W

hen numerous governments work hard to lure investors for local infrastructure projects, private lenders find it difficult to pick suitable ones to finance.

“The biggest challenge the private sector faces is a lack of adequate bankable projects,” said Rajeev Kannan, structured finance general manager at major Japanese lender Sumitomo Mitsui Banking Corporation (SMBC).

Kannan said a long list of challenges, such as prolonged land procurement and overlapping regulations at the regional and national levels made infrastructure projects in emerging countries seem unattractive for lenders.

“There is enough appetite from banks, multilateral finance [institutions] and other sources of capital, but they are looking for the right bankable projects, the risks-mitigated projects,” he asserted in a panel discussion at the Islamic Development Bank (IDB) Group Private Sector Forum in Jakarta on Tuesday.

Kannan, who is also a commissioner of PT Indonesia Infrastructure Finance (IIF), was of the view that Indonesia had been highlighted as a country that needed significant capital to support infrastructure construction.

Established by the government in 2010 to finance big infrastructure projects, IIF alone has channeled more than US$400 million since 2012 and expects to disburse $700 million by the end of the year. The firm is 30 percent owned by the government, 20 percent by the International Finance Corporation (IFC), 20 percent by the Asian Development Bank (ADB), 15 percent by German investment corporation DEG and 15 percent by SMBC.

In a bid to boost economic growth to 7 percent by 2019 from 4.8 percent last year, Indonesia required approximately $460 billion in investments for infrastructure, Investment Coordinating Board (BKPM) deputy chairman for investment promotion Himawan Hariyoga cited the 2015-2019 National Mid-Term Development Plan (RPJMN).

Central government and local budgets could fund only around $230.08 billion, while state-owned enterprises (SOEs) had the ability to fund around $88.9 billion. “That leaves $141 billion of investment opportunities for the private sector,” Himawan said, “That’s why the government is very keen to attract investors.”

He admitted that land acquisition was the main challenge in attracting investment to the country, besides the license procurement process and financing.

The government has issued 12 economic policy packages since last year in a bid to spur business activity and boost the country’s economy, which slowed to a seven-year low in 2015. The policies include cutting red tape at the central government level and scrapping around 3,000 regional government regulations (Perda) that complicate business operations.

BKPM data show that realized investment reached a record high of Rp 146.5 trillion ($11 billion) from January to March this year. This includes $1.6 billion for infrastructure, according to Himawan. The sector booked $15 billion of realized investment last year, while total commitments since October 2014 reached $187.5 billion last week.

“It’s a matter of time for the commitments to be realized,” Himawan said, “It is our job to make it easy for committed investors to realize their plans.”