Interview: Emma Sri Martini
What are the primary obstacles to developing infrastructure projects in Indonesia?
EMMA SRI MARTINI: It is clear that infrastructure is a top priority and needs a great deal of investment, yet the government doesn’t have the budget it needs to finance every project. In the past few months the government has set up economic packages that plan to speed up the process, in terms of a better regulatory framework and less bureaucracy, and to come up with the fiscal stimulus to support investors and attract more investment.
There are a number of efforts being conducted by the government, but it is impossible to see immediate effects. Take, for example, Jakarta’s traffic: although the construction period is a painful one, due to the heavy congestion on the roads, people are not complaining because they know that progress will come in the next two to three years. In general terms, the attitude and commitment portrayed by the government has been very hands-on, which is always a good sign.
However, the main challenge in 2016 is project execution and the efficient implementation of regulations, because nobody wants to take on the risky role, especially in dealing with land acquisition and fiscal obligations. In a way, people feel afraid to make a mistake and have to pay a price for it. That is why the government must find a way to incentivise people to take on the responsibility without severe penalties. Policies to convince people have been discussed since 2012, but were only recently approved in 2015. This example shows that the process must be accelerated in order to make infrastructure construction efficient and responsible.
Do alternative solutions exist to meet the budget requirements for infrastructure projects?
SRI MARTINI: In terms of sustainability in infrastructure development, the government will only allocate a part of the available budget in the procurement of projects that do not attract private investors. This figure is normally around 70%, derived from the state budget, local government budgets and state-owned enterprises (SOEs). The other 30% should be taken up by the private sector. Yet, there are still many challenges to implement public-private partnerships (PPPs) and delay the progress of infrastructure development.
The current solution is that the government assigns and pressures state-owned enterprises to deliver more infrastructure projects while maintaining a sustainable approach, as there is a risk that SOEs could become over-saturated in three to five years due to the quantity of projects. In order not to overwhelm the SOEs, PPPs must be implemented as soon as SOEs first take on the projects. In this way, the government’s role is to enable the environment. If PPPs are implemented after the SOEs are taking on multiple projects, it will be too late to reduce project saturation in the market.
How would you assess the current regulations and mechanisms for PPPs?
SRI MARTINI: Regulations for PPP implementation are very detailed and comprehensive, but some revisions could still be made. The problem is that people lack the commitment to proceed with PPPs, since they want quick returns or are discouraged by the long preparation process.
As I mentioned before, people have a habit of forgetting that PPPs are the key to the sector’s sustainability. Yet it is understandable that private companies and SOEs often do not know how PPP regulations work because sometimes SOEs don’t know the differences between PPPs and regular regulations. This is because SOEs are the first active parties in a PPP, whereas private companies usually tend to join in once the project is already under way.