This document summarizes a workshop on entry barriers for national investors in Indonesia's infrastructure market. It identifies 14 potential barriers to entry for public-private partnerships (PPPs) based on an empirical study and literature review. Statistical analysis found that 4 of the 14 barriers were not statistically significant. The discussion proposes policy and regulatory changes to make PPPs more attractive to investors by reducing political risk, streamlining procurement and permitting processes, and ensuring stable tax policies. Potential PPP projects and capable contractors in the transportation and public works sector are also identified.

1. 30/10/2016
Sapri Pamulu, Ph.D. 1
Sapri Pamulu, Ph.D
Studi Kasus KPBU
Infrastruktur PU
Entry Barriers
Workshop Kajian Entry Barriers Pasar Infrastruktur di Indonesia bagi Investor Nasional
Hotel Grand Kemang, Jakarta, 04 Oktober 2016
2–2
Today’s Agenda
• Industry Analysis in Brief
• Introduction to Entry Barriers
• Barriers to Entry PPP Market
• Empirical Study Analysis
Analysis & Results
Discussion of Result
• Competitor Analysis (Tbk. Investment Capacity)
• Wrap-up

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2–3
Industry Analysis in Brief
2–4
Industry Environment Analysis
• Industry environment: The set of factors directly
influencing a firm and its competitive actions and
competitive responses
Threat of new entrants (Barriers to Entry)
Power of suppliers
Power of buyers
Threat of product substitutes
Intensity of rivalry among competitors

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2–5
Porter’s Five Forces
2–6
Low entry barriers
Interpreting Industry Analyses
Unattractive
Industry
Suppliers and buyers
have strong positions
Strong threats from
substitute products
Intense rivalry
among competitors
Low profit potential

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2–7
Interpreting Industry Analyses
Attractive
Industry
High entry barriers
Suppliers and buyers
have weak positions
Few threats from
substitute products
Moderate rivalry
among competitors High profit potential
2–8
Intoduction to Entry Barriers

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2–9
Three Types of Entry Barriers
1) General Structural barriers (or Innocent Barriers) – due
to differences in production costs and being in the
market for some time environment
 Economies of scale (e.g. Natural monopoly)
 Vertical integration (e.g. Backwards and forwards)
 Control of essential resources e.g. technologies / commodities
 Expertise and reputation of the incumbent
 Brand loyalty
 Inherent suspicion among consumers about new ideas
2–10
Three Types of Entry Barriers
2) Strategic barriers
 Predatory pricing / limit pricing
 Marketing / product differentiation
3) Statutory (legal) barriers - entry barriers given force of
law
 Licences (e.g. Professional qualifications)
 Patents
 Copyrights
 Public franchises
 Tariffs, quotas and other trade restrictions
 This is industry-specific, not firm-specific

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Mapping The Entry Barriers
2–12
Barriers to Entry PPP Market

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2–13
Barriers to PPPs (UNESCAP, 2012)
2–14
Barriers to PPPs (UNESCAP, 2012)

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2–15
Barriers to Entry PPP Infrastructures
Code Entry Barriers References (Papers Based)
EB1 Government involvement in underwriting Ke et al. 2009 ; Zhang 2005
EB2 Lack of work experience and work ability of ppp infrastructure Ezulike et al., 1997 ; Jane and Laughin , 2003; UNESCAP, 2012
EB3 Excessive restriction in the project Akintoye et al., 2005 ; Zhang, 2005
EB4 High participation costs Ezulike et al., 1997; Tiong and Anderson, 2003 ; Devalance , 2012
EB5 High risk when relying on the private sector Ezulike et al., 1997; Akintoye et al., 2005 ;
EB6 Delay due to political debates (eg. Central vs local government) Infrastructure Journal, 2001a, b; Chan et al., 2010 ; UNESCAP, 2012
EB7 Delay due to negotiation process Ezulike et al., 1997 ; Chan et al., 2010 ; PU, 2014
EB8 Reduce accountability to the project Infrastructure Journal, 2001 b; John et al. 2006
EB9 Less employment opportunities Public Services Privatization Research Unit, 2000 N10
EB10 Long time in the preparation of contract transactions Chan et al., 2006 ; Ke et al. 2009 ; UNESCAP, 2012
EB11 High inflation Ke et al. 2009
EB12 High interest rates Ke et al. 2009 ; UNESCAP, 2012 ; Devalence, 2012; PU, 2014
EB13 Changes in act from law makers (DPR) Zhang, 2005 ; Ke et al. 2009
EB14 Public opposition (eg. Due to Land Acquisition) El-Ghohary et al., 2006 ; Ke et al. 2009 ; UNESCAP 2012; PU, 2014
Sumber: diolah (2016)
2–16
Empirical Study Analysis

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Statistical Analysis Method
2–18
Statistical Analysis of Results
Faktor Entry Barriers Kode
Ekonomi Suku bunga tinggi EB12
Biaya Tinggi Inflasi tinggi EB11
Adanya oposisi oleh masyarakat EB14
Kesempatan kerjaan yang ditawarkan lebih sedikit EB9
Biaya keikutsertaan yang tinggi EB4
Kurangnya Kurang pengalaman dan kemampuan yang cukup EB2
Pengalaman Adanya keterlambatan karena proses negosiasi EB7
Adanya keterlambatan karena perdebatan politik EB6
Risiko tinggi bila mengandalkan swasta EB5
Lamanya penyusunan kontrak transaksi EB10
Dari 14 variabel Entry Barrier, terdapat 4 variabel yaitu EB1, EB3, EB8 dan EB 13
dikeluarkan karena tidak signifikan secara statistik

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2–19
Discussion of Results (WEF, 2015)
• Policy Recommendation > Friendly Investors
Policy and regulatory enablers > Renegotiation risk,
Procurement process, Permitting process, Tax Policy
Investor value proposition
2–20
Discussion of Results (WEF, 2015)
• Policy and regulatory enablers
 Evaluate various governance and contract mechanisms to
reduce political risk
 Where appropriate, leverage support and available risk
guarantees from multilateral development banks
 Task a public-private partnership unit with improving
procurement process efficiency by increasing standardization
and predictability, and providing technical skills to line agencies
 Review and streamline regulatory and environmental permitting
processes and appoint a lead agency to manage and coordinate
them
 Ensure taxes do not systematically advantage or disadvantage
certain types of investors and are stable over time

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Discussion of Results (WEF, 2015)
• Investor value proposition
Analyse returns from an investor’s perspective and
benchmark the project’s risk-adjusted returns
Create a standard methodology and approach for risk
allocation
Conduct market sounding with investors to gather
feedback on the project and determine if refinements
may be necessary to attract interest
2–22
Discussion of Results (PU, 2015)
• NSPK on PPP/KPBU di Sektor PU-PR
Update NSPK base on Perpres KPBU
• Potensial List of PPP/KPBU di Sektor PU-PR
Bina Marga
SDA
Cipta Karya
Etc
• Potential List of EPC/Contractors that have a
good Investment Ratio >1 & SGR >10%

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2–23
Regulation Analysis
PPP Related Regulation, Latest one?
2–24

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PPP Related Regulation, Latest one?
2–25
PPP Related Regulation, Latest one?
2–26

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PPP Related Regulation, Latest one?
2–27
PPP Related Regulation, Latest one?
2–28

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PPP Related Regulation, Latest one?
2–29
PPP Related Regulation, Latest one?
2–30

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PPP Related Regulation, Latest one?
2–31
Next
Another Permen-PUPR on
Tata Cara Pelaksanaan KPBU ?
2–32
Company Analysis

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Case Study :
SOE
• ADHI
• PTPP
• WIKA
• WSKT
• HUTAMA
POE
• DGIK
• JKON
• NRCA
• SSIA
• TOTL
2–33 2–34
Wrap-up

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2–35
Wrap-up
• Industry Analysis in Brief
• Introduction to Entry Barriers
• Barriers to Entry PPP Market
• Empirical Study Analysis
• Analysis & Results
• Discussion of Result
• Competitor Analysis (Tbk. Investment Capacity)
• Questions