Understanding the Concept of Public-Private Partnership

In implementing government activities, the government often encounters budget constraints, especially in infrastructure development. To overcome this, the government can cooperate with private business entities to work on an infrastructure development project. This is a public-private partnership, while in Indonesia, this practice is known as Government and Business Entity Cooperation (PPP). 

Regulations related to PPPs are regulated through Presidential Regulation Number 38 of 2015 concerning Government Cooperation with Business Entities in the Provision of Infrastructure (Perpres No. 38/2015).

Article 1 Number 6 Presidential Regulation No. 38/2015 explains that:

“PPP is a collaboration between the government and Business Entities in the Provision of Infrastructure for the public interest by referring to the specifications that have been previously determined by the Minister/Head of Institution/Head of Region/State-Owned Enterprises/Regional Owned Enterprises, which partly or entirely using the resources of the business entity by taking into account the sharing of risk between the parties.”

Furthermore, it should be noted that in PPP, the government has a big role, so the party who acts as the Person in Charge of the Cooperation Project or PJPK is the Minister/Head of Institution/Head of Region (Article 6 of Presidential Regulation No. 38/2015).

 

The Selection of Business Entities

In implementing the public-private partnership or PPP, the PJPK will carry out pre-qualification activities and select the implementing business entity. Based on Government Goods/Services Procurement Policy Agency Regulation Number 29 of 2018 concerning Procedures for Procurement of Business Entities Implementing Infrastructure Provision through PPPs on the Initiative of the Minister/Head of Institutions/Heads of Regions (LKPP Regulation No. 29/2018) the selection of implementing business entities is carried out through the auction method or direct appointment. 

The auction can be carried out with a single-step auction mechanism or two-step auction (Article 17 of LKPP Regulation No. 29/2018). Meanwhile, the direct appointment process can be carried out if (Article 20 of LKPP Regulation No. 29/2018):

1. Is a PPP under certain conditions; or
2. Business Entity Prequalification only produces one Participant.

Apart from being based on the Minister/Head of Institution/Head of Region initiative, PPP implementation can also be carried out on the initiative of a business entity. Business entities can initiate a PPP with the following criteria (Article 14 Paragraph (3) of Presidential Regulation No. 38/2015):

1. Technically integrated with the master plan in the sector concerned;
2. Economically and financially viable; and
3. The business entity that proposes the initiative has the adequate financial capacity to finance the implementation of infrastructure provision.

 

The PPP Business Sector 

Meanwhile, the development of economic and social infrastructure related to the business sector can be carried out with the PPP mechanism.

The types of economic infrastructure and social infrastructure include (Article 5 Paragraph (2) of Presidential Regulation No. 38/2015):

1. Transportation infrastructure;
2. Road infrastructure;
3. Water resources and irrigation infrastructure;
4. Drinking water infrastructure;
5. Centralized wastewater management system infrastructure;
6. Local wastewater management system infrastructure;
7. Waste management system infrastructure;
8. Telecommunication and information technology infrastructure;
9. Electricity infrastructure;
10. Oil and gas infrastructure and renewable energy;
11. Energy conservation infrastructure;
12. Urban facilities infrastructure;
13. Educational facilities infrastructure;
14. Infrastructure facilities and infrastructure for sports, as well as the arts;
15. Regional infrastructure;
16. Tourism infrastructure;
17. Health infrastructure;
18. Penitentiary infrastructure; and
19. Public housing infrastructure.

The implementation of the PPP is carried out based on the PPP agreement prepared by the PJPK. The PPP agreement is signed by the PJPK together with the implementing business entity (Article 41 of Presidential Regulation No. 38/2015).

In implementing the PPP, the PJPK also determines the form of return on investment, which includes the closing of capital costs, operational costs, and profits of the implementing business entity. Article 11 Paragraph (2) Presidential Regulation No. 38/2015 explains that the return on investment of the implementing business entity for the provision of infrastructure comes from:

1. Payment by users in the form of tariffs;
2. Payment for Service Availability (Availability Payment); and/or
3. Other forms as long as it does not conflict with the laws and regulations. 

 

The Example of PPP

One example of the implementation of a PPP is the A.P. Pettarani, Makassar, South Sulawesi conducted between the Ministry of Public Works and Public Housing (PUPR) and the Makassar City Government with the private sector. In this case, the private sector that acts as the implementing business entity is PT Bosowa Marga Nusantara (currently PT Makassar Metro Network), a PT Margautama Nusantara subsidiary. 

Construction of the section took about 30 months and absorbed more than 2,000 workers. Currently, the A.P. Pettarani elevated toll road is operational, and the return-on-investment model for business entities in this project is in the form of payments by users in the form of tariffs. The investment return process is carried out by granting concessions to PT Makassar Metro Network to be the manager of the toll road until 2043. 

 

If you need consultation and assistance regarding other infrastructure development, you can contact BPLawyers via ask@bplawyers.co.id or 082112341235.