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Long-stalled Indonesian water project hits financial close

It took 43 years for sponsors to take the Umbulan scheme through its early development stage, a milestone now achieved despite recent legislation deemed adverse to PPPs by insiders.

A 2.112 trillion rupiahs ($157 million; €150 million) regional water treatment PPP project in Indonesia has achieved financial close, decades after it was first mooted by the government of the East Java province.

The project company of the Umbulan Drinking Water Treatment System PPP project secured financing from Indonesia Infrastructure Finance, the government’s development arm, and state-owned infrastructure financing company Sarana Multi Infrastruktur. 

The package also includes 818 billion rupiahs from the government’s Viability Gap Funding and an infrastructure guarantee through the state-run Indonesia Infrastructure Guarantee Fund. 

Under a 25-year contract, the concessionaire will design, build, operate, maintain and finance the facilities and transmission network with a capacity of 4,000 litres per second, delivering drinking water to 1.3 million people in East Java. 

The project was awarded this July to the project company, which is a 70/30 joint venture between domestic energy company Medco and construction firm Bangun Cipta Kontraktor. 

The project had been planned since 1973, but it was not until 2010 that the provincial government decided to develop it as a PPP. Local reports said that it had long been stalled due to red tape and design flaws in the pricing scheme. 

“This deal shows that the domestic banking market in Indonesia is developing an appetite for PPPs across a variety of sectors, which is critical to help plug the government’s infrastructure deficit. It also shows that the government has been able to bounce back after the shock of last year’s constitutional court ruling which undermined the previous basis for water sector PPPs in Indonesia,” said Julian Smith, an advisor at PwC, which acted as financial transaction consultant to Sarana Multi Infrastruktur.