Indonesia launches state guarantee fund

The fund has $107m of initial funding and, in exchange for the payment of premiums, will protect investors against unfavourable policy decisions affecting PPP projects.

In a move designed to reduce the cost of financing public-private partnerships (PPPs), the Indonesian government has launched a new state-owned guarantee fund to protect investors from unfavourable policy decisions that could hurt their investments.

The PT Penjaminan Infrastruktur Indonesia (PII) fund will act like an insurance company, charging premiums – though it is claimed that these premiums will not be as high as those typically charged by mainstream insurers. Investors will be compensated for losses in the event that, for example, a promised tariff increase on a toll road fails to materialise.

The government has injected an initial RP1 trillion ($107 million) into the fund. It is hoping to attract additional funds in the form of a RP1.5 trillion loan from the World Bank.

“The objective in establishing PII is, firstly, to reduce the cost of financing public-private partnerships [PPPs] by improving the quality of the PPP projects and their creditworthiness,” Arif Baharudin, the Indonesian finance ministry’s director of state assets, told the Jakarta Globe newspaper. Firms who are backed by PII will also enjoy easier access to credit and lower interest rates, he added.

The Indonesian government has estimated that the country needs around RP2,000 trillion a year in infrastructure investment over the next five years. As it can only finance around 40 percent of that amount, it has been forced to turn to the private sector to jointly finance projects via PPPs. Bank support has been slow in coming forward, however, due to the long-term and sometimes high-risk nature of projects together with high interest rates.