IIGF Role and Government Support in Indonesian PPP Infrastructure Project

Dr Armand Hermawan

CFO, Director of Finance and Risk management, Indonesia Infrastructure Guarantee Fund (IIGF)

November 2011

2

Outline

1. Indonesian PPP Context

2. IIGF Profile

3. CJPP Case Study

3

Indonesian PPP Context

4

Government estimates investment needs for infrastructure within 2010-2014 reach

~ USD 214 billion

Funding Gap is about USD 74 billion: expected to come from Private Sector

Indonesia Infrastructure Investment Requirement 2010-2014 (in US$ billion)

Infrastructure investment estimate shows huge needs of contribution

from the private sector

$ 214 $ 140

$ 74

Investment

Needs

State Budget /

SOE

Funding

Gap

Private

$ 74

It is expected that

part of this will utilize

PPP scheme

Source: Bappenas

5

2005

Infra Summit 1

Ready to Offer =1

Priority = 27

2006

Infra Summit 2

2010

Infra Summit 3

100 projects

91 projects

10 projects

Aug 2010

Realized CJPP

Note:

- Model Project: Feasibility assessment stage

- Potential Project: Preliminary study

- Priority Project: Pre-FS stage

- Ready to Offer Project: Bidding document completion

Jun 2011

Model

Project

Potential = 72

5 PPP

Showcase

Planned

Ready to Offer =13

Priority = 21

79 projects

Potential = 45

Source: Bappenas

PPP Book 2011-2015

PPP Book 2010-2014

PPP Development in Indonesia

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1. Public Sector Capacity & Commitment

• Comprehension of PPP

• Execution

Project Preparation

Transaction

2. Government Support

• Direct

Land Acquisition

Investment / Operations Subsidy

• Contingent

3. Regulatory Framework

4. Institutional Issue / Coordination

• Project Planning and Preparation

Various

measures

have been

taken by GoI,

one of which

is establishing

IIGF

Key Challenges

Some of Key Challenges to accelerate Indonesia’s PPP

- which are not unique to Indonesia only

Sectors

Transport

Waste

Toll Road

Water Supply

Electricity

Selected Oil & Gas

Selected Telco

Irrigation

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IIGF Profile

8

Presidential Regulation

67/2005*

Presidential Regulation

78/2010

MOF Regulation

260/2010

Primary Objective

of IIGF

Single Window Mechanism for Guarantee Provision

GOI establishes IIGF to provide guarantees

to accelerate infrastructure development through PPP

*as has been ammended by Presidential Regulatian No. 13/2010 and No. 56/2011

4. Ring-fence GOI Contingent Liabilities and

minimize Sudden Shock to RoI State Budget

3. Improve governance, transparency and consistency

of guarantee provision process

2. Provide guarantees to well structured PPPs

1. Improve creditworthiness – bankability of PPP projects

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A single window is important for:

A consistent policy on appraising guarantees

A single process for claims

Introducing transparency and consistency to the process

Appraising,

Structuring of

Guarantees &

Processing Claims

Project

Project

Project

Project

Project

IIGF serves as Government’s Single Window for

Appraising, Structuring of Guarantees & Processing Claims

10

Operation Construction Pre-construction

Transport

Waste Water

Toll Roads

Water Supply

Electircity

Delay or failure in obtaining licenses, permits, and approvals

Ris

ks

Se

cto

rs: A

s p

er P

res

iden

tial R

eg

ula

tion

No

. 67/2

00

5

Selected

Oil & Gas

Irrigation

Selected

Telecom

Financial close delay/failure

Change in law/regulations

Breach of contract

Competing facility

Integration with network

Revenue

Demand

Tariff

Expropriation

Sub-sovereign

Currency inconvertibility & non-transfer

Interface

Force majeure affecting the CA

IIGF may provide coverage of various CA’s Obligations which have been

allocated to CA under PPP/Cooperation Agreement

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Contracting Agency (Ministries, Regional

Governments, SOEs)

Investor

PPP Agreement 2

Proposal for Guarantee

Recourse Agreement

1

3a

3b

A

Ministry of Finance

MOF

Multilateral

Development

Agency / Others

Equity Injection &

Guarantee Policy

Co

un

ter

Gu

ara

nte

e f

or

MD

A G

uara

nte

e F

ac

ilit

y

Credit & Guarantee Facility

B

Note:

will exist only if exist, i.e. when become part

of guarantee structure provided to investor

B A A

IIGF’s Business Model is designed to make the Government Guarantees

provision Consistent, Transparent, and Efficient

Sectors as

Regulations

Sectors as

Allowed

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As per Presidential Regulation No. 67/2005 juncto PR No. 56/2011

and PR No. 13/2010

Awarded through a competitive bidding process

Economically, financially, technically & environmentally viable, socially

desirable

Comply with related sector regulations

Conducted by credible experts/consultant

Binding arbitration provision in the Concession/PPP Agreement

Sector

PPP Contract

Project Viability

Regulations

Feasibility Study

Arbitration Clause

Project eligibility criteria for IIGF Guarantees

13

Central Java Power Plant Project

The 1st PPP Project under IIGF Scheme

(2 x 1000 MW; ~US$ 4 billion project)

14

Central Java Power Plant (CJPP) as the 1st IIGF deal

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

COD End of 2016

Build, Operate, Transfer (BOT)

Guarantee

Structure

• Guarantee Agreement : IPP with IIGF and GOI

• Coverage: political risk, force majeure affecting PLN

and 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:

• J-POWER: 34%

• ADARO: 34%

• ITOCHU: 32%

Project Ultra super critical coal fired power plant

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Sponsors

EPC Contractor Fuel Supplier O&M Contractor

PPA Guarantee Agreement

Equity Project-Finance Debt

Recourse Agreement

Fuel Supply Contract Engineering, Procurement and

Construction Contract

Operation and Maintenance

Contract

Profit Distribution Debt Service

1 2

EPC, O&M, Fuel Supply Agreements

3

CJPP Overall Transaction Scheme

State-owned

electric utility

Project Company

Guarantors

Lenders Sponsor Agreement 4 Loan Agreement 5

6

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No Item Position

1 Guarantee Coverage Itemized and detailed clauses of PLN’s financial obligation in the

PPA

2 Guarantee Tenor - Equity : 16 years post COD

- Debt : 21 years post COD

3 Guarantee Fee Applicable to IIGF, and also to Government once the necessary

regulation to allow it is in place

4 Structure of Guarantee Co- guarantee structure between IIGF and GOI with ‘Amount

Sharing’ concept.

5 Back-up on IIGF Amount No back- up ; Except when IIGF’s insolvency is a result of

Government action/inaction.

6 Commercial Structure of Co-Guarantee ‘First Loss’ basis on IIGF Amount

7 Legal Structure of Co-Guarantee One Guarantee Agreement . However, the two guarantees are

several, and not joint and several.

Key Terms and Conditions of CJPP Guarantee Agreement

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Guarantee Cover for CJPP

PLN

Financial

Obligation

under the

PPA

1. Obligation to purchase electricity

• Monthly payment (Capacity and Energy payment)

2. Deemed Dispatch

• Due to PLN not being able to receive Sellers output

3. Buyout obligation due to PPA Termination triggered by

PFM, NFM

4. Obligation to pay due to PLN EOD:

• Non payment

• Material Breach

• Merger, Consolidation

• GOI EOD under GA

Not covered:

1. Sellers EOD

2. Tax for Special Facilites

3. Indemnity

Covered:

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Thank You