In its efforts to boost Indonesia’s infrastructure development, the government has signed a deal with Chinese infrastructure and energy firm Huaqing Housing Holding Co. Ltd. under an alternative scheme to finance projects with funds coming from outside of the state budget.

The government through the National Development Planning Board (Bappenas) signed on Monday a memorandum of understanding (MoU) with the Chinese company, which will be involved in the non-state budget infrastructure financing (PINA) scheme.

The plan would allow the Chinese firm, as a private investor, to inject funds in the form of equity through an intermediary to finance strategic and commercially viable infrastructure project across Indonesia.

The agreement was a follow-up of a number of high-level meetings between Indonesia and the Chinese government, said Wismana Adi Suryabrata, Bappenas undersecretary for facilities and infrastructure.

However, he declined to mention the exact value of the agreement as the government placed more emphasis on financing realization.

“Without investment realization, Bappenas will not hesitate to call off the MoU. We have signed a lot of MoUs that were not realized,” he said in his speech at Monday’s event.

Bappenas was currently compiling a list of potential projects to be offered to Huaqing, one of which was a toll project managed by Waskita Toll Road, said Ekoputro Adijayanto, a special advisor to the agency’s head.

PT Waskita Toll Road, a subsidiary of state-owned construction firm PT Waskita Karya, owns 305.27 kilometers of Trans-Java toll roads, among others.

In February, Waskita Toll Road received Rp 3.5 trillion (US$264.39 million) in equity under the PINA scheme, injected by state-owned infrastructure financing company PT Sarana Multi Infrastruktur (SMI) and state-owned pension insurance firm PT Taspen.

Huaqing CEO Chunyu Zhu expressed his commitment toward the agreement and hoped to realize its investment as soon as possible, particularly in infrastructure, housing and agriculture projects.

He said that the company already had the technology required to build affordable, high-quality houses that are able to withstand harsh weather and up to 9 magnitude earthquakes.

Zhu went further to say that the company would build 100 housing prototypes by the end of the year, adding that it was still discussing the location with Bappenas.

According to the government’s national medium-term development plan (RPJMN), Indonesia will need more than Rp 5 quadrillion worth of investments in priority infrastructure for the next five years.

Bappenas estimates that the state budget will be able to contribute 22 percent of that amount, while the remainder will come from other sources, including international loans and grants.

The PINA mechanism is expected to complement existing schemes for infrastructure financing with private-public partnerships (PPPs), such as viability gap funds (VGF) and availability payment (AP).

Under the PINA scheme, cash from pension funds, for instance, would be channeled into an intermediary that issues bonds. Proceeds from the bond sales would be used to buy equity in the companies executing the infrastructure projects.

Once the infrastructure is in operation, the intermediary would sell the equity.

The government’s targeted Rp 10 trillion total financing needs in infrastructure could be financed with the PINA scheme, particularly in constructing toll roads and power plants.

Bappenas’ Wismana said several power plant projects were in PINA’s pipeline and ready to be offered to foreign investors, including those from Australia, South Korea, Canada, the United States, the Netherlands and Japan, as they had expressed interest to get involved.

Currently, realized investment under the PINA scheme has reached Rp 5 trillion, Ekoputro said.

Other than the Rp 3.5 trillion that went into Waskita Toll Road, the government would finalize Rp 1.5 trillion worth of equity for Kertajati Airport in West Java by the end of this month, he said.

He added that province-owned enterprise PT Bandarudara Internasional Jawa Barat would inject equity for the airport’s construction.

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