Increasing Demand for Infrastructure Development to Support Indonesia's Economic Growth The need for national infrastructure development to support Indonesia's economic growth
To address budget constraints and boost private participation in infrastructure, the Indonesian Government established PT PII (Persero) on December 30, 2009. Operating under the Ministry of Finance, this SOE provides guarantees for Public-Private Partnership (PPP) projects against political risks.
By collaborating with international multilateral institutions, PT PII ensures investor confidence and certainty, thereby accelerating private financing for national infrastructure development.
Public-Private Partnership (PPP) is a collaboration between the government and business entities to provide public infrastructure. Governed by Presidential Regulation No. 38 of 2015, this scheme utilizes private resources and capital to deliver high-quality, efficient infrastructure while sharing risks between parties. Initiated by government or regional heads, PPP aims to create a sound investment climate and meet sustainable funding needs.
With rapid urbanization driving the need for toll roads, ports, and power plants, Indonesia faces a critical challenge: a massive infrastructure financing gap. According to the 2020-2024 RPJMN, the total funding requirement stands at Rp 6,445 trillion.
Government budgets (APBN/APBD) can only cover 37% of this amount. The remaining 63% must come from State-Owned Enterprises (SOEs) and the private sector. The PPP scheme is the essential bridge to attract this private capital, ensuring vital projects continue without burdening the state budget.
Why is PPP Crucial for Indonesia? Unlike conventional procurement, Public-Private Partnerships (PPP) cut through bureaucracy to accelerate infrastructure development. By involving the private sector early, strategic projects like the Trans-Java Toll Road and Batang Power Plant achieved faster operational timelines. Crucially, PPP focuses on output: rather than just buying assets (like pipes), the government secures guaranteed services such as the SPAM water project, which ensures citizens receive 24/7 clean water access.
Infrastructure is the locomotive of the economy. Better connectivity will lower logistics costs, making domestic products more competitive. A reliable power supply will drive growth in the manufacturing industry. The availability of clean water will improve public health and productivity.
Every ongoing PPP project creates a multiplier effect. During the construction phase, thousands of workers are employed. Once operational, new job opportunities emerge in operations and maintenance, along with the growth of new economic hubs around the infrastructure.
The Government of Indonesia has designated several sectors as top priorities for development through the PPP scheme, including:
Transportation: Toll roads, ports, airports, railways, terminals.
Energy: Power plants, electricity transmission and distribution, renewable energy projects.
Water Resources: Irrigation projects and drinking water supply systems (SPAM).
Telecommunications and Informatics: The Palapa Ring project providing the national fiber optic backbone.
Health: Construction and management of hospitals.
Education: Construction of educational facilities.
Public Housing: Provision of housing for low-income communities.
The 6 Stages of a PPP Project Lifecycle PPP projects are not instant; they follow a strict, regulated process to ensure accountability. The lifecycle consists of six key stages:
Planning: The Government initiates the project by identifying infrastructure needs and conducting preliminary studies.
Preparation: A critical phase involving a comprehensive Feasibility Study to analyze risks, economic viability, and project structure.
Transaction (Procurement): An open, competitive bidding process is held to select the private partner with the best proposal.
Construction: After signing the agreement and achieving financial close, the partner builds the infrastructure to specifications.
Operations & Maintenance (O&M): The partner manages the facility to ensure service standards and realizes their return on investment.
Termination: At the end of the concession period, assets are handed back to the government in good working condition.
PT PII: The Strategic Catalyst for Indonesia’s Infrastructure As Indonesia's Infrastructure Guarantee Entity (BUPI), PT PII acts as the "single window" for government guarantees, designed to accelerate Public-Private Partnerships (PPP). By bridging government regulations with private sector efficiency, PT PII creates a safer investment climate through three key functions:
For Investors: Mitigates political risks (e.g., permit delays, regulatory changes, tariff adjustments), enhancing project creditworthiness and lowering financing costs.
For the Government: Ensures successful transactions by structuring sound projects and increasing private participation certainty.
For the State Budget (APBN): Acts as a ring-fence to manage contingent liabilities, protecting the national budget from sudden financial shocks.
The guarantees provided by PT PII are expected to provide benefits for:
INDONESIA
Supporting economic development through Public-Private Partnerships (PPP) to build high-quality infrastructure projects;
Reducing infrastructure costs through lower loan interest rates to keep tariffs paid by the public affordable;
Protecting the Government from unexpected claims and risks regarding infrastructure project financial obligations arising from the provided guarantees;
Encouraging or stimulating the Government's next steps in PPP implementation.
GOVERNMENT CONTRACTING AGENCY (GCA/PJPK)
Attracting interest from the private sector and financial institutions to participate in PPP projects, leading to higher project success rates and adherence to schedules;
Increasing competition in the tender process to obtain high-quality proposals and competitive pricing.
PRIVATE SECTOR
Reducing or mitigating risks that are difficult for the private sector to manage;
Enhancing transparency, clarity, and certainty in the guarantee provision process;
Improving the bankability of projects;
Extending loan tenures, which can lead to more competitive bid pricing;
Encouraging the Government Contracting Agency (GCA) to draft contracts in accordance with generally accepted best practices and fulfill its obligations under the cooperation agreement.
How PT PII Mitigates Investment Risks in Indonesia Foreign investors often fear political risks and regulatory uncertainty in PPP projects. Enter PT PII, an entity under the Ministry of Finance designed to make infrastructure projects "bankable" by acting as a strategic guarantor. PT PII transforms the investment landscape by:
Providing Government Guarantees: Covering political and default risks (e.g., missed Availability Payments), ensuring investors are protected if the government cannot fulfill obligations.
Improving Bankability: With state-backed guarantees, financial institutions are more confident in disbursing credit.
Lowering Capital Costs: Reduced risk profiles lead to lower loan interest rates, making projects more efficient.
Project Structuring: Assisting Government Contracting Agencies (GCA) in drafting fair, international-standard agreements from the early stages.
he Key to Indonesia’s Infrastructure Success PT PII’s government guarantees have powered iconic projects like the Palapa Ring (high-speed internet), the Batang Power Plant (energy), and SPAM projects in Umbulan and Bandar Lampung (clean water). These successes prove that PPP is now a main pillar of Indonesia’s development strategy, allowing for accelerated growth without overburdening the State Budget. By mitigating risk and boosting private sector confidence, PT PII ensures infrastructure viability, driving Indonesia closer to its goal of becoming a developed, globally competitive nation.