During 2000–2005, infrastructure investments in Indonesia dropped to an annual average of 3% of gross domestic product (GDP), from 8% of GDP during 1995–1997. Private infrastructure investment fell sharply from 1.8% of GDP during 1995–1998 to 0.5% of GDP in 2000–2005. This was largely due to the 1997 Asian financial crisis that led to the cancellation or suspension of many planned public and private infrastructure projects. To raise infrastructure investments to 5%–6% of GDP during 2005–2009, the government estimated the total infrastructure investment need at $65 billion, of which $30 billion or 47% was expected to come from the private sector.
To launch the private infrastructure investment agenda, the government held the Indonesia Infrastructure Summit in January 2005. Following the summit, the Coordinating Ministry of Economic Affairs (CMEA) released an infrastructure policy package that included 153 actions to be implemented in 2006. At the core of the package was a call for major private sector participation (PSP) in infrastructure, with public–private partnerships (PPPs) as the preferred approach. To sustain the PPP momentum established under the 2005–2009 National Medium-Term Development Plan, the government also requested ADB, the Japan International Cooperation Agency (JICA), and the World Bank to provide medium-term policy reform support.
In response, ADB approved an $880 million loan for the Infrastructure Reform Sector Development Program (IRSDP) in October 2006. The IRSDP consisted of 3 subprograms, with key outputs comprising (i) cross-sector reforms for PPPs, (ii) reforms to strengthen PSP in 9 sectors, and (iii) PPP project transactions. Subprogram 1 was approved together with the IRSDP. Subprograms 2 and 3 were approved in October 2008 and November 2010, respectively. At the outcome level, the IRSDP sought to increase (i) total infrastructure investments; (ii) the electrification ratio; (iii) access to piped water connections, and subsequently, regional water utilities’ (PDAM) investments; and (iv) the share of national roads in good or fair condition.
The program also included an infrastructure project development facility (IPDF) that financed the preparation and transaction of both national and regional PPPs. The IPDF was supported by an Asian Development Fund loan of $26.5 million-equivalent and an ADB-administered $7.56 million grant from the Government of the Netherlands. JICA cofinanced the IRSDP with a loan of $100 million for each subprogram. During 2007–2010, the World Bank also complemented the IRSDP with 4 annual infrastructure development policy loans (IDPLs).The 2009 IDPL amount was $250 million; all other IDPLs amounted to $200 million each.
IRSDP cross-sector reform outputs included the establishment of the PPP legal and operational framework, innovative financial sector mechanisms, and a risk management unit in the Ministry of Finance (MOF). Revision of the framework on government financial support for PPPs and the development of a new land acquisition law were also supported.
Sector-specific reform outputs included the adoption of several laws that separated the policy and regulatory functions from operations in the transport sector and expanded PSP in the power sector. For the water supply and sanitation sector, reform outputs focused on improving PDAM performance, financial viability, and sustainability; streamlining PSP procedures; and establishing a sector regulator. In the telecommunications sector, new tariffs were introduced, tariff-setting was shifted from revenue-sharing to a cost-based approach; and an operational framework for sector regulation and a universal service obligation policy were developed.
Project transaction outputs comprised the preparation of 10 model national and 40 regional PPP projects mainly in the transportation, energy, water supply, and solid waste sectors. IPDF also supported the development of 31 potential projects, 3 of which went through bidding, and 7 reached the transaction stage. After the introduction of availability-based PPPs and the full roll-out of the new land acquisition framework in 2015, demand for the IPDF increased. By end−2015, the IPDF had helped retender 7 toll road projects and prepare the transaction of an information and communication technology project that was successfully bid out and financially closed in 2016.
IRSDP performance at the outcome level was mixed. Nevertheless, as despite challenges, the program contributed to sustaining the government’s PPP and PSP agenda within the overall political economy context, ADB’s Southeast Asia Department rated the IRSDP successful.
Indonesia’s national planning agency, BAPPENAS, was the executing agency. Key implementing agencies were the CMEA; National Land Agency; Ministry of Energy and Mineral Resources; MOF; Ministry of Transport; Ministry of Public Works; and the State Electricity Corporation, PLN.
