T

he government'€™s plan to prepare a bill on an infrastructure financing agency to be proposed to the House of Representatives sometime next year, though necessary, is not the most imperative and urgent measure needed to accelerate infrastructure development under the public-private partnership (PPP) scheme.

Finance Minister Bambang Brodjonegoro last week again touted the idea of an infrastructure bank, arguing that commercial banks, which depend mostly on short-term funds, are not adequately resourced to meet the financing needs of basic infrastructure that has a very long gestation (payback) period.

But while his argument is basically right, the dearth of financing is not really the most pressing problem encountered by investors looking for opportunities in the infrastructure sector, as the country urgently needs to build hundreds of billions of dollars worth of new power plants, toll roads, seaports, airports and dams. The biggest hurdle is an acute lack of well-designed, commercially viable PPP projects supported with reliable feasibility studies and the virtual absence of a coordinating agency, such as a powerful PPP center.

Analysts and infrastructure investors who attended a global infrastructure leader forum here last week cited the urgent and  imperative need for strong national leadership to lead a PPP center in preparing viable infrastructure projects to be tendered to investors.

Most of the infrastructure projects in power generation and public transportation like railways and toll roads that have stalled for several years have been hindered by land acquisition problems and poor project designs, not by lack of financing deals. Moreover, the idea of an infrastructure bank Bambang has been tossing about over the past two weeks could take more than one year to realize because the process would start with the drafting of a bill, then deliberations at the House. Even if the House could approve the bill within a year, a series of government regulations would still have to be issued to facilitate the enforcement of the law.

Moreover, as Bambang explained, the process would also require the merger of two state companies '€” PT Sarana Multi Infrastruktur and the government wealth fund, Pusat Investasi Pemerintah. Even if the whole process could be completed within, say, 18 months and the state infrastructure bank received a one-time injection of big equity capital from the state budget, this new bank would still need to float bonds to strengthen its lending resources.

But how could this new financing agency issue bonds with high credit rating if there are not several commercially viable infrastructure projects already in its lending portfolio?

Infrastructure is one area where there are long-term income streams good for long-term investors. Returns from debts secured against real assets are also high. Hence, domestic and foreign funds from long-term investors, such as insurers and pension funds, as well as endowments and sovereign-wealth funds, would be interested in financing the massive infrastructure program by investing in the bonds issued by an infrastructure bank.

But still, the key prerequisite is the availability of well designed and commercially viable projects.