Public Private Partnership (PPP) regulatory update: Eligible projects expanded and new joint PPP

What is new?

The five main changes introduced by Regulation No. 2 are set out below.

1. Types of infrastructure eligible for PPP expanded

Transportation

• Regulation No. 4 (previous): 1. Provision and/or management of facilities and/or services at airports or seaports. 2. Included facilities and/or infrastructure for railways, urban mass transportation and traffic, and/or sea, river and/or lake crossings.
• Regulation No. 2 (new): There are three additional types of projects included under transportation infrastructure: 1. Terminals; 2. Transit-oriented development; and/or 3. Testing and/or measurement of motor vehicles.

Roads

• Regulation No. 4 (previous): 1. Arterial roads; 2. Toll roads; and/or 3. Toll bridges.
• Regulation No. 2 (new): There are two additional types of projects included under roads infrastructure: 1. Non-toll bridges; and/or 2. Public street lighting (penerangan jalan umum).

Drinking water system

• Regulation No. 4 (previous): Raw water units; Production units; and/or Distribution units.
• Regulation No. 2 (new): Investment in technology for operation and maintenance of drinking water supply (system penyediaan air minum/SPAM) has also been included as a type of drinking water system project.

Toxic and hazardous waste management system

• Regulation No. 4 (previous): Not regulated.
• Regulation No. 2 (new): 1. Hoarding; 2. Storage; and/or 3. Processing.

Tourism

• Regulation No. 4 (previous): Tourism information center.
• Regulation No. 2 (new): Tourism area (kawasan pariwisata) has also been included as a type of tourism project.

Penitentiaries

• Regulation No. 4 (previous): 1. Correctional facilities; 2. Prison halls; 3. State detention centers; 4. Storage houses for seized objects and state booty; 5. Institutions of temporary placement for children; 6. Children’s development institutions; and/or 7. Correctional hospitals.
• Regulation No. 2 (new): Assimilation facilities have also been included as a type of penitentiaries project.

State buildings

• Regulation No. 4 (previous): Not regulated.
• Regulation No. 2 (new): Office buildings; State housing; and Other facilities.

2. Joint PPP expanded

Regulation No. 4 allowed two or more types of infrastructure to be combined as one PPP project (“joint PPP”). Regulation No. 2 adds another form of joint PPP, namely a combination of two or more GCAs (ie minister/head of agency/head of regional government as project owner) for one infrastructure project or co-GCAs.

Where a joint PPP project involves more than one GCA, all the GCAs involved are required to enter into a memorandum of understanding to appoint the coordinator between themselves. The coordinating GCA will then be the party signing the PPP agreement on behalf of the GCAs. There is no guideline on the risk allocation among the GCAs involved.

It will be interesting to see if the market will view this as a possible enhancement of the credit of GCAs as a whole, where a strong creditworthy GCA will support a weak creditworthy GCA (especially for projects that bank on the credit of GCAs, eg availability payment based projects). In order to achieve such credit enhancement effect, the obligations of the GCAs (notwithstanding the risk allocation among them) must be on a joint and several basis.

3. Addition of contract implementation phase

Previously, there were three phases in a PPP project: (i) planning, (ii) preparation, and (iii) transaction. Regulation No. 2 adds a new phase after the transaction phase, namely the contract implementation phase.

4. More support to be given to GCAs

The Government will provide some sort of capacity building facilities to help GCAs develop pre-feasibility and feasibility studies in the form of consultation, assistance and deployment of facilitators. Bappenas will play a coordinating role in this.

5. Unsolicited PPP projects

Regulation No. 2 provides further provisions for unsolicited PPP projects. Previously, in order to initiate a PPP project, a business entity was required to submit a feasibility study on the prospective project. Regulation No. 2 now requires the business entity to submit a pre-feasibility study and, once approved, to follow this with a feasibility study.

Nevertheless, Regulation No. 2 provides an exemption to the requirement to submit a pre-feasibility study where a business entity that has already prepared a feasibility study is no longer required to submit a pre-feasibility study.

Further, business entities are also allowed to initiate infrastructure projects which are identified in the national development plan provided that the Government has not conducted pre-feasibility studies on those projects.