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s local administrations face limited regional budgets, the public-private partnership (PPP) scheme is seen as a helpful financing alternative amid the central government’s push for them to play bigger roles in developing infrastructure in their regions.

The Medan City Administration in North Sumatra felt the advantage of the PPP scheme, which now opened doors for the construction of the city’s first integrated light rail transit (LRT) and bus rapid transit (BRT).

“We previously had funding issues, while we have to accelerate [transportation] development in our city because traffic congestion, especially in Medan, is getting worse as time goes on,” Medan Mayor Dzulmi Eldin said recently.

Under the PPP scheme, at least 10 domestic and foreign investors, such as Singapore, South Korea, Japan and China, were lining up to participate in the project, which was worth around Rp 6 trillion (US$443.4 million), Dzulmi said.

The project has reached the financial close and the administration will start the bidding process, with its construction expected to start in 2019 before being beginning operation two years later.

President Joko “Jokowi” Widodo’s administration will need at least Rp 4.769 quadrillion worth of funds to develop infrastructure nationwide during its tenure from 2014 to 2019.

The combined budget of central and local governments can only finance 41 percent of the total amount needed, leaving the remaining 22 percent and 37 percent to state-owned enterprises (SOEs) and the PPP scheme, respectively.

The Finance Ministry has committed to providing various financing facilities and government support for the PPP scheme, which includes project development facilities (PDFs), viability gap funds, availability payments and guarantees in terms of political and regulatory support.

Aside from partnering with the private sector, the central government also works with its local counterparts and state-owned infrastructure financing firms, namely PT Sarana Multi Infrastruktur (SMI) and PT Pembiayaan Infrastruktur Indonesia (PII).

The scheme allows local administrations to cooperate with the private sector to develop infrastructure based on a principle called the “optimum allocation of risks,” in which risks of the projects are shared fairly between the government and the private sector.

South Tangerang in Banten is another example in which the PPP scheme helps ease local officials in implementing regulations for incoming investments.

“I’m sure that many investors want to invest in various regions, but tangled regulations often hamper them, forcing them to coordinate first with ministries, institutions and other administrations,” said South Tangerang Mayor Airin Rachmi Diany.

“I hope the PPP scheme can cut the bureaucracy red tape [...] and allow the transfer of knowledge [from private firms to local administrations], so that we can think out of the box.”

During a recent meeting with local government heads, Finance Minister Sri Mulyani Indrawati said the PPP scheme offered an opportunity in which the private sector could bring business discipline, governance as well as finance and project management, aside from mere money to invest.

According to the ministry’s data, water and waste management, sea and airport development as well as construction of penitentiaries can be carried out through the PPP scheme.

The Asian Development Bank (ADB) suggested in its report that the government carry out necessary reforms that could lure private investment, such as streamlining procurement and bidding processes for the PPP, introducing a dispute resolution mechanism and generating a pipeline of bankable projects under the scheme.

However, uncertainty on financing commitment from the private sector, unpreparedness in land acquisition for the projects as well as unharmonious regulations were among main issues hampering the efficacy of the PPP scheme, said economist Eric Sugandi.

Eric suggested that the central and local governments carefully comb potential investors before working with them, as well as improve the licensing process, bureaucracy and land acquisition procedures.