Govt wants quid pro quo for risk guarantees

Urip Hudiono, The Jakarta Post, Jakarta

The government, in return for agreeing to provide loan guarantees for major infrastructure projects, will expect investors to deliver the projects on time and to fulfill their output targets.

A failure to do so, State Minister for National Development Planning Paskah Suzetta said Thursday, could lead to the government seeking compensation, or to reduce the scope of its risk guarantees.

"The principle is that there should be a quid pro quo for a government's guarantee," Paskah said.

"If the government guarantees the project risks, then investors must also do their part. If their work is unsatisfactory, then the government should have the right to file a claim."

Paskah said that such "mutual safeguards" were needed as there was growing concern among the public that the guarantees extended for major infrastructure projects could lead to bigger state liabilities, apart altogether from greater pressure on the national budget.

"So, I don't think it will come at the expense of anyone -- it will be a win-win solution," he said, adding that the proposal would also be applied to the projects that will be offered during the government's upcoming Infrastructure Summit in November.

The government recently ordered PLN to hold tenders for the fast-track construction of a number of coal-fired power plants across the country with a total output of 10,000MW. Taken together, the projects are valued at Rp 170 trillion (US$18.5 billion).

It is hoped that the new plants will secure Indonesia's power supplies for the next three years, and save some Rp 25 trillion in fuel costs. Many of PLN's existing plants use oil-based fuels, the prices of which have increased dramatically lately, pushing the government to seek cheaper, alternative energy sources, including tapping into the countries abundant supplies of natural gas and coal, as well as promoting biofuels.

Of the Rp 170 trillion cost of the new power plants, some Rp 79 trillion will be provided by overseas creditors, Rp 59 trillion taken from PLN's internal cash reserves and Rp 33 trillion raised in a PLN bond issue.

The government plans to issue a Presidential Regulation that will serve as the legal basis for extending guarantees through the Finance Ministry for risks that may arise during the financing, construction and marketing stages.

The Finance Ministry's director general of the treasury, Mulia P. Nasution, has warned, however, that the guarantee scheme for the power plant projects could affect the budget deficit in the year of their completion.

Meanwhile, Paskah declined to elaborate on how much coverage the government would provide in respect of each project, saying this would be discussed with the investors during the contract-negotiating stage.

Under the latest government proposals, any falling behind in schedule or failure to meet output targets would later have to be accounted for.
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