Recent changes to Public Private Partnership law in Indonesia

This article provides a summary of the current law in relation to PPP projects in Indonesia and the important changes which make investment in these projects more attractive.

Accelerating infrastructure development
As with PPP legislation in other countries, the purposes of Indonesia’s PPP regulations are to accelerate infrastructure development through improved cooperation between the public and private sectors.

PPP projects covered by the legislation include the traditional areas of infrastructure such as transport and power generation and the arrangement between the parties is by either a cooperation agreement or operational license. Following public consultation, a Project Priority List is published which sets out projects that conform to national or regional development and/or infrastructure plans.

The bankability of the project
The most recent amendment to the law in this area PR 56/2011 takes into account the recent implementation of the Indonesian Infrastructure Guarantee Fund (IIGF). The IIGF was established in 2010 to provide a guarantee for infrastructure projects and to improve the “bankability” of infrastructure projects in Indonesia. Article 9(3) adds that projects on the Project Priority List, if required, will obtain “in principle” support from the Minister/Head of Institution/Head of Region and/or approvals for a guarantee from the IIGF.

Article 10 of PR 56/2011 modifies the earlier law to allow foreign as well as Indonesian entities to apply to initiate new PPP projects if such projects are not included in the sector master plan. The only restrictions are that the projects must be technically integrated with the sector, financially feasible and not require Government support in the form of financial fiscal contributions. As was provided in the earlier amendment, if the new PPP project is approved and finally tendered, the initiating entity will be given compensation in the form of additional points, a right to match the best bidder, or the purchase of the project initiative – including the intellectual Property rights incorporated therein – by the Public Sector or by the winning bidder.

Article 13 (4A) of PR 56/2011 now clarifies that if the initiating entity is compensated with additional points or the right to match in the tender, all feasibility study and other supporting documents relating to the project will immediately and at no cost be transferred to the pertinent Public Sector.

Successful Project Sponsors of PPP Projects will be determined by public tender. Under Article 21A, should a foreign entity be awarded a tender, it is now required to form an Indonesian legal entity that will act as the contracting party in the Cooperation Agreement with the Public Sector partner.

Fiscal contributions
Of interest to potential Project Sponsors is the possibility of the Minister of Finance approving Government support in the form of fiscal contributions as well as tax incentives in relation to PPP projects under Article 17A (4). Under the previous regulations, Government support extended only as far as tax incentives. The Government support in the form of fiscal contributions must be expressed in the request for proposal, and previously set forth in the State or Regional Budget, when the project is publicly tendered.

chris.naziris@mkklaw.net
www.mkklaw.net

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