How to unlock barrier to finance urban transport projects in Indonesia

Abstraksi

In Indonesia, there is a pressing need to have adequate infrastructure, such as for transportation, which plays significant roles in supporting city economic development and growth. Growing traffic congestion creates loss in people's time, which eventually could slow down the economy. To address this challenge, large investment in public transportation is needed to mitigate the impact of rapid congestions in Indonesian cities. While rail-based mass transit solution is preferred by city mayors, it is also the least affordable solution, especially with traditional financing method using city budget. In 2017, the annual budget of Surabaya and Medan, the cities with second and third largest population after Jakarta, are only $650 million and $396 million, respectively. Whereas a typical 10 kilometers of LRT corridor would cost more than $380 million. Clearly there is a huge financing gap to fill. This gap, however, would be possible to fill through loan. While private-sector loan might be difficult, there is a municipal loan instrument, developed by PT Sarana Multi Infrastruktur. This financing facility will allow city government to meet its infrastructure funding need. While PT SMI normally prefers PPP financing, due to its complexity in preparation and financing structure, PPP is not recommended. With municipal loan, city might be able to borrow based on their fiscal reserve capacity, and decides the project for financing based on their strategic need, instead of project's financial viability. If better utilised, this financing instrument could be the solution to unlock the barrier in developing urban transport projects.