Indonesia – Updated Rules On Granting Government Guarantees in Infrastructure Sector.

 

15 February, 2018

 

 

Ministry of Finance (“MoF”) Regulation No. 95/PMK.08/2017 was issued on 19 July 2017 as an implementation regulation for Government Regulation (“GR”) No. 50/2016 on the amendment of GR No. 35/2009, which envisages the setting up of state-owned Badan Usaha Penjaminan Infrastruktur (Infrastructure Guarantee Corporations / “BUPI”). The only BUPI established to date is the Indonesia Infrastructure Guarantee Fund (“IIGF”).

As mandated by Article 2 of GR No. 50/2016, MoF No. No. 95/PMK.08/2017 sets out more detailed provisions on government guarantees for infrastructure projects, as well as the nature and scope of, and procedures governing, such guarantees. 

In this regard, the following aspects are of particular note:

 

A guarantee provided by a BUPI may cover the following aspects:

 

a. Infrastructure risks;
b. Political risks;
c. Default risks; and/or
d. Other relevant risks.

 

In addition to the above risks, under the earlier MoF Regulation No. 260/PMK.011/2010, as amended by MoF Regulation No. 8/PMK.08/2016, the following risks may also be covered:

a. Infrastructure risks arising from actions taken or not taken by the Government or Project Owner (Penanggung Jawab Proyek Kerjasama / “PJPK”). A Project Owner is defined as a minister or head of a government institution, or the head of a local government, or a state- or local-government enterprise;
b. Infrastructure risks arising from a policy of the Government or Project Owner;
c. Infrastructure risks arising from a unilateral decision of the Government or Project Owner; and
d. Breach of contract by the Government or Project Owner.

 

The extending of a BUPI guarantee may be proposed by a minister or head of a government institution, or the head of a local government, or a state- or local-government enterprise to the MoF and/or the BUPI. The proposal must state the partnership scheme that will be employed for the purpose of the infrastructure project and the anticipated risks. The following documents must be provided:

 

a. the project’s financial scheme;
b. the final draft of the infrastructure project contract; 
c. the risk-mitigation plan; and
d. such other documents as may be required.

 

To maintain the credibility of its guarantees, a BUPI is required to:

 

a. invest its assets;
b. maintain adequate liquidity;
c. maintain adequate capital; and
d. conduct proper risk management.

 

A BUPI is also obliged to periodically submit reports on its operations to the MoF.

 

MoF Regulation No. No. 95/PMK.08/2017 entered into effect on its date of issuance, that is, 19 July 2017.