news     April 7, 2015

Hot air for infrastructure

The government’s plan to prepare a bill on an infrastructure financing agency to be proposed to the House of Representatives sometime next year, though necessary, is not the most imperative and urgent measure needed to accelerate infrastructure development under the public-private partnership (PPP) scheme.

Finance Minister Bambang Brodjonegoro last week again touted the idea of an infrastructure bank, arguing that commercial banks, which depend mostly on short-term funds, are not adequately resourced to meet the financing needs of basic infrastructure that has a very long gestation (payback) period. He mentioned that the dearth of financing is not really the most pressing problem encountered by investors looking for opportunities in the infrastructure sector, but well-designed, commercially viable PPP projects supported with reliable feasibility studies and the virtual absence of a coordinating agency, such as a powerful PPP center.

Moreover, as Bambang explained, the process would also require the merger of two state companies — PT Sarana Multi Infrastruktur and the government wealth fund, Pusat Investasi Pemerintah. Even if the whole process could be completed within, say, 18 months and the state infrastructure bank received a one-time injection of big equity capital from the state budget, this new bank would still need to float bonds to strengthen its lending resources.

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