Mrs reslian pardede clgi congres paper in jakarta 2012

Urban Infrastructure Financing UCLG ASPAC – Congress Jakarta, October 3, 2012

Copyrights: University of Washington

Accessing Infrastructure Financing

What kind of infrastructure financing is available for cities in Indonesia?

What should cities do to access the financing?

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Source of Financing

ONSHORE FUNDS

OFFSHORE FUNDS

Cities own funds National Government Other Local Government Financial Institutions Corporations

C I T I E S

NatGov. Subsidiary Loan/ Grant Agreement

Foreign Governments International Donor Agency Financial Institutions

Local Corp.

PPP

Corporations

Retail/people

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Source of Infrastructure Financing for Cities National Government

Ministries’ Budget & Mechanism

Subsidiary Loan /Grant Agreement

Other Local Governt

Private Sector

Governmt Investm.

Fund

Corporations (non FI)

Retail/ People

Financial Institutns

Bank

Non Bank

Loan Grant

Grant

Loan

PPP

Budget Mechanism (APBD)

Loan

Loan

Bonds

Budget Mechanism(APBD) Cities/Local Government 4

Planning Agency

3 mth after Mediumterm Dev Plan, revised annually

RPPLN (Plan for Offshore Financing)

REJECTED

Feasible ?

YES 6 mth after Mediumterm Dev Plan NO

Cities

Ministries or SOE

Evaluation on administration, technical and financial DRPLN-JM (List of Potential Activities)

Subsidiary Loan Agreement Procedure

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Inform plan for DRPLN 4

NO

1

Council Approval

3

Proposal Summary of Prop 5

Increase Readiness Ministries or SOE

Meet Req?

6

Detail Proposal

YES REVISE/IMPROVE

When forwarding the loan, the Government (Ministry of Finance) enters a subsidiary loan agreement with cities.

DRPPLN (List of Priority)

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Ministries or SOE List of Activities (Projects)

Meet readiness criteria

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Source: PER.004/M.PPN/2011

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Ministry of Finance

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Type of Financing – Grant Source: National Government/Ministries Offshore funds G R A N T

Characteristics: 1. Grant is mostly used for preparation or assistance funds.

2. Cities involvement is quite limited in proposing grant.

3. Ministries can forward funds to cities as either grant or loan (PER.004/M.PPN/2011). Each Ministry has its own mechanism of distributing funds to cities e.g. RPIJM (Public Works).

Finding out financing mechanism in Sectoral Ministries

Type of Financing – Loan Source:

L O A N

National Government (PIP, PT SMI, PT IFF) Offshore funds – through SLA Financial Institutions Other LGs Retail (Bonds)

Characteristics: 1. Each financing has a different mechanism but all is subject to PP 30/2011 2. Some lenders are more stringent than others 3. Loan requires strong fiscal capacity, good financial management as well as some degree of transparency More suitable for income generating projects 7

Type of Financing – PPP Source: National Government (PIP, PT SMI, PT IFF) Private Sector (Corporations, State-Owned Enterprise, Local Government Owned Companies and Cooperatives): PP56/2011 allows foreign legal entities P P P

Characteristics: 1. The part offered to private sector should be interesting enough for them to participate 2. PPP requires advance knowledge on project structure 3. Initiatives can come from Ministries/Cities or Private Sector A PPP project can be a combination of different financing types 8

Challenges in Accessing Financing

Financial Gap.

Most cities depend on budget transfer from Government which currently still dominates the city financial income structure (around 70�80% of the total income) and is just enough for routine expenditures.

Prioritization.

Considering the limited amount of funds, cities need to prioritize their infrastructure projects.

Packaging.

Packaging is about how to design financial scheme of a project to be not only attractive but also fits the risk profile of each source of funds. This is all about creativity, skills and experience.

Execution.

Successful infrastructure financing needs not only good planning but more importantly execution starting with establishing a team, timeline, target.

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