Infrastructure developments in Indonesia – particularly in the water sector – present significant financial and operational challenges for the government. To address these issues, the government has introduced the Public-Private Partnership (Kerja Sama Pemerintah dan Badan Usaha - “PPP”) scheme for water infrastructure, allowing private entities to be involved in water infrastructure developments. Government Regulation No. 42 of 2021 regarding Facilities for Nationally Strategic Projects (“GR No. 42/2021”) defines PPPs as cooperation between the government and a business entity for public infrastructure, based on specifications set by relevant authorities-whether a minister, head of institution, regional head, or state/region-owned enterprise. Such cooperation may use private sector resources and must include fair risk allocation, as stipulated in Article 1 Number 6 of GR No. 42/2021.

PPP projects may be initiated through either a solicited (i.e., initiated by the government) or unsolicited process (i.e., has not yet planned or included in the government pipeline). As set out in Article 4 of Presidential Regulation No. 78 of 2010 regarding Infrastructure Guarantees in Public-Private Partnership Projects Conducted through the Infrastructure Guarantee Business Entity (“PR No. 78/2010”), in selecting the private entities as the partner in PPP projects, the Government Contracting Agency (Penanggung Jawab Proyek Kerjasama – “PJPK”) may asses the project’s risk allocation, particularly whether the relevant project: (i) is better managed or absorbed by the PJPK than by the private entity; (ii) originates from the PJPK; and/or (iii) comes from other parts of the government beyond the PJPK.

To support the success and bankability of PPP projects, the Indonesian government may offer infrastructure guarantees to compensate private parties in the event of financial loss, based on risk allocation as outlined in the PPP agreement and as stipulated in Article 5 of PR No. 78/2010.

“Indonesia tackles financial and operational challenges in water infrastructure by involving private entities through the Public-Private Partnership (Kerjasama Pemerintah dan Badan Usaha - “PPP”) scheme”

According to PR No. 78/2010 jo. Minister of Finance Regulation No. 68 of 2024 regarding Government Support for Infrastructure Financing through Government and Business Cooperation Schemes and/or Other Financing Schemes, infrastructure guarantees are provided by the PJPK under a PPP.

Kindly note that, these guarantees are issued by PT Penjaminan Infrastruktur Indonesia (“PT PII”) and generally take the form of contractual risk coverage. In practice, such guarantees may even cover government-related risks such as payment delays, regulatory changes, or early contract termination. As regulated in Articles 6 and 7 of PR No. 78/2010, PT PII conducts due diligence to assess the project’s structure and risk allocation prior to the procurement of the business entity and the provision of infrastructure guarantees. If approved, the guarantee will be formalized through a tripartite agreement involving PT PII, the PJPK, and the private partner.

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NOTE

This article provides general information and does not constitute legal advice. Readers should seek specific legal counsel for their circumstances.