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Capital Projects & Infrastructure

Opportunities for foreign


investment in Indonesian
infrastructure development
Tim Boothman
March 2016

Section 1
Brief Overview of Indonesia

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
1

Section 1 Brief Overview of Indonesia

Promising economic outlook


Key highlights
Indonesia is the largest economy in South East
Asia, with an expected GDP in 2016 of USD 913.3
billion

Worlds fourth most populous country, with 256 million


people in 2015
Real GDP growth forecast at 5.2% in 2016, and to remain
steady at 5.3%-5.5% until 2019 (EIU).

Contribution to GDP Growth by Expenditure Item (Percent)


7
6

Although exports have fallen, sustained by resilient


domestic demand: private consumption projected to
increase to USD 3,280/head in 2019.

5
4
3
2

Improvements in business environment and governments


infrastructure plans could support growth.

1
0
-1
-2
2011

2012

2013

2014

2015

2016

Private Consumption

Government Consumption

Net Exports

GDP

2017

2018

2019

Gross Fixed Investment

Source: EIU February 2016, Note, excludes Statistical Discrepancy and Stockpiling

Rupiah depreciation appears to have levelled off


around 13,500

Wide-ranging forecasts for USD:IDR in 2019


Fiscal balance varied but stable at -2.2% of GDP in
2013-2015
EIU forecast fiscal balance -1.9% of GDP in 2019.
Opportunities for foreign investment in Indonesian infrastructure development Tim
Boothman
PwC

Bank Indonesia has maintained a stable Policy Rate,


and largely allowed the exchange rate to depreciate in
line with the Current Account Deficit
Inflation and Monetary Policy
15,000

20

14,000

18

13,000

16

12,000

14

11,000

12

10,000

10

9,000

8,000

7,000

6,000

Exchange Rate (LHS)


Source: Bank Indonesia

BI Policy Rate (RHS)

Headline Inflation YoY (RHS)

March 2016
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Section 1 Brief Overview of Indonesia

Considerations for Investment in Indonesia

Governments regulatory reforms should boost foreign investment

Strengths

Challenges

Amongst the top 50


fastest improving
economies

Underdeveloped
infrastructure
condition and land
acquisition issues

Large consumption base


with rising middle income

Industrial relations

Proven abundance of
natural resources
attracting demand from
China and India

Realizing government tax


collection and expenditure
plans

Low labour costs


attracting outsourcing
opportunities

Ongoing impact from


slowdown of Chinas
economy

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

Opportunities

Active regulatory reform

Simplification of
regulatory requirements
to start up businesses

Government support
to boost infrastructure
Shift in economic gravity
and untapped potential in
the Eastern part of the
country
March 2016
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Section 1 Brief Overview of Indonesia

Abundant Opportunities for Private Sector in Infrastructure Development

State and Regional


Budget
22%

Estimated
Funding
required for
2015-2019

USD 397
billion

SOE
6%
PPP
20%

Private
50%

Source: BKPM Investment Opportunities in Indonesia 30 April 2015.


Note: Off- balance sheet investments account for 2% residual.

Sector

Funding
Needs
(IDR tn)

Funding
Needs
(USD bn)

Toll Roads

851

62.0

Rails

222

16.2

City Transport

115

8.4

Water Transport

424

30.9

Other water transport and


ferry

80

5.8

Air Transport

165

12.0

Electricity

1,080

78.7

Gas and other energy

420

30.6

Water resources

845

61.6

Clean Water and Waste

666

48.5

Peoples Housing

384

28.0

Information and
Communications Technology

200

14.6

Total

5,452

397.0

Source: RPJMN 2015-2019, National


Development Planning Agency
Opportunities for foreign investment in Indonesian infrastructure development Tim
Boothman
PwC

March 2016
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Section 1 Brief Overview of Indonesia

Foreign ownership restrictions related to some infrastructure assets


No

Type of business

Electric power

Foreign
ownership

Explanation

(1.1) Power generation < 1 MW

Foreign ownership is not allowed

(1.2) Power generation 1-10 MW

Maximum 49%

(1.3) Power generation > 10 MW

Maximum 95% (up to 100% during concession period for PPP)

(1.4) Power transmission

Maximum 95% (up to 100% during concession period for PPP)

(1.5) Power distribution

Maximum 95% (up to 100% during concession period for PPP)

Toll Road operator

Maximum 100%

Construction services (with high technology and/or


high risks and/or work value of more than
IDR 10 billion (approx USD 770,000)

Maximum 67%

Treatment and disposal of non-hazardous


waste

Maximum 95%

Land freight transport, sea transport, inland water


transport

Maximum 49%

Land Transport for Passengers

Maximum 49%

Provision of harbour facilities

Maximum 49% (up to 95% during concession period for PPP)

Provision of Airport facilities and services

Maximum 67%

Source: Presidential Decree No. 39/ 2014 and its revision in February 2016: Perubahan Jenis/Bidang Usaha yang Tertutup
dan Terbuka dengan Persyaratan (Daftar Negatif Investasi).
Opportunities for foreign investment in Indonesian infrastructure development Tim
Boothman
PwC

March 2016
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Section 2
Opportunities in selected Indonesia
infrastructure sectors

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
6

Section 2.1
Airport Industry

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
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Section 2.1 Airport Industry

Overview of Airport opportunities in Indonesia


15 new airports and >10 SOE upgrades. USD 13.2 billion investment needed
Passengers in million

Source: Bloomberg, BPS, World Bank, Garuda Corporate Presentation

2004

2013

CAGR

Indonesia

23

87

+16%

China

121

354

+13%

Source: Bloomberg, BPS, World Bank, Garuda Corporate Presentation

The airline industry in Indonesia will provide


promising growth in the near and long term future
Driven by solid fundamentals on demand side
(rising population, incomes and island-nation)
despite recent slowdown in demand
Supply-side strong; 657 aircrafts on order for
delivery in next 10 years and fierce price
competition among Low Cost Carriers
However, existing airports average utilisation rate
is 75% and many over-capacity

Plan for development of 15 new airports


Plan for upgrade of 10 existing airports which

are the priority projects

Source: Bappenas, BMI


Opportunities for foreign investment in Indonesian infrastructure development Tim
Boothman
PwC

Expansion / upgrades of the existing and


development of the new airports are urgently
needed
Private sector contribution expected

March 2016
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Section 2.2
Power Industry

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
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Section 2.2 Power Industry

35 GW Programme

Sumatera
PLN: 2.79 GW
IPP : 5.96 GW
Sumatera
PLN: 1.43 GW
IPP : 1.14 GW

Kalimantan
PLN: 0.92 GW
IPP : 0.96 GW

Sulawesi
PLN: 2.02 GW
IPP : 0.68 GW

Kalimantan
PLN: 0.88 GW
IPP : 0,9GW

Sulawesi
PLN: 0.33 GW
IPP : 0.14 GW

Jawa and Bali


PLN: 7.38 GW
IPP : 13.53 GW

Jawa and Bali


PLN: 1.21 GW
IPP : 1.75 GW

Maluku
PLN: 0.26 GW
IPP : 0.02 GW
Maluku
PLN: 0,05 GW
IPP : -

Papua
PLN: 0.22 GW
IPP : 0.12 GW
Papua
PLN: 0.07 GW
IPP : 0.07 GW

Nusa Tenggara
PLN: 0.66 GW
IPP : 0.05 GW
New Program: 35.6GW
Fast Track: 7.4GW

Nusa Tenggara
PLN: 0.19 GW
IPP : 0.08 GW

Source: MEMR

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
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Section 2.2 Power Industry

35 GW Programme

Kalimantan
Transmission: 5,604 km
Substations: 3,500 MVA

Sumatera
Transmission: 18,729 km
Substations: 35,521 MVA

Jawa and Bali


Transmission: 9,186 km
Substations: 66,263 MVA

Sulawesi
Transmission: 5,276 km
Substations: 4,390 MVA

Maluku
Transmission: 653 km
Substations: 620 MVA

Papua
Transmission: 364 km
Substations: 460 MVA

Nusa Tenggara
Transmission: 2,347 km
Substations: 1,410 MVA

Source: MEMR

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
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11

Section 2.2 Power Industry

Status Update: 35 GW Programme


Year-end 2015

01
Pre-Qualification
review [3-4 months]

Pre-Qualification
documents/preparation and
issuance [3-12 months]

13,267 MW

02
Process
03 Tender
[6-12 months]

Preferred bidders selected


and PPAs signed [1-3 months]

7,838 MW

04
05

Construction
[36-54 months]

Financing
[6-12 months]

14,433 MW

06

Source: MEMR. PwC analysis in consultation with IPPs


Note: Stages are also broadly appropriate for PLN, EPC
contracts as well as IPP tendering
Opportunities for foreign investment in Indonesian infrastructure development Tim
Boothman
PwC

March 2016
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12

Section 2.2 Power Industry

Opportunities for investors: Renewable Power


Regulatory Incentives

Huge Physical Potential


Source
Hydro Power

Potential Power Generation

Geothermal

27 GW

Mini/Micro Hydro

0.45 GW

Biomass

49.81 GW

Solar PV

4.80 kWh/m2/day

Wind Power

9.29 GW

Geothermal

0.10 - 0.185

Nuclear

3 GW

Hydropower
(>10 MW)

0.12 0.14
(Years 1-8)

Biomass/ Biogas

0.08 0.11

Solar

n/a

Wind energy

0.1 0 0.14

1. Guarantees

76.67 GW

2. Tax Incentives
3. Feed-in Tariffs (FiTs)
USD/kWh

Source: Blueprint National Energy Planning, 2007

Total and Renewable Energy Capacity (MW), 2013


TOTAL CAPACITY (44 GW)

Gas
14,004
Coal
19,755

RENEWABLE CAPACITY (5 GW)


Geothermal
1,344

Diesel
5,974
Other
5,521

Wind
0.9

Hydro
4,146

Solar
4.1
Waste
26

Source: Electricity Statistic, 2013, Directorate General of Electricity MoEMR

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

Note: Tariff range depends on location (province),


voltage, and type of fuel. Bold indicates USD
denomination. Conversions for reference @ USD 1
= IDR 12,500
Source: MoEMR regulations, PwC analysis

March 2016
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Section 2.3
Port Industry

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
14

Section 2.3 Port Industry

Overview of port opportunities in Indonesia


The Maritime Toll involves the establishment
of 5 major ports and 19 feeder ports to serve
as a multi-linked sea transportation network
which is both time and cost efficient.

Private sector

State budget

Funding
Sources

SOE
Major investments include the
development of 24 strategic ports,
the development of 1,481 noncommercial ports and procurement
of vessels for the next 5 years

Source: Bappenas December 2014


Opportunities for foreign investment in Indonesian infrastructure development Tim
Boothman
PwC

March 2016
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Section 2.4
Road Industry

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
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Section 2.4 Road Industry

Summary of toll roads in Indonesia


Currently, Indonesia has 954 km of toll roads. Based on the countrys toll road master plan and potential toll roads by presented by project
initiators to Indonesia Toll Road Authority (BPJT), below is a summary of toll roads that have been and will be developed in Indonesia.

590 km operated by Jasa Marga (19 roads)


300+ km operated by private sector entities
(15+ roads)
Operated toll roads are spread across Java,
Madura, Bali, Sumatera and Sulawesi

27 toll roads, with a total length of


1,103 km, have had signed concession
agreements (PPJTs) since 2006
Most of these have not yet started to
operate due to issues such as land
acquisition, funding, etc
Toll roads with signed concession
agreements exist in Java island

According to Ministry of Public


Works and Public Housing,
Government of Indonesia targets
to have 6,115 km toll road by
2025.

More than 6 toll roads with total length of


375 km is under tender preparation.
Government will support part of land
acquisition and/ or construction
Sources:
1) Ministry of Public Works and Public Housing
2) BPJT
Opportunities for foreign investment in Indonesian infrastructure development Tim
Boothman
PwC

There are approximately 3,000 + km


potential toll roads in Indonesia
These toll roads exist in Java (756 km),
Sumatera (217 km), Kalimantan (37 km)
and Sulawesi (14 km), which are targeted
to operate by 2019. While from 2020 to
2025, there is an additional toll road
length of 4,137 km targeted to operate.

March 2016
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Section 3
Possible routes for international players

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
18

Section 3 Possible routes for international players

Our analysis

In toll road and power sectors, there is a clear programme of solicited, PPPtype tenders. So the key question is bidding strategy and partner selection.
In port and airport sectors, most of the deals have been B2B with SOEs.
SOEs have received ongoing capital injections which could create EPC
opportunities.
The market is growing and domestic contractors have limited capacity in some
areas.
However, there remain high barriers to entry: local partnerships are
important.

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
19

Section 3 Possible routes for international players

Possible routes for international players illustrative (1 of 2)


Routes

Airport

Power

Bid for PPP tender with or


without local partner
(Lead /Non-lead)

10 projects in pipeline; no precedents

Established purchase price; strong


pipeline of projects

Negotiate B2B agreement

AP1 and AP2 have done several JVs for


airport expansion or O&M contracts;
probably more available

Possible

Opportunities with AP1/AP2 but foreign


ownership for Construction services (with
high technology and/or high risks and/or
work value of more than IDR1 billion
(approx USD 77,000) is maximum 67%

Possible but foreign ownership for


Construction services (with high
technology and/or high risks and/or
work value of more than IDR1 billion
(approx USD 77,000) is maximum 67%

Buy local operating


company/project

Mostly SOEs with no plans for


privatisation

Assets on the market for sale

Buy local EPC company

May offer access to market


Local experience focused on smaller
projects and not large Lump Sum Turn
Key contracts
But difficult to buy into sector, largely
state-owned

Possible, but may not add much value.


Local companies generally do not have
technological maturity to do significant
component of power plant

Buy un-built concession

Not available

Possible

Bid for EPC contract


with/without local partner

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
20

Section 3 Possible routes for international players

Possible routes for international players illustrative (2 of 2)


Routes

Seaport

Road

Bid for PPP tender with or


without local partner
(Lead /Non-lead)

Not many PPPs but this may change

Established programme of concessions


will be expanded. Up to 5,000 km of toll
roads are already planned.
No longer need local partner

Negotiate B2B agreement

This seems to be Pelindos preferred way of


operating

Most projects are concessions. Unlikely


to be B2B agreement.

Bid for EPC contract


with/without local partner

Most Pelindo B2B deals will be EPC

Possible, especially bids in relation to


existing toll operators that have no
construction arms (e.g. Nusantara
Infrastructure, CMNP, Jasa Marga).
Limited foreign ownership up to 67%
forces international investors to involve
a local partner.

Buy local operating


company/project

Some local Opcos

Highly competitive. There is not likely to


be a market in operating projects.

Buy local EPC company

Not much local experience

May be possible but main contractors are


state owned and have strong capabilities
in road construction.

Buy un-built concession

Not available

Market exists but is highly competitive.

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
21

Section 3 Possible routes for international players

Other

Dont forget:

Telco/broadband infrastructure

Manufacturing and industry infrastructure

Mining/minerals infrastructure

Oil and gas derivate infrastructure

Social infrastructure

Opportunities for foreign investment in Indonesian infrastructure development Tim


Boothman
PwC

March 2016
22

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