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Public-Private Partnership in the Development of Indonesia’s New Capital City (IKN)

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The government has issued several regulations in order to regulate infrastructure procurement in IKN. Among these regulations are instruments aimed at managing infrastructure procurement through public-private partnerships, such as GR 17/2022, Ministry of Transportation 6/2022, Ministry of Forestry 220/220, and NPPAR 1/2023

Public-Private Partnership in the Development of Indonesia’s New Capital City (IKN)

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AHRP Legal Alert Page 1 of 23
Legal Alert January 2023
Public-Private Partnership in the Development of
Indonesia’s New Capital City (IKN)
I. Introduction and General Overview
On 2019, the Government of Indonesia (hereinafter referred to as “Government”)
announced its plans to move Indonesia’s capital city from Jakarta to a location in
East Kalimantan Province.1 As such, on 15 February 2022, the Government issued
Law 3/2022, which aims to regulate not only the transition regarding the change of
Indonesia’s capital city from Jakarta, but also the management of the New Capital
City of Indonesia (Ibu Kota Negara Nusantara or “IKN”). The relocation of the
capital is carried out as one of the strategies to realize Indonesia's economic target
of 2045, which is to achieve a more inclusive and equitable economic growth
through the acceleration of development in eastern Indonesia.2
For the aforementioned purposes, Law 3/2022 provides a glimpse of the funding
mechanism which shall be utilized for the preparation, development, and
management of IKN. The regulation provides that infrastructure, which shall be
developed within IKN, encompasses infrastructure within the following fields:3
a. housing and settlement;
b. waste infrastructure;
c. wastewater management;
d. water;
e. public and social facilities;
f. mobility and connectivity;
g. energy; and
h. technology, information, and communication.
One of the funding schemes which may be used in IKN development is the Public-
Private Partnership (“PPP”) scheme, which shall involve not only the Government
but also private entities.4
The general guideline on the implementation of PPP for infrastructure procurement
in IKN is outlined within GR 17/2022 which provides an overview on the regulatory
regime for infrastructure procurement in IKN and its stages. For further elucidation
on matters concerning planning,5 preparation,6 transaction process,7 financial
close,8 and implementation of IKN PPP agreement9 are not detailed within GR
17/2022, and instead shall be enshrined within its implementing regulations. This
1
Cabinet Secretariat of Indonesia, “Pemindahan Ibu Kota, 26 Agustus 2019, di Istana
Negara, Provinsi DKI Jakarta”, accessed via https://setkab.go.id/pemindahan-ibu-kota-26-
agustus-2019-di-istana-negara-provinsi-dki-jakarta/ on 27 January 2022.
2
Appendix II Chapter I Section A Law 3/2022.
3
Appendix II Chapter III Section F Law 3/2022.
4
Appendix II Chapter IV Section B Law 3/2022.
5
Art. 21 (3) GR 17/2022.
6
Art. 24 (2) (a) GR 17/2022.
7
Art. 26 (3) (a) GR 17/2022.
8
Art. 26 (3) (c) GR 17/2022.
9
Art. 27 (3) GR 17/2022.
The government has
issued several regulations
in order to regulate
infrastructure procurement
in IKN. Among these
regulations are
instruments aimed at
managing infrastructure
procurement through
public-private
partnerships, such as GR
17/2022, Ministry of
Transportation 6/2022,
Ministry of Forestry
220/220, and NPPAR
1/2023.
AHRP Legal Alert Page 2 of 23
report shall provide summaries on several of the implementing regulations of GR
17/2022, in particular:
a. Minister of National Development Planning/Head of National Development
Planning Agency Regulation Number 6 of 2022 on the Procedure for Public-
Private Partnership in Nusantara Capital City (“MoNDPR 6/2022”);
b. Minister of Finance Regulation Number 220/PMK.08/2022 of 2022 on the
Government Support for Government Cooperation with Business Entities
and Creative Financing in The Context of Accelerating Infrastructure
Provision in Nusantara Capital City (“MoFR 220/2022”); and
c. National Procurement Policy Agency Regulation Number 1 of 2023 on the
Procedure of Business Entity Procurement through Public Private
Partnership with Business Entity in Nusantara Capital City (“NPPAR
1/2023”).
II. Overview on the New Regulatory Framework of IKN PPP Scheme
A. Institutional Aspects of IKN PPP
MoNDPR 6/2022 recognizes several stakeholders which shall be involved in the
IKN PPP scheme. While some stakeholders are the usual parties within a common
PPP scheme (e.g., Government Contracting Agency), the IKN PPP scheme has
introduced new stakeholders.
1. Government Contracting Agency (“GCA”)
Pursuant to Article 1 (15) MoNDPR 6/2022, the GCA is the relevant minister,
head of institution, director of state-owned enterprise and/or Head of IKN
Authority. The determination of GCA shall be based on (i) authority over the
relevant infrastructure; (ii) Master Plan of IKN (Rencana Induk IKN); and (iii)
the Details of Master Plan of IKN (Perincian Rencana Induk IKN).10
Similar to the general PPP scheme, duties mandated to the GCA may be
delegated, which can be deployed to their head of organization units/work
units11 as relevant.12 However, such delegation could also be given to the
head of legal-entity higher-education institution (Perguruan Tinggi Negeri
Badan Hukum or “PTN-BH”) or the head of public broadcasting institutions
(Lembaga Penyiaran Publik or “LPP”).13 This is a new provision introduced
through MoNDPR 6/2022.
In addition, also similar to a general PPP scheme, IKN PPP allows a project
to have multiple GCAs, with the following possibilities:14
a. consolidation between 2 (two) or more GCAs for 1 (one) type of
infrastructure;
b. consolidation for 2 (two) or more types of infrastructure; or
c. consolidation between 2 (two) or more GCAs for 2 (two) or more types
of infrastructure.
10
Art. 4 (3) MoNDPR 6/2022.
11
Art. 4 (5) and (6) MoNDPR 6/2022.
12
Art. 4 (4) MoNDPR 6/2022.
13
Art. 5 (1) MoNDPR 6/2022.
14
Art. 6 (1) MoNDPR 6/2022.
AHRP Legal Alert Page 3 of 23
The GCAs shall jointly formulate and sign a memorandum of understanding
which would determine, among others, the coordinator of the GCAs and
mechanism of decision making between the GCAs.15
2. Committee of IKN PPP
The GCA shall form or appoint Committee of IKN PPP16 at the planning
phase (for solicited PPP)17 or preparation phase (for unsolicited PPP).18 The
Committee of IKN PPP has duties and responsibilities to assist GCA in
executing IKN PPP, as well as drafting necessary policies and/or
coordination.19 In conducting its duties, the Committee may be assisted by
consultant and/or experts.20
The Committee of IKN PPP shall be established or appointed with the
conditions that the committee members shall possess expertise in either
technical infrastructure according to the related plan, law, economy and/or
finance, procurement, or other expertise which may be considered
necessary.21 The members of Committee shall only be from the institution
appointed as GCA, unless considered necessary.22
3. Probity Advisor
GCA may be assisted by probity advisor, whose duties are providing
recommendation and guidance to GCA regarding the conformity of IKN PPP
project processes since the procurement phase until the signing of IKN PPP
agreement.23
4. Preparatory Body
In conducting preparatory and transaction phases of IKN PPP, GCA may be
facilitated by the Ministry of Finance or Preparatory Body.24 Preparatory
Body may assist GCA in the phases of: (i) planning until transaction, (ii)
preparation until transaction, or (iii) transaction.25 An entity or an
international organization/institution may become a Preparatory Body by
undergoing a procurement process.26
If the GCA is facilitated by Preparatory Body, IBE may be required to
compensate the facilitation fee provided by Preparatory Body,27 in form of:
(i) costs accrued by Preparatory Body and (ii) success fee for the success
of a project until the fulfilment of financing.28
15
Art. 6 (3) and (4) MoNDPR 6/2022.
16
Art. 7 (1) MoNDPR 6/2022.
17
Art. 7 (2) MoNDPR 6/2022.
18
Art. 7 (3) MoNDPR 6/2022.
19
Art. 7 (5) MoNDPR 6/2022.
20
Art. 7 (6) MoNDPR 6/2022.
21
Art. 7 (4) MoNDPR 6/2022.
22
Ibid.
23
Art. 8 (2) MoNDPR 6/2022.
24
Art. 9 (1) MoNDPR 6/2022.
25
Art. 9 (2) MoNDPR 6/2022.
26
Art. 10 (1) MoNDPR 6/2022.
27
Art. 9 (7) MoNDPR 6/2022.
28
Art. 9 (5) MoNDPR 6/2022.
AHRP Legal Alert Page 4 of 23
5. Coordination Forum
In conducting IKN PPP, the GCA may conduct coordination with the
consolidated coordination forum,29 which comprises ministries and
institutions which conduct their duties and functions in making implementing
policies of PPP.30 Such coordination is aimed for conducting facilitation,
acceleration, oversight, and evaluation of IKN PPP.31
B. IKN PPP Development Progress
The relocation of IKN is carried out as one of the strategies to realize Indonesia's
2045 economic target, namely economic growth that is more inclusive and
equitable through accelerating the development of Eastern Indonesia.32 Moving
the capital city from Java Island to Kalimantan Island is one of the efforts to
encourage regional equity so as to reduce the gap between the Eastern Region of
Indonesia or Kawasan Timur Indonesia (“KTI”) and the Western Region of
Indonesia or Kawasan Barat Indonesia (“KBI”), particularly between the Java
Region and outside the Java Region.33
Furthermore, the relocation of IKN to Kalimantan was based on several
considerations of regional advantages, inter alia:34
1. strategic location in the middle of Indonesian territory and passed by the
Indonesian Archipelagic Sea Lanes or Air Laut Kepulauan Indonesia
(“ALKI”) II;
2. has a relatively complete infrastructure;
3. the location is close to 2 (two) supporting cities that have developed, namely
Balikpapan City and Samarinda City;
4. availability of adequate government-controlled land for the development of
IKN; and
5. to minimize the risk of natural disasters.
Meanwhile, in carrying out the development of IKN in certain stages, the
Government needs to prepare a Rencana Induk of IKN (hereinafter shall be
referred to as “IKN Master Plan”).35 Based on Article 7 (1) Law 3/2022, the IKN
Master Plan is an integrated planning document that serves as a guideline for the
IKN Authority and/or the Central Government in carrying out the preparation,
development, and relocation of IKN, as well as the administration of Regional
Government specific for IKN. One of the aims of the IKN Master Plan is to become
a guideline for IKN Authority, Central Government, state institutions, and/or partner
local governments in carrying out IKN preparation, development, and transfer
activities, as well as administering IKN governance.36
According to Appendix 1 PR 63/2022, the IKN Region is placed to the north of
Balikpapan City and to the south of Samarinda City with a land area of
approximately 256,142 hectares and an area of sea waters of approximately
29
Art. 12 (1) MoNDPR 6/2022.
30
Art. 12 (2) MoNDPR 6/2022.
31
Art. 12 (3) MoNDPR 6/2022.
32
MoNDP/Bappenas, “Socialization Materials of IKN Master Plan on Law 3/2022”,
accessed via https://bappeda.kaltimprov.go.id/storage/data-
paparans/March2022/c9lVSaQqMGEtSQKMiVvt.pdf, on 27 January 2023.
33
Ibid.
34
Ibid.
35
Art. 7 (1) & (2) Law 3/2022.
36
Art. 2 (1) (a) PR 63/2022.
AHRP Legal Alert Page 5 of 23
68,189 hectares.37 Furthermore, the IKN planning is divided into 2 (two) planning
areas, namely:38
1. The IKN Region or Kawasan Ibu Kota Nusantara (“KIKN”) with an area of
approximately 56,180 hectares including the Central Government Core Area
or Kawasan Inti Pusat Pemerintahan (“KIPP”); and
2. The IKN Development Area or Kawasan Pengembangan Ibu Kota
Nusantara (“KPIKN”) with an area of approximately 199,962 hectares.
The following is the stages of IKN development which are divided into 5 (five)
phases:39
1. Phase 1: Year 2022-2024;
2. Phase 2: Year 2025-2029;
3. Phase 3: Year 2030-2034;
4. Phase 4: Year 2035-2039; and
5. Phase 5: Year 2040- 2045.
The focus in the development stages includes: (i) characteristics of the IKN
population; (ii) social; (iii) infrastructure and environment; (iv) regional
development; (v) industrial development and economic growth centers in K-IKN
and other areas; and (vi) defense and security.40 Additionally, this development
plan also elaborates the embodiment of spatial use which indicates the
development of areas starting from KIPP, East IKN area, West IKN area, to North
IKN area.41
In relation to the recent development progress in IKN, as of 29 August 2022, the
construction of the IKN construction workers’ housing has been carried out and is
targeted for completion by the end of February 2023. The IKN construction
worker's residence was carried out by KSO PT Wijaya Karya Gedung and PT Adhi
Karya (Persero) Tbk with a contract value of IDR 567.000.000.000, - (five hundred
and sixty-seven billion Rupiah).42 The plan is to provide various social and public
facilities at the IKN construction workers' residential complex, such as a mosque,
function rooms, clinics, and management representative offices.43
Apart from the construction of the IKN construction workers’ housing as mentioned
above, a number of infrastructures also being built currently at IKN, which includes:
(i) the Sepaku Semoi Dam project which has reached 82% completion and is
targeted to be operated in June 2023; and (ii) the construction of the new state
palace.44
C. IKN PPP Implementation Schemes and Fundings
Funding for the preparation, development, and relocation of the IKN, as well as the
administration of the IKN Region shall be originating from (i) state budget and/or
37
Appendix 1 Section 1.3 of PR 63/2022, p. 4.
38
Appendix 1 Section 1.3 of PR 63/2022, p. 6.
39
Appendix 4 of PR 63/2022.
40
Appendix 4 of PR 63/2022.
41
Appendix 4 of PR 63/2022.
42
Fuji Pratiwi, “Kepala Otorita: Progres Pembangunan IKN Sesuai Jadwal”, Republika.co.id,
accessed via https://www.republika.co.id/berita/rnwmva457/kepala-otorita-progres-
pembangunan-ikn-sesuai-jadwal, on 27 January 2023.
43
Ibid.
44
Ibid.
AHRP Legal Alert Page 6 of 23
(ii) other legitimate sources in accordance with the provisions of the laws and
regulations.45
Funding schemes originating from state budget can take form into (i) spending
and/or (ii) financing.46 The funding scheme in the form of spending includes funding
originating from non-tax state revenues.47 Meanwhile, the funding scheme in the
form of financing includes funding originating from state securities.48
Funding schemes originating from other legitimate sources in accordance with the
provisions of the laws and regulations consist of the funding schemes originating
from:49
1. private contributions;
2. creative financing; and
3. IKN special tax and/or IKN special levies stipulated by the IKN Authority
Regulation after obtaining approval from the People's Legislative Assembly
of the Republic of Indonesia.
Article 4 (6) (b) GR 17/2022 provides that funding schemes other than as referred
above would be allowed.
Additionally, funding schemes originating from state budget and other legal
sources consist of the funding schemes originating from:50
1. utilization of state property and/or utilization of assets under the control of
the IKN authority;
2. IKN PPP; and
3. participation of other parties including:
a. assignment of business entities whose capital is partially or wholly
owned by the state;
b. strengthening the role of state-owned legal entities; and
c. creative financing.
Article 4 (5) (b) GR 17/2022 provides that funding schemes other than as referred
above would be allowed.
Funding originating from the state budget and other legal sources in accordance
with the provisions of laws and regulations is carried out by paying attention to
fiscal sustainability and based on GR 17/2022 and the provisions of related laws
and regulations.51
From the aforementioned funding schemes, we would like to provide a focused
discussion on IKN PPP as elaborated below.
D.1. IKN PPP Implementation Schemes
1. Solicited IKN PPP
In a solicited IKN PPP scheme, the GCA initiates the procurement process.
The procedure and stages are similarly regulated in NPPAR 1/2023 and
45
Art. 3 GR 17/2022.
46
Art. 4 (1) GR 17/2022.
47
Art. 4 (2) GR 17/2022.
48
Art. 4 (3) GR 17/2022.
49
Art. 4 (6) GR 17/2022.
50
Art. 4 (5) GR 17/2022.
51
Art. 6 GR 17/2022.
Ad

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Public-Private Partnership in the Development of Indonesia’s New Capital City (IKN)

  • 1. AHRP Legal Alert Page 1 of 23 Legal Alert January 2023 Public-Private Partnership in the Development of Indonesia’s New Capital City (IKN) I. Introduction and General Overview On 2019, the Government of Indonesia (hereinafter referred to as “Government”) announced its plans to move Indonesia’s capital city from Jakarta to a location in East Kalimantan Province.1 As such, on 15 February 2022, the Government issued Law 3/2022, which aims to regulate not only the transition regarding the change of Indonesia’s capital city from Jakarta, but also the management of the New Capital City of Indonesia (Ibu Kota Negara Nusantara or “IKN”). The relocation of the capital is carried out as one of the strategies to realize Indonesia's economic target of 2045, which is to achieve a more inclusive and equitable economic growth through the acceleration of development in eastern Indonesia.2 For the aforementioned purposes, Law 3/2022 provides a glimpse of the funding mechanism which shall be utilized for the preparation, development, and management of IKN. The regulation provides that infrastructure, which shall be developed within IKN, encompasses infrastructure within the following fields:3 a. housing and settlement; b. waste infrastructure; c. wastewater management; d. water; e. public and social facilities; f. mobility and connectivity; g. energy; and h. technology, information, and communication. One of the funding schemes which may be used in IKN development is the Public- Private Partnership (“PPP”) scheme, which shall involve not only the Government but also private entities.4 The general guideline on the implementation of PPP for infrastructure procurement in IKN is outlined within GR 17/2022 which provides an overview on the regulatory regime for infrastructure procurement in IKN and its stages. For further elucidation on matters concerning planning,5 preparation,6 transaction process,7 financial close,8 and implementation of IKN PPP agreement9 are not detailed within GR 17/2022, and instead shall be enshrined within its implementing regulations. This 1 Cabinet Secretariat of Indonesia, “Pemindahan Ibu Kota, 26 Agustus 2019, di Istana Negara, Provinsi DKI Jakarta”, accessed via https://setkab.go.id/pemindahan-ibu-kota-26- agustus-2019-di-istana-negara-provinsi-dki-jakarta/ on 27 January 2022. 2 Appendix II Chapter I Section A Law 3/2022. 3 Appendix II Chapter III Section F Law 3/2022. 4 Appendix II Chapter IV Section B Law 3/2022. 5 Art. 21 (3) GR 17/2022. 6 Art. 24 (2) (a) GR 17/2022. 7 Art. 26 (3) (a) GR 17/2022. 8 Art. 26 (3) (c) GR 17/2022. 9 Art. 27 (3) GR 17/2022. The government has issued several regulations in order to regulate infrastructure procurement in IKN. Among these regulations are instruments aimed at managing infrastructure procurement through public-private partnerships, such as GR 17/2022, Ministry of Transportation 6/2022, Ministry of Forestry 220/220, and NPPAR 1/2023.
  • 2. AHRP Legal Alert Page 2 of 23 report shall provide summaries on several of the implementing regulations of GR 17/2022, in particular: a. Minister of National Development Planning/Head of National Development Planning Agency Regulation Number 6 of 2022 on the Procedure for Public- Private Partnership in Nusantara Capital City (“MoNDPR 6/2022”); b. Minister of Finance Regulation Number 220/PMK.08/2022 of 2022 on the Government Support for Government Cooperation with Business Entities and Creative Financing in The Context of Accelerating Infrastructure Provision in Nusantara Capital City (“MoFR 220/2022”); and c. National Procurement Policy Agency Regulation Number 1 of 2023 on the Procedure of Business Entity Procurement through Public Private Partnership with Business Entity in Nusantara Capital City (“NPPAR 1/2023”). II. Overview on the New Regulatory Framework of IKN PPP Scheme A. Institutional Aspects of IKN PPP MoNDPR 6/2022 recognizes several stakeholders which shall be involved in the IKN PPP scheme. While some stakeholders are the usual parties within a common PPP scheme (e.g., Government Contracting Agency), the IKN PPP scheme has introduced new stakeholders. 1. Government Contracting Agency (“GCA”) Pursuant to Article 1 (15) MoNDPR 6/2022, the GCA is the relevant minister, head of institution, director of state-owned enterprise and/or Head of IKN Authority. The determination of GCA shall be based on (i) authority over the relevant infrastructure; (ii) Master Plan of IKN (Rencana Induk IKN); and (iii) the Details of Master Plan of IKN (Perincian Rencana Induk IKN).10 Similar to the general PPP scheme, duties mandated to the GCA may be delegated, which can be deployed to their head of organization units/work units11 as relevant.12 However, such delegation could also be given to the head of legal-entity higher-education institution (Perguruan Tinggi Negeri Badan Hukum or “PTN-BH”) or the head of public broadcasting institutions (Lembaga Penyiaran Publik or “LPP”).13 This is a new provision introduced through MoNDPR 6/2022. In addition, also similar to a general PPP scheme, IKN PPP allows a project to have multiple GCAs, with the following possibilities:14 a. consolidation between 2 (two) or more GCAs for 1 (one) type of infrastructure; b. consolidation for 2 (two) or more types of infrastructure; or c. consolidation between 2 (two) or more GCAs for 2 (two) or more types of infrastructure. 10 Art. 4 (3) MoNDPR 6/2022. 11 Art. 4 (5) and (6) MoNDPR 6/2022. 12 Art. 4 (4) MoNDPR 6/2022. 13 Art. 5 (1) MoNDPR 6/2022. 14 Art. 6 (1) MoNDPR 6/2022.
  • 3. AHRP Legal Alert Page 3 of 23 The GCAs shall jointly formulate and sign a memorandum of understanding which would determine, among others, the coordinator of the GCAs and mechanism of decision making between the GCAs.15 2. Committee of IKN PPP The GCA shall form or appoint Committee of IKN PPP16 at the planning phase (for solicited PPP)17 or preparation phase (for unsolicited PPP).18 The Committee of IKN PPP has duties and responsibilities to assist GCA in executing IKN PPP, as well as drafting necessary policies and/or coordination.19 In conducting its duties, the Committee may be assisted by consultant and/or experts.20 The Committee of IKN PPP shall be established or appointed with the conditions that the committee members shall possess expertise in either technical infrastructure according to the related plan, law, economy and/or finance, procurement, or other expertise which may be considered necessary.21 The members of Committee shall only be from the institution appointed as GCA, unless considered necessary.22 3. Probity Advisor GCA may be assisted by probity advisor, whose duties are providing recommendation and guidance to GCA regarding the conformity of IKN PPP project processes since the procurement phase until the signing of IKN PPP agreement.23 4. Preparatory Body In conducting preparatory and transaction phases of IKN PPP, GCA may be facilitated by the Ministry of Finance or Preparatory Body.24 Preparatory Body may assist GCA in the phases of: (i) planning until transaction, (ii) preparation until transaction, or (iii) transaction.25 An entity or an international organization/institution may become a Preparatory Body by undergoing a procurement process.26 If the GCA is facilitated by Preparatory Body, IBE may be required to compensate the facilitation fee provided by Preparatory Body,27 in form of: (i) costs accrued by Preparatory Body and (ii) success fee for the success of a project until the fulfilment of financing.28 15 Art. 6 (3) and (4) MoNDPR 6/2022. 16 Art. 7 (1) MoNDPR 6/2022. 17 Art. 7 (2) MoNDPR 6/2022. 18 Art. 7 (3) MoNDPR 6/2022. 19 Art. 7 (5) MoNDPR 6/2022. 20 Art. 7 (6) MoNDPR 6/2022. 21 Art. 7 (4) MoNDPR 6/2022. 22 Ibid. 23 Art. 8 (2) MoNDPR 6/2022. 24 Art. 9 (1) MoNDPR 6/2022. 25 Art. 9 (2) MoNDPR 6/2022. 26 Art. 10 (1) MoNDPR 6/2022. 27 Art. 9 (7) MoNDPR 6/2022. 28 Art. 9 (5) MoNDPR 6/2022.
  • 4. AHRP Legal Alert Page 4 of 23 5. Coordination Forum In conducting IKN PPP, the GCA may conduct coordination with the consolidated coordination forum,29 which comprises ministries and institutions which conduct their duties and functions in making implementing policies of PPP.30 Such coordination is aimed for conducting facilitation, acceleration, oversight, and evaluation of IKN PPP.31 B. IKN PPP Development Progress The relocation of IKN is carried out as one of the strategies to realize Indonesia's 2045 economic target, namely economic growth that is more inclusive and equitable through accelerating the development of Eastern Indonesia.32 Moving the capital city from Java Island to Kalimantan Island is one of the efforts to encourage regional equity so as to reduce the gap between the Eastern Region of Indonesia or Kawasan Timur Indonesia (“KTI”) and the Western Region of Indonesia or Kawasan Barat Indonesia (“KBI”), particularly between the Java Region and outside the Java Region.33 Furthermore, the relocation of IKN to Kalimantan was based on several considerations of regional advantages, inter alia:34 1. strategic location in the middle of Indonesian territory and passed by the Indonesian Archipelagic Sea Lanes or Air Laut Kepulauan Indonesia (“ALKI”) II; 2. has a relatively complete infrastructure; 3. the location is close to 2 (two) supporting cities that have developed, namely Balikpapan City and Samarinda City; 4. availability of adequate government-controlled land for the development of IKN; and 5. to minimize the risk of natural disasters. Meanwhile, in carrying out the development of IKN in certain stages, the Government needs to prepare a Rencana Induk of IKN (hereinafter shall be referred to as “IKN Master Plan”).35 Based on Article 7 (1) Law 3/2022, the IKN Master Plan is an integrated planning document that serves as a guideline for the IKN Authority and/or the Central Government in carrying out the preparation, development, and relocation of IKN, as well as the administration of Regional Government specific for IKN. One of the aims of the IKN Master Plan is to become a guideline for IKN Authority, Central Government, state institutions, and/or partner local governments in carrying out IKN preparation, development, and transfer activities, as well as administering IKN governance.36 According to Appendix 1 PR 63/2022, the IKN Region is placed to the north of Balikpapan City and to the south of Samarinda City with a land area of approximately 256,142 hectares and an area of sea waters of approximately 29 Art. 12 (1) MoNDPR 6/2022. 30 Art. 12 (2) MoNDPR 6/2022. 31 Art. 12 (3) MoNDPR 6/2022. 32 MoNDP/Bappenas, “Socialization Materials of IKN Master Plan on Law 3/2022”, accessed via https://bappeda.kaltimprov.go.id/storage/data- paparans/March2022/c9lVSaQqMGEtSQKMiVvt.pdf, on 27 January 2023. 33 Ibid. 34 Ibid. 35 Art. 7 (1) & (2) Law 3/2022. 36 Art. 2 (1) (a) PR 63/2022.
  • 5. AHRP Legal Alert Page 5 of 23 68,189 hectares.37 Furthermore, the IKN planning is divided into 2 (two) planning areas, namely:38 1. The IKN Region or Kawasan Ibu Kota Nusantara (“KIKN”) with an area of approximately 56,180 hectares including the Central Government Core Area or Kawasan Inti Pusat Pemerintahan (“KIPP”); and 2. The IKN Development Area or Kawasan Pengembangan Ibu Kota Nusantara (“KPIKN”) with an area of approximately 199,962 hectares. The following is the stages of IKN development which are divided into 5 (five) phases:39 1. Phase 1: Year 2022-2024; 2. Phase 2: Year 2025-2029; 3. Phase 3: Year 2030-2034; 4. Phase 4: Year 2035-2039; and 5. Phase 5: Year 2040- 2045. The focus in the development stages includes: (i) characteristics of the IKN population; (ii) social; (iii) infrastructure and environment; (iv) regional development; (v) industrial development and economic growth centers in K-IKN and other areas; and (vi) defense and security.40 Additionally, this development plan also elaborates the embodiment of spatial use which indicates the development of areas starting from KIPP, East IKN area, West IKN area, to North IKN area.41 In relation to the recent development progress in IKN, as of 29 August 2022, the construction of the IKN construction workers’ housing has been carried out and is targeted for completion by the end of February 2023. The IKN construction worker's residence was carried out by KSO PT Wijaya Karya Gedung and PT Adhi Karya (Persero) Tbk with a contract value of IDR 567.000.000.000, - (five hundred and sixty-seven billion Rupiah).42 The plan is to provide various social and public facilities at the IKN construction workers' residential complex, such as a mosque, function rooms, clinics, and management representative offices.43 Apart from the construction of the IKN construction workers’ housing as mentioned above, a number of infrastructures also being built currently at IKN, which includes: (i) the Sepaku Semoi Dam project which has reached 82% completion and is targeted to be operated in June 2023; and (ii) the construction of the new state palace.44 C. IKN PPP Implementation Schemes and Fundings Funding for the preparation, development, and relocation of the IKN, as well as the administration of the IKN Region shall be originating from (i) state budget and/or 37 Appendix 1 Section 1.3 of PR 63/2022, p. 4. 38 Appendix 1 Section 1.3 of PR 63/2022, p. 6. 39 Appendix 4 of PR 63/2022. 40 Appendix 4 of PR 63/2022. 41 Appendix 4 of PR 63/2022. 42 Fuji Pratiwi, “Kepala Otorita: Progres Pembangunan IKN Sesuai Jadwal”, Republika.co.id, accessed via https://www.republika.co.id/berita/rnwmva457/kepala-otorita-progres- pembangunan-ikn-sesuai-jadwal, on 27 January 2023. 43 Ibid. 44 Ibid.
  • 6. AHRP Legal Alert Page 6 of 23 (ii) other legitimate sources in accordance with the provisions of the laws and regulations.45 Funding schemes originating from state budget can take form into (i) spending and/or (ii) financing.46 The funding scheme in the form of spending includes funding originating from non-tax state revenues.47 Meanwhile, the funding scheme in the form of financing includes funding originating from state securities.48 Funding schemes originating from other legitimate sources in accordance with the provisions of the laws and regulations consist of the funding schemes originating from:49 1. private contributions; 2. creative financing; and 3. IKN special tax and/or IKN special levies stipulated by the IKN Authority Regulation after obtaining approval from the People's Legislative Assembly of the Republic of Indonesia. Article 4 (6) (b) GR 17/2022 provides that funding schemes other than as referred above would be allowed. Additionally, funding schemes originating from state budget and other legal sources consist of the funding schemes originating from:50 1. utilization of state property and/or utilization of assets under the control of the IKN authority; 2. IKN PPP; and 3. participation of other parties including: a. assignment of business entities whose capital is partially or wholly owned by the state; b. strengthening the role of state-owned legal entities; and c. creative financing. Article 4 (5) (b) GR 17/2022 provides that funding schemes other than as referred above would be allowed. Funding originating from the state budget and other legal sources in accordance with the provisions of laws and regulations is carried out by paying attention to fiscal sustainability and based on GR 17/2022 and the provisions of related laws and regulations.51 From the aforementioned funding schemes, we would like to provide a focused discussion on IKN PPP as elaborated below. D.1. IKN PPP Implementation Schemes 1. Solicited IKN PPP In a solicited IKN PPP scheme, the GCA initiates the procurement process. The procedure and stages are similarly regulated in NPPAR 1/2023 and 45 Art. 3 GR 17/2022. 46 Art. 4 (1) GR 17/2022. 47 Art. 4 (2) GR 17/2022. 48 Art. 4 (3) GR 17/2022. 49 Art. 4 (6) GR 17/2022. 50 Art. 4 (5) GR 17/2022. 51 Art. 6 GR 17/2022.
  • 7. AHRP Legal Alert Page 7 of 23 MoNDPR 4/2015, albeit with different scopes. Nonetheless, the stages of procurement in a solicited IKN PPP scheme under NPPAR 1/2023 and MoNDPR 4/2015 can be discerned as follows: a. Planning Stage Similar to the terms within the ordinary PPP scheme,52 the planning phase within the IKN PPP scheme consists of activities pertaining to identification, determination, and budgeting.53 As such, GCA shall formulate identification documents to identity infrastructure Projects which shall be procured through IKN PPP scheme.54 The identification documents shall encompass:55 1) Compliance with the IKN Master Plan and its details, as well as the National Strategic Area Spatial Plan for IKN while considering need analysis; 2) Value for money, benefit and social costs, and potential project revenue and cost schemes; 3) Results of public consultation with due regard to project needs; and 4) Recommendations and follow-up plans. Based on the above consideration, the GCA shall determine whether the relevant project shall utilize the PPP scheme or other funding scheme.56 If the project is to use the IKN PPP scheme, the GCA shall submit a list of IKN PPP plans to the Minister of National Development Planning (“MoNDP”).57 b. Preparation Stage Preparation stage of IKN PPP includes: (i) formulation of pre- feasibility study; (ii) supporting activities of IKN PPP;58 and (iii) market sounding.59 In a solicited IKN PPP scheme, GCA is responsible for the pre- feasibility study document.60 Similar to a general PPP project, MoNDPR 6/2022 also sets out the contents which must be contained in a pre-feasibility study (e.g., institutional, legal, technical, economic, commercial, and risk aspects).61 In the event that the IKN requires land procurement, the pre-feasibility study shall include plans on land procurement.62 52 Art. 11 MoNDPR 4/2015. 53 Art. 18 (2) MoNDPR 6/2022. 54 Art. 19 (2) MoNDPR 6/2022. 55 Art. 19 (4) MoNDPR 6/2022. In accordance with Art. 6 (2) MoNDPR No. 6/2022, the intended infrastructure must be based on the Master Plan of IKN and the Details of Master Plan of IKN. 56 Art. 20 (1) MoNDPR 6/2022. 57 Art. 21 (1) MoNDPR 6/2022. 58 In accordance Art. 13 (2) MoNDPR 6/2022, supporting activities include application for environmental approval, location determination, application for government support, and/or other necessary licenses. 59 Art. 23 (2) MoNDPR 6/2022. 60 Art. 24 (1) MoNDPR 6/2022. 61 Art. 24 (2) MoNDPR 6/2022. 62 Art. 24 (3) MoNDPR 6/2022.
  • 8. AHRP Legal Alert Page 8 of 23 c. Procurement Stage Furthermore, the procurement stage of solicited IKN PPP is conducted through a Tender process,63 which is preceded by or together with the Prequalification process.64 NPPAR 1/2023 stipulates 3 (three) kinds of Tenders, which are as follows: 1) One step Tender, which is implemented for IKN PPP Projects where (i) the formulation of its Infrastructure Provision requirements is clear; and (ii) Optimization Dialogue to attract the best value for money bid is not necessary.65 2) Two step Tender, which is implemented for IKN PPP Projects where (i) the formulation of the Minimum Requirements of the Infrastructure Provision has been formulated and unchangeable; and (ii) Additional Requirements and Optimization Dialogue to attract the best value for money bid is necessary.66 3) Combined Tender and Prequalification, in which the participants submit the Qualification Documents and Proposal together, and is implemented by the GCA only in critical and urgent circumstances.67 d. Transaction Stage In accordance with Article 27 (5) MonDPR 6/2022, the transaction stage within a solicited IKN PPP project encompasses: (i) the procurement of IBE; (ii) signing of IKN PPP agreement; and (iii) financial close by the IBE. In a general PPP scheme, Article 32 (1) MoNDPR 4/2015 regulates that the transaction phase of a PPP project may be commenced after the GCA commences transaction of the PPP project and after the conditions to utilize State-owned Assets (Barang Milik Negara or “BMN”) and/or Regional-owned Assets (Barang Milik Daerah or “BMD”) for PPP has been fulfilled. This differs from the IKN PPP scheme, which regulates that the GCA may enter the transaction phase after: (i) concluding the pre-feasibility study; and (ii) conducting or having conducted supporting activities (e.g., environmental permit, location determination, approval of Government Support, and other licenses).68 Once the IKN PPP project has entered the transaction stage, solicited IBE procurements are initiated and conducted by the GCA.69 The procurement shall proceed by taking into account the documents produced in the PPP preparation phase and market sounding phase, and shall be initiated only after the GCA issued a statement letter 63 Art. 7 (2) NPPAR 1/2023. 64 Art. 7 (4) jo. Art. 8 (1) (c) NPPAR 1/2023. 65 Art. 8 (2) NPPAR 1/2023. 66 Art. 8 (3) NPPAR 1/2023. 67 Art. 8 (4) & (5) jo. Section B.2.c Chapter III Appendix II NPPAR No. 1/2023. 68 Art. 27 (2) and (3) MoNDPR 6/2022. 69 Art. 6 (1) NPPAR 1/2023.
  • 9. AHRP Legal Alert Page 9 of 23 which determines that the IKN PPP Project is technically, economically, and financially feasible.70 Moreover, solicited IBE procurements are divided into (i) procurement preparation stage; (ii) procurement stage; (iii) IKN PPP agreement execution preparation stage; and (iv) financial close preparation stage.71 Scheme 1. Stages of Solicited IBE Procurement Source: NPPAR 1/2023 The procurement stage as mentioned above is conducted through a Tender process,72 which is preceded by or together with the Prequalification process as already mentioned below.73 Another interesting point from MoNDP 6/2022 is that it sets out the minimum content for an IKN PPP agreement, such as provisions regarding intellectual property rights, assets ownership status, dispute settlement, and licenses of IBE as one of the conditions precedents.74 In regard to the IKN PPP agreement, Article 20 (9) MoNDP 6/2022 explicitly opens the possibility for amendment of IKN PPP agreement after its initial signing. Such amendment could be made based on consent of the parties (GCA and IBE), so long as it does not change the: (i) project structure; (ii) financial feasibility of the project; (iii) risk allocation; and (iv) bidding parameter which have been agreed beforehand. Furthermore, it is notable that the period given to the IBE to achieve financial close a maximum of 4 (four) months,75 with the possibility of a one-time extension76 for 2 (two) months.77 70 Art. 6 (2) & (3) NPPAR 1/2023. 71 Art. 7 (1) NPPAR 1/2023. 72 Art. 7 (2) NPPAR 1/2023. 73 Art. 7 (4) jo. Art. 8 (1) (c) NPPAR 1/2023. 74 Art. 29 (3) and (8) MoNDPR 6/2022. 75 Art. 30 (1) MoNDPR 6/2022. 76 Art. 30 (4) MoNDPR 6/2022. 77 Art. 30 (7) MoNDPR 6/2022.
  • 10. AHRP Legal Alert Page 10 of 23 e. Implementation of IKN PPP Agreement The IBE may implement the IKN PPP agreement after it has achieved financial close.78 The implementation of IKN PPP agreement ranges from the construction of the infrastructure, provision of services, until the IKN PPP agreement has elapsed.79 The IBE has to achieve Commercial Operation Date (“COD”) in 36 (thirty-six) months at the latest after financial close had been achieved.80 This date shall be set within the IKN PPP agreement.81 At the end of the IKN PPP agreement period, IBE shall transfer assets of IKN PPP to GCA, unless stated otherwise based on Minister of Finance regulations.82 Article 35 (2) MoNDPR 6/2022 regulates that the transfer of assets shall be regulated within the IKN PPP agreement with certain minimum specifications. Scheme 2. Indicative Timeline for Solicited IKN PPP Source: Appendix II Chapter I Section A MoNDPR 6/2022 2. Unsolicited IKN PPP Unsolicited IKN PPP, where projects are initiated and proposed by business entities, has a slightly different procedure than solicited IKN PPP. The distinguishing feature of IKN PPP compared to ordinary PPP is the introduction of the Swiss Challenge as a procurement method, which will be elaborated further below. a. Preparation Stage Business entity may submit initiative of IKN PPP to GCA for infrastructure procurement which fulfils the following criteria:83 78 Art. 33 (1) MoNDPR 6/2022. 79 Art. 33 (4) MoNDPR 6/2022. 80 Art. 34 (1) MoNDPR 6/2022. 81 Art. 34 (2) MoNDPR 6/2022. 82 Art. 35 (1) MoNDPR 6/2022. 83 Art. 36 (2) MoNDPR 6/2022.
  • 11. AHRP Legal Alert Page 11 of 23 1) the initiated procurement is stated in Master Plan of IKN and the Details of Master Plan of IKN; 2) the initiated procurement must be economically and financially viable; 3) the initiating business entity must have adequate financial capabilities to finance the infrastructure procurement conduct; and 4) must have additional value for technology innovation, monetary value, and time efficiency. The initiating business entity shall convey letter of intent to GCA at initial stage.84 After receiving letter of intent, GCA shall conduct adjusted appraisal in accordance with IKN Master Plan and the Details of IKN Master Plan, and confirmation over GCA’s authority based on the initiative.85 Once GCA conducted the activities referred above, GCA may respond the initiative by requesting business entity to submit Feasibility Study and its supporting documents.86 As opposed to the ordinary PPP,87 the initiating business entity under the IKN PPP scheme is not required to submit Pre-Feasibility Study for IKN PPP projects. GCA shall assess the initiative IKN PPP proposed by business entity within 30 (thirty) calendar days.88 In case GCA approves the initiated IKN PPP, GCA shall issue approval letter on the initiative.89 In the event the transaction is conducted by means of Swiss Challenge or direct appointment, GCA shall also issue approval on offer documents.90 After the issuance of approval letter, GCA may amend Feasibility Study and its supporting documents for correction purposes only.91 b. Transaction Stage Transaction of unsolicited IKN PPP shall be done with terms after the issuance of approval letter on the initiative by GCA92 and GCA has commenced and/or supporting activities.93 Akin to solicited IKN PPP, transaction stage conducted by GCA comprises of (i) IBE Procurement, (ii) signing of IKN PPP Agreement; and (iii) financial close by IBE.94 Furthermore, unsolicited IKN PPP procurements are conducted through either of the following process: 84 Art. 39 (1) MoNDPR 6/2022. 85 Art. 39 (2) MoNDPR 6/2022. 86 Art. 39 (3) MoNDPR 6/2022. 87 Art. 21 (2) MoNDPR 4/2015. 88 Art. 40 (2) MoNDPR 6/2022. 89 Art. 40 (6) MoNDPR 6/2022. 90 Art. 40 (7) MoNDPR 6/2022 91 Art. 41 (1) MoNDPR 6/2022. 92 Art. 42 (1) MoNDPR 6/2022. 93 Please refer to Art. 13 (2) MoNDPR 6/2022. 94 Art. 42 (4) MoNDPR 6/2022.
  • 12. AHRP Legal Alert Page 12 of 23 1) One step Tender through Prequalification, which follows the rules of one step Tender for Solicited IBE Procurement.95 2) Combined Tender and Prequalification, which follows the rules of Combined Tender and Prequalification for Solicited IBE Procurement.96 3) Swiss Challenge,97 which is implemented by the GCA under the consideration of (i) the Initiative approval letter states that the Initiator is compensated for the right to make an offer by the IBE against the best bidder (right to match) through Swiss Challenge; or (ii) the minutes of confirmation on the fulfillment of Initiator requirements has stated that the Initiator has fulfilled the requirements.98 4) Direct Appointment, which can only be implemented under the conditions that (i) the IKN PPP Project is a development of an infrastructure which was built and/or operated by the same IBE, (ii) the IKN PPP Project can only be completed with new technology and there is only 1 (one) capable service provider; (iii) the Business Entity has owned a majority or the entire land needed for the IKN PPP Project; and (iv) the Infrastructure Provision is declared a priority by the GCA.99 Scheme 3. Stages of Unsolicited IBE Procurement Source: NPPAR 1/2023 95 Art. 11 (2) (a) jo. Art. 12 NPPAR 1/2023. 96 Art. 11 (2) (b) jo. Art. 13 NPPAR 1/2023. 97 According to Art. 1 (41) NPPAR 1/2023, is a procurement method where the proposal of the Initiator is contested by a best-ranked Challenger. 98 Art. 11 (2) (c) jo. Art. 14 NPPAR 1/2023. 99 Art. 11 (2) (d) & jo. Art. 11 (7) NPPAR 1/2023.
  • 13. AHRP Legal Alert Page 13 of 23 c. Implementation of IKN PPP Agreement Pursuant to Article 44 MoNDPR 6/2022, the provisions on the implementation of IKN PPP Agreement for solicited PPP are also applicable in case of unsolicited PPP. In summary, the general indicative timeline for an unsolicited IKN PPP is demonstrated in the graph below. Scheme 4. Indicative Timeline for Unsolicited IKN PPP Source: Appendix II Chapter I Section B MoNDPR 6/2022 3. Other Notable Key Provisions in IKN PPP Scheme In addition to the provisions within the unsolicited and solicited IKN PPP scheme as elaborated within the previous section, other notable provisions include: a. Clawback Exemption Facility In conducting phases of IKN PPP, GCA may conduct cooperation through Government Support in the form of fiscal contribution in accordance with each GCA’s scope of authority based on the prevailing laws and regulations with the aim to enhance the financial adequacy and effectiveness of IKN PPP.100 The Government Support one of which is comprises of the utilization of BMN/BMD and/or ADP as a support from the Ministry of Finance which are given by considering the national fiscal capacity.101 In relation with the utilization of BMN/BMD and/or ADP, such supporting activities can obtain a claw back elimination facility after obtaining an approval from the Ministry of Finance as the Asset Manager.102 100 Art. 1 (33) MoNDPR 6/2022. 101 Art. 13 (4) (b) MoNDPR 6/2022. 102 Art. 13 (6) MoNDPR 6/2022.
  • 14. AHRP Legal Alert Page 14 of 23 b. Other Types of Return on Investment Article 14 of MoNDPR 6/2022 affirms that the return on investment for IKN PPP may utilize: (i) user payment; (ii) availability payment; and/or (iii) other forms of returns in accordance with the laws and regulations.103 Return on investment through other forms may be derived from other sources of income which are not directly related to the services provided by the infrastructure.104 In regard to this, such an investment return scheme should be applied with terms that are calculated according to the present value and are agreed upon with a reasonable profit value.105 Examples of return on investment through other forms include a visitation place within a hospital or a commercial area within an infrastructure (e.g., road or transit-oriented development infrastructure).106 c. Transition Mechanism from Solicited PPP to Unsolicited PPP Transition of a solicited PPP project to become an unsolicited PPP project could be conducted within the preparation or transaction stage of IKN PPP.107 Such a transition may only occur if one of the following conditions is fulfilled:108 1) there is no business entity that passes the prequalification stage; 2) there is no bidder that has submitted an offer; 3) none of the IBE procurement participants has passed the offering phase; 4) the IBE has failed to reach a financial close. The transition of a Project from a solicited PPP project to become an unsolicited PPP project may be carried out by comparing the feasibility study and supporting documents made by the initiating business entity with the pre-feasibility study document formulated by the GCA. For a solicited PPP to become an unsolicited PPP project, the feasibility study brought by the initiating business entity shall possess, at minimum, the following additional values: (i) innovative element; (ii) advantage in value for money; (iii) advantage in economic and financial feasibility.109 d. Transition Mechanism from Unsolicited PPP to Solicited PPP An IKN PPP project in the form of unsolicited PPP may be transformed into a solicited PPP project during the transaction stage, and only if one of the following scenarios has occurred:110 103 Art. 14 (2) MoNDPR 6/2022. 104 Art. 14 (3) MoNDPR 6/2022. 105 Appendix II Chapter 3 Section D Point 4.3 MoNDPR 6/2022. 106 Ibid. 107 Art. 45 (3) MoNDPR 6/2022. 108 Art. 45 (4) MoNDPR 6/2022. 109 Art. 45 (2) and Appendix I Chapter III Section A Point 1 (b) MoNDPR 6/2022. 110 Art. 46 (2) MoNDPR 6/2022.
  • 15. AHRP Legal Alert Page 15 of 23 1) there is no business entity that passes the prequalification stage; 2) none of the IBE procurement participants has passed the offering phase; 3) the IBE has failed to reach a financial close. e. Transition of GCA Based on Article 47 (1) of MoNDPR 6/2022, the transition of GCA can be done: (i) from the Head of IKN Authority to the Minister/Head of Institution/Director of State-Owned Enterprise (Badan Usaha Milik Negara or “SOE”); or (ii) from the Minister/Head of Institution/Director of SOEs to the Head of IKN Authority. Moreover, the GCA transition is carried out at the fastest stage of implementing the cooperation agreement, by submitting: (i) identification documents; (ii) preparation documents; (iii) procurement documents; (iv) cooperation agreement documents; and (v) all other supporting documents.111 According to Article 47 (8) of MoNDPR 6/2022, the transition period of GCA shall be carried out no later than 1 (one) month, concurrent with the establishment of a new IKN PPP Committee. It should be noted that in the event of a GCA transition in a project which have obtained Government Guarantee, the previous GCA and current GCA shall coordinate altogether with the relevant ministries and/or Indonesia Infrastructure Guarantee Fund/PT Penjaminan Infrastruktur Indonesia (“IIGF”).112 f. Business Entity Preparatory Body Panel The NPPAR 1/2023 introduced another avenue for the involvement of business entities in IKN PPP Projects, namely through the setting up of a Business Entity Preparatory Body Panel. The formation of the panel shall be carried out by the GCA through Prequalification.113 Moreover, the panel is tasked with assisting the GCA from the Planning stage to Transaction stage, Preparatory stage to Transaction Stage, or Transaction stage of a Procurement process.114 The panel will vary by size, period, and form, which will be based upon prior assessment by the Committee of IKN PPP.115 As a matter of demonstration, NPPAR 1/2023 outlined 2 (two) examples of panels based upon (i) sector; and (ii) area.116 Sectoral Business Entity Preparatory Body Panel may be needed, for instance, for IKN PPP Projects in the sectors of railway or airport. On the other hand, areal Business Entity Preparatory Body Panel may be needed, for instance, for IKN PPP Projects needing expertise in technical, financial, or operational and maintenance areas.117 111 Art. 47 (6) and (7) MoNDPR 6/2022. 112 Art. 48 (1) MoNDPR 6/2022. 113 Art. 17 (2) LKPRR 1/2023. 114 Art. 1 (14) jo. Art. 17 (1) NPPAR 1/2023. 115 Section A.1 Chapter III Appendix IV of NPPAR 1/2023. 116 Section A.2.d Chapter III Appendix IV of NPPAR 1/2023. 117 Ibid.
  • 16. AHRP Legal Alert Page 16 of 23 g. Business Entity Panel According to Article 19 NPPAR 1/2023, the GCA is able to setup a Business Entity Panel through Prequalification.118 In case where the GCA setup a Business Entity Panel, the Business Entity which is a member of the Business Entity Panel is able to participate directly in the IKN PPP procurement process.119 The purpose of the introduction of Business Entity Panel in NPPAR 1/2023 is to expedite the process to reach financial close by creating a pool of prospective Business Entities which have the potential to setup an IBE for a given IKN PPP project, from which the GCA can readily initiate a procurement process.120 In case of an procurement process utilizing a Business Entity Panel, the Prequalification process is not necessary to be conducted,121 though the Tender procedure as applicable to solicited IKN PPP procurement and unsolicited IKN PPP procurement shall remain applicable for procurement through Business Entity Panel. D.2. IKN PPP Financing Schemes and Government Support As mandated by GR 17/2022, the Ministry of Finance has issued MoFR 220/2022 which explains the government support for government cooperation with business entities and creative financing in the context of accelerating infrastructure provision in IKN. Moreover, the structure of MoFR 220/2022 consist of: (i) supporting facility for the funding scheme implementation; (ii) Project Development Facility (“PDF”); (iii) Government Support for IKN PPP; (iv) Availability Payment (“AP”) scheme; (v) infrastructure financing provider, which can be seen in the graphic below: Scheme 4. Types of Government Support Source: MoFR 220/2022 For the purpose of this report, we only elaborate the government supports provided by the Ministry of Finance, as will be further elaborated in the following sections. 118 Art. 19 (1) NPPAR 1/2023. 119 Art. 19 (2) NPPAR 1/2023. 120 Section A Chapter I Appendix V NPPAR 1/2023. 121 Art. 11 (4) NPPAR 1/2023.
  • 17. AHRP Legal Alert Page 17 of 23 1. Funding Scheme Funding for the preparation, development and relocation of the IKN, can be done through: (i) state budget; or (ii) other legitimate sources in accordance with laws and regulations.122 Moreover, funding scheme from state budget and other legitimate sources can be in the form of: (i) IKN PPP; (ii) assignment of an entity whose capital is partly or wholly owned by the state; (iii) financing sourced from government securities; (iv) funding or financing support scheme or international funding; (v) utilization of BMN and/or utilization of assets owned by IKN authority; or (vi) creative financing.123 The creative financing can be in the form of blended finance124.125 Creative Financing is determined by the Minister of Finance and then delegated to the Directorate General of Financing and Risk Management (“DGFRM”).126 In order to support funding scheme, the government provides government support.127 Government Support can be provided for projects in accordance with laws and regulations regarding IKN Master Plan and the details of IKN Master Plan.128 Furthermore, the Government Support include:129 a. funding scheme for IKN PPP is consist of: 1) transaction preparation and execution facilities which includes supporting facility for the funding scheme implementation and project development facility; 2) Government Guarantee; 3) BMN utilization; and/or 4) viability gap fund. b. funding scheme for creative financing is given transaction preparation and execution facilities which includes supporting facility for the funding scheme implementation and project development facility. The abovementioned supporting facility for the funding scheme implementation is prioritized to provide IKN infrastructure in Central Government area.130 2. Supporting Facility for the Funding Scheme Implementation Based on Article 3 (2) (a) (i) MoFR 220/2022, types of government support provided by the Ministry of Finance for the IKN PPP funding scheme, one of which is in the form of supporting facility for the funding scheme implementation.131 Such supporting facility can only be used to support 122 Art. 2(1) MoFR 220/2022. 123 Art. 2 (2) MoFR 220/2022. 124 Based on Art. (2) (4) MoFR 220/2022, blended finance means funding synergy between the state budget and other legitimate sources including crowdfunding and philanthropic funding schemes. 125 Art. 2 (3) MoFR 220/2022. 126 Art. 2 (5) & (6) MoFR 220/2022. 127 Art. 2 (7) MoFR 220/2022. 128 Art. 3 (1) MoFR 220/2022. 129 Art. 3 (2) MoFR 220/2022. 130 Art. 3 (3) MoFR 220/2022. 131 Based on Art. 1 (14) MoFR 220/2022, Supporting Facility for the Funding Scheme Implementation means the Government Support provided by the Ministry of Finance to the
  • 18. AHRP Legal Alert Page 18 of 23 financing for the procurement of IKN PPP infrastructure, specifically in the Central Government areas.132 Furthermore, supporting facility for the funding scheme implementation are provided for activities which at least includes:133 a. preparation of studies and/or land acquisition plan documents or location determination; b. preparation of the regulatory framework; c. preparation of studies and/or documents indicating descriptions of priority projects targeted to operate in the Central Government area of IKN; and/or d. preparation of studies and/or recommendation documents indicating the use of sources and financing schemes to be used in the framework of funding the provision of IKN infrastructure. Additionally, the implementation of supporting facility consists of, among others: (i) application; (ii) review; (iii) implementation; and (iv) determination of output results.134 Particularly at the initial stage, an application for the use of the supporting facility for the funding scheme implementation shall be submitted in the form of a letter by the Head of IKN Authority to the Ministry of Finance.135 Pursuant to Article 10 (1) MoFR 220/2022, the procurement of the supporting facility for the funding scheme implementation is carried out by the Ministry of Finance through the DGFRM. In relation with such implementation, Minitry of Finance may also assign SOEs to carry out the related facilities.136 Moreover, according to Article 11 (1) MoFR 220/2022, the relevant SOEs that has been assigned by the Ministry of Finance shall submit an Output Results to the DGFRM and after the Ministry of Finance has conducted a review,137 then DGFRM is entitled to issue an approval.138 3. Project Development Facility Based on Article 15 (1) MoFR 220/2022, PDF are provided and used to support the provision of IKN Infrastructure which plan to be carried out through the IKN PPP funding scheme. One of the aims for the provision of PDF is to assist: (i) the compiling of project documents (business case) needed in the project development stage; (ii) carrying out transactions; and (iii) implementing IKN Infrastructure Provision agreements.139 The phases of PDF procurement also consist of: (i) application; (ii) review; (iii) implementation; and (iv) determination of output results.140 Furthermore, PDF will be provided through stages which consist of: (i) pre- preparation stage; (ii) preparation stage; (iii) transaction stage; and/or (iv) IKN PPP Authority, in the context of preparing documents for the provision of IKN infrastructure in the area of the capital city. 132 Art. 5 (1) MoFR 220/2022. 133 Art. 6 MoFR 220/2022. 134 Art. 7 MoFR 220/2022. 135 Art. 8 (1) MoFR 220/2022. 136 Art. 10 (2) MoFR 220/2022. 137 Art. 12 (1) MoFR 220/2022. 138 Art. 12 (5) MoFR 220/2022. 139 Art. 15 (2) (b) MoFR 220/2022. 140 Art. 14 MoFR 220/2022.
  • 19. AHRP Legal Alert Page 19 of 23 the agreement implementation stage.141 Additionally, the Ministry of Finance can adjust the scope of the PDF based on the review results on IKN PPP needs.142 It should be noted that the PDF granting mechanism for solicited, unsolicited, and projects with creative financing schemes has its own requirements which are further regulated in Article 17 to Article 28 MoFR 220/2022. However, in essence the form of facilities provided for the 3 (three) related types of the Project remains given in the form of PDF. 4. Government Supports for IKN PPP Applications for government support are submitted simultaneously with applications for PDF in a single letter addressed to the Ministry of Finance.143 The government supports for IKN PPP can be in the form of as follows: a. Clawback Exemption Facility Infrastructure guarantee through the IKN PPP scheme is a Government Guarantee that is implemented by the Ministry of Finance together with IIGF.144 The Government Guarantee is carried out with the following conditions: (i) Government Guarantees with different infrastructure risks in one IKN infrastructure provision between the government through the Ministry of Finance and IIGF are carried out by sharing infrastructure risks; and/or (ii) Government Guarantee for the same infrastructure risk in one IKN infrastructure provision between the government through the Ministry of Finance and IIGF is carried out by dividing the guarantee value for the guaranteed infrastructure risk.145 In order to optimize IIGF function, Ministry of Finance can provide support as stipulated in the ministerial regulation regarding the scope of Government Guarantee management by IIGF.146 In addition, the Ministry of Finance can provide liquidity support in the form of a backstop loss limit which is a replacement for the excess portion of the IIGF guarantee by the Ministry of Finance for guarantee claims that have been paid by IIGF.147 Furthermore, to implement the principles of control and management of state financial risks, the Government Guarantee process for the IKN infrastructure provision is carried out through a single executor mechanism by IIGF (single window policy) by prioritizing the integration of other government support determinations.148 Single executor mechanism by IIGF (single window policy) includes: (i) guarantee granting process; and/or (ii) process of monitoring and managing risks, claims, as well as payments.149 Government Guarantee on the provision of IKN infrastructure through the IKN PPP is given for infrastructure risks caused by: (i) the action or inaction of the GCA or the government other than the GCA in matters 141 Art. 16 (1) MoFR 220/2022. 142 Art. 16 (2) MoFR 220/2022. 143 Art. 28 (1) MoFR 220/2022. 144 Art. 29 (1) MoFR 220/2022. 145 Art. 29 (2) MoFR 220/2022. 146 Art. 30 (2) MoFR 220/2022. 147 Art. 30 (3) MoFR 220/2022. 148 Art. 31 (1) MoFR 220/2022. 149 Art. 31 (3) MoFR 220/2022.
  • 20. AHRP Legal Alert Page 20 of 23 which according to laws and regulations indicates that the GCA or the government other than the GCA has the authority or authority to take such action; (ii) policies of the GCA or government other than the GCA; (iii) unilateral decision of the GCA or government other than the GCA; and (iv) the GCA's inability to carry out an obligation determined by the IBE based on the IKN PPP Agreement (breach of contract).150 In the event that the Ministry of Finance and/or IIGF as guarantor in the Government Guarantee have performed their obligations to the guaranteed recipient based on the Government Guarantee agreement, the GCA is obliged to fulfill the regress right.151 b. BMN Utilization In order to increase the feasibility of Infrastructure projects in IKN through the IKN PPP, the Ministry of Finance can provide support in utilization rights over BMN.152 BMN utilization arrangements are regulated in GR 27/2014. Based on Article 27 of GR 27/2014, the form of utilization of BMN is in the form of: (i) rent/sewa; (ii) borrow-to- use/pinjam pakai; (iii) utilization cooperation/kerja sama pemanfaatan; (iv) build-operate-transfer or build-transfer-operate/bangun guna serah atau bangun serah guna; or (v) cooperation on infrastructure provision/kerja sama penyediaan infrastruktur153. c. Viability Gap Fund Viability Gap Fund (“VGF”) is a government support by means of fiscal contribution which is financial in nature given to the IKN PPP project by the Ministry of Finance, aims to: (i) reduce the premium risk during the construction period to encourage the participation of the private sector or business entity in the IKN infrastructure procurement; and (ii) actualize quality services, right on target, and on time.154 Furthermore, VGF is given to the IKN Infrastructure procurement for a certain portion of the total infrastructure construction costs, provided that its value is not significant to the said costs.155 The total infrastructure construction costs cover: (i) construction costs; (ii) equipment costs; (ii) installation costs; (iii) interest costs on loan that apply during the construction period; (iv) tax costs; and (v) other costs related to construction (exclude land acquisition costs).156 In addition, the criteria of VGF that must be fulfilled for the IKN infrastructure procurement through the IKN PPP are as follows: (i) solicited projects; (ii) carried out by IBE; (iii) conducted in accordance with the IKN PPP agreement which sets out the assets transfer scheme and/or its management from IBE to GCA at the end of cooperation period; and (iv) the results of pre-feasibility study.157 The amount of the 150 Art. 34 (1) MoFR 220/2022. 151 Art. 36 (1) MoFR 220/2022. 152 Art. 40 (1) MoFR 220/2022. 153 Based on Art. 1 (16) GR 27/2014, infrastructure provision cooperation is cooperation between the government and business entities for infrastructure provision activities in accordance with the provisions of laws and regulations. 154 Art. 1 (16) jo. Art. 41 MoFR 220/2022. 155 Art. 42 (1) and (2) MoFR 220/2022. 156 Art. 42 (3) and (4) MoFR 220/2022. 157 Art. 43 (1) MoFR 220/2022.
  • 21. AHRP Legal Alert Page 21 of 23 VGF approved by the Ministry of Finance is the solely financial parameter in determining the business entity resulting from the procurement.158 5. Availability Payment As already mentioned above, based on Article 46 (1) MoFR 220/2022, the AP scheme for the provision of IKN PPP shall be carried out through the following mechanism: (i) state budget; and/or (ii) other legitimate sources in accordance with the prevailing laws and regulations. Moreover, in order to minimize the investment return risk for IBE or the private sector and financial institutions, the AP scheme shall be prioritized as the return-on-investment scheme for the provision of IKN PPP.159 The purpose of implementing the AP scheme in IKN PPP is to: (i) ensure the availability of quality services to the public on an ongoing basis; and (ii) optimizing the GCA’s budget value (concerning the value for money).160 Furthermore, in submitting an application for the AP scheme, the relevant party is obligated to prepare the following documents:161 a. suitability of the provision of IKN infrastructure with the IKN Master Plan and Details of the IKN Master Plan; b. provision of IKN Infrastructure in which the IBE is procured through fair, open, and transparent election stages; and c. commitment letter of AP Implementation. Additionally, as already mentioned above, pursuant to Article 49 MoFR 220/2022, The AP scheme is used in the IKN infrastructure procurement through the IKN PPP with due observance of the following provisions: (i) the AP scheme can be combined with other return on investment schemes; and (ii) in the provision of AP funds, it can be taken into account the receipt or results of project income from other sources. IKN PPP scheme which utilize AP as the return on investment scheme shall be entitled to a Government Support.162 The implementation of AP scheme shall be conducted by the GCA to IBE through the IKN PPP agreement.163 Moreover, in the event that the IKN Infrastructure procurement uses the AP scheme, then the IKN PPP agreement shall contains at least provisions concerning:164 a. objective and measurable output specifications and performance indicators for the services; b. AP agreed calculation formula which serves as the basis for calculating GCA’s obligations to the IBE; c. an effective monitoring system for performance indicators as referred to in letter a; and d. incentive and penalty system for the GCA and/or the IBE. 158 Art. 43 (2) MoFR 220/2022. 159 Art. 46 (4) MoFR 220/2022. 160 Art. 47 MoFR 220/2022. 161 Art. 48 MoFR 220/2022. 162 Art. 52 MoFR 220/2022. 163 Art. 50 (1) MoFR 220/2022. 164 Art. 50 (2) MoFR 220/2022.
  • 22. AHRP Legal Alert Page 22 of 23 6. Infrastructure Financing Provider In order to accelerate the provision of IKN infrastructure, the Ministry of Finance may assign companies engaged in infrastructure financing under the guidance of the Ministry of Finance as infrastructure financing providers.165 Furthermore, the Ministry of Finance can cooperate with institutions engaged in investment management as infrastructure financing providers.166 The infrastructure financing provider acts as a catalyst for financing the provision of IKN infrastructure through the IKN PPP scheme in order to accelerate the fulfillment financial close of IBE and creative financing.167 165 Art. 56 (1) MoFR 220/2022. 166 Art. 56 (4) MoFR 220/2022. 167 Art. 57 (1) & (2) MoFR 220/2022.
  • 23. AHRP Legal Alert Page 23 of 23 Bibliography/References 1. Law Number 3 of 2022 on the Capital City (“Law 3/2022”). 2. Government Regulation Number 27 of 2014 on the Management of State- Owned/Regional Government-Owned Assets as amended by Government Regulation Number 28 of 2020 (“GR 27/2014”). 3. Government Regulation Number 17 of 2022 on Funding and Budget Management in the Framework of Preparation, Development, and Relocation of the Capital City and Implementation of The Regional Government of Special Capital City of Nusantara (“GR 17/2022”). 4. Presidential Regulation Number 63 of 2022 on the Detailing of IKN Master Plan (“PR 63/2022”). 5. Minister of National Development Planning/Head of National Development Planning Agency Regulation Number 4 of 2015 on the Procedure for Public- Private Partnership for Infrastructure Procurement as amended by Minister of National Development Planning/Head of National Development Planning Agency Regulation Number 2 of 2020 (“MoNDPR 4/2015”). 6. Minister of National Development Planning/Head of National Development Planning Agency Regulation Number 6 of 2022 on the Procedure for Public- Private Partnership in Nusantara Capital City (“MoNDPR 6/2022”). 7. Minister of Finance Regulation Number 220/PMK.08/2022 of 2022 on the Government Support for Public-Private Partnership and Creative Financing in The Context of Accelerating Infrastructure Provision in Nusantara Capital City (“MoFR 220/2022”). 8. National Procurement Policy Agency Regulation Number 1 of 2023 on the Procedure of Business Entity Procurement through Public Private Partnership with Business Entity in Nusantara Capital City (“NPPAR 1/2023”).”) 9. Cabinet Secretariat of Indonesia, “Pemindahan Ibu Kota, 26 Agustus 2019, di Istana Negara, Provinsi DKI Jakarta”, accessed via https://setkab.go.id/pemindahan-ibu-kota-26-agustus-2019-di-istana- negara-provinsi-dki-jakarta/ on 27 January 2022. 10. MoNDP/Bappenas, “Socialization Materials of IKN Master Plan on Law 3/2022”, accessed via https://bappeda.kaltimprov.go.id/storage/data- paparans/March2022/c9lVSaQqMGEtSQKMiVvt.pdf, on 27 January 2023.
  • 24. This publication has been prepared by AHRP for educational and informational purposes only. The information contained in this publication is not intended and should not be construed as legal advice. Due to the rapidly changing nature of law, AHRP makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your circumstances before deciding to take any action. World Capital Tower 19th floor Jl. Mega Kuningan Barat No.3, Kuningan Jakarta 12950 Indonesia P: +6221 50917915 +6221 50917916 E: office@ahrplaw.com www.ahrplaw.com We will continue to follow the developments on this topic and provide additional information as it becomes available. If you have any questions on this topic, please contact: Thea Mutiara Khalifa thea@ahrplaw.com Yohanes Partogi Napitupulu partogi@ahrplaw.com Cut Hasri Nabila nabila@ahrplaw.com Zaneta Axel Winata zaneta@ahrplaw.com Indira Jauhara Pratiwi indira@ahrplaw.com