boosting infrastructure financing through risk mitigation … · 2015. 11. 26. · land fund...
TRANSCRIPT
Boosting Infrastructure Financing through Risk Mitigation Instruments
Financing Sources
for Public-Private Partnerships Forum
Kuala Lumpur, 25 November 2015
Dr Armand Hermawan CFO Indonesia Infrastructure Guarantee Fund
Printed: 20/11/2015
Indonesia infrastructure context
2
Brazil1 UK Canada India USA Germany Spain China
0
20
40
60
80
100
Total infrastructure stock 2012, % of GDP
70 ~60-65
Water
87 80
76 73 71 64
58 58 57 54
Telecom Power
Airports
Ports
Rail
Roads
South Africa
Poland Indonesia2
1 For Brazil, road data contains all of transport. The estimate shown is based on data provided courtesy of Dr. Armando Castelar. 2 Indonesia transport stock is an expert estimate and ranges approx. 5-10% of GDP in 2012
Source: various national statistics; McKinsey Global Institute analysis
4
Indonesia infrastructure context
E1.Estimate based on Global Insights GDP growth forecast in 2014-2025, ranging from 5,1% to 6%. All data are in real base 2013 2 An additional ~US$ 277 bn (1.5-2% GDP) would be needed to include capex depreciation
GDP value (USD billion, real 2013)
225
New investment needed
Investment required to meet the 70% “rule of thumb” for infrastructure stock
~ 1,160-1,1701
~370-3802
2025 2013
~ 560-570
2011-2014 MP3EI plan
Bn USD, real 2013 ESTIMATES Investment gap
869 16231
Source: Indonesia Coordinating Ministry For Economic Affairs, Global Insights, McKinsey analysis
Indonesia infrastructure context
5
Indonesia infrastructure PPP context
6
~ 1,160-1,1701
2025
145-180
New investment needed
~370-3802
~90-110
2011-2014 MP3EI plans
225
55-70
2013
~ 560-570
Bn USD, real 2013 ESTIMATES
1 Estimate based on Global Insights GDP growth forecast in 2014-2025, ranging from 5,1% to 6%. All data are in real base 2013 2 An additional ~US$ 277 bn (1.5-2% GDP) would be needed to include capex depreciation
GDP value (USD billion, real 2013) 869 16231
PPP potential
Source: Indonesia Coordinating Ministry For Economic Affairs, Global Insights, McKinsey analysis
7
four fundamental benefits by closing the infrastructure investment gap
Increased efficiency
Appropriate Risk allocation
▪ Risk allocated to party best able to manage it ▪ Risk reduction by redefining relationship between parties ▪ Maintains quality of service through effective incentive system
Leverage Private sector Strengths
▪ Maximised use of private sector skill ▪ Execution and delivery expertise
New sources of financing
▪ Private sector has financial interest to deliver on time ▪ Optimise life-cycle cost (investment vs. ops cost) ▪ Meet budgets (known outputs for known cost) ▪ Competition between bidders drive price down
▪ Injection of private capital and ability to raise additional capital ▪ Makes projects affordable if borrowing is limited ▪ Project can be funded off-balance sheet1
8
Land Fund Infrastructure Fund
Capital market and regulatory
reform Private Investors /
Lenders
Land Acquisition &
Clearance
Policy (Bankabaility)
Risks
Project Financing
Preparation Bidding Construction Operation
Cost of financing Refinancing
Government of Indonesia
fiscal initiatives and supporting institution
Viability Gap Fund
Viability Risk
9
Established: December 30, 2009
Authorized Capital: IDR 9 Trillion
100% Government-owned
Core Mandate: Single Window for Infrastructure Guarantees
Indonesia Infrastructure Guarantee Fund
11
benefits of the Guarantee to PPP projects
INVESTMENT Sustainability of investment Joint project supervision with
the Government
BANKABILITY Lenders confident to lend Competitive interest rate due to
guaranteed term
RISK Professional and efficient risk
management Workable and clear risk
mitigation plan
CREDIBILITY The project is more credible in the
eyes of the private sector Increasing competition more
competitive rates
12
a case study: Central Java Power Plant PPP project
Gurarantee Agreement ofIDR 300 Bio
6 October 2011
Guarantee Agreement for
Central Java Power Project 2x1000 MW; ~US$ 4 bio
Location Batang Regency, Central Java Province, Indonesia
COD 2019
Build, Operate, Transfer (BOT)
Guarantee Structure
• Guarantee Agreement: Project Co. with IIGF & GOI • Coverage: political risks, force majeure affecting PLN &
PLN EOD • Guarantee Tenor:
• Equity : 16 years • Debt : 21 years
PPA Tenor 25 years
PPP Structure
Developer PT Bhimasena Power Indonesia, an SPV of consortium:
• ADARO: 34% (Indonesia) • J-POWER: 34% (Japan) • ITOCHU: 32% (Japan)
Project Ultra super critical coal fired power plant, 2x1000 MW
13
Issue Description
▪ Varying awareness and capabilities on what it takes to do a PPP ▪ Stringent procurement process limits access to world-class
advisory firms for project preparation
Challenged Government 2 capacity in pre-FS and project prep
▪ Misaligned incentives among GCAs and PPP agencies ▪ No single unit accountable from origination to completion ▪ Lack of mandate from highest authority
No end-to-end ownership 1
▪ Opaque criteria for selection and prioritization of PPPs ▪ Limited consideration of financial viability during project selection
results in projects tendered without viable fiscal support
Opaque project selection criteria 3
▪ Over 30 laws and regulations govern PPPs ▪ Contradicting stipulations across sectors; and between
national and local governments
Conflicting 4 regulatory
framework
PPP-
spec
ific
Rel
evan
t however, there’s challenges that need to be addressed
14
Recommendation Description
▪ Define robust criteria to determine when PPP is most suitable delivery mode
▪ Adopt value-for-money (VFM) principles
Mainstreaming PPPs as an infrastructure delivery mode 2
▪ Serve as control tower, ensuring that PPPs reach financial close ▪ PPP champion, driver of transformation, owner of reforms
Authoritative and credible PPP center 1
▪ Pool all resources to ensure allocation across projects are maximized ▪ Develop readily available roster of technical, financial and legal
advisors to support transactions
Project development fund for 3 accelerating procurement of
world-class advisory services
Capability-building program across the bureaucracy 4
▪ Conduct regulatory audit ▪ Propose specific amendments 5 Debottleneck regulations
▪ Develop programs to address three key areas:
– Awareness-raising – PPP Basics – Specialized transaction skills
…..resulting in 5 corresponding actions to unlock PPP potential
15
Thank You