A senior Indonesian government minister has delivered a scathing assessment of his own country’s track record in private infrastructure investment, while calling for more investors to commit money to it.
“Our initial high targets for private infrastructure investment have not been met,” Boediono, coordinating minister for economic affairs, said yesterday.
He conceded that Indonesia’s experience on public-private partnerships in electricity was “one example of a bad story” which “undermined our credibility”, and admitted that many projects offered to the private sector recently “have not been prepared to sufficiently high standards.”
Feasibility studies and other documentation had not provided adequate information for investors on key risk areas, Boediono admitted, and it was too late to restart the preparation process for many projects underway. He pledged instead to improve the documentation of projects in advanced preparation and developing best practice demonstration projects as models for the future.
He also acknowledged that successful development of private infrastructure investment would require “behavioural and cultural changes” in the government agencies and state enterprises involved in projects. “Some government agencies still view public-private partnership (PPP) projects as a supplement to, rather than as an integral part of, their core plans and programmes.”
Minister Boediono said important lessons had been learned, and outlined some measures Indonesia has put through to correct the situation. A new policy package was issued in February to improve the regulatory regime and there are draft new laws on electricity, railways, sea transport and air transport being deliberated by parliament.
A new framework for the preparation and contracting of PPPs was issued in November. “We have made significant progress so far, but we know that we are still not yet there,” he concluded.
In an earlier interview with Emerging Markets, finance minister Mulyani Indrawati spoke of the difficulties in attracting investment in to Indonesia. “It is quite a challenge, because from the beginning everybody talks about crime needing to be improved in order to attract investment,” she said. “Some of this is imagination and perception, and it’s very difficult to change that until we can achieve one or two or three success stories. But we are beginning to do that.”
“We come with the approach that sanctity of contract is the highest principle we are going to offer,” she added.
Indrawati also spoke of the challenges caused by the new requirements to involve local govenrment in the policy process in Indonesia. “ If you ask about the immediate time, there is a lotof complication that can create more difficulty in managing macro policy and achieving national goals,” she said.
“There will be a couple of years of everybody complaining about the role and performance and capacity of local government – which is OK if we are not all losing sight of what we are trying to achieve: the balance between local and national government, and the improvement of democracy.”