Aim to achieve $2045 trillion in GDP and the world's fifth largest economy by 7 by fostering the smart city market
PPP projects involving private investment are preferred to solve the problem of lack of budget for building smart city infrastructure.
Indonesia is actively promoting the development of smart cities that incorporate new technologies such as ICT and big data into cities to solve climate change and urban problems. In line with the government's active movement, the related market is expected to grow from 22 billion dollars in 270 to 22.6 billion dollars in 35, growing at an average annual rate of 2,360%. (Research Nester, 23.2.)
The project to relocate the administrative capital to Kalimantan by 2045, worth a total of KRW 40 trillion, is a representative example of a new city development type smart city project and a representative project that is currently leading the Indonesian smart city market. The project, which is being promoted to relieve overcrowding and economic concentration in Jakarta, the current capital, deserves attention not only in its size, but also in terms of establishing Indonesian smart city standards. Indonesia plans to implement the basic concepts of forest city, livable city, and smart city in the new capital, and the concept of smart city to be applied to the city is established as the standard for smart city in Indonesia. It is planned to be applied to all cities from 2025.
KOTRA Jakarta Office 'New Opportunity in Overseas Project Market, Indonesian Smart City Market / 23.4.17.' Through this, we looked at the growth of the Indonesian smart city market and introduced its characteristics and entry strategies. As a follow-up to this, this article introduces the definition and types of public-private partnership (PPP) projects in the Indonesian smart city market, participation procedures, and major interviews with related organizations to help domestic companies understand the Indonesian smart city market. sleep
Public-Private Partnership (PPP) keep an eye on the project
Indonesia has been struggling with budgetary constraints needed to build the infrastructure needed to implement a smart city. According to the 2020-2024 Mid-term Development Plan (RPJMN), Indonesia plans to actively invest in ① infrastructure for regional balanced development, ② infrastructure for economic development, and ③ infrastructure for urban development. Accordingly, it is estimated that a total of 2020 trillion rupiah (approximately 2024 trillion won) will be needed from 6,445 to 554.9, but the actual budget available for the Indonesian government is only 2,385 trillion rupiah (approximately 205.3 trillion won).
Indonesia is encouraging and favoring public-private partnership (PPP) projects and other innovative financing techniques involving private investment to address this financial gap. To this end, through the conversion of the international competitive bidding system for public-private partnership (PPP) projects (Presidential Decree No. 2005 in 67), the public-private partnership (PPP) project promotion field, and clarification of profit structure and government guarantee (Presidential Decree No. 2015 in 38), etc. Business participation has been encouraged.
Meanwhile, Indonesia plans to promote about 80% (approximately 32 trillion won) of the total scale of the new capital relocation project through private sector investment or public-private partnership (PPP). To this end, the government regulations (Presidential Decree No. 2022 in 17) specifying projects to promote public-private partnership (PPP) in the Shinsudo region and providing benefits such as 100% corporate tax reduction and income tax (PPh) reduction when certain conditions are met (Presidential Decree No. 2023 in 12) Ho) was enacted. In addition, the Indonesian government is preparing 26 investment packages totaling $300 billion in various fields such as housing, transportation, energy, and technology for the private investment sector of the new capital relocation project. (CNN Indonesia, June 2023, 6)
Understanding Indonesia Public-Private Partnership (PPP) Projects
1. Definition and types
Indonesia defines a public-private partnership (PPP) project as 'a cooperation between the government and a business in the provision of infrastructure facilities and services for the public good, utilizing some or all of the company's resources, taking into account risk distribution'. (Presidential Decree No. 2015 of 38)
A typical public-private partnership (PPP) project in Indonesia follows the BOT method (BUILD-Operate-Transfer), in which a private company builds and operates the infrastructure for a certain period of time, then transfers the rights to the government. How to transfer everything.
Public-private partnership (PPP) projects can be classified not only according to the role entrusted to the private company, but also according to the initiator of the project and the profit-realization structure of the participating private companies. A detailed explanation of each type and progress can be found in the KOTRA Overseas Market News written by the Jakarta Trade Center. (Participation in Indonesian government infrastructure project, private companies can also participate / '18.6.6.)
2. Relevant major institutions
The main institutions involved in the Indonesian public-private partnership (PPP) project can be divided into 1) directly executing institutions, 2) institutions accelerating the implementation process, and 3) state-owned enterprises supporting participating private companies or government agencies.
1) Institutions directly implementing the project
(1) Ministry of National Development and Planning (BAPPENAS) (Website: https://www.bappenas.go.id/)
– Activities: Responsible for establishing Indonesian national development plans and policies. Coordinating body responsible for planning, evaluation, approval and monitoring of the project
(2) Directorate General for Risk and Money Management (DJPPR), Ministry of Finance of Indonesia (Website: https://www.djppr.kemenkeu.go.id/)
– Activities: Project financing and management, risk assessment and provision of government guarantees, etc.
(3) Government contracting party (PJPK)
– The contracting party on the government side of the project, meaning government agencies, central government public corporations, local government public corporations or local governments
2) Agency for accelerating the promotion process
o Infrastructure Supply Acceleration Committee (KPPIP) (Homepage: https://kppip.go.id/)
– Activities: As a committee to prioritize infrastructure projects and promote supply acceleration, support for the smooth progress of the project through coordination and cooperation between each stakeholder
* As an institution entrusted with the implementation of major policies promoted by the Indonesian government, the list of Indonesian strategic projects is organized by sector on the official website.
3) State-owned enterprises supporting participating private enterprises or government agencies
(1) PT. PII (website: https://ptpii.co.id/)
– Activity: Providing guarantees to private companies participating in the project
– Major Warranty Risks
① Delay or financial failure of the project due to the act or omission of the government agency in charge of the project
② Compensation for losses due to regulatory/legislative changes that negatively affect the project
*Where the contract is expressly contrary to and bound by applicable regulations/legislation
③ When the government agency in charge of the project violates the contract or unilaterally changes the contract
④ In case the operation or profit of the project is adversely affected due to the actions or omissions of the government agency in charge of the project
⑤ Risk of competing with infrastructure similar to the project in question, etc.
(2) PT. SMI (website: https://ptsmi.co.id/)
– Activities: Providing financial support, investment, consulting, and project development necessary for project execution
– Major fields of support: Perform work in a total of 20 fields below
① Social infrastructure (hospital, market, terminal, etc.)
② Tourism infrastructure
③ Water resources and irrigation infrastructure
④ Waste management system infrastructure
⑤ Renewable energy infrastructure, etc.
3. Key public-private partnership (PPP) projects for 2023: See attached file (Quick Win PPP Project)
The Indonesian Ministry of National Development Planning annually announces public-private partnership (PPP) projects that have completed feasibility reviews or are in the process of feasibility reviews as the PPP Book (Public-Private Partnership Infrastructure Projects Plan in Indonesia). The 2023 PPP book will be officially announced around August. The Jakarta Trade Center has been provided with information about 8 public-private partnership (PPP) projects that can participate in 2023 from the Indonesian National Development Planning Department in advance, and would like to share this with domestic companies.
Indonesia Public-Private Partnership (PPP) Project FAQ
Below is PT. This is the content of the interview with PII.
Q1. What areas do you see as the most promising for public-private partnership (PPP) projects?
A1. In addition to traditional infrastructure such as transport, roads and water, infrastructure projects including waste management and hospitals are in preparation. In particular, small-scale PPP projects such as energy saving and road lighting projects are also attracting attention, and in fact, several local governments are promoting them.
Q2. Public-private partnership (PPP) projects can be largely divided into government-initiated projects and private-initiated projects. Which type of project is more suitable for foreign (Korean) companies to participate in?
A2. It is the same that both types can receive support from the Indonesian government. However, the key to promoting a PPP project is to identify the needs of the public and align them with the government's plan. In this regard, in the case of government-initiated projects, many private companies wish to participate, which means that competition is fierce. For this reason, in the case of a project initiated by the private sector, it seems easier for foreign companies (Korea) to participate in that the company started the project.
Q3. Do you have any special suggestions for foreign (Korean) companies to successfully participate in and promote public-private partnership (PPP) projects?
A3. Working with local companies or having a branch in Indonesia is key. This is because local information can be checked quickly, and the ratio of Indonesian content required by the project can be met. It is also necessary to regularly monitor potential PPP projects through the PPP Book of Bappenas and the development plan of New Capital City (Nusantara). Lastly, in the process of preparing a project, companies should review in detail whether the project ① provides public services, ② whether it is feasible, and ③ whether it is possible to secure funds through bank loans.
Meanwhile, according to an interview with an Indonesian smart city expert, cooperation with Indonesia's central government public corporation (BUMN) and local government public corporation (BUMD) is essential for Korean companies to participate in the Indonesian PPP project. This is because, unlike the government and local governments, whose main source of income is taxation, the project is highly profitable and feasible because it is a party that can make a profit structure through infrastructure.
Q4. Are there any major government departments or agencies that foreign (Korean) companies can contact for information about public-private partnership (PPP) projects?
A4. Foreign companies are PT. PII and the following organizations can be interviewed if necessary.
a. Ministry of Economic Cooperation of the Republic of Indonesia (Kementerian Koordinator Bidang Ekonomi, Kemenkonomi)
b. Indonesian Ministry of Maritime and Investment Cooperation (Kementerian Koordinator Bidang Kemaritiman dan Investasi, Kemenko Marves)
c. Ministry of Interior of Indonesia (Kementerian Dalam Negeri, Kemendag)
d. Indonesian Ministry of Finance (Kementerian Keuangan, Kemenkeu)
e. Indonesia National Development Planning Department (Kementerian Perencanaan Pembangunan Nasional, Bappenas)
f. Indonesian Ministry of Investment (Badan Koordinasi Penanaman Modal, BKPM)
g. Indonesian Government Goods/Service Procurement Policy Research Institute (Lembaga Kebijakan Pengadaan Barang/Jasa Pemerintah, LKPP)
implication
Indonesia is planning to achieve 'GDP of 2045 trillion dollars by 7, the world's 5th largest economy' by fostering the smart city market. In particular, the new capital relocation project that leads the market has been designated as a key government task to establish smart city standards, realize carbon neutrality, and use it as a new growth engine. Governments and private companies from more than 16 countries, including Korea, are actively participating in the Indonesian smart city market, which is growing under the active leadership of the government. In addition to Korea's new city development experience and world-class ICT technology, it is expected that it will be possible to enter the market with higher competitiveness if it identifies and approaches the characteristics of the Indonesian smart city market.
Source: Korean Embassy in Indonesia, Ministry of Public Housing in Indonesia, Ministry of National Development and Planning, New Metropolitan Government, PT.PII, Research Nester, CNN Indonesia, and KOTRA Jakarta Trade Center