This is a case based on public private partnership, its implications and drawbacks with Yogyakarta Bus terminal: The Private Provision of Municipal Infrastructure case. This is a case in Infrastructure Policy and Regulations.

1. Adani Institute of Infrastructure
Management
Yogyakarta Bus Terminal: The Private
Provision of Municipal Infrastructure
Submitted by-
Group-2

2. Introduction
 In January 2009, Herry Zudianto the Mayor of Yogyakarta was reflecting on
the apparent failure of his first effort to involve the private sector in the
financing and provision of municipal infrastructure.
 Seven years earlier the city had awarded a thirty year concession to a local
private company. Pt Perwita Karya (often abbreviated PTPK), to build and
operate an intercity bus terminal. Earlier that month, PTPK had sent the
Mayor a letter announcing its intention to return the concession on the
grounds that the city had not lived up to its commitments, and particularly
that it had not closed illegal competing bus terminals.
 If the government was at fault for the breakdown of the concession, the
concession contract required the city to reimburse the company for the
"business value "of the assets, a sum that could be as much as 83 billion
Indonesian Rupiah (IDR), or approximately US$9 million.
 The city had made progress in reducing illegal terminals, and the Mayor
suspected that the company wanted to get out of the contract for other
reasons. But the company seemed to be on strong legal grounds, and fighting
the company in court might harm the city's reputation for honouring its
obligations and discourage future private provision of Yogyakarta's
infrastructure.

3. Yogyakarta
 Yogyakarta, often referred to as Jogja, is a city of
400,000 inhabitants, located in the middle of the
southern part of Java island-the most populated and
economically important island of Indonesia.
 Yogyakarta is famous for its beauty and for the
internationally important religious and cultural sites in
the city and the surrounding countryside, including
the Borabodur, the world's largest Buddhist temple,
and the Prambanan, an ancient Hindu temple.
 It is also a major educational center with more than
sixty colleges and higher education institutions
attracting students from all over Indonesia and abroad.

4.  The city of Yogyakarta lies within a province of the same
name. Indonesia's mayors have been directly elected since
2004, one of a series of political reforms implemented after
the fall of the Suharto dictatorship in 1998.
 The Governor of the Province of Yogyakarta is the Sultan
of Yogyakarta, the hereditary head of a 250-year-old
kingdom that was granted the powers of a province
because of its leadership during Indonesia's independence.
 Herry Zudianto had been a successful local businessman
and entrepreneur before being appointed to his first five-
year term as Mayor in 2001.
 In 2006, he won a second five-year term by running
successfully in Yogyakarta's first mayoral election.
 Under his leadership Yogyakarta had been selected as one
of Indonesia's "cleanest“ cities in terms of corruption for
several consecutive years and voted one of the country's
most livable cities in by the Indonesian Planning Society.

5. The origin of New bus terminal
 Yogyakarta is located in middle of java.
 Is tourism destination & educational center made it
hub for intercity travel by bus, air & rail.
 Government wanted to construct “class A” bus
terminal (which was the highest Quality terminal) in
the southern part of the city.
 The new terminal got delayed because of Asian
financial crisis of 1997 & Indonesian political crisis
of 1998.
 But was on city’s agenda again by 2002.
 Important motive to built new bus terminal was to
accommodate growing inter regional bus traffic.
 Yogyakarta was growing in north, but was lagging in
south. Relocating bus terminal on south would give a
push to new growth center.

6. Municipal Finances
Mayor Zudianto offered the new bus terminal to private concession because of financial
problems in nominal municipal budget.
Most municipalities generated only 10% to 30% of their revenues locally from
 local property taxes
 fees for municipal services
 dividends from city-owned companies
the expenditure sides
 70% of municipal budget went in salaries of municipal employee & other
operational expenses.
 20% was required to spent on education.
 10% was for investment in all other sectors, including health and facilities & local
roads.
The city could not apply for special grant to central government because they were short
of fund.
The interest rate on 10year bonds issued by the central government was 11%over the last
decades but it reduced to 8% in recent year.
In 2002 , Mayor Zudianto thought that a private concession was the easiest way to get the
new bus station the city needed.

7. Tendering the Concession
 The private investors will only be attracted when they will get financial gains from
investing and performing the activities. So the city allowed the private investors to
build the commercial shopping centres and offices too.
 Cost to build this commercial centres would be extra.
 Concession was given on basis of 4 criteria:
i. Engineering criteria ( Physical design of terminal including waiting rooms and other
amenities)
ii. Financial criteria ( Share of profits of terminal like the bus fares)
iii. Administrative compliance
iv. Legal Documentation
 PTPK was shortlisted from 11 companies for this project because of his past
performance and the promise which it made to city of giving operating profit from
terminal.
 PTPK had no previous experience with BOT , it had record in construction & road
projects . It signed thirty year BOT with Yogyakarta bus terminal, along with building
fuel pumps, restaurants.

8. SWOT analysis
 Strengths:
i. Support of the local municipal corporation.
ii. Accommodate growing inter-regional bus traffic.
iii. Dense population due to major education centres &
cultural centres.
 Weakness:
i. First time experience in this field (BOT).
ii. Improper risk distribution with the municipal corporation.
iii. Contract required PTPK to build the bus terminal first &
then the commercial centre.
iv. At initial phase, only source of revenue from bus
terminal.
v. Bank loans were made directly to PTPK.

9.  Opportunities:
i. Growth prospective for the southern part of the city.
ii. Conversion of the old bus terminal into a night market
as a new tourist attraction.
iii. Financial gains can be received from building hotels.
iv. Expected rent from commercial place was a source of
revenue.
 Threats:
i. Budding illegal and competing terminals.
ii. Low cost airlines.
iii. Earthquake which caused both loss of lives and damage
to business.
iv. Changes in the bus passenger activities

10. Porter’s Five Forces
 Threat Of New Entrants: Operation of Shadow Terminals &
Jombor Terminal are the threat for PTPK in the city.
 Threat of Substitutes: Low cost Airlines might be substitute
of passengers because 25% passengers in airlines are growing
every year.
 Degree Of Industry Rivalry: The level of competition in the
market is high due to the presence of shadow terminals,
Jombor Terminal and presence of low cost airlines.
 Bargaining Power Of Buyers: The bargaining power of
buyer is high because there were various substitutes in the
market such as Airlines & competitive terminals.
 Bargaining Power Of Suppliers: The market power of
Suppliers is low because of the shadow terminal in the city.

11. Alternatives
1) Cancelling the contract
2) Impose strict law against shadow
terminals
3) Revising risk sharing policy
4) Revise profit sharing policy in the
contract

12. Evaluation of Alternatives
1) Cancelling the contract-
 Competition from bus terminal at Jombor, resulting in low
revenue.
 Competition with low cost airlines.
 Changing behaviour of passengers activities.
 Building commercial site would be waste of Indonesian
resources as it was not viable.
 States inability in closing shadow terminals.
 It would result in paying higher compensation to PTPK.
 Might set a poor precedent for future concessions.

13. 2) Impose strict action against shadow terminals-
 Result in lowering down competition for the new terminal.
 Increase in traffic in the bus terminal.
 Increase revenue
 Increasing scope for future development.
 Corrupt lower level officials were the main hurdles.

14. 3) Revising risk sharing policy-
 Proportional risk sharing
 Municipal corporation bearing certain risk of demand.
 Compensate a proportion of loss if incurred.
 Strengthen public private partnership
 Reduction in funds with the municipal corporation.

15. 4) Revise profit sharing policy in the
contract-
 Revise 7:3 profit sharing policy
 PTPK gain increasing share of the profit
 Greater scope for PTPK’s development.
 Encourage PTPK to continue with the contract.
 Scope for PTPK to exploit the municipal corporation.

16. Recommendation
We would recommend with “Imposition of strict action against
shadow terminals” and “Revising risk sharing policy”.
 Major reason for PTPK’s withdrawal was illegal bus
terminals.
 Municipal corporation should remove the loopholes in the
contract.
 Municipal corporation should encourage several other
projects in the southern part.

17. Thank You