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Guarantee Overview

The increasing demand for infrastructure development to support Indonesia’s economic growth in the midst of budget has led the Government of Indonesia to provide fiscal support and a better framework in attracting private investment and participation of a measurable scale

On December 30, 2009 the Government of Indonesia has established Indonesia Infrastructure Guarantee Fund or IIGF, as a State-Owned Enterprises (SOEs) under the Ministry of Finance which is responsible on providing government guarantees for infrastructure projects developed under the Public Private Partnership (PPP) scheme

IIGF guarantee is intended to guarantee political risk of both central and local government as a Contracting Agency to provide certainty and comfort for investors. The availability of IIGF guarantee can increase the certainty of private sector’s participation and financing for infrastructure development in Indonesia.

IIGF also works with international and multilateral institutions in increasing its capacity to guarantee large scale infrastructure projects.

As the basis for PPP implementation, the government issued Presidential Regulation Number 38 year 2015 regarding Public Private Partnership in the Provision of Infrastructure. The implementation of PPP is intended to provide sustainable financing for the provision of infrastructure through the use of private funding, to accomplish infrastructure provision with quality, effectiveness, efficiency, accuracy, and promptness, and to create an investment environment that promotes private sector participation in the provision of infrastructure based on principles of good corporate governance.

The Minister/Head of Institution/Head of Region initiates the provision of infrastructure to be developed in partnership with private sector through a PPP scheme.

IIGF was established as part of government effort to speed up the development of infrastructure in Indonesia; by providing guarantees through accountable, transparent and credible process.

Furthermore, IIGF guarantee would improve the credit worthiness of an infrastructure project which could result in lower cost of financing thus ensuring private financing to the infrastructure projects.

For the government as the project owner, IIGF guarantee could improve the certainty of private sector participation and financing for infrastructure development in Indonesia. IIGF also assists the government through the establishment of a good transaction structure to increase the certainty of a successful transaction with the investor that led to the development of quality and efficient infrastructure.

For private sector, IIGF guarantee can reduce exposure to political risk in the eyes of investors and creditors therefore would lower cost of financing associated with the investment for infrastructure projects.

IIGF as an Infrastructure Guarantee Business Entity also assist the Government - Ministry of Finance to ring-fence government contingent liabilities and minimize the direct shock ('sudden shock') to the state budget on infrastructure projects according to respective regulations.

In summary, IIGF was established for the following purposes:

  • Improve creditworthiness and quality of PPP infrastructure projects by establishing clear and consistent appraisal and claim frameworks for guarantees.
  • Improve the governance and transparency on guarantee provisions.
  • Facilitate the deal flow for Contracting Agencies (i.e., Ministries, SOEs, Regional Governments) by providing guarantees to well-structured PPPs.
  • Ring-fence Government contingent liability and minimize the impact to the State Budget
  • IIGF acts as guarantor to private sectors for any infrastructure risk arisen as the result of any government action or inaction which may result in financial loss for PPP infrastructure project, such as delay in license and permit, change in regulations, failure of tariff adjustment, failure of network /facility integration, and other risks covered or allocated to the government in the PPP contract.

IIGF’s guarantees are expected to serve the following functions:

INDONESIA

  • Support economic development through Public Private Partnership (PPP) that provide quality infrastructure projects.
  • Reduce infrastructure costs through lower interest rate thus reducing teh tariff borne by end users.
  • Protect the Government from unexpected claims and risk exposire to infrastructure-financing liability arising from guarantees
  • Encourage or stimulate further Government action on PPPs.

CONTRACTING AGENCIES (CA)

  • Attract private investors and financial institutions to participate in PPP projects, thus increasing the success rate of the project execution in accordance with the plan and schedule.
  • Increasing the competition of bidding process hence improve the quality of bid offer and to get more competitive price.

PRIVATE SECTOR

  • Mitigate risks that are difficult for private sector to cover through other means.
  • Increase transparency, clarity, and assurance in the provision of  guarantee process.
  • Increase bankability of a project;
  • Lengthen loan maturities, hence it can improve competitiveness of bid price;
  • Drive Contracting Agencies (CAs) to prepare contracts that comply with best practices commonly applied and fulfill obligations under partnership agreement.