Ardian Wibisono & Dion Bisara

A day ahead of antigovernment rallies in Central Jakarta, supporters of President Susilo Bambang Yudhoyono at the Hotel Indonesia traffic circle get their defense on early with masks symbolizing “faceless politicians” who criticize and spread rumors. (JG Photo/Safir Makki)

$3b Building Fund Launches

On the eve of its first 100-days benchmark, the government on Wednesday announced that it has fulfilled one its pledges by setting up a financing company capable of providing up to Rp 30 trillion ($3.4 billion) in funding for infrastructure projects.

PT Indonesia Infrastructure Finance was established on Jan. 15 through a government holding company, PT Sarana Multi Infrastructure, with a number of multinational lenders as shareholders, including the World Bank and the Asian Development Bank, the fund said in a statement.

The IIF was formed to provide “funding towards commercially feasible, mainly private infrastructure projects through debt instruments, equity participation or infrastructure financing guarantee for credit enhancement,” it said.

The concept for such a fund arose at the Infrastructure Summit here in 2005 and its establishment had been included in the programs for the current government’s first 100 days.

The failure of Finance Minister Sri Mulyani Indrawati, whose agency oversees SMI, to establish the IIF in the first 75 days of the government had earned her a “red mark” from Kuntoro Mangkusubroto, head of the Presidential Working Unit for Development Supervision and Control (UKP4) overseeing the 100-day program.

“IIF will take a 25 percent portion of the total cost for projects,” SMI president director Emma Sri Martini told a news conference on Wednesday, adding that the shareholders were still working out administrative matters, especially setting up the management structure.

“In April, we expect that we could be ready to disburse some financing. But it all depends on the projects’ [readiness],” Emma said. The IIF’s board of directors has yet to be appointed.

For the company’s initial capital, SMI is committed to inject Rp 600 billion into the fund, the Asian Development Bank (ADB) will put up Rp 400 billion, the World Bank will add Rp 400 billion through its investment arm, the International Finance Corporation, and Germany’s DEG will provide Rp 200 billion. But shareholders agreed that the fund may seek more cash infusions to ramp up its initial capital to Rp 2 trillion. “We will invite investors to join in the fund,” Emma said.

P.S. Srinivas, the World Bank’s Jakarta sector coordinator for finance and private sector development, said the IIF also planned to issue debt to raise another Rp 2 trillion. Under a Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) regulation, the IIF can leverage its funding by taking on as much as Rp 30 trillion in debt.

Hiramsyah S Thaib, chief executive of PT Bakrieland Development, welcomed the new infrastructure fund, saying it would provide an alternative source for affordable financing. “IFF should be able to attract foreign funds for critical infrastructure such as toll roads and water management,” he said.

The government has estimated that the nation needs billions of dollars in annual investment over the next five years. However, the government has said it was only able to finance about 40 percent of that amount, prompting it to turn to the private sector to jointly finance projects via public-private partnerships. But it is often difficult to secure funding because banks are reluctant to provide loans due to the long durations and high-risk nature of the projects.

Emma said the IIF could help bridge the financing gap.

“We will focus on the long-term financing for basic infrastructure such as power plants, water management and toll roads. But the lending rate would be adjusted to the individual projects,” she said.

If the IFF can grow significantly in the next four years, it may be able to go public in 2014, Emma added.

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