Constraints of The Implementation of BTL

3. Opportunity of the Application of BTL

Method in Indonesia Indonesia as the 16 th biggest economy in the world has grown rapidly in past decades. Indonesia’s economy continued to growth at a steady pace in the 2013, wth GDP growth of . The 2013 GDP growth was solid, which was primarily based on WYP]H[LJVUZ\TW[PVUHUKHIL[[LYWLYMVYTHUJLPUÄ_LKJHWP[HS investment. In the other hand, Indonesia’s infrastructure development lagged the economic growth. To date, Indonesia’s infrastruc- ture investment as a share of total output at around 3 per cent, YLTHPUZ ILSV P[Z WYLZPHU ÄUHUJPHS JYPZPZ SL]LSZ VM HYV\UK 7 per cent Lundine et.al, 2013.Thus, the Government has encouraged private sector to invest in infrastructure through PPP mechanism. Since then, the Government has taken ma- QVY Z[LWZ [V YLÄUL [OL 777 WVSPJ` HUK YLN\SH[VY` MYHTLVYR to improve the attractiveness and competitiveness of the PPP projects in Indonesia. The development of PPP in Indonesia was supported by the government with the adoption of best practices of PPP on the international level through the Presidential Regulation No. 67 Year 2005 on Public Private Partnership in Infrastructure Devel- opment. The regulation served as a asis for all PPP frameworks until its revision in 2010 through the Presidential Regulation No. LHY ;OL NV]LYUTLU[ LќVY[Z [V KL]LSVW 777 JHU also be seen in the establishment of a government institution to support the PPP policy. PPP in economic infrastructure in Indonesia has grown quite fast with the implementation of sounds regulations. In 2013, there were 21 projects undegoing public procurement, such as: Central Java Coal Fired Power Plant, Umbulan Water Sup- ply, East Java, PurukCahu-Bangkuang Coal Railway, Bandar ampung Water Supply, etc. In the other hand, Indonesia has not implemented the PPP TLJOHUPZTMVYZVJPHSPUMYHZ[Y\J[\YL`L[OPJOPSSIYPUNILULÄ[ for the society. As we already mentioned in the previous chap- ter, BTL methods has succed in building the social infrastruc- ture such as schools, hospitals, sewage, etc, for people in the South Korea. As Indonesia is still struggling to reach develop- ment goals stated in the Millenium Development Goals MDGs, this BTL method could be a complimentary component for the government in reaching the development goals. Indonesia’s progress in achieving MDGs has been remarkedly successful in some areas, but still have long way to achieve the inclusive results. For example, Indonesia’s achievement in MDG2, Achieving Universal Primary Education, has been go- ing well which the net enrollment rates for primary education are increasing and are on track to achieve the target of 100 per cent by 2015 Lundine et.al, 2013. But this picture can’t describe the quality of education, starts from school building facility, teacher’s quality, and the education curicullum itself. Even in some remote areas in Indonesia, they don’t have prop- er school building and facilities to support the education. The government has allocated 20 per cent of the government bud- get for education, but it seems that number is not enough in providing facilities for education especially in the remote areas in Indonesia. In the MDG 4, Reduce Child Mortality has also made signifcant stride, where the child mortality rate has fallen nationally. But this progress is not successfully followed in the MDG 5, Im- WYV]L4H[LYUHSLHS[O0UKVULZPHPZVќ[YHJRVUYLK\JPUN[OL maternal mortality rate from 390 maternal deaths per 100,000 live births in 1991 to its goal of 102 by 2015 Lundine et.al, 2013. The main reason for this result is Indonesia still strug- gling with the health care facilities where most of people in the remote areas do not have an equal access to health care facil- ities. This due to the low health care infrastructure and lack of road infrastructure. In some eastern provinces where the health care infrastructure is not developed well yet, child and maternal mortality are still two or three times higher than the national average. Other challenge ahead for Indonesia is in term of providing the water sanitation for its people. Despite recommendable prog- ress in reducing extreme poverty and overall poverty rates, In- KVULZPH JVU[PU\LZ [V MHJL ZPNUPÄJHU[ JOHSSLUNLZ PU WYV]PKPUN adequate water and sanitation. The geographic challenges of 0UKVULZPHJHUUV[ILV]LYZ[H[LKJVTIPULKP[OPUZ\ѝJPLU[PU- frastructure and frequent natural disaster, not all areas have regular access to water and sanitation. These challenges in meeting development goals should be conquered by investing in social infrastructue, but the govern- TLU[M\UKPUNJHWHJP[`PZPUZ\ѝJPLU[[VI\PSK[OLZLPUMYHZ[Y\J- ture. The lack of funding should become an opportunity for the government to invite the private sector to invest in the social infrastructure like South Korea did in 2005. It will need a proper holistic research from the government to include the private sector in providing the social infrastructure for the society. The lesson learned could be took from South Korean’s experience in implementing BTL Methods in building the social infrastruc- ture. The application of BTL method in Indonesia could be done for some areas such as education facilities schools etc, health care facilities hospital etc and water sanitation facilities. But ÄYZ[ VM HSS [V PTWSLTLU[ ;3 TL[OVK PU 0UKVULZPH [OL NV]- ernment should make the regulatory framework to guide the application of BTL method. It will take time to form the good regulatory framework, but it will be very useful to expand the PPP mechanism in Indonesia.

4. Constraints of The Implementation of BTL

Method in Indonesia The BTL method for social infrastructure has been developed in South Korea since 2005 and it has grown to the large num- ILY [OH[ L]LU[\HSS` IYPUN ZVJPHS ILULÄ[ MVY [OL ZVJPL[` 0U 0U- donesia, it will be a good opportunity to follow South Korea’s step in implementing the BTL method for social infrastructure, HZ H JVTWSPTLU[ MVY [OL NV]LYUTLU[»Z LќVY[ PU YLHJOPUN [OL development goals. The BTL Method has not been applied in Indonesia and the government is not familiar yet with this method. There are many constraints in developing this PPP mechanism in Indonesia. First constraint that become a big concern is the reluctancy of the government in giving the opportunity for the private sector [VWYV]PKLW\ISPJNVVKZ;OPZ]PLOHZ[VILJOHUNLKÄYZ[I` KVPUN[OLYLZLHYJOVU[OLLќLJ[HUKILULÄ[VM;34L[OVKPU South Korea. The study case from South Korea’s experience NEWSLETTER I2014 34 T his meeting is an annual agenda of South-South Technical Cooperation Division, Bureau for Foreign Tecnical Cooperation, Ministry of State Secretariat. Each year the coordination meet- PUNPTWSLTLU[LKP[OKPќLYLU[[VWPJZHUKPZZ\LZ;OL[OLTLVM this year’s meeting is about aid mechanism, how to identify the WYVISLTZYLSH[LKP[O[OLHPK[VILULÄJPHYPLZJV\U[YPLZHZLSS as to understand what component that needed to establish the regulations related. This meeting is also aimed to set up and coordinate inputs from the stakeholders as well as to es- tablish the agreed timeline to construct the policies regarding [OLNYHU[[OH[LPSSILNP]LU[VILULÄJPHY`JV\U[YPLZ In the beginning, the technical cooperation under the South- South cooperation scheme that coordinated by the Ministry of State Secretariat was largely funded by development partner such as the United Nation and Japan International Cooperation Agency JICA. Indonesia is nowadays consider as the Middle Income Country, so that Indonesia expected to become a pro- vider of the technical cooperation to developing countries. As the member of National Coordination Team, through this coor- KPUH[PVUTLL[PUN4PUPZ[Y`VM:[H[L:LJYL[HYPH[OVWLZ[OLÄUHU- cial procedures in the future will be more simple and understan- able by all implementing agencies as well as the stakeholders. Related to this matter this year coordination meeting HZ HYYHUNLK [V KPZJ\ZZ HIV\[ [OL ÄUHUJPHS TH[[LYZ The objective of this coordination meeting is to give a recommendation to the National Coordination Team as well as to the Ministry of Finance so that in the future the ÄUHUJPHSWYVJLK\YLZ[OH[YLSH[LK[V[OL[LJOUPJHSJVVW- eration will be more well-organised. IP[KPќLYLU[P[O[OLHUU\HSJVVKPUH[PVUTLL[PUN[OH[OLSKYL- JLU[`LHYZ[OPZ`LHY[OLTLL[PUNHZKP]PKLKPU[V[VKPќLYLU[ HJ[P]P[PLZI\[YLSH[LK[VVULHUV[OLY;OLÄYZ[HJ[P]P[`HZWHULS discussion held on 18th of June 2014 in Jakarta. Meanwhile the second one was the Focus Group Discussion held on 20th of June 2014 in Bandung. Panel Discussion, 18th of June 2014 The panel discussion was attended by the representatives from the National Coordinating Team on SSTC Bappenas, MoF and MoFA and also invited ministries and institutions that involved PU:V\[O:V\[OVVWLYH[PVUZJOLTL;OLÄYZ[ZWLHRLYH[[OL ÄYZ[ZLZZPVUVM[OLWHULSKPZJ\ZZPVUHZ[OLLHKLKVM\YLH\ for Foreign Technical Cooperation, Mrs. Rika Kiswardani. Mrs. Rika convey that the institutions in Indonesia need to be identi- ÄLK[OLULLKYLNHYKPUN[OLÄUHUJPHSYLN\SH[PVUVU:V\[O:V\[O and Triangular Cooperation. The second speaker is Mrs. Siti Mauludiah Nugraha, Director for Technical Cooperation, Minis- [Y`VM-VYLPNUќHPYZ4YZ:P[P4H\S\KPHO5\NYHOHOVPZVM[LU called Mrs. Nining, presented about the experiences that her directorate gained in implemeting the South-South and Trian- N\SHYVVWLYH[PVUHUKHSZV[OLNLULYHSÄUHUJPHSZ[HUKHYKZ[OH[ used in the implementation. On the second session of the panel discussion, there were two resource persons from the Ministry of Finance. Mr. Tor- marbulang Lumbantobing presented about the abroad grant policy in the South-South and Triangular Cooperation scheme. Meanwhile, Mr. Djaka Kusmartata was talking about the export fees exemption from Goverment of Indonesia given to the other countries. COORDINATION MEETING SOUTH-SOUTH TECHNICAL COOPERATION 2014 Jakarta and Bandung 18 - 20 June 2014 NEWSLETTER I2014 3 From panel discussion, here are some important mat- ters as the results: A. The South-South and Triangular Cooperation ZOV\SKJVUJLYUHIV\[[OLULLKZVM[OLILULÄJPHYP` countries. These needs also should be based on 0UKVULZPH»Z UH[PVUHS PU[LYLZ[ ÅHNZOPW WYVNYHTZ HUKHSZV[OLÄUHUJPHSZJOLTLOL[OLYÄUHUJLK by the state budget or triangular cooperation by the development partners involvement. B. ;OL4PUPZ[Y`VM-VYLPNUќHPYZHZ[OLTLTILYVM the National Coordinating Team on SSTC has al- ready established the priority mapping of the ben- LÄJPHY`JV\U[YPLZOPJOHSYLHK`TH[JO[OLUH[PVUHS interest with the inputs coming from the related institution. C. As one of the Middle Income Country, Indonesia has obligation to give capacity building to the de- veloping countries. Nowadays, Indonesia not just as a recipient but also a resources that provide capacity building to other countries. In many op- portunities and occasions, the previous President of Indonesia, Mr. Susilo Bambang Yudhoyono, stated the commitment of the Government of Indonesia to give capacity building to developing countries, such as Timor Leste, Paletine, Fiji, ect. D. 9LJLU[S`[OL::;7YVNYHTÄUHUJPUN[OYV\NO[OL state budget become reducing due to the bud- NL[LѝJPLUJ`0USPULP[O[OPZTH[[LY[OL[YPHUN\SHY funding mechanism need to be assessed in the future. E. ;OL 3H YLNHYKPUN [OL NYHU[ [V ILULÄJPHY` JV\- tries has been made, but the forum agreed that the technical regulation need to be established in the form of PMK and PP. Ministry’s Regulation and the Government Law. F. Some inputs regarding the technical regulation are: the forum expect that the regulation should not be rigid, regulate how the mechanism and which party that reserve the right to give the grant and the grant should be allocated in one account. Visit to PT. Bio Farma and BBPP Lembang, 19th of June 2014 Before the implementation of the Focus Group Discussion, the representative from the Ministry of State Secretariat visiting 2 two center of exellences of Indonesia SSTC, namely PT. Bio Farma and the BBPP Lembang Balai Besar Pelatihan Pertani- an Lembang on 19th of June 2014. The objective of this visit is to discuss and gathering inputs for the SSTC implementation in the future from the center of exellences. Some points that important to be note are: A. Bio Farma has been recognized by the World LHS[O6YNHUPaH[PVU6HZVULVM[OL]HJJPULZ producer. Bio Farma has collaborated with many universities and international research institute to develop and create new vaccines. B. PV-HYTHJHWHJP[`PU[OLÄLSKVM]HJJPULWYVK\JLY can be one of the knowledge sharin to the oth- er developing countries, particularly the member countries of Organization of the Islamic Coopera- tion. Beside that, Bio Farma also learn the chance to build or acquisition the vaccine industry in the other potential country, such as Tunisia. C. Bio Farma proposes to cooperate with the Bereau for Foreign Technical Cooperation on the SSTC scheme. D. BBPP Lembang is currently develop the method of potato and tissue culture breeding which allow to produce potatoes’ seed in a large quantity in a short time. E. This method is one of the superior capacity in BBPP Lembang and also one of the training sub- ject that implemented for the Palestinians partici- WHU[Z+\L[V[OLÄUHUJPHSLѝJPLUJ`773LT- bang need to assess the cooperation possibility with development partners. Focus Group Discussion, 20th of June 2014 The Focus Group Discussion FGD is held in Wisma Setneg LNHYTHUHOHUK\UNVU[OVM1\UL;OPZ-.+PZSLHK I`[OLLHKVM\YLH\MVY-VYLPNU;LJOUPJHSVVWLYH[PVU4YZ Rika Kiswardani and attended by the representatives from the National Coordinating Team on SSTC. On this occasion, the result of FGD as mention below: A. -VY\TPKLU[PÄLK[OL::;ÄUHUJPHSJVTWVULU[Z which was implemented mainly through interna- tional training, scholarship, internship, dispacth expert and assistance in the form of goods and equipments. B. It is expected that in the future there will be uni- formity in applying the general fee standards par- ticularly on the SSTC program, and if possible the MVY\TWYVWVZL[OLZWLJPÄJHJJV\U[MVY[OL::; event in the state budget. C. All ministries and institutions are expected to sub- mit the SSTC programs data which will be held on the next year to Bappenas, in order to the secure the budget in the trilateral meeting among minis- tries, Bappenas and the Ministry of Finance. The result of this coordination meeting, both the Panel Discus- sion and the Focus Group Discussion will be reported to the LHKVM5H[PVUHSVVYKPUH[PUN;LHTVU::;+PYLJ[VYVM0U- ternational Development Cooperation, Bappenas. It is expect- ed that the results and recommendations of the coordination meeting will be submitted to the Ministry of Finance, so that the implementation of the SSTC programs, especially in the [LYTVMÄUHUJPHSPSSILTVYLZPTWSLPU[OLM\[\YL39: NEWSLETTER I2014 4 • PPP Basic Plan • PPP Implementation Guideline Table 2. PPP Regulatory Framework in South Korea PPP Act, PPP Enforcement Decree PPP Basic Plan • Eligibility infrastructure facility types 48 types • Procurement methods: • Procurement procedure • PIMAC, Infrastructure Credit Guarantee Fund, Infrastructure Fund • Government Support, Risk Sharing Measures • Policy directions • General guidelines for PPP project implementation • BTL Implementation Guidelines Source: Kim, 2011 ;OL SLNHS MYHTLVYR ZWLJPÄLZ [OL THQVY PUZ[P[\[PVU PU [OL PPP program, including the Ministry of Strategy and Finance MOSF and other related ministries. The MOSF is responsible for impementing the PPP Act, PPP Enforcement Decree and PPP Basic Plan. The other body that responsible for PPP im- plementation is PIMAC. 2.2. BTL Method in Building Social Infrastructure in South Korea At the end of 2004, the Government of South Korea had an- nounced its plan to introduce a new tpe of PPP program of Build-Transfer-Lease BTL as a new concept of the invest- ment plan that would stimulate the economy construction and job placements. BTL is a contract type of PPP in which the concessionaire makes an investment to BUILD infrastructure, TRANSFER and LEASE the ownership to the central or local government. Te concesionaire can get return on investment from the lease fee paid by the government for a time deter- mined in the concession agreement. Table 3. BTO and BTL Methods BTO BTL Applicable Facilities Revenue generating facilities road, rail, harbor, port, etc Pure public goods school, military base, sewage, muse- um, etc Investment Recovery User fees Construction subsidy Lease payment Ä_LKYL]LU\L Project Risk Demand risk on concessionaire Little demand risk on concessionaire Return PNOYPZROPNOYL[\YU Low risk, low return Eligibility Both socilited and unsocilited projects Socilitied projects only Source: Lee, 2013 The government grants the right to management and operation back to the concessionaire and the concessionaire leases the facility for an agreed period of time, usually from 10 to 30 years, and gets return on investment from lease rent. The lease fee is calculated by taking the investment principal and interest that is MHJPSP[`PU]LZ[TLU[JVZ[YLÅLJ[PUN[OLYH[LVMYL[\YU The eligible facilities to use the BTL methods are: new con- struction of elementary and middle schools, rehabilitation of worn elementary and middle schools, gymnasium and audi- torium of elementary and middle schools, new construction of military personnel housing, new construction of soldier’s bar- rack new construction of polytechnical college facilities, new construcction of national university dormitories, repair of worn sewage network and waterworks, new constructions of culture and art centers, libraries, museums galeries, and new con- struction of senior citizens medical welfare facility. ;OLKPќLYLUJLVM;3TL[OVKMYVT;6TL[OVKPZ[OH[PU[OL BTL method, the government takes on the demand risk which PZ[OLTVZ[ZPNUPÄJHU[YPZR[OH[WYP]H[LZLJ[VYJV\SKMHJLOLU carrying on a private investment project. South Korean Gov- ernment realized that most of the project risks in BTL method are on the government side, and thus prudent project assess- ment, ex-post performance management, and the budgetting process are critical for the successful execution of social infra- structure Kim, 2011. BTL method to build the social infrastructure in Korea has high satisfactory level among facility users, such as students, teach- er, patients in the hospital. This indicate that this new business area in PPP has been an attractive phenomenon for develop- ing countries. Usually, concession-type PPP projects are more popular in developing countries where economic infrastructure in the countries are under developed. But with the higher de- mand for social infrastructure that could generate better hu- man development and job creation, this BTL method could be translated to developing countries which still have some devel- opment agenda which stated in Millenium Development Goals MDGs. NEWSLETTER I2014 33 THE APPLICATION OF SOUTH KOREA’S PUBLIC PRIVATE PARTNERHSIP PPP OF BUILD-TRANSFER-LEASE BTL METHOD IN INDONESIA: THE OPPORTUNITY OF PRIVATE SECTOR INVOLVEMENT IN SOCIAL INFRASTRUCTURE DEVELOPMENT

1. Introduction