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Building Indonesia’s future
Unblocking the pipeline of
infrastructure projects
Agung Wiryawan
PT PricewaterhouseCoopers Indonesia Advisory
18 November 2015
Executive Summary
Total Infrastructure spend $ 57bn in 2014  $139bn by 2025
Extraction and manufacturing outlook weakened
Offset partly by stronger outlook for transport: ports and rail
Infrastructure spend was 6.4% of GDP in 2014.
Under Jokowi program, could accelerate to peak of 7.7% of GDP
in 2017
• Should stabilize at 5.3% of GDP by 2025
• Social infrastructure expected to reach 10% of total spend by
2025, up from 7% in 2014
• Infrastructure finance market needs to develop; bankability
needs to be solved.
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Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
11 November 2015
2
The Macroeconomic Environment
• Our forecasts based on long-term outlook – to 2025
• Short term macro fluctuations have limited impact
• Indonesia’s economy in real GDP terms will likely grow by 5%
or more per year in the medium and long term.
• Supported by:
• Growth in infrastructure investment to alleviate supply-side
bottlenecks;
• Increased macroeconomic stability;
• Continued strong demographic and labour supply growth;
• Improvements to the business and regulatory environment.
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
3
Infrastructure Spend Outlook (1)
• Total infrastructure investment 2015-2019 projected to be
around 87% higher than 2010-14, mainly because of higher
public spending and commitment to private sector procurement.
• But, our projections imply that the government will fall
short of its targets by around 19%.
• Infrastructure program
will bring forward
spending to 2015-17 but
flatten out in mediumterm
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
Growth in:
Total
infrastructure
spending
Total fixed
investment
GDP
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
Source: Oxford Economics
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
4
Infrastructure Spend Outlook (2)
• Transport, utilities and manufacturing are the largest
infrastructure sectors in 2014
$bn, current prices, 2014 exchange rates
160
140
120
100
80
60
40
20
0
Telecommunications
Extraction
Social
Manufacturing
Utilities
Transport
2006
2014
2025
Source: Oxford Economics
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
5
Beyond 2019
Index, 2014=100
300
250
200
150
100
50
0
• After 2019, we assume a slowdown in
the growth of infrastructure spend and
reversion to global trends (5.3% of
GDP by 2025)
• Share of regional (4%) and global
Indonesia
Philippines
Malaysia
spend (2%) expected to be stable over
25%
10%
long-term
20%
8%
6%
• Between 2014 and 2025, infrastructure 15%
4%
spend in Indonesia will likely grow at a 10%
5%
2%
pace similar to its regional neighbour 0%
0%
2006 2009 2012 2015 2018 2021 2024
the Philippines, but faster than
Infrastructure spending as % of total fixed
investment (LHS)
Malaysia.
Infrastructure spending as % of GDP (RHS)
Source: Oxford Economics
Source: Oxford Economics
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
6
Risks and Caveats
Rising oil prices?
Backtrack on fossil fuel subsidies?
Political risks?
Exchange rate?
Practical procurement bottlenecks, esp. for 35,000 MW
plan?
• Anti foreign investment laws?
• Supply side – import and labour restrictions
•
•
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Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
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Funding (1)
• Additional infrastructure • Government target of IDR
funds in the 2015 national
5,519trn ($465.7bn) 2015-19,
budget, 39% increase over
or 7.2% of annual GDP.
the 2014 budget, made
possible by fuel subsidy
savings.
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
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Funding (2)
Source of Infrastructure
Financing 2015 -2019
• Around half will come from
public sector, a fifth from
SOEs and rest from private
sector - some funds may be
foreign sovereign
• SOE funds are already being
disbursed, e.g.
 PT Angkasa Pura II
 PT Hutama Karya, PT Waskita
Karya Tbk, PT Adhi Karya Tbk
 PT Antam Tbk
 PT Pelindo IV
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
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Policy
Positive Steps
1. PPP Directives
Perpres No.38/2015 could stimulate investment in PPPs – more
sectors and more favourable legal framework.
2. Land acquisition bill
Law No.2/2012 and Perpres No.71/2012 now effective - crucial as
many projects held up by land acquisition disputes.
3. BKPM One Stop Service
BKPM now provides a centralised licensing point for e.g. power
sector.
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
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Bottlenecks (1)
• Our forecast are
around 19%
lower than
equivalent
government targets.
Billion $
• We’ve adjusted government data and our forecasts to facilitate a
like-for-like comparison 2015-19.
90
Our forecasts: $312bn
Government targets: $387bn
80
70
60
50
40
30
20
10
0
Oil & Gas
Electricity
Our forecasts 2015-2019
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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Water
Road
Rail
Ports and
inland water
transport
Airports
Telecoms
Govt. of Indonesia National Development Plan 2015-19
18 November 2015
11
Bottlenecks (2)
Why?
• Bottlenecks in public and PPP procurement
• Land acquisition problems
• Uncertainty on legal issues
• SOE reluctance / inability to invest
• Problems of bureaucracy within government institutions
• Many individual projects are not in line with international best
practices.
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
12
Critical Success Factors
•
•
•
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•
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Stable investment climate
Leadership at all levels (i.e., making difficult decisions)
Better coordination of Government Institutions
Capacity building to prepare and manage projects
Land acquisition progress
Pilot projects
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
13
Mining
Mining Outlook 2015-19
Government
target projects
-
2015-19 PwC
7.1%
Forecast CAGR
2015-19 PwC
Forecast USD
$ 2.8 billion
NB: Figures quoted in nominal US Dollars
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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• Investment down on 2014:
lower mineral prices and
Mineral Export Ban.
• Larger firms are investing in
smelters despite concerns over
viability
• 35 GW Program and low oil
prices may support coal margins
• Need a Strategic Masterplan that
supports downstream
industry with incentives and a
simplified foreign
investment process.
18 November 2015
14
Oil & Gas
• Falling upstream oil activity
Oil & Gas Outlook 2015-19
• Strong outlook for downstream
refining and gas distribution
Government
$ 43 billion
• Govt. targeting 600,000 b/d
target projects
refining capacity: Pertamina will
2015-19 PwC
play a leading role, joint
Forecast
5.5 – 8.9 %*
ventures with foreign partners
CAGR
may help.
• Historic challenges in Eastern
Indonesia still relevant and
2015-19 PwC
$ 30 billion
contracts need to reflect risks
Forecast USD
* Depends on whether upstream O&G exploration, oil refining or gas
distribution.
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
15
Utilities
$bn, current prices, 2014 exchange rates
40
35
30
25
20
15
10
5
0
2006
2008
2010
Electricity T & D
2012
2014
Water
2016
Gas
2018
2020
2022
2024
Power generation
Source: Oxford Economics
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
16
Power
Power Outlook 2015-19
Government
target projects
$ 83
billion
2015-19 PwC
Forecast CAGR
NA
2015-19 PwC
Forecast USD
$ 79
billion
• Target 42 GW of new capacity (35 GW
brand new)
• Coal will remain dominant source of
energy - massive hydro/geothermal
resources largely untapped.
• New streamlined licensing and PLN’s
new management may help.
• Direct Selection/Appointment should
streamline procurement, but recent
IPP tenders delayed.
• Challenges include low power tariffs,
land acquisition problems,
transmission infrastructure and govt.
guarantees
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
17
Water
Water Outlook 2015-19
Government
target projects
$ 42 billion
2015-19 PwC
8.9 %
Forecast CAGR
2015-19 PwC
Forecast USD
$ 24 billion
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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• Government target 100%
access to clean water and
sanitation by 2019
• PDAMs still undercapitalized;
major role for private capital
• Constitutional Court
ruling has created huge
uncertainty for investors;
govt. need to clarify
• Also bottlenecks in project
preparation and approval
18 November 2015
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Transport
$bn, current prices, 2014 exchange rates
50
45
40
35
30
25
20
15
10
5
0
2006
2008
Roads
2010
Rail
2012
2014
Ports
2016
2018
2020
2022
2024
Airports
Source: Oxford Economics
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
19
Roads
Roads Outlook 2015-19
Government
target projects
$ 78 billion
2015-19 PwC
13.8 %
Forecast CAGR
2015-19 PwC
Forecast USD
$ 71 billion
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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• 3,650km of new roads
targeted incl. 1,000km tolled
• Strong progress on the ground
• Jasa Marga dominant but
private players increasingly
interested
• Kalimantan/ Sulawesi PPPs
out for tender this year but
structure not clear
• Land Acquisition Bill potential
game changer; e.g., recently
opened Cikampek-Palimanan
toll road stalled for years on land
acquisition
18 November 2015
20
Rail
Rail Outlook 2015-19
Government
target projects
$ 24
billion
2015-19 PwC
9.5 %
Forecast CAGR
2015-19 PwC
Forecast USD
$ 18
billion
• 3,258km new tracks (1,099 urban and
2,159 intercity).
• MRT projects to support Indonesia’s
major cities; several major schemes
being pushed by mayors but economics
not understood
• Public sector and Kereta Api are still
dominant; KA low historical investment
but ongoing turnaround
• Structure not yet clear for major
projects like SHIA RL and HSR
• Project-level capability and Viability
Gap Funding are key
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
21
Ports
Ports Outlook 2015-19
Government
target projects
$ 81
billion
2015-19 PwC
Forecast CAGR
9.2 %
2015-19 PwC
Forecast USD
$ 62
billion
• Maritime Toll – 5 port hubs and 19
feeder ports across the archipelago.
• Makassar already broken ground,
Sorong next on agenda.
• High logistics costs will remain an
issue if port network not upgraded.
• Private operators can invest through
PPPs but the Pelindos are clearly in the
lead.
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
22
Airports
• Investment will come from both
Airports Outlook 2015-19
SOEs (Angkasa Puras) and private
sectors
Government
$ 14 billion • Priority for government should be
target projects
acceleration of individual projects
including feasibility studies, and
2015-19 PwC
8.9 %
detailed sounding of market
Forecast CAGR
views.
• SOEs have shown a willingness to
2015-19 PwC
partner with foreign operators
$ 10 billion
Forecast USD
and EPC contractors but progress
seems slow.
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
23
Indonesia’s infrastructure financing - current
market landscape
• Domestic infrastructure financing is still largely dominated by
SOE banks
• Financing is typically done on short tenor (5 – 8 years); in a few
cases the financing can have longer tenor
• Local project financing market is not yet developed. It usually
still requires a recourse to project sponsors
• In certain sectors (e.g. power) is dominated by foreign Export
Credit Agencies (ECA) financing. They usually require
government guarantee
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
24
Indonesia’s infrastructure financing – key
challenges
• Capital has become far more mobile. So, there is an increased
competition to attract limited capital
• Post Global Financial Crisis (GFC), debt market has changed.
Tenors are shorter, margins are higher and covenants are more
restrictive
• Multilaterals, some ECA, and international financial institution
are now more concern on environmental issues; therefore limiting
source of financing for certain sectors (e.g. coal – fired power)
• Indonesia’s infrastructure market is still perceived as “relatively
higher risk market”, hence it might impact to higher cost of
finance
• Currency law restricts USD revenue.
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
PwC
18 November 2015
25
Indonesia’s infrastructure financing – initiatives
to improve infrastructure financing (1)
• Strengthening the liquidity of domestic banks; particularly for
infrastructure financing
• Enhancing the role of PT SMI and IIF in bridging the gap in the
market (e.g. providing longer tenor, mezzanine, etc).
• PT SMI, in particular, will be empowered and transformed to an
infrastructure bank (with role including provide financing and
credit enhancement)
• Introducing alternative sources of funding:
• Pension funds, insurance funds, infrastructure funds
• Infrastructure bond
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
26
Bankability issues in infrastructure
finance market
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Legal basis for revenue streams
Reliability of judicial system or acceptability of
international arbitration
Public sector does not have multi-year budgets
Termination compensation
Step in rights
Security over land
Building Indonesia’s future • Unblocking the pipeline of infrastructure projects
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18 November 2015
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