Investment funds, global banks and bond issuances provide finance for Indonesian infrastructure development


The country’s infrastructure deficit has been identified as an opportunity to further economic growth. To this end, there are 223 separate infrastructure projects in the pipeline expected to cost $307bn, including new roads, ports, airports, power plants and health care facilities. To date, state-owned enterprises (SOEs), such as local construction firm Waskita Karya and utilities provider Perusahaan Listrik Negara, have taken the lead; however, the capital bases of SOEs has diminished in the process, and outside investment is required to reach the nation’s development goals. The government hopes to attract 60% of the $307bn required for its projects pipeline from external sources. The need for foreign investment has also been intensified by global conditions. The Indonesian rupiah slumped against key global currencies in 2018, causing delays in $25bn of power projects that were part of a plan to add 35 GW of generation capacity to the system by 2019.

Financial Options

Infrastructure deals in the past often involved financing from a mix of public and private entities. “Public-private partnerships (PPPs) offer the best model,” Armand Hermawan, president director of the Indonesia Infrastructure Guarantee Fund (IIGF), told OBG. This is both because of the efficiency gains brought by PPPs, and because the high level of compliance required at all procurement stages is publicised.” Created in 2009 by the Ministry of Finance, the IIGF provides sovereign guarantees to infrastructure projects that are developed as PPPs. Funding is most likely to come from the Indonesia Infrastructure Finance Company (SMI) and large state-owned lenders, rather than privately owned or smaller institutions. In a recent example, Waskita Karya secured $151.1m in financing in October 2018 from the SMI and Bank Syariah Mandiri for a section of a toll road on Java.

The first project to receive a guarantee was a 2-GW coal-fired power plant in Central Java in 2011. Private partners included Japan’s Electric Power Development Company and Itochu, and local coal miner Adaro Energy. This project was developed as a build-own-operate-transfer scheme, in which the developer was given a 25-year power purchase agreement. More recently, Jasa Marga, an SOE with the charter to develop and operate toll roads, launched an Infrastructure Investment Fund (DINFRA) in October 2018 that aims to raise up to Rp1.5trn ($98.6m) to strengthen capital structures for its toll road investment programme. The DINFRA raises funds from investors – either as equity or debt – for infrastructure assets investment.

Regional Trend

As for private investors, there is significant demand in the Asia-Pacific region for infrastructure investment opportunities. According to the Asian Development Bank, emerging markets in the region will require $1.7trn annually in infrastructure investment through to 2030 to maintain the current pace of growth. Singapore’s DBS Bank announced in late 2018 that it would expand its project finance team to include global advisory and financial services. In 2017 DBS Bank participated in Indonesia’s infrastructure drive by arranging bond issues to finance projects, including a $2bn bond for local power producer Paiton Energy, helping it gain fresh capital. In April 2018 DBS Bank was also one of four bookrunners for the $580m green bond issuance for a geothermal energy project.


The country hopes green bonds and sukuk (Islamic bonds) will also broaden sources of capital. SMI sold Rp3trn ($213m) in green bonds and sukuk in July 2018 and plans to use the money for sustainable infrastructure projects, sharia-financed infrastructure and for meeting its UN Sustainable Development Goals. Further issuances are expected in the future. Green bonds were slated to be used to fund a light rail transit system in Palembang, and mini-hydropower plants in South Sulawesi and West Sumatra. Proceeds from sukuk will likely go to projects to be financed through sharia-compliant instruments, such as an electricity transmission line on Sumatra and the production of train cars by state-owned construction firm Inka Multi.

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The Report: Indonesia 2019

Banking chapter from The Report: Indonesia 2019

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