ADB pledges $500m to Indonesia's PPP reform plan

The Asian nation is kick-starting the third phase of an investment policy revamp as it seeks to shore up private involvement in infrastructure.

The Asian Development Bank has approved a $500 million loan to support Indonesia's reform programme at a time when the 250 million-strong nation seeks greater investment in infrastructure projects. 

The loan, which is the bank’s second under the Stepping up Investments for Growth Acceleration Programme, will be complemented by co-financing of $224.6 million from Germany’s KfW Bankengruppe. KfW provided parallel financing of $245 million for the first stage of the programme.

The financing package aims to support Indonesia as the country rolls out fresh measures to reduce barriers to investment and boost PPPs, which ADB sees as crucial to foster the development of the private sector and increase its participation in infrastructure projects. 

The cumbersome regulations and high costs of setting up and doing business have hindered new investment, the bank noted, adding that Indonesia ranks 109th out of 189 countries in a 2016 World Bank report for ease of doing business. 

“The 12 economic reform packages issued since last September underscore the government’s desire to dramatically improve the investment climate,” said Steven Tabor, country director at ADB’s Indonesia Resident Mission, stressing that the country has been taking significant steps to strip away regulatory red tape. 

The first phase of the government’s reform programme saw the setting of higher foreign equity ceilings in land, transport, shipping and the management of ports, as well as the creation of an office dedicated to formulating land acquisition policy and the development of a framework for e-procurement.   

The second phase of reforms has taken further steps to ease restrictions on investment, streamline processes for starting and operating a business, and widen the remit for PPPs.

The third phase of the programme, to be carried out from July 2016 to June 2018, will see further measures to expand evidence-based reforms, improve ease-of-doing business, strengthen PPPs and enhance the government’s e-procurement system.

ADB has also proposed to provide financings for two projects in Indonesia, including a $500 million loan to support a cluster of small-to medium-sized natural gas-fuelled power stations in eastern Indonesia and a $400 million loan to support the expansion of the Tangguh natural gas liquefaction project. The proposals are pending approvals. 

The bank has so far provided Indonesia with $31 billion in loans, $439 million in technical assistance, and $430 million in grants since 1966.