New concession model introduced to monetise existing Government/SOE infrastructure assets
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On 18 February 2020, the Government introduced a new legal framework on the limited concessions scheme (LCS) in the infrastructure sector. The new rule is Presidential Regulation No. 32 of 2020 on Financing of Infrastructure through Limited Right of Utilisation (Reg 32).
A few key takeaways have been outlined below:
- As an LCS model involves existing assets, it significantly reduces investors’ exposure to construction risks.
- Reg 32 also provides that the LCS contracting authorities are the central Government and SOEs, which to a large extent are better than contracting with regional governments or regional state-owned companies from the perspective of creditworthiness and the associated counterparty risks.
- LCS will not benefit from the guarantee against political risks by IIGF (Indonesian Infrastructure Guarantee Fund) which PPP projects would typically enjoy. This may be less of a concern if the LCS contracting authorities are the central Government or creditworthy SOEs. There are a number of precedents of infrastructure projects which have been successfully closed without such guarantee (e.g. power sector).
- On the other hand, LCS seems to be lacking a uniform procurement process as in the PPP regime. A uniform procurement process is praised for its transparency and predictability.
Please refer to our detailed PDF for more details.