Title: Final Seminar Institutional Arrangements in the Toll Road Sector WB PPIAF TF023613
1Final SeminarInstitutional Arrangements in the
Toll Road Sector WB PPIAF TF023613
Jakarta 8 September 2003
2Presentation to Final Seminar
- By
- Dr Michael Porter
- Team Leader
- Amy Auster
- Finance Expert
- Eka Putra
- Project Officer
31. Why reform?
4Reasons for reform stock take
- Institutional
- Conflict of interest within Jasa Marga
- Lack of incorporation of toll roads in network
planning - Weak Government control over BOT contracts
- No mechanism to incorporate Laws 22 25
- Financial
- GOI unable to fund sufficient toll road
investments - Jasa Marga heavily indebted
- Rp20 trillion of priority projects pending
- Competitive
- Other countries offer much more transparent and
effective models, so receive better access to
funds - Predictable income flows also lowers risk and so
reduces the cost of capital and resulting toll
tariffs
5Current structure of concessions
- Lack of control over concessionaire
- Unclear allocation of risk
- Jasa Marga absorbs cost of Government failure
- Jasa Marga absorbs cost of operator failure
Kimpraswil
Delegation (Law 13/80 PP8)
Jasa Marga
Toll road operator
6Cost of current arrangements
- To the GOI
- Soft funding arrangements for Jasa Marga (Rp3.3
tr) - Part of cost of land acquisition (Rp2.0 tr)
- Taxes owed pre-94 (Rp2 bn)
- Liabilities from defaulted investors not paid by
Jasa Marga (Rp 4.6 tr)
- To Jasa Marga
- Burden of loss-making toll roads
- Uncertain and political income stream
- Contingent liabilities from PKP defaults
(potential Rp2.0 tr) - Example JORR total 2.6 tr of which Jasa Marga
paid Rp1 trillion debt including 50 cash payment
in one year
7Regulatory and legal issues
Toll tariffs, real year-on-year change ()
- Tariffs by decree 67 real decline 1990-2003
- Unpredictable timing and cost of land acquisition
- Unpredictable policies regarding competing roads
and transport modes
8Goal of new model
Policy planning
Jasa Marga
9The search for a new model
10Principles followed
- Contribute to economic efficiency and higher
living standards - Promote private sector participation for transfer
of finance and technology, management, efficiency
and effectiveness - Reflect international best practice and
Indonesian experience - Clearly allocate risk to the party best placed to
mitigate - Assure reasonable cost of implementation in
Indonesia and consistent with existing budget
constraints - Consistent with decentralisation policies and
goals
11International study conclusions
- Concession contracts remain most widely used
mechanism for PSP in toll roads internationally - Contracts most effectively managed by an
independent agency of Government - Must be clear lines of responsibility and
authority among Government entities, including on
planning and feasibility issues - Transparency and full disclosure of information
required at all stage of process
12Institutional arrangements in best practice
countries
- The institutions
- Brazil National Agency for Land Transport
- South Africa National Roads Agency
- UK Highways Agency
- Ontario Superbuild
- Victoria CityLink
- What they have in common
- Contract management function, incl. regulation
where in contract - Technical advice and assistance function
- S Africa, Brazil UK, local govts involved
- Corporatised, legal entities protected from
political interference
13Indonesian precedent BP Migas
- Contract management function in the oil gas
sector - Signs production sharing contracts on behalf of
GOI - GOI stands behind contractual agreements
- Legal form is BHMN, a not-for-profit legal entity
owned by GOI
14Institutional recommendations
15New contract management body
- Indonesian Toll Road Authority (ITRA)
- Contracting management function
- Regulation function, where regulation is in the
contract - Technical advice and assistance function to
central, provincial and local governments - ITRA Local Government Liaison department
- Obliged to study nominated projects
- Provides advice and support
- Facilitates local toll road development
16Roles and authorities of ITRA
Kimpraswil
Delegation (Law 13/80 PP8)
Jasa Marga
Toll road operator
17Roles and authorities of ITRA
Kimpraswil
MoF
- Independent agency reporting to Minister for
Kimpraswil - With MoF on Executive Board
- With obligations to service provincial and local
govts
18Technical advice function
policy
GOI
GOI
Transport policy
Transport policy
Kimpraswil
Kimpraswil
Road network plan
Road network plan
Feasibility criteria
ITRA
Likely toll roads
Unlikely toll roads
Likely toll roads
Unlikely toll roads
Feasibility study
ITRA
Analysis Conclusion
Analysis Conclusion
decision
Kimpraswil
Yes
No
Yes
No
ITRA
Design concession contract
Design concession contract
authorise
No
Yes
Kimpraswil
19ITRAs functions
- Determine and implement toll road criteria
- Undertake pre FS and detailed feasibility studies
- Determine key features of concessions, with
defined boundaries of Ministerial intervention - Undertake procurement via competitive bidding and
sign concession agreement - Monitor concessions against contracts
- Represent GOI in disputes / arbitration resulting
from concession agreement
20Regulation by contract function
- Toll tariffs initial setting and adjustment
mechanism - Standards design, construction, operation
maintenance - Land acquisition - eminent domain and ROW
- Competition roads and alternative modes of
transport - Fees concession and administrative payments and
structure - Risk allocate including materially adverse
events among parties - Takeover Government step-in in certain
circumstances - Dispute settlement including default
21New form of contracts
GOI
ITRA
Concession Agreement Project Regulation Fees Stan
dards Circumstances of compensation
If Government honors contract, no GOI liability!
Toll road operator (concessionnaire)
22Regional governments
23Limitations on local government participation in
toll roads
- Institutional
- Local toll road agencies would duplicate
specialist skills and create additional expense - Financial
- Insufficient local creditworthiness to back up
contractual obligations DAU technically central
government revenue that is shared - Competitive
- In other countries, investors sign one contract
with highest level of government - Cost of capital will be lower with ITRA model,
and so allow lower toll tariffs
24How to overcome obstacles
- Identify local / provincial government body to
liaise with ITRA (ie BAPEDA) - Use ITRAs technical advice and support function
to build local capacities - Use sovereign creditworthiness to support local
development initiatives - Develop new contracts that clarify rights and
obligations of local and provincial governments
vis-à-vis toll road operators and the central
government
25Regional government involvement
Local govt / BAPEDA
Nominate toll road project
ITRA
Conduct feasibility study
Yes
No
ITRA LG/ BAPEDA
Design concession contract
LG/BAPEDA Kimpraswil
Authorise concession contract
Yes
No
Memorandum of Understanding Designated Road
26Designated road concept
- Provincial / local governments grant ITRA the
authority to manage road - Road becomes national road for duration of
contract - Agreement details rights and obligations of ITRA
and local governments - Split concession and administrative fees
- Obligations for land acquisition
ITRA
Local / provincial Government (BAPEDA)
Memorandum of Understanding DESIGNATED ROAD
27Contract structure with local government
involvement
Local / provincial govt
ITRA Local / provincial government
GOI
MOU
Designated road
Concession Agreement Project Regulation Fees Stan
dards Circumstances of Compensation
Toll Road Operator
28Regulatory and legal issues
29Crucial legal changes
ITRA / interim ITRA CONTRACTING BODY
Jasa Marga
PT Jasa Marga Operations TOLL ROAD OPERATING
COMPANY
Investment company PKP RENEGOTIATION AND
RESTRUCTURE
30Crucial regulatory changes
International toll tariffs, US / km
31Setting and adjusting tariffs
- Setting an initial tariff
- Bid criteria or set in concession contract
- Based on direct costs, ability to pay and/or
congestion - If does not cover direct costs, subsidy required
- Car / truck owners have ability to pay
- Adjusting tariffs
- Adjustment mechanism must be automatic (no
presidential decrees) - Must be set out in contract
- Most usually indexed to CPI
- Other formula (ie including FX movements) show
questionable results
32Crucial planning issues
- Full incorporation of toll roads into the
planning and design process for the road network - Establishment of criteria that express the public
interest in tolling a road segment with all
economic, social and environment benefits - Will assist use of eminent domain to advance and
create certainty around land acquisition - Will also create greater certainty around
competing roads / transport policies
33End of Part I
34Part II Transition issues and interim
arrangements
35ITRAs organisation chart
Board committees
36Reporting lines
- Executive Board with Chairman reporting to
President and Board reporting to Minister of
Kimpraswil - Ministry of Finance sits on Board and is
consulted on tender, bidding and contractual
process - Board recruits and appoints General Manager
- Board and General Manager oversee five department
heads - Senior management may be recruited from Jasa
Marga, Kimpraswil or private sector but must have
top-notch commercial, financial, technical and
legal skills - Established criteria and standards of probity
apply
37Budgets and financing arrangements
- Preliminary estimate Rp9 bn / annum
- Payroll, including contract employees and
consultants - Salaries competitive with private sector
- Overhead, ie office, equipment and IT
requirements - Offices not in Kimpraswil or Jasa Marga
- Travel, particularly for the local government
department - Procurement, particularly for feasibility studies
- Funded by administrative levies on concessionaire
toll revenue (1-2 of annual) but with / -
received by or supplemented by MoF
38Checklist to establish ITRA1. Recruit senior
management
39Checklist to establish ITRA2. Premises and work
scope
40Interim arrangements
- Establishment of ITRA requires new Road Law
- Road Law 13 / 1980 establishes that state-owned
company shall manage toll roads - Law says legal form must be persero, perum or
perjam - Need for ongoing work to ensure ITRA incorporated
into new Road Law - Options for implementation prior to passage of
new Road Law under discussion