Monday, October 12, 2015

View Point: Still waiting for bold reforms in infrastructure sector

Vincent  Lingga, Jakarta | Opinion | Sun, October 04 2015, 3:26 PM

We  understand the government has been preoccupied with the sharp  depreciation of the rupiah and its damaging repercussions on the prices  of many basic goods, people’s purchasing power and consumer and business  confidence.

Hence, the first and second reform packages  launched last month focus on boosting the supply of dollars in the local  banking industry, strengthening the purchasing power of low-income  people and easing business licensing and operations procedures.

 The  second reform package included bold deregulatory reform in the  licensing system in the forestry sector that will speed up license  issuance from the current four to six years to only 12 to 15 days for  various permits needed to use or lease forested land.

This  reform, considered a “miracle” in Indonesia’s business scheme of things,  will be a great boon to the installation of overhead high-voltage power  transmission lines and geothermal development.

But given the  strategic role of basic infrastructure and the blunt fact that the acute  lack of infrastructure and the crumbling condition of existing  facilities are among the biggest barriers to investment and the main  causes of the unusually high logistics costs, the government should have  accelerated the pace of regulatory and bureaucratic reforms in  infrastructure.

Infrastructure investment has the potential to  increase efficiency and competitiveness, promoting both international  linkages and domestic integration and raising output in the short term  by boosting demand and in the long term by raising the economy’s  productive capacity.

The large infrastructure gap reflects a  combination of our institutional and financial constraints, as well as  the pressure from rising demand. And the best way to speed up  infrastructure development is through public-private partnerships (PPPs)  because of the limited financing resources of the government.

The  government increased the infrastructure budget this year to Rp 290.3  trillion (US$20 billion), but as of last month only about 30 percent or  Rp 90.2 trillion has been spent as a result of bureaucratic inertia.

How  can the government expect private investors to put up 80 percent of the  $450 billion needed for infrastructure development for the next five  years if it is not able to break through its own regulatory and  bureaucratic barriers to implement its own projects?

A discussion forum on infrastructure jointly hosted by state-owned PT Sarana Multi Infrastructure and The Jakarta Post on  Wednesday cited the acute lack of single leadership, poor  inter-ministerial coordination, complex land-acquisition procedures,  excessive regulations and inadequate institutional capacity for  preparing bankable and investable projects (making detailed designs,  feasibility studies and environmental- and social-impact assessments).

With  so many government institutions involved as players in the  infrastructure sector, coordination has become a big problem owing to  the absence of an authoritative PPP management center to drive projects  with proper planning, reliable risk analysis and risk sharing,  designing, efficient and well-organized tender procedures and  construction management.

Currently, PPP projects are handled by  the ministries of finance, public works and national development  planning without a single leadership. It is little wonder that many  infrastructure projects listed in the PPP book published by the National  Development Planning Ministry and put to tender still lack proper  contracts, appropriate risk allocation, a sustainable revenue model,  government support, key project input such as international-standard  studies for feasibility, environment or social safeguards, uncertain  resource assessments and properly secured land.

 The Finance  Ministry said in July it would issue a regulation to smooth the land  conversion process as it seeks to make flexible the government’s  land-capping funds, which could soon be used to support stalled  infrastructure projects. The ministry said land procurement funds for  stalled infrastructure projects could be tapped from the government’s  land-capping funds. The land-capping funds are a fiscal instrument  whereby the government “caps” land prices at certain levels and provides  funds as compensation for private investors if there is any unwanted  price increases.

The President has mandated the Committee of  Infrastructure Priorities Development Acceleration (KPPIP), which is led  by the coordinating economic minister, to create a pipeline of projects  to be developed under the PPP scheme.

But the KPPIP, which  includes the ministers of finance and national development planning and  the chief of the National Land Agency, does not have any teeth at all.

Decisions  by the KPPIP are not legally binding and any policies or measures  adopted at its meeting have yet to be approved by the ministries that  oversee the sectors or areas where the particular infrastructure  projects are to be built or developed.

The KPPIP still  encounters a complex web of different entities with overlapping roles  and responsibilities in the infrastructure arena, since President Joko  “Jokowi” Widodo himself did not consider this committee as important.

If  the government is really serious about accelerating infrastructure  development and wooing investors to this sector, Jokowi should upgrade  the authority and role of the KPPIP into the nerve center for all  decisions regarding big infrastructure projects under the PPP scheme.

The  basic rationale of such a nerve center is that during an infrastructure  crisis like the one we are now facing, the KPPIP should act like a  hospital’s emergency center when fast decisions and firm measures are  much more important than bureaucratic procedures or rigidities.

The  leadership provided through such a war-room like operation center would  help regain market confidence in the government’s ability to implement  its policies through a mechanism that focuses on good coordination,  fast-decision making and concrete programs of action.

Infrastructure  has been one of the government’s top priorities since 2004, but not  much has been achieved. It is high time to go all out with bold  measures.
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The writer is a senior editor of The Jakarta Post.

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