PPPs in Indonesia: US$ 4bn power plant

Raj Kannan, President Director of Tusk Advisory talks about PPPs in Indonesia.

Are there any clear examples of PPP that have worked out well in Indonesia?

I guess the best example would be the US$4 billion power plant. It went through a proper procurement process with professional transaction managers. If I am not mistaken, there were 6 international consortiums that were shortlisted. Out of that, one consortium that consisted of international proponents and local proponents funded both by local banks and foreign banks were structured. But one of the reasons why it took 4 years to reach financial closure had nothing to do with funding, or the structure of the deal, or the bankability of the concession agreement. It was all to do with I think 27 farmers who said “I am not selling”. And as you know, in Indonesia, we don’t have the notion of eminent domain that you have in most countries. An eminent domain is, in simplistic term, is the government has the right to take all your land and pay you a market rate. And if you are not happy with the market rate you take the government to the court saying, “I want more”. But you don’t have the option to say, “I don’t want to sell”, as simple as that. In Indonesia, we do not have that.

This new law that was passed in 2012 enables some form of eminent domain, by going through a process of 572 days. To us, that is not bad. I mean, we work all over the world in terms of helping projects to be delivered. To guarantee the delivery of the land within 2 years, that is not bad. So 572 days is roughly 2 years. So we think that is okay, we can deal with that. But, we don’t have the kind of powers that most countries have, like India, Australia, UK, Malaysia. They all have eminent domain in the law and we do not. We did have it in old law, but the eminent domain was politicized in a manner where, to invoke eminent domain, the president has to approve it. Once the president has to approve it, then it becomes politics, because it is either a law or not a law. We cannot have a law that’s subject to the approval of one person. That is the problem that we had.