Co-published project finance guide: Indonesia Author biographies


Ibrahim Assegaf AHP


Ibrahim Assegaf is a partner at AHP and a member of the firm’s general corporate practice group. He advises both domestic and international financial institutions on project, corporate, and government financings, as well as on insolvency and debt- restructuring issues. He has been closely involved over the last few years in the Indonesian Government’s 10,000 MW power sector development programme. With an undergraduate degree in law from the University of Indonesia (1997), he spent


time as a visiting research fellow at Harvard Law School’s East Asian Legal Studies Program (2002-2003), before earning an LLM in 2009 from the University of Melbourne. He has played an active role in various reform initiatives, including advising the Indonesian Supreme Court’s Judicial Reform Committee, and a law-reform project funded by the Australian government. In 2005, Assegaf was presented with an Asia Foundation 50th anniversary award in recognition of his contribution to legal reform in Indonesia.


Yanu Wiriasmoko AHP


Yanu Wiriasmoko is a banking & finance partner at AHP. A licensed capital markets attorney, he has brought his consid- erable knowledge to bear on a wide range of project financings in the Indonesian power and toll-road sectors. He also advises on debt restructurings and private placements, and has played key roles in a series of major transnational M&A deals. A member of the International Swap Dealers Association (ISDA) and the Asia Pacific Loan Market Association, Mr. Wiriasmoko


holds degrees in both economics and law from the University of Indonesia, and has attended courses on advanced lending in Hong Kong and derivates in Singapore. He is currently studying Islamic finance in Malaysia.


Infrastructure (SMI) as a form of holding company to ‘act as a catalyst in the development of the Indonesian infrastructure sector’. SMI received equity of $120 million from the Government, while the Asian Development Bank and World Bank each provided loans of $100 million. SMI then established Indonesia Infrastructure Finance (IIF) in 2010, in collaboration with the ADB, International Finance Corporation (IFC) and Germany’s DEG, to provide financing to qualified projects. Crucial support for the PPP framework was


also put in place in 2010, with the establishment of the Indonesia Infrastructure Guarantee Fund (IIGF), the purpose of which is to extend guarantees to PPP projects, thereby helping boost their creditworthiness. The risks that may be covered by the IIGF include those that arise at both the pre-construction stage, such as land acquisition risks, and the operational stage, including breaches of contract, legal and regulatory changes, and problems in closing financing. While the IIGF is a state-owned company, it operates on a commercial basis. It does not guarantee risks that can be insured in the private market, and has proved itself highly professional and


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competent since its establishment, insisting on tightly drafted project documentation and conducting close monitoring of progress. In addition, the Ministry of Finance has


drafted a decree on viability gap funding, although this is not yet on the statute books. The Indonesian National Development


Planning Agency (Bappenas), the body charged with progressing PPP schemes, has identified 100 projects valued at around $47.3 billion available under the PPP programme, including one marine transportation project ready for offer valued at $36 million, 27 priority projects (18 toll roads, six water supply and three sanitation projects) valued at $8.3 billion, and 72 other potential projects worth $38.9 billion. Despite significant advances on the


regulatory and financing sides, overall progress has been slow to date, with only two of the PPP projects offered since 2006 now actually under construction. These are the 2000 MW, Central Java IPP coal-fired power plant (which is being built at a cost of $3 billion under the new PPP regulations and is expected to serve as a model for other projects), and the 9.7km Nusa Dua – Ngurah Rai –Benoa tolled expressway in Bali.


Progress to date by sector Power The power sector in Indonesia continues to be dominated by the State Electricity Company (PLN), which enjoys a monopoly over electricity transmission. The company both generates its own power and purchases electricity from independent power producers (IPP). While demand has been growing by between 7% and 10% over the last five years, the electrification rate across the country stood at only 70.4% in 2011, one of the lowest rates in the region. As a result, some 80 million Indonesians, primarily in the countryside, have no access to reliable power sources. To counter the country’s lack of investment


in the power sector, in 2006 the Government launched phase 1 of its 10,000 MW Generating Capacity Development Programme, which focused on the construction of new coal-fired power plants across Indonesia. This was followed by phase 2, which concentrates on the development of renewable power sources, particularly geothermal. Unfortunately, phase 1 turned out to be a


less than resounding success, with only about 45% of the planned capacity on stream for the end of 2012. There are a number of reasons for this, most significantly the non-availability of government guarantees (in addition, tender winners frequently turned out to lack the capacity to develop their projects). As regards phase 2, government guarantees are available, but only since earlier this year. It is only now that work is actually getting underway, with guarantees having been issued for four projects so far. The Ministry of Finance is no longer


willing to extend blanket guarantees. This is a result of its traumatic experiences at the end of the 1990s and early 2000s, when Indonesia found itself on the losing end of a number of multi-million dollar arbitration suits (the Karaha Bodas case, for example). The Ministry also appears intent on restricting coverage to lenders, rather than sponsors, and to reducing the terms of guarantees from 20 years to 15 years. The IIGF will also provide a guarantee,


backed by government or multilateral agencies, for a qualified project provided it is initiated by central or local government, or a state-owned enterprise. As for geothermal, the development of this


sector in the past was hampered by the legislation’s treatment of it as something of a hybrid creature, and as a result of both PLN and the state oil and gas firm Pertamina competed with each other for control. That problem was remedied by the Geothermal Act 2003, under which rights to exploit geothermal resources are granted through


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