the infrastructure budget realization process was very slow. As of September 2011, the budget utilization stood at only around 30 percent. Second, the budget proportion for physical development was very low. Most of the budget was utilized for paying consultants, planning, monitoring and project fees,” he said.

“Lastly, the government showed too much tolerance towards violations on regulations that supposedly aimed to maintain infrastructure quality,” he added.

The implications of inefficiency in infrastructure development eventually caused Indonesia to become less business friendly for investors.

“The cost of doing business here is very expensive. Companies in Indonesia spend at least 30 percent of their production costs on transportation. This is a much higher percentage compared to our competitors, such as China, in which companies only spend around 12 percent of their production cost on transportation,” Latif said.

To speed up infrastructure development, the government had taken several measures, such as issuing infrastructure bonds, conducting organizational development in order to monitor budget usage and optimizing cooperation with the private sector using the PPP scheme.

The government expects the PPP scheme to contribute Rp 407 trillion out of the Rp 1,429 trillion needed for the 2010-2014 Master Plan for Acceleration and Expansion of Indonesian Economic Growth (MP3EI) infrastructure development program. The rest of the program will be funded via the state budget and community development programs, each of which is expected to contribute Rp 511 trillion.

Meanwhile, state-owned infrastructure funding company PT Sarana Multi Infrastuktur (SMI) president director Emma Sri Martini said that the issue surrounding the PPP and infrastructure bureaucracy needed to be addressed as soon as possible so that funding could be disbursed immediately.

“Funding disbursements will not be a problem if the projects are ready for tender and everything about their requirements is clear,” she said at the same seminar.