Fulfilling infrastructure development needs innovation, whether from technological design or financing structures to guarantee funding and economic benefits from infrastructure projects.

This is because providing infrastructure for the sake of public needs has a lot of challenges, especially the limited development budget. Starting from preparation costs, construction, operations, to maintenance. Basically, the challenge is to ensure that the required infrastructure can be prepared, built, maintained and managed to meet public needs as much as possible.

Referring to the 2020-2024 National Medium Term Development Plan (RPJMN), the need for infrastructure financing for 2020 to 2024 is estimated to reach Rp 6,445 trillion, where the portion of government financing through the State Revenue and Expenditure Budget (APBN) is only 37 percent.

The infrastructure budget allocation in the 2024 APBN is Rp 422.7 trillion. This is an increase of 5.8 percent from the previous year's infrastructure budget, which amounted to Rp 399.6 trillion (2023 APBN outlook). The 2024 infrastructure budget allocation to encourage acceleration and equitable distribution of infrastructure is as follows:

Ministries/Agencies (K/L) spending amounted to Rp 213.7 trillion, which was directed towards the costs of building regional roads, building Ibu Kota Nusantara (the new capital city, IKN), renovating stadiums, and building educational and health facilities and infrastructure.

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Non-Ministerial/Agency spending, amounting to Rp 20.3 trillion, is directed towards regional infrastructure development, development of New Autonomous Regions (DOB), and supporting Government and Business Entity Cooperation (KPBU or PPP).

Regional Performance Allowance (TKD), which worth Rp 94.8 trillion was distributed to special allocation funds (DAK) for physical, infrastructure, and general allocation funds (DAU) for public works.

Lastly, Budget Financing amounting up to Rp 93.9 trillion is directed towards State Capital Participation (PMN) to BUMN or institutions in the infrastructure sector.

Even though the infrastructure budget allocation in the 2024 APBN is set at Rp 422.7 trillion, it is not enough to achieve equitable infrastructure development throughout Indonesia. The strategy to close the infrastructure financing gap is through a Public - Private Partnership (PPP) scheme.

A broad definition of PPP is a scheme for providing and financing infrastructure that involves private participation. This scheme for providing infrastructure services for the public interest is based on a contract between the government, represented by the Minister/Head of Institution/Regional Government/BUMN/BUMD, appointed as Person in Charge of Cooperation Projects (PJPK) and the private sector, taking into account the principle of risk sharing among parties.

This PPP is in line with the values of Indonesia, namely mutual cooperation. Thanks to the spirit of mutual cooperation through PPP financing, all elements of the nation are moving to help each other to strengthen national unity while building sustainable infrastructure throughout Indonesia. Apart from that, the PPP ensures that the APBN deficit is maintained and the debt ratio remains prudent in accordance with applicable laws.

In order to support the implementation of PPP in Indonesia, the government through the Ministry of Finance has provided various facilities and government support needed, including:

Firstly, Project Development Facility to prepare project documents that can be accepted by the market. Secondly, Viability Gap Fund (VGF) as a tool to increase the bankability of the project. Third, a Guarantee in order to increase the creditworthiness of the project. Lastly, Availability payment (AP) as a return on business entity investment originating from payments made by the Government (in this case the PJPK or ministers/institution heads/regional heads) periodically to private parties based on the availability of infrastructure services in accordance with the quality or criteria specified has been determined in the PPP agreement.

All of these facilities are provided in order to ensure that as much non-APBN funds as possible can be used for the development of infrastructure projects in Indonesia. In accordance with its function, each of the government support facilities referred to is expected to be able to answer the main concerns of PPP stakeholders (PJPK, Investors, Lenders) at each stage of infrastructure project development.

"During the implementation of the PPP, there have been many improvements. It took quite a long time for us to develop the ecosystem and its supporting instruments. As a result, as we have seen recently, we have developed various significant initiatives, such as the establishment of a regulatory framework, increasing the capacity of PPP stakeholders, including the PJPK, inter-institutional coordination has also been underway, and initiation as well as an increase of project implementation,” said the Director of Government Support Management and Infrastructure Financing, Brahmantio Isdijoso.

For the provision of project preparation facilities (PDF), in 2024 it has been planned as Rp 264.7 billion and will be used for: PDF funding needs for IKN PPP projects and to support the preparation of non-IKN PPP projects. This value includes the preparation of ongoing projects as well as new projects that will enter the pipeline. Meanwhile, the budget requirement to provide VGF support for PPP projects is estimated at Rp 6.9 billion.

Moreover, in order to improve the quality of infrastructure financing and encourage the participation of global investors and philanthropic funds, the Government has integrated Environmental, Social and Governance (ESG) factors into providing Government support for PPP projects. ESG has been implemented since 2022 through 10 standards consisting of four standards covering 11 environmental dimensions, four standards covering 11 social dimensions, and two standards covering six governance dimensions.

It is hoped that the implementation of this ESG policy can contribute to achieving SDG targets as well as guide stakeholders to pay attention to environmental, social and governance aspects in project implementation.

Source: The Finance Ministry

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