This document discusses infrastructure financing options available to cities in Indonesia and how cities can access this financing. It identifies national and offshore public and private sources of funding, including various ministries, financial institutions, corporations, and international donors. The main types of financing are grants, loans, and public-private partnerships. Challenges for cities in accessing financing include financial gaps, prioritizing projects, packaging projects attractively for different funders, and successful execution.

1. Linking Cities to Financing
UCLG ASPAC – Congress
Jakarta, October 3, 2012
Reslian Pardede
Copyrights: University of Washington

2. Accessing Infrastructure Financing
What kind of infrastructure financing is
available for cities in Indonesia?
What should cities do to access the
financing?
2

3. Source of Financing
ONSHORE FUNDS
OFFSHORE FUNDS
Cities own funds
National Government
Other Local
Government
Financial Institutions
Corporations
C
I
T
I
E
S
NatGov.
Subsidiary
Loan/
Grant
Agreement
Foreign
Governments
International Donor
Agency
Financial Institutions
Local
Corp.
PPP
Corporations
Retail/people
3

4. Source of Infrastructure Financing for Cities
National
Government
Ministries’
Budget &
Mechanism
Subsidiary
Loan /Grant
Agreement
Other Local
Governt
Private Sector
Governmt
Investm.
Fund
Corporations
(non FI)
Retail/
People
Financial
Institutns
Bank
Non Bank
Loan
Grant
Grant
Loan
PPP
Budget Mechanism (APBD)
Loan
Loan
Bonds
Budget Mechanism(APBD)
Cities/Local Government
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5. Planning Agency
3 mth after
Mediumterm Dev
Plan, revised
annually
RPPLN (Plan
for Offshore
Financing)
REJECTED
Feasible
?
YES
6 mth after
Mediumterm Dev
Plan
NO
Cities
Ministries or
SOE
Evaluation on
administration,
technical and
financial
DRPLN-JM
(List of
Potential
Activities)
Subsidiary Loan Agreement Procedure
2
Inform plan
for DRPLN
4
NO
1
Council
Approval
3
Proposal
Summary
of Prop
5
Increase
Readiness
Ministries or
SOE
Meet
Req?
6
Detail
Proposal
YES
REVISE/IMPROVE
When forwarding the loan, the
Government (Ministry of
Finance) enters a subsidiary
loan agreement with cities.
DRPPLN (List
of Priority)
7
Ministries or
SOE
List of
Activities
(Projects)
Meet
readiness
criteria
8
Source: PER.004/M.PPN/2011
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Ministry of Finance
5

6. Type of Financing – Grant
Source:
National Government/Ministries
Offshore funds
G
R
A
N
T
Characteristics:
1. Grant is mostly used for preparation or assistance funds.
2. Cities involvement is quite limited in proposing grant.
3. Ministries can forward funds to cities as either grant or loan
(PER.004/M.PPN/2011). Each Ministry has its own mechanism of
distributing funds to cities e.g. RPIJM (Public Works).
Finding out financing mechanism in Sectoral Ministries

7. Type of Financing – Loan
Source:
L
O
A
N
National Government (PIP, PT SMI, PT IFF)
Offshore funds – through SLA
Financial Institutions
Other LGs
Retail (Bonds)
Characteristics:
1. Each financing has a different mechanism but all is subject to PP
30/2011
2. Some lenders are more stringent than others
3. Loan requires strong fiscal capacity, good financial management as well
as some degree of transparency
More suitable for income generating projects
7

8. Type of Financing – PPP
Source:
National Government (PIP, PT SMI, PT IFF)
Private Sector (Corporations, State-Owned Enterprise, Local
Government Owned Companies and Cooperatives): PP56/2011
allows foreign legal entities
P
P
P
Characteristics:
1. The part offered to private sector should be interesting enough for them
to participate
2. PPP requires advance knowledge on project structure
3. Initiatives can come from Ministries/Cities or Private Sector
A PPP project can be a combination of different financing types
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9. Challenges in Accessing Financing
Financial Gap.
Most cities depend on budget transfer from Government
which currently still dominates the city financial income structure (around 70‐80%
of the total income) and is just enough for routine expenditures.
Prioritization.
Considering the limited amount of funds, cities need to
prioritize their infrastructure projects.
Packaging.
Packaging is about how to design financial scheme of a project to
be not only attractive but also fits the risk profile of each source of funds. This is
all about creativity, skills and experience.
Execution.
Successful infrastructure financing needs not only good planning
but more importantly execution starting with establishing a team, timeline, target.
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