Jakarta – The Asian Development Bank (ADB) has approved a US$100 million intermediary loan to the government to help kickstart private sector investments in infrastructure projects as several state-owned enterprises (SOEs) in charge of infrastructure development struggle to secure funds for their projects.
"The loan is expected to help mobilize private sector investments to develop and finance much-needed infrastructure projects," ADB country director for Indonesia Winfried F. Wicklein said in a statement.
"ADB's assistance will hopefully help close the infrastructure financing gap in Indonesia and raise the quality and standards of infrastructure projects."
Wicklein said that under the Leveraging Private Infrastructure Project the government would on-lend the ADB loan proceeds to PT Indonesia Infrastructure Finance (IIF) through state-owned infrastructure financing firm PT Sarana Multi Infrastruktur (SMI) as ADB considered both companies to be vital partners in the country's infrastructure financing landscape.
ADB country economist Yurendra Basnett said IIF would then proceed to lend its funds on commercial terms to infrastructure projects deemed in line with the company's and ADB's guidelines. The loan would cover projects in health, renewable energy, telecommunications and transportation sectors, he added.
"ADB's assistance is expected to leverage a multiple of the loan amount in the form of additional private sector investments in important infrastructure projects and in doing so help deliver value for money to the government," Basnett said.
In 2018, ADB committed $21.6 billion in loans and grants to support several countries in the Asia-Pacific region.
Several SOEs have struggled to access large long-term sources of funding. Earlier this year, state firms in charge of infrastructure development turned to creative financing schemes to obtain funds for their projects as regular investors expressed reluctance over putting their money in long-term investments.
The creative financing scheme goes beyond bond issuances and bank loans and covers tools such as asset securitization, project bonds, global rupiah-denominated bonds known as Komodo bonds and limited participation mutual funds.
"They are not too keen to invest in these kinds of projects because of the long return on investment," said Jasa Marga head of corporate finance Eka Setya Adriyanto in February.
SOEs Study Center chairman Tjipta Purwita added that the state budget could only finance 42.1 percent of the total Rp 5 quadrillion ($358 billion) spent on national strategic projects from 2014 to 2019. (rfa)