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Jakarta Post

Ministry, SOEs agree to $67.3m road upkeep deal

Mardika Parama (The Jakarta Post)
Jakarta
Fri, August 7, 2020

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Ministry, SOEs agree to $67.3m road upkeep deal

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he Public Works and Housing Ministry agreed on Monday to a public-private partnership (PPP) on road preservation in South Sumatra’s eastern road network. The deal is worth Rp 982 billion (US$67.3 million) and is the ministry's first PPP deal for a non-toll road project.

Through the agreement, state-owned construction companies PT Adhi Karya and PT Brantas Abipraya secured a 15-year concession for the operation and preservation of South Sumatra’s 29.8 kilometers of roads under an availability payment scheme.

Availability payment is a fee structure where a public agency makes periodic payments to the private sector to provide infrastructure services of a specified standard. It is seen as a cost-saving way to develop infrastructure and ensure its quality.

Public Works and Housing Minister Basuki Hadimuljono said he hoped the PPP scheme would boost the reliability of contractors and the quality of roads, after the poor performance of a contractor on the ministry's West Sumatra eastern road network.

“We aim to provide good infrastructure quality for economic activity,” he said in an online press briefing on Monday, adding that the PPP scheme was expected to improve transparency.

The National Development Planning Agency (Bappenas) has estimated that the country will require $429.7 billion in infrastructure investment, equal to 6.1 percent of GDP, between 2020 and 2024.

The private sector is expected to provide most of the financing, while the government and state-owned enterprises (SOEs) are expected to contribute between 19.2 and 21.7 percent each.

Read also: Corruption risk to Indonesia’s infrastructure push: Experts

The concession period for the consortium company, PT Jalintim Adhi-Abipraya (JAA), will be divided into a 3-year construction period and a 12-year service period, according to a project outline released by the Public Works and Housing Ministry.

Finance Ministry government support management and infrastructure funding director Bramantyo Istidjoso said the project was backed by the government through the state infrastructure guarantee fund PT Penjaminan Infrastruktur (PII) and that the availability payment scheme fund would be sourced from the state budget.

The World Bank previously suggested the government improve its PPP financing schemes to attract more private capital to help cover the government’s budget shortage for infrastructure.

The government has also been urged to decrease its reliance on state-owned enterprises (SOE) for the execution of toll and national road projects and to allow private companies to build economically viable projects as SOEs were already highly leveraged.

“We recommend the government revise its decision-making and consider whether the project is good for leveraging private financing before looking at the potential allocation for public-sector financing,” World Bank transportation specialist Elena Chesheva said.

Last year, the government awarded a consortium that included the investment, consulting and management arms of Singapore’s Changi Airport a PPP to expand Komodo Airport in East Nusa Tenggara.

The project, the first PPP for airport development, is expected to attract more tourists to Labuan Bajo, which has been designated a priority tourism site by the government.

Read also: Private sector infrastructure funding needs boost as SOEs overleveraged: World Bank

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