The Finance Ministry is designing a complete and comprehensive ecosystem using the Public-Private Partnership (PPP) scheme to increase investments in the infrastructure sector. The activity is expected to attract long-term infrastructure investors.

Financing and Risk Management Director General Luky Alfirman said that his agency was preparing regulations and incentives that support and attract private investors, such as tax holiday. “Our focus is to design a compete and comprehensive ecosystem using the PPP scheme as attracting investors for infrastructure construction is not easy,” Luky said at Indonesia Stock Exchange (IDX) in Jakarta on Tuesday (3/12).

His statement was made during a discussion on Sustainable Development of Investment Partnership (SDIP) ASEAN Hub 2019 with a theme of ‘Mendorong Pendanaan Infrastruktur Berkelanjutan melalui Pasar Modal dan Pertumbuhan Asuransi’ (Boosting Sustainable Infrastructure Funding through Capital Market and Insurance Growth).

According to Luky, the Finance Ministry continues to boost private investors having active roles in infrastructure project funding as Indonesia can still optimise sustainable infrastructure construction to be in line with the sustainable development goals (SDGs). Hence, the government will continue boosting the PPP scheme as an alternative financing source for infrastructure constructions in Indonesia.

He admitted that it had not been easy for the government to attract long-term investors. Hence, through the offer of the scheme, it is expected there will be many investors entering in the future, so the state budget (APBN) from the government will have a lower portion in infrastructure funding.

“Previously, almost all infrastructure programs and projects were developed and funded by the government. In the future, the role of the government will be smaller, which is only as the facilitator. For other infrastructure projects, we want the private sector to enter,” Luky said.

According to Luky, the government is currently still the main player in providing infrastructure, and their role is dominant.” The question is how do we structure the infrastructure projects so that private and foreign investors can enter? Which partnership, which scheme [is required] to attract private investors as well as insurance and pension fund companies? They have their own preferences,” Luky said.

He emphasised that, for the next four years, infrastructure construction would still be the government’s priority. “The government uses the state budget fully. On the other hand, we heard about what is needed by insurance and pension fund [companies]. I do not know if they have their own preferences. We cannot meet all of it, but if we can, why not?” Luky said.

According to him, insurance fund can be a new source for infrastructure project funding, especially for long-term projects. The role of the insurance industry currently cannot be relied on as the public still lacks the awareness to get insured.

Hence, besides education, the government will provide fiscal incentives to boost the industry’s growth. “Insurance is one of our financial industry supporters. With more fund available, there will be more fund for construction, which includes infrastructure. So, it is a homework shared by the government, the financial services authority, and the public,” Luky said.

For the next five years, the Indonesian Government will still have a gap in infrastructure construction by around Rp6,500 trillion. From the total cost, the government can only pay for around 35% to 37% of the total requirement.

He continued that insurance growth rate in Indonesia was far below neighbouring countries. Based on data from OJK (Financial Services Authority), insurance premium in 2019 only reaches 9%, even though the growth of banking loan distribution reaches 12.88%.

To turn insurance into a source for infrastructure funding in the future, Luky said that the government would relax the insurance industry and planned to provide incentives. “The fiscal incentive is still uncertain, but it has been proposed in a forum and we will study it,” he explained.

Tax deduction

Indonesian Life Insurance Association Chairman Budi Tampubolon said that, to make insurance industry a source for infrastructure financing, the government could provide tax incentives. The incentive will be a deduction on taxes on debentures. Meanwhile, clients can be provided an income tax deduction.

World Economic Forum (WEF) Head of Asia Pacific and Member of the Executive Committee Justin Wood said that, economically, Indonesia had many options to boost growth and construction.

“250 million individuals are a humongous market. In order for all of this potential to be realised, large investment in physical and digital infrastructures is required. I think that investments cannot come from the government alone, a source of capital from private investors is also required,” Jastin Wood said as quoted by Antara.