implementation completion and results report (icr) document...document of the world bank for...

Document of

The World Bank FOR OFFICIAL USE ONLY

Report No: ICR00004870

IMPLEMENTATION COMPLETION AND RESULTS REPORT

Loan no. 81920

ON A

LOAN

IN THE AMOUNT OF USD 29.6 MILLION

TO THE

Republic of Indonesia

FOR THE

Indonesia Infrastructure Guarantee Fund Project

JUNE 26, 2019

Finance, Competitiveness And Innovation Global Practice

East Asia And Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective {Jun 26, 2019})

Currency Unit = IDR

14,174.34 = US$1

US$ = SDR 1

FISCAL YEAR

July 1 - June 30

Regional Vice President: Victoria Kwakwa

Country Director: Rodrigo A. Chaves

Senior Global Practice Director: Zoubida Kherous Allaoua

Practice Manager: Irina Astrakhan

Task Team Leader(s): Shyamala Shukla

ICR Main Contributor: Pratyush Prem Prashant

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank

CPS Country Partnership Strategy

CMU Country Management Unit

ESSF Environmental and Social Safeguards Framework

E&S Environmental and Social (Safeguards)

FIL Financial Intermediary Loan

FM Financial Management

GCA Government Contracting Agency

GDP Gross Domestic Product

GoI Government of Indonesia

IAD Internal Audit Department

ICR Implementation Completion Report

IEG Independent Evaluation Group

IFC International Finance Corporation

IFI International Financial Institution

IIGF Indonesia Infrastructure Guarantee Fund (the company)

IGFP Indonesia Infrastructure Guarantee Fund Facility (this project)

IIF Indonesia Infrastructure Finance

IIFF Indonesia Infrastructure Finance Facility

ISR Implementation Status and Results (reports)

M&E Monitoring and Evaluation

MoHA Ministry of Home Affairs

MEMR Ministry of Energy and Mineral Resources

MTR Mid-Term Review

NBFI Non-Bank Financial Institution

NPLs Non-Performing Loans

PAD Project Appraisal Document

PDO Project Development Objective

PLN Perusahaan Listrik Negara

PPP Public Private Partnership

RoE Return on Equity

RPJMN Rencana Pembangunan Jangka Menengah Nasional (National Medium Term Development Plan)

SMI Sarana Multi Infrastruktur

SoE State Owned Enterprise

USD United States Dollar

WBG World Bank Group

TABLE OF CONTENTS

DATA SHEET .......................................................................................................................... 1

I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 5

A. CONTEXT AT APPRAISAL .........................................................................................................5

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) .......................................9

II. OUTCOME ...................................................................................................................... 9

A. RELEVANCE OF PDOs ..............................................................................................................9

B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 11

C. EFFICIENCY ........................................................................................................................... 14

D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 15

E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 15

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 17

A. KEY FACTORS DURING PREPARATION ................................................................................... 17

B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 19

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 22

A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 22

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 23

C. BANK PERFORMANCE ........................................................................................................... 24

D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 27

V. LESSONS AND RECOMMENDATIONS ............................................................................. 29

ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 31

ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 35

ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 37

ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 38

ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 42

ANNEX 6. SUPPORTING DOCUMENTS .................................................................................. 43

ANNEX 7. SUMMARY OF BORROWER’S ICR .......................................................................... 46

The World Bank Indonesia Infrastructure Guarantee Fund Project (P118916)

Page 1 of 55

DATA SHEET

BASIC INFORMATION

Product Information

Project ID Project Name

P118916 Indonesia Infrastructure Guarantee Fund Project

Country Financing Instrument

Indonesia Investment Project Financing

Original EA Category Revised EA Category

Full Assessment (A) Full Assessment (A)

Organizations

Borrower Implementing Agency

Republic of Indonesia PT Penjaminan Infrastruktur Indonesia (Persero)

Project Development Objective (PDO) Original PDO

To strengthen the Indonesia Infrastructure Guarantee Fund (IIGF) as a single window institution to appraise infrastructure PublicPrivate Partnership (PPP) projects requiring government guarantees.


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FINANCING

Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$)

World Bank Financing IBRD-81920

29,600,000 4,114,072 4,114,072

Total 29,600,000 4,114,072 4,114,072

Non-World Bank Financing 0 0 0

Borrower/Recipient 50,000,000 0 0

Total 50,000,000 0 0

Total Project Cost 79,600,000 4,114,072 4,114,072

KEY DATES

Approval Effectiveness MTR Review Original Closing Actual Closing

11-Sep-2012 12-Jun-2013 05-Jun-2015 31-Mar-2018 31-Dec-2018

RESTRUCTURING AND/OR ADDITIONAL FINANCING

Date(s) Amount Disbursed (US$M) Key Revisions

30-Jan-2018 3.43 Change in Loan Closing Date(s)

KEY RATINGS

Outcome Bank Performance M&E Quality

Moderately Satisfactory Moderately Satisfactory Modest

RATINGS OF PROJECT PERFORMANCE IN ISRs

No. Date ISR Archived DO Rating IP Rating Actual

Disbursements (US$M)

01 25-Dec-2012 Satisfactory Satisfactory 0

02 25-Aug-2013 Satisfactory Satisfactory 0


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03 06-Jun-2014 Satisfactory Satisfactory 0

04 26-Oct-2014 Satisfactory Satisfactory .39

05 03-Feb-2015 Satisfactory Satisfactory .78

06 25-Jun-2015 Satisfactory Satisfactory .78

07 05-Feb-2016 Satisfactory Satisfactory 1.69

08 20-Oct-2016 Satisfactory Satisfactory 2.31

09 11-May-2017 Satisfactory Satisfactory 2.74

10 24-Dec-2017 Moderately Satisfactory Moderately Satisfactory 3.43

11 15-Jun-2018 Moderately Satisfactory Moderately Satisfactory 3.43

12 11-Dec-2018 Moderately Satisfactory Moderately Satisfactory 3.43

SECTORS AND THEMES

Sectors

Major Sector/Sector (%)

Public Administration 21

Sub-National Government 21

Financial Sector 8

Public Administration - Financial Sector 8

Energy and Extractives 21

Other Energy and Extractives 21

Transportation 25

Other Transportation 25


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Water, Sanitation and Waste Management 25

Other Water Supply, Sanitation and Waste Management

25

Themes

Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 33

Business Enabling Environment 15

Investment and Business Climate 15

Jobs 8

Job Creation 8

Public Private Partnerships 10

Urban and Rural Development 76

Urban Development 68

Urban Infrastructure and Service Delivery 48

Municipal Finance 20

Rural Development 8

Rural Infrastructure and service delivery 8

ADM STAFF

Role At Approval At ICR

Regional Vice President: Pamela Cox Victoria Kwakwa

Country Director: Stefan G. Koeberle Rodrigo A. Chaves

Senior Global Practice Director: John A. Roome Zoubida Kherous Allaoua

Practice Manager: Franz R. Drees-Gross Irina Astrakhan

Task Team Leader(s): Kalpana Seethepalli Shyamala Shukla

ICR Contributing Author: Pratyush Prem Prashant


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I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES

A. CONTEXT AT APPRAISAL

Context 1. Following a deep economic and political crisis in 1997/98, Indonesia made the difficult transition from a highly authoritarian regime to a vibrant and stable democracy. The first phase of this transformation, from 1998 to 2003, was a period of radical political and economic change, typified by democratization and the largest ever decentralization of government. The second phase, from 2004 to 2008, was a period of consolidating democratic institutions and returning to political and macroeconomic stability, most notable in Indonesia’s first direct presidential elections in 2004. The Government put into place a prudent strategy of fiscal management and fiscal consolidation that helped it significantly reduce government debt levels and in its debt levels falling to below 35 percent of GDP by 2008 from the high of 72 percent in 1997. Between 2004 – 2008, Indonesia’s real GDP was growing at 5 to 6 percent annually. As a result, Indonesia resumed higher levels of growth and re-emerged as a stronger middle-income country (MIC). 2. The global financial crisis of 2008/09 impacted Indonesia’s economy, as GDP growth declined from 6 percent in 2008 to 4.6 percent in 2009. Economic growth climbed back to 6.1 percent in 2010 and 6.5 percent in 2011, largely due to accelerating domestic demand, external competitiveness and improving external environment. During this period the public debt levels continued to fall and reached around 25 percent of GDP by 2011. 3. Notwithstanding a strong track record of economic growth, Indonesia faced many challenges. As of 2011/12, about 12 percent of the population lived below the poverty line; public services fell short of the growing demands of the Indonesians; and infrastructure, especially in sectors such as power, transportation and water supply and sewerage, was fast becoming a constraint on growth. 4. The Government’s infrastructure program sought to address several challenges facing infrastructure investment, including inadequate spending by the national government and state-owned enterprises. The estimated needs were enormous (USD170 billion during the years 2010-14) and the government’s available fiscal space was limited. To help address these issues, the Government sought to mobilize the private sector. Its spending on infrastructure had yet to return to its pre-1997 levels (relative to GDP). 5. Several policy and institutional challenges were impacting the progress in turning the PPP project pipeline into realized PPP transactions. Key challenges included poor quality of project preparation, weak institutional capacity within contracting agencies, high government counterparty and pre-financial close risks that the private sector could not mitigate, e.g., delays in provision of land, weak credit quality of off-takers, inability of contracting agencies to guarantee minimum revenues in toll roads and other volume based infrastructure projects, absence of a consistent and transparent framework for a PPP guarantee mechanism that is fair to all investors, and lack of depth of domestic banks to provide long duration and limited and / or non-recourse project financing. 6. The Government undertook a series of steps to address some of the constraints outlined above. For instance, establishing the Indonesia Infrastructure Financing Facility (IIFF) to mobilize long-term local currency funds to finance PPP in infrastructure and setting up a Viability Gap Financing (VGF) program to provide public sector financial support to well-prepared PPPs to make them financially viable for greater market uptake, and establishing the Indonesia


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Infrastructure Guarantee Fund (IIGF) to address the political risk concerns of the private sector as PPPs in Indonesia were perceived as high-risk investments. 7. The IIGF was set up as a public entity by the Government to fulfil specific objectives, such as:

(i) Facilitate PPP deal flow by providing GOI guarantees to mitigate risk to private sector stemming from government action (or inaction) in well prepared PPP projects,

(ii) Improve the quality of PPPs by establishing a single window for appraising all PPPs requiring GOI guarantees and providing guidance to contracting agencies on how to prepare bankable PPPs,

(iii) Provide clear and consistent rules for how Government Contracting Agencies (GCAs) can take advantage of guarantees vis-à-vis the IIGF for well-prepared PPPs, and

(iv) Ring-fence GOI liability vis-à-vis guarantees to PPPs. 8. The World Bank Group (WBG) had been working closely with the Government and key development partners to expand infrastructure provision in Indonesia. The Bank’s focus had been on: improving sectoral policies; establishing appropriate public institutional mechanisms to support private infrastructure; and improving the overall investment climate. The Bank has also supported the Indonesia Infrastructure Finance (IIF) as a non-bank financial intermediary to increase provision of private sector financed infrastructure. For its part, the International Finance Corporation’s (IFC’s) work in the infrastructure sector in Indonesia included both advisory work (notably in the power sector) and also in investing in the IIF. 9. The IIGF is a unique institution1 in Indonesia, and the IPF loan of USD29.6 million sought to provide support to the IIGF to address key risk concerns of the private sector, as mentioned previously. It was seen as a logical extension of engagements up to that point, and fully consistent with the Bank Group’s Country Partnership Strategy (CPS) for FY2009-12. This is particularly the case as regards the CPS strategy of “...strengthening the institutions involved, both state and non-state”.2 The Project is aligned to both the pillar 1 – Private Sector Development and the pillar 2 – Infrastructure, under the CPS.

Theory of Change (Results Chain) 10. The Project did not have a Theory of Change in the original PAD and that the one shown in Figure 1 below has been re-created to provide a better description of the context and for purposes of project evaluation. The PAD (pg 10) had noted that the IIGF guarantees would seek to address key private sector concerns with PPPs in Indonesia, viz., (a) risks associated with government inactions or delays, and (b) weak credit quality of GOI Contracting Agencies (CAs) as PPP partners.

1 The IIGF is unique as it’s the only financial institution in Indonesia that provides guarantees to PPP projects and its financiers, against contractual commitments made by government contracting agencies in the PPP agreement. Among others, these would typically cover breach of contract by the government counterparty, political risk, payment obligations risk and termination payments risk. IIGF’s role is substantially different from the roles of the IIF and the SMI, as the latter two are largely focussed on fund-based financing activities. In the guarantee space, the IIGF has a strong comparative advantage as the ‘single window’ for guarantees concept is backed by Presidential Decree and Ministerial Regulations on Government Guarantees. In addition, the recourse mechanism established under the Ministerial Regulations, supports the IIGF in recovering the amounts due from the government contracting agencies under the guarantees invoked. 2 Indonesia: Country Partnership Strategy FY09-12 (Report No. 44845-IND), 2008. In addition to its cross-cutting engagements to strengthen central and sub-national government institutions and systems, this CPS identified five thematic areas that are expected to form the core of the WBG’s engagement: (i) Private Sector Development; (ii) Infrastructure; (iii) Community Development and Social Protection; (iv) Education; and (v)

Environmental Sustainability and Disaster Mitigation.


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11. At the time when the IIGF was created, the Government did not have a solid track record of guarantees or an effective system to manage them. In 2010, Indonesia’s sovereign rating was BB (S&P), Ba2 (Moody) and BB+ (Fitch)3. Therefore, the IIGF required adequate financial standing (which was initiated by the Government through making equity commitments to the newly created IIGF) and high standards of operations (which was sought to be addressed through the WB support). 12. At USD29.6 million, the size of this Project was modest in relation to Indonesia’s overall financing needs for infrastructure (more details on project components are provided in section IIA). However, the WBG’s involvement was expected to provide strategic support to the IIGF in its early stages of development as follows (

13.

14. Figure 1): (i) Help the IIGF to establish appraisal standards and operational procedures (codified in its Operations Manual,

including the ESMF) as per international good practices and help protect their institutional integrity4 through the GOI – WB agreements under the IGFP.

(ii) Support the IIGF to improve the quality of PPP project preparation in Indonesia, by accessing the WB-financed technical assistance to advise CAs in the preparation of projects seeking IIGF guarantee support.

(iii) Facilitate the joint-working of the IIGF and WB teams to help the IIGF implement high standards of appraisal, internal controls and governance in issuing its guarantees to ensure that the IIGF remains a financially viable guarantee agency.

(iv) Strengthen the IIGF’s credibility through provision of WB support to back-stop IIGF guarantees for show-case qualifying project(s).

Figure 1: Schematic Presentation of the Theory of Change with Underlying Assumptions

3 Indonesia’s sovereign rating was BB (S&P) , Ba2 (Moody) and BB+ (Fitch) in 2010, which was termed as speculative grade. Since, then Indonesia’s sovereign rating has improved. As of 2017, Indonesia’s sovereign rating has improved to investment grade with ratings of BBB- (S&P) , Ba3 (Moody) and BBB- (Fitch). 4 Although not specifically explained in the PAD, the phrase ‘ institutional integrity through the GOI – WB agreements under the IGFP’ appears to have been used to convey that the IGFP loan agreement between GOI and the Bank requires the IIGF to comply with the standard procedures under its OM and thereby protects the IIGF from succumbing to any undue political pressure to issue guarantees to unviable projects or non-transparent transactions (by ignoring or bypassing the prudential norms and procedures contained in IIGF’s OM). This would, in turn, ensure that the IIGF remains financially prudent and solvent in the long run.


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Project Development Objectives (PDOs) 15. The PDO of the IIGF Project was to strengthen the Indonesia Infrastructure Guarantee Fund as a single window institution to appraise infrastructure Public Private Partnership (PPP) projects requiring government guarantees.

Key Expected Outcomes and Outcome Indicators 16. Given that the IIGF was the first institution of its kind in Indonesia, and expected to take off slowly and steadily, the key indicators were kept at a modest level.

Table 1: Key Indicators

PDO Level Indicators Baseline End Target

Number of projects to which IIGF provided guidance in the Guidance stage of guarantee appraisal, in accordance with the approved Operations Manual

0 6

Number of projects screened by IIGF in the Screening stage of guarantee appraisal, in accordance with the approved Operations Manual

0 4

Number of projects appraised by IIGF in accordance with the approved Operations Manual

0 2

Intermediate Results Indicators Baseline Target

IIGF maintains unqualified opinion on its financial statement from reputable audit firm

0 Each Year

Source: Development Objectives from Project Appraisal Document (PAD) p.7 and p. 5 of the Loan Agreement; Performance Indicators from PAD p. 8 .


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Components Component 1: WB-Supported IIGF Guarantees 17. This component was intended to provide USD25 million to support the IIGF in issuing its own IIGF guarantees for qualifying projects. The qualifying projects were defined as those projects that would be appraised by the WB and meet the WB policies as well as other reputational risk considerations (“WB-Supported IIGF-projects). The WB loan proceeds under Component 1 were designed to be disbursed only at the time a claim was properly made and assessed as payable by the IIGF with respect to an IIGF guarantee for a WB-Supported IIGF-project. IIGF as the guarantor, would still remain solely and exclusively responsible to the guaranteed party for payment of any claim regardless of whether WB disburses the loan. Component 2: Technical Assistance 18. The second component was intended to provide a loan for Technical Assistance (TA) in the amount of approximately USD4.6 million to develop IIGF's institutional capacity to: (a) screen, appraise and supervise IIGF-projects as a single window for all guarantees for infrastructure PPPs in Indonesia; (b) manage its operations; (c) build capacity in Contracting Agencies, Sponsors and other relevant parties; (d) develop standardized documents and procedures for Contracting Agencies, Sponsors and other relevant parties to use in preparing IIGF-projects and require the use of such documents and procedures in order for PPPs to receive IIGF Guarantees; and (e) support PPP preparation activities, including feasibility studies, transaction advisory support, and other activities.

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE)

Revised PDOs and Outcome Targets N/A

Revised PDO Indicators N/A

Revised Components N/A

Other Changes N/A

Rationale for Changes and Their Implication on the Original Theory of Change 19. Rationale for changes. The project was extended once from the original closing date of March 31, 2018 to December 31, 2018, to allow more time for the project to complete its activities and achieve its PDO. The project extension was sought by the Government of Indonesia to complete ongoing activities under component 2, i.e. the technical assistance portion of the project. The delays in implementing component 2 were largely attributed to the longer time required to prepare good PPP projects through the IIGF’s OM as well as the time taken in the development of the IIGF’s organizational capacity. 20. Implications on the original theory of change. The change was not significant enough to have an implication for the original theory of change. It helped in achieving the theory of change linked to component 2 of the project.


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II. OUTCOME

A. RELEVANCE OF PDOs

Assessment of Relevance of PDOs and Rating

21. Relevance of higher-level development objectives. The higher-level Development Objective of this project was sufficiently clear and fully in line with Indonesia’s development priorities and the World Bank’s Country Partnership Strategy (CPS). This continues to be the case as Indonesia’s infrastructure needs have become more pressing5 since this project’s appraisal whereas the Bank’s commitment to assist is unchanged in its most recent CPS6. 22. Relevance of Project Development Objectives (PDO). With respect to this project’s PDO, notwithstanding certain limitations as indicated in section Error! Reference source not found., it is simple and specific, that is, to strengthen the IIGF as a single window institution to appraise infrastructure PPP projects requiring government guarantees. The PDO was appropriately drafted as the GoI was seeking international best practice guidance from the World Bank to assess and manage guarantees for PPP projects and to develop high standards of corporate governance and internal processes for the IIGF in becoming the single-window for such guarantees. This was critical to build confidence in the private sector, which considered infrastructure PPPs in Indonesia as high-risk investments (for details please refer to paragraphs 7 and 10), to crowd-in private investments to bridge the infrastructure deficit (for details please refer to paragraphs 3 and 4) 23. The Bank’s loan was to the Government of Indonesia with subsidiary loan agreement under which the funds were to be on-lent to the IIGF. For its part, the IIGF would provide guarantees to the private sector and lenders for infrastructure sub-projects. The loan under component 1 was designed as a back-stop liquidity loan should the IIGF guarantees to its designated sub-projects be invoked. Unlike conventional bank loans, a good outcome in this project would be that the IIGF guarantees are not called and therefore the loan is not disbursed. Critically, the Bank’s main role was to develop capacity and processes within the IIGF; the Bank was not involved in approving or implementing individual IIGF sub-projects but had to provide an initial no-objection letter at the time of guarantee commitment for projects that would benefit from IIGF guarantees that are back stopped with loan under component 1. 24. The original project was conceptualized as a guarantee-cum-loan operation, wherein USD 480 million of Bank’s Partial Risk Guarantees (PRG) were to be used as co-guarantees with the IIGF guarantees for qualified sub-projects and loan component of USD 30 million for a stand-by credit facility and technical assistance. However, the operation had to be substantially changed and scaled down since there were concerns of a ready and robust sub-project pipeline that could effectively utilize such facilities. The decision note of the ROC meeting in April 2012 noted that the “Achievement of PDO will depend upon proper implementation of the technical assistance component” and that the loan under component 1 may or may not be disbursed during the implementation of the project. During the ROC decision meeting it was deliberated whether to include the component 1 or not. And, it was decided to retain it even if it would not be disbursed because of the signalling value of WB operational support to the IIGF at this critical stage of the IIGF ’s development, and to demonstrate the continued and consistent WB support to GOI on the PPP agenda (please refer to Box 1, below)

5 The Ministry of National Development Planning’s current estimates of infrastructure needs for 2015-19 are double the USD170 billion noted in Section 1.1 for the period 2010-14. 6 Supporting Beam I: Leveraging the Private Sector: Investment, Business Climate and Functioning of Markets under the CPF 2016-2020.


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Box 1: Evolution of project design

During the design stage, the project went through several iterations. Originally, the project was designed as a Partial Risk Guarantee (PRG) Facility of up to USD480 million and a Loan of USD 30 million (sub-divided into a USD 25 million stand-by credit facility and USD 5 million technical assistance loan). However, during the ROC and OC decision meetings of 2010 there were questions on whether the proposed PRG facility could be effectively utilized for the sub-projects. The decision note of the OC of Oct 2010 noted these concerns were primarily due to – (i) poor experience with Bank’s four previous PRG facilities (which had poor implementation records and none of which had provided any guarantee), and (ii) the fact that the sub-project pipeline in Indonesia was not fully developed to be able to effectively utilize the proposed PRGs. Therefore, it was suggested that the task team works with the authorities to further develop the sub-project pipeline and include the first one or two sub-project guarantees in the initial package for Board consideration (together with the Guarantee Facility Agreement and the investment loan). However, the Project was unable to include any specific sub-project guarantees (as substantially more project preparation work and time was needed) and was again brought back for ROC decision in April, 2012 at which time it was considerably scaled down. It was noted that Indonesia has encountered major difficulties in preparing market-ready PPP transactions, and the volume of anticipated PPP projects is expected to remain low in the near future. Accordingly, the proposed new operation did not include the use of a PRG facility, but focused on technical assistance to strengthen the appraisal standards and other internal controls of the IIGF. The approved project components included a stand-by credit of USD 25 million (component 1) and a USD 5 million technical assistance loan (component 2). At this stage, the project was re-focused to target the IIGF’s institutional development. The ROC meeting advised the Task Team to reflect the narrow scope of the project in the PDO and to clarify that the PDO can be achieved with implementation of IIGF ’s institutional development framework supported by WB-financed technical assistance. It was stated that the “Achievement of PDO will depend upon proper implementation of the technical assistance component.” On the USD 25 million under component 1, the participants discussed that the component may or may not be disbursed during the implementation of the project. It was deliberated that the component should be included even if it would not be disbursed because of the signaling value of WB operational support to the IIGF at this critical stage of the IIGF ’s development, and to demonstrate the continued and consistent WB support to GOI on the PPP agenda. Accordingly, it was advised that the PDO should not refer to nor directly or indirectly include the achievement of specific targets related to the completion of, or progress in the completion of, transactions -- nor refer to or include language about the leveraging of private financing through PPP deals, and exclude quantitative results indicators referring to issuance of the WB-supported IIGF guarantees, and include a qualitative indicator to assess the improvement in the IIGF ’s institutional capacity. It should be noted that substantial design changes during the preparation of Bank-financed projects are common and constitute a regular part of the internal deliberative process. Source: Decision Notes of ROC and OC meetings June 2010, October 201 and April 2012

25. In rating the overall relevance of the objective, this review finds that the PDO remains highly relevant. However, there were some limitations noted in section Error! Reference source not found. in relation to the general design. On balance, Relevance of Objective merits a rating of ‘Substantial’. Rating of Overall Relevance: Substantial


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B. ACHIEVEMENT OF PDOs (EFFICACY)

Assessment of Achievement of Each Objective/Outcome

26. Institutional building of IIGF. There is considerable progress made by this project to achieve its development objectives. Beginning with the success of institution-building at the IIGF itself, which started literally from ground zero level at the beginning of the operation and today, has established itself as the focal agency on government guarantees with high credibility and specialized skills. The IIGF has worked extensively with Government Contracting Agencies (GCAs) to create awareness and training on the use of guarantees for PPPs, providing necessary hand-holding support in guiding them in PPP project preparation and guarantee applications, as well as screening, appraising and approving the guarantees being issued for the qualified PPP projects. More details on the activities of the IIGF are provided in Error! Reference source not found.. 27. Overall, the project has achieved the PDO indicators. The PDO indicators related to component 2 on institutional development and required the IIGF to provide guidance to 6 projects, assist in screening 4 projects and appraise 2 projects in the course of the process of providing guarantees to projects. As of December 2018, the IIGF has exceeded these targets. It has screened 51 projects, provided guidance to 42 projects and appraised 25 projects. The IIGF has been active in furthering the PPP programme in Indonesia and continues to strengthen its institutional capacity in appraising PPP projects seeking government guarantees as per its standard operations manual. Throughout, the IIGF has maintained an unqualified audit opinion on its financial statements. 28. A major positive impact of the IIGFP has been that the IIGF is viewed as a credible guarantee institution. It has a corporate credit rating of ‘idAAA/ stable’ (Pefindo) on the national scale (see box below for details) and 'BBB-' (Fitch) on the global-scale (similar to Indonesia’s sovereign rating). As of December 2018, the IIGF has provided guarantees to 18 projects, with an aggregate private capital mobilization of approximately Rp 189 trillion (~USD 13 billion). With a maximum guarantee exposure of the IIGF of Rp. 38.8 trillion (~ USD 2.67 billion) and the IIGF’s total equity capital of Rp.10.5 trillion (~ USD 722 million), this translates to a private investment multiplier (ratio of total private investment mobilized/ guarantee outstanding) of 4.9x and a guarantee leverage ratio (ratio of guarantee outstanding/ the IIGF’s equity capital) of 3.7x7. More details on the guarantees issued are provided in Error! Reference source not found..

Box 2: IIGF’s Credit Rating Press release on IIGF’s credit rating issued by the national rating agency - Pefindo

Pefindo has assigned its idAAA financial strength rating to IIGF. The outlook for the rating is ‘stable’. A guarantee company rated idAAA has the highest rating assigned by PEFINDO. The obligors’ capacity to meet its long-term financial commitments, relative to that of other Indonesia obligors, is superior. The rating reflects IIGF’s status as a critical government-related entity, the high potential demand for infrastructure guarantees, its strong capitalization, and strong liquidity and financial flexibility. These strengths are partly offset by its concentrated guarantee profile and limited viable PPP infrastructure projects. The rating may be lowered if there is a material reduction in support from the government, which may result from a significant deterioration in IIGF’s business and operating performance.

7 Although not fully comparable, MIGA (AR’2018) has guarantee ratio of 14.4x and an investment multiplier of 3.4x, with an operating capital of USD 1.471 billion. Korea’s Infrastructure Credit Guarantee Fund managed by KODIT (AR’2017) has a guarantee ratio of 8.2x with an operating capital of USD 0.692 billion.


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IIGF is a state-owned entity that has the special function of being a single window for appraising, structuring and providing guarantees for PPP infrastructure projects in the country. It is wholly owned by the government, and has 107 employees as of December 31, 2017.

29. The WBG support to the IIGF has been strategic and continuous right from conceptualisation of the IIGF to the commencement and completion of the IIGF Project. In many ways the WBG support (as enumerated below) has directly contributed to the achievements of the IIGF as a guarantee institution.

(i) At the planning stage of the IIGF, the Bank has provided advisory services to help the MOF conceptualize the institution, and design its guarantee and recourse mechanisms. The Bank’s advisory work has informed the Government in designing the Presidential Decree and MOF Ministerial Regulations, including the single window for appraising, structuring and providing guarantees and its recourse mechanism through which the MOF can recover the amounts due to MOF/IIGF from the relevant Government Contract Agency.

(ii) The Bank Team supported the MOF/IIGF in introducing an international best practice corporate governance structure through a technical assistance grant secured from the Government of Singapore (GOS) to ensure that the organization structure of the IIGF is well-aligned with its guarantee operations (appraisal, monitoring, claims assessment and payment) and functional roles (FM, financial controls, and fund management). The Bank supported the IIGF in preparation and adoption of its Operations Manual (OM) and the Environmental and Social Management Framework (ESMF), which were adopted prior to the loan effectiveness under the IIGF Project.

(iii) One of the first sub-project’s guaranteed by the IIGF (as a co-guarantor along with MOF) was the CJPP, which was supported by the IFC through transaction advisory assistance, and which was processed as per the IIGF’s OM and ESMF.

(iv) Thereafter, with the coming into effect of the IIGF Project, the IIGF benefitted from access to continued technical assistance under the component 2 of the Project. The TA helped the IIGF move forward both at the sub-project level with appraisal and issuance of guarantees to various PPP projects (also referred to as sub-projects), as well as at an institutional level by strengthening IIGF’s processes. For example, the TA assisted the IIGF in accessing the services of project and financial appraisal consultants for the water sector that ultimately led to the issuance of IIGF guarantees to 3 water PPP projects. Similarly, the services of project appraisal and legal consultants for the road sector helped the IIGF in issuance of guarantees to 10 toll road projects. In addition, the IIGF was able to access diverse skills and services related to social and environmental analysis, project risk impact analysis, improvements in its operations manual and strategic planning, all of which have directly contributed to the IIGF’s achievements. More details on the usage of the technical assistance loan is provided in Error! Reference source not found..

30. Despite excellent progress on the PDO indicators, the loan under Component 1 could not be committed to prospective PPP projects seeking IIGF guarantees. There were several factors that appear to have impacted implementation of Component 1, including a slow build-up of the pipeline during the initial years of the project (the first project to be guaranteed by the IIGF was in 2016, thus leaving limited time for the potential draw-down period for the component 1 loan) and small size of Component 1 loan of USD 25 million as against larger guarantee requirements (such as, the Palapa Ring with a guarantee of USD 550 million). On May 31, 2018, through a letter to the World Bank, the IIGF requested the support of Component 1 for the Government Multifunction Satellite project. During the supervision mission in August 2018, an additional prospective project was identified, namely the Dharmais Cancer Hospital. The two projects were presented by the IIGF to the WB team. The WB team initiated a project extension request through the CMU to accommodate the timelines on these projects. However, this request was ultimately not taken forward as the IIGF informed the World Bank through an email dated October 18, 2018 that “due to several constraints from Government


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Contracting Agency and timing consideration”, neither of the two projects identified could proceed. The IIGF also mentioned in its communication that they would be exploring the use of other WBG guarantee options such as MIGA guarantees for future projects. Discussions with the IIGF suggest that a key underlying inhibiting factor was the reluctance of GCAs to invest requisite time and effort to undertake comprehensive environmental and social safeguards activities prior to PPP contract award thereby placing most of the responsibility on the private party post-contract award. However, without prior completion of these activities, the Bank’s No Objection Letter could not have been issued to commit the Component 1 loan for these sub-projects. Therefore, despite the intensive efforts of task teams during the period 2016-2018, Component 1 could not be committed. More details are provided in Error! Reference source not found.. This issue has significance also because it’s a missed opportunity for the IIGF E&S team to work alongside the Bank counterparts on active projects being prepared to international standards. This was one of the strategic rationales for the project (pg. 5 of the PAD). This would have been an excellent opportunity for the IIGF E&S team to build its capacity through active learning-by-doing.

Justification of Overall Efficacy Rating

31. In rating on the Efficacy of the PDO, this review acknowledges that the project has exceeded its PDO indicator targets but also factors into its rating the fact that the loan under Component 1 for loan backed guarantee could not be committed to any sub-projects, which is a missed capacity building opportunity through active learning-by-doing approach8. On balance, Achievement of PDO (Efficacy) merits a rating of ‘Substantial’. Rating of Achievement of the PDOs (Efficacy): Substantial

C. EFFICIENCY

Assessment of Efficiency and Rating 32. Expected benefits due to Component 1 could not materialize. It is difficult to assess the economic benefits that can be ascribed to the activities conducted under the project. A quantifiable economic analysis was not undertaken at the design stage, as the project was intended to help the IIGF issue guarantees to sub-projects (PPP projects) that could not have been identified and analysed at the design stage. However, the PAD noted (pg.18, PAD) that “the economic benefits resulting from the IGFP are at least equal to the sum of the economic benefits resulting from each project that will receive a guarantee supported by the WB loan”. As the said loan under Component 1 could not be committed and disbursed, the envisaged economic benefits due to the Component 1 could not materialize. However, there were some cost savings in implementation and administrative cost in relation to the appraisal and monitoring under Component 1. 33. Although high TTL turnover may have contributed to some inefficiency, however it is unlikely to have significantly impacted the outcome with regards to the guarantee component. The project had four TTLs (2012-2013,2013-2016, 2016-2017 and 2018). This is also the period (2016-2018) during which the sub-projects started coming up for IIGF guarantees. It appears that the supervision missions of 2016, engaged in intensive dialogues9 on appraisal of sub-projects (mainly, the Palapa Ring Central and West sub-projects). The supervision mission of August 2017 made note that the IIGF may not require the guarantee component due to forthcoming amendment in the MOF regulations to enhance the IIGF’s

8 This has also impacted the ISR ratings given by the team, which were lowered to ‘Moderately Satisfactory’ from December 2017 onwards. 9 The supervision mission of July 2016 makes note of the conditions to be fulfilled and actions to be accomplished for obtaining the Bank’s NOL for committing loan under component 1. This was taken forward in the supervision mission of December 2016.


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guarantee ability (for details please refer to Error! Reference source not found.), thereby allowing the IIGF to utilize more of its own capital in support of its growth. Subsequent supervision missions under a new TTL in 2018, seem to have re-initiated the dialogue on potential sub-projects (and possible extension of the loan to facilitate this) but this could not be taken forward as the IIGF informed10 in October, 2018 that they had considerable headroom in their own guarantee ability and did not have viable sub-project options that could fit within the extension time line for this facility. Therefore, it appears that high TTL turnover may to a certain extent have resulted in some level of inefficiency because of the steep learning curve in understanding the project and managing counter-part relationships. However, it is unlikely that this would have been a significant factor in utilisation of the guarantee component. 34. The technical assistance component has been efficiently delivered. Although, this component could not be fully disbursed11, it has been efficiently delivered as verified in financial management and procurement checks during periodic bank supervision. The outputs of the activities financed under the technical assistance loan have significantly contributed to the IIGF’s ability to appraise and monitor risks under its guarantee projects, and significantly strengthen the IIGF’s institutional capacity. For example, this component financed the appointment of water sector project appraisal consultants who helped the IIGF in appraising and structuring the guarantees for the water projects such as the Umbulan water PPP project. This helped in strengthening the IIGF’s capacity and in turn led to the IIGF signing guarantees for Umbulan, Lampung and Semarang Barat projects. More details on distinct benefits derived from the TA loan are provided in Error! Reference source not found.. 35. In rating on Efficiency, this review acknowledges that the project could not achieve the full benefits as were originally envisaged, since the loan under Component 1 could not be utilized. In addition, frequent changes in TTLs resulted in some inefficiencies. However, the technical assistance loan under Component 2 was efficiently delivered with good results for the IIGF. Therefore, the rating on Efficiency is considered as ‘Moderate’. Rating of Efficiency: Moderate

D. JUSTIFICATION OF OVERALL OUTCOME RATING

36. The Overall Outcome Rating is configured based on an aggregation of the ratings of previous three sections, and these are summarized in the Table 2 below. According to standard ICR methodology, the individual ratings for Relevance (S), Efficacy (S) and Efficiency (M) merit an Overall Outcome Rating of ‘Moderately Satisfactory’.

Table 2: Summary of Overall Outcome Rating

10 In its communication dated October 18, 2018 the IIGF informed the Bank, “In the past few months, we have afforded to get another extension by using several potential suitable WB-supported projects, such as High Throughput Satellite and Dharmais Cancer Hospital Projects but due to several constraints from Government Contracting Agency and timing consideration, the process could not be proceeded. As the time progresses, the Loan Agreement will be expired on 31 December 2018 as agreed, and we currently do not have a viable option to extend the facility. From guarantee capacity point of view, our current capacity has more than double than our capacity back in 2012, hence relinquishing the need for such facility. We are grateful that loan facility has given significant support to our strategic achievement today hence we look forward to establishing other type of collaboration in the future. We believe that The World Bank Group has a wide range of valuable products to support infrastructure developments in Indonesia, such as guarantee under MIGA, that we are now finalizing the scheme of collaboration. 11 The remaining portion of technical assistance loan under component 2 could not be disbursed because inadvertently the government left it out of the budget related to these activities from the APBN for 2019. According to the IIGF, they had placed a request to the MOF however the latter seem to have missed this. The IIGF did not follow up since they assumed that the budget approval request would have been processed.


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Overall Relevance Efficacy Efficiency Overall Outcome

Substantial Substantial Moderate Moderately Satisfactory

E. OTHER OUTCOMES AND IMPACTS (IF ANY)

Institutional Strengthening 37. Institutional development. One of the important outcomes of this project, which was intended by the PDO, is making operational a specialized institution such as the IIGF to appraise and manage guarantees to PPPs in Indonesia. Although, not all PPP projects will require guarantees but the project preparation standards set by the IIGF’s standard operations manual are expected to become a good standard for other infrastructure PPPs in Indonesia. This is a catalytic role that the IIGF is playing in Indonesia for other government contracting agencies to follow in their PPP project preparation. Having said that, the IIGF’s environmental and social safeguards function is still evolving as the application of international standards on sub-projects is still a work-in-progress for the IIGF (for more details, please refer to paragraph 71). However, the IIGF is improving sub-project level compliance through systematic corrective action plans and periodic follow ups with its sub-projects. Select examples are presented in Box 3.

Mobilizing Private Sector Financing 38. A major positive impact of the IGFP has been that the IIGF is viewed as a credible guarantee institution by the private sector. As of December 2018, the IIGF has provided guarantees to 18 projects, with an aggregate private capital mobilization of approximately Rp 189 Trillion (~USD 13 billion). With a maximum guarantee exposure of the IIGF of Rp. 38.8 trillion (~ USD 2.67 billion), this translates to a private investment multiplier (ratio of total private investment mobilized/ guarantee outstanding) of 4.9x. The WB’s loan facility and overall support to the IIGF is regarded as a key

factor for building up investor confidence in IIGF guarantees. Overall, there is good feedback (refer to Table 1Table 3 below) on the role and impact of IIGF’s guarantees in project financing, based on select consultations with private investors and lenders that were held during the preparation of the ICR.

Table 3: Summary of Discussions with Private Investors and Lenders on the impact of IIGF guarantees

Feedback Description

IIGF guarantee has substantially addressed the impact of political risk

For example, the Palapa Ring projects had a high political risk perception on budget approvals and adequacy of government funds to meet the Availability Payment obligations. Before IIGF guarantees, there was low private sector and bank interest in the projects.

IIGF guarantee has substantially addressed the impact of weak financial/ credit worthiness of government counterparty

For example, in the Lampung and Umbulan Water Projects the financial standing of local government is weak and lenders were uncomfortable to take their payment risk. With the IIGF guarantee, this risk has reduced for the investors.

IIGF guarantees help in financial Many investors and lenders felt that they may not have participated in


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close and crowd-in private investment

their projects if IIGF guarantees were not made available. A bank mentioned that they had prior experience in power and toll road sectors, and were wary of entering new sectors. However, access to IIGF guarantees gave them comfort to enter into new sectors and working with regional governments. Many regional banks and international players have been evincing interest in financing PPP projects in Indonesia. For example, in the Palapa Ring East project regional banks such as Bank Papua and Bank Malukae also participated.

IIGF’s involvement has supported private investors and lenders

A private investor indicated that IIGF’s engagement through Joint Monitoring Committees helps in problem-solving as the IIGF is able to coordinate better between the government agencies and the private investor. This helps in de-bottlenecking project implementation issues. A bank mentioned that they frequently seek feedback from the IIGF to get an unbiased view on the ground performance of the project company.

39. Ring-fencing of GOI liability vis-à-vis guarantees to PPPs. The IIGF today has emerged as an effective single window for processing government guarantees to infrastructure PPPs12. The IIGF’s corporate governance guidelines have been prepared with the Government of Singapore (GOS) assistance and designed to minimize the risk of interference by influential parties by setting very high standards of transparency and disclosure, ring-fencing the IIGF’s assets from direct GOI interference, and establishing a mechanism to ensure operational independence of the IIGF. The Bank’s technical assistance loan under Component 2 has also helped the IIGF in appraising and structuring guarantees in an independent manner. The details of usage of the technical assistance loan is provided in Error! Reference source not found..

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME

A. KEY FACTORS DURING PREPARATION

40. Design of component 1. The project’s design was different to conventional lending arrangements of the WB. A large part of the loan (component 1) was structured as a contingency line of credit to be made available to the IIGF only if the IIGF guarantees were invoked and resulted in a payment obligation for the IIGF on the qualified sub-projects. Therefore, a good outcome for the IIGF would be that the guarantees are not called and therefore the loan under component 1 does not get disbursed but the loan gets committed to qualified sub-projects that have been appraised under an IIGF-WB collaboration. However, no sub-project level guarantee commitments could be made, that would have been demonstrated by appraisal of a sub-project by the IIGF together with the Bank and the Bank’s provision of an initial no-objection letter, which has been a cause of concern for the Bank. There are several reasons that have contributed to this as discussed in Error! Reference source not found. below.

12 This excludes PLN’s continued business viability guarantee issued by the Government to various IPPs and energy projects.


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Box 3: Reasons attributable for non-commitment of loan under component 1

There appear to be several factors that have played out in lack of commitment of loan under component 1. Some of them relate to design, while others relate to implementation, and are collectively listed below to provide a comprehensive picture on this subject. Reluctance of GCAs to conduct comprehensive environmental and social safeguards activities prior to PPP contract award. The loan under component 1 was to be committed to specific projects on presentation of such projects by the IIGF and following the Bank’s due diligence and issuance of a No Objection Letter to the IIGF to proceed with the project. Without prior completion of the environmental and social safeguards related activities, the Bank’s No Objection Letter could not have been issued. Discussion with the IIGF suggested that the GCAs were reluctant to invest the requisite time, budget and effort to undertake comprehensive environmental and social safeguards activities prior to PPP contract award. The GCAs preferred placing most of the responsibility to comply with the E&S performance standards on the private party post-contract award. Another factor placing pressure on the GCAs was the push from the government leadership to expedite the implementation of national priority projects prior to the Presidential elections of 2019. Slow build-up of project pipeline. By design, the IIGF could provide guarantees to PPP projects prepared as per its standard operations manual and tendered with the IIGF guarantee commitment. This meant that the IIGF could not guarantee any PPP projects that had already been awarded to private parties or were already at the stage of financial close. This reduced its potential project pipeline during the initial years. In addition, the project preparation processes were slow to ramp up due to weak institutional capacity of government contracting agencies. Small size of the loan relative to sub-project guarantee needs. Most projects seeking guarantees from IIGF have been large sized and had a correspondingly large requirement for guarantees. For example, the median size of the IIGF guarantees is about USD120 million. Therefore, there appears to have been low incentive to obtain the commitment under component1. The largest individual project guarantee provided by the IIGF is USD 422 million as of date. However, the IIGF has the capacity to provide individual project guarantee equal to 1-time its equity (which is ~ USD 722 million as of December 31, 2018) as interpreted from Presidential Regulation 78/2010. Based on discussions with the IIGF, it is understood that the IIGF would be keen to explore co-guarantees from the WBG for larger size operations where IIGF guarantee size may be insufficient to cover on its own, such as sizes greater than USD 1 billion. Thus, the small size of loan under component 1 did not effectively address the specific needs of the IIGF. Large head-room for guarantee issuance by the IIGF. Over the project’s implementation period, the government has systematically increased its equity capital in the IIGF. Between 2009 – 2014, the IIGF’s equity capital base increased from Rp. 1 trillion to Rp. 4.5 trillion. By 2018, the IIGF’s total equity has increased to Rp.10.5 trillion (~ USD 722 million). Further, the prudential limit on the ratio of guarantees issued to IIGF’s capital base was increased from 4x to 10x through an amendment in the IIGF regulations in 2017. The increase in leverage capacity has in turn reduced the need for the IIGF to access extra-budgetary sources of financing. Given that its current leverage is only 3.7x, it still has substantial headroom, especially for individual project guarantees below the threshold size of its equity, as mentioned previously.

41. However, the project posed challenges during implementation, for example:

• The sub-project pipeline was slow to fill up, as the IIGF was required to follow a transparent and competitive process to commit its guarantees13 and the project preparation processes were slow to ramp up due to weak institutional capacity of government contracting agencies.

13 By design, the IIGF can give guarantees to PPP projects that have been prepared as per its standard operations manual and tendered with the IIGF guarantee commitment to all prospective bidders. This meant that the IIGF could not guarantee any PPP projects that had been already awarded to private parties or were in financial close stage. This reduced its potential project pipeline in initial years.


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• There was a shallow pool of talent with deep knowledge of project finance and international standards of project preparation in Indonesia.

• It took time for the IIGF management to establish itself and its brand in the market.

• A great deal of capacity-building at the IIGF was needed to implement environmental and social safeguards.

• The loan under component 1 could not be disbursed due to the reasons mentioned previously (refer Error! Reference source not found.).

42. Some of these complications were foreseen as Risks at design (see later in this section). However, as the project progressed, the anticipated timeline underestimated the time needed to get a new institution off the ground and to operate effectively in Indonesia. Consequently, the overall project duration had to be extended and the loan under component 1 could not get disbursed. 43. Results framework design issues. The project’s Results Framework (annex 5 of the PAD) was basic in nature, in part because the sub-projects could not be a-priori identified under the operation. At Design, specific outputs (that is, the sub-projects; see annex 1) remained to be identified; nevertheless, their conceptual linkage to the Outcomes and the intended PDO were clear and reasonable. 44. Key Indicators. With respect to the project’s Key Indicators (see Table 1), they are specific but their targets appear relatively soft given the catalyst role that the institution was expected to play in Indonesia’s PPP financing (e.g., “ number of projects to which the IIGF provided guidance” is six projects and “number of projects screened by the IIGF in the screening stage of guarantee appraisal” is targeted at four projects). 45. Assessment of risks and mitigation measures. Program design included three substantial risk analyses: Stakeholder Risks (p. 62 of the PAD); Implementing Agency (including, Fiduciary) Risks (p. 63-64); and Project Risks (p. 65-67). In general, overall risk ratings were ‘Substantial’, with the exception of Program and Donor Risks (“Low”) and Social and Environmental Risks (“Moderate”). As the project unfolded, some of the mitigation measures were inadequate to address these issues in a timely and effective manner. Specific examples are cited paragraphs below. 46. Capacity Risks. Although the Implementing Agency ‘Capacity Risks’ were identified as “Substantial”, the mitigation measures were optimistic given the institutional capacity challenges in Indonesia. For example, it was anticipated that by preparing the IIGF’s standard operations manual, and conducting joint appraisals (IIGF-WBG) for select sub-projects would enhance the IIGF staff capacity. However, the short-supply of skilled local resources was not factored in the risk mitigation measures. In reality, most of the staff was recruited locally and had limited experience in guarantees. It took some time to build the IIGF’s E&S team with requisite experience to implement international performance standards on environmental and social safeguards. Low institutional capacity in the initial phase, made it difficult for the IIGF to take a leading position in steering the project preparation process with the government contracting agencies. This impacted the IIGF’s ability to rapidly build up its project pipeline. 47. Project Design Risk. The shortage of qualifying projects was identified as a key risk factor under the Project Design Risk. These were rightly attributed to limited government capacity and lack of serious private sector interest14. In reality, while the list of potential PPP projects was large, a majority of these were still a long way from being well-prepared and ready to offer to market. This meant that it took much longer for the IIGF to help GCAs prepare them, enter into guarantee

14 The PAD in the ORAF (p. 62 of PAD) acknowledged “Despite a series of Infrastructure Summits (January 2005, November 2006) in which numerous PPP project ideas were announced by the GOI, few PPP transactions have materialized. There is a risk that public perception of unsuccessful GOI attempts to jumpstart the PPP market and lack of investor appetite might taint stakeholder reception of the IIGF”.


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agreements and still even longer for the guaranteed projects to reach operations phase (which is the major phase of the IIGF guarantee exposure). 48. Overall Risk Rating. In short, while the Overall Risk Rating has gone down from ‘Substantial’ at the Design stage to ‘Moderate’ during Implementation, some of the risk areas (as mentioned above) did not play out as envisaged due to the complexities of institution-building and project pipeline development in Indonesia.

B. KEY FACTORS DURING IMPLEMENTATION

Factors subject to government and/or implementing entities control 49. Increase in IIGF’s own capital and guarantee limits. Over the project’s implementation period, the government has systematically increased its equity capital in the IIGF. Between 2009 – 2014, the IIGF’s equity capital base increased from Rp. 1 trillion to Rp. 4.5 trillion. By 2018, the IIGF’s total equity has increased to Rp.10.5 trillion (~ USD 722 million). Further, the prudential limit on the ratio of guarantees issued to IIGF’s capital base has also been increased from 4x to 10x through an amendment in the IIGF regulations in 2017. The increase in overall leverage capacity and the fact that no guarantee has yet been invoked, has in turn reduced the need for the IIGF to access extra-budgetary sources of financing. 50. Reluctance of Government Contracting Agencies (GCA) to undertake comprehensive environmental and social safeguards activities prior to PPP contract award. The loan under component 1 had to be committed to specific projects, only after the Bank’s No Objection Letter was issued, which was predicated on prior completion of these activities. However, it appears that the GCAs were reluctant to take on the full responsibility of comprehensive environmental and social safeguards activities prior to PPP contract award due to constraints related to time, budget and their institutional capacity. The GCAs preferred placing most responsibility on the private party to comply to the E&S performance standards after the PPP contract was awarded. It seems that it was difficult for the IIGF to change this mind-set of the GCAs. Another factor placing pressure on the GCAs was the push from the government leadership to expedite the implementation of national priority projects prior to the Presidential elections of 201915. 51. Safeguards Capacity. Overall, the IIGF faced a few challenges in the implementation of safeguards. There are several reasons, including:

i. As a relatively new institution, the IIGF had not yet established any track record, including on safeguards management. Therefore, it took some time for IIGF’s management to establish itself and assert on safeguards management with GCAs (as mentioned in the previous paragraphs 37 and 50)

ii. Newly hired E&S specialists were part of a lean team in E&S unit and still needed further training16 to effectively implement international good practices. An indicative list of the Bank’s support to the IIGF’s E&S team is presented in Table 4.

15 President Joko “Jokowi” Widodo aimed to complete 37 out of 222 projects listed on the National Strategic Projects (PSN) list by the end of his current presidential term. These projects are being tracked by KKPPI (https://kppip.go.id/en/priority-projects/). Many of the PPP projects within this list have received support from the IIGF. 16 Till 2016, the IIGF maintained a senior environmental specialist and a social safeguards specialist in the E&S Unit who worked together with the Underwriting Team assisting the Project Appraisal and Structuring (PAS), reported to the Chief Operating Officer. As the IIGF activities had grown significantly, than was originally envisaged (IIGF’s targets on projects screened and appraised had been exceeded by 2016), so had the demands on the E&S team. In view of the growing portfolio and pipeline, and to strengthen the capacity of the current E&S specialists to be able to carry out in-house project appraisal in the future, WB had advised that IIGF establish and implement a well-structured capacity-building plan for E&S specialists in

https://kppip.go.id/en/priority-projects/


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iii. Joint appraisals (between E&S teams of the IIGF and the Bank) for sub-projects to be committed under component 1 loan could not take place (for reasons mentioned in Error! Reference source not found.). This is a missed opportunity for the IIGF E&S team to work alongside the Bank counterparts on active projects being prepared to international standards. This was one of the strategic rationales for the project (pg. 5 of the PAD). This would have been an excellent opportunity for the IIGF E&S team to build its capacity through active learning-by-doing.

52. Safeguards Implementation at the Sub-Project Level. Throughout the project period, the IIGF has been striving to improve its environmental and social safeguards functions. The Bank has also been advising the IIGF in this regard. For instance, on strengthening the existing operations manual to fully cover all scenarios of project delivery responsibilities17 (2018), and strengthening safeguards implementation in terms of updating for GOI regulations, land acquisition monitoring, Indigenous Peoples Plan and socio-economic surveys (2016-2017). Although, these updates are still to be fully reflected in the approved revision of the operations manual, the IIGF is improving compliance at the sub-project level – (i) by creating awareness amongst bidders/investors at the project design stage (for example, the IIGF shares its findings on major E&S issues and activities that should be implemented/costed in the project) on major environmental and social issues, then during implementation through preparation of systematic corrective action plans which get linked to the guarantee agreement and thereafter through periodic follow ups with its sub-project companies18. Box 3 below showcases an example of IIGF’s E&S intervention to improve the sub-project’s design.

2016. 17 During the WB supervision mission in 2018, the team identified three working scenarios. Scenario 1: projects where the government Contracting Agency (CA) is fully responsible for project preparation and construction; Scenario 2: projects where the CA is partially responsible and request the Private Investor (PI) to help prepare safeguards instruments; and Scenario 3: projects where the CA prepares safeguards instrument and the PI does the implementation. Specifically, this relates to the safeguards requirements in land acquisition, disclosure and public consultations, and preparing environmental assessment that meet the requirements of the WB safeguards policies, which must be ready during sub-project appraisal. 18 The IIGF seeks to strengthen the environmental and social impact management of projects at various stages of project preparation. For example, in the water projects (Lampung, Semarang West, Umbulan, Pekan Baru, Jatilahur, etc.) it undertook hydrology and water balance studies (to understand water availability and minimize potential conflict with existing users) through its consultants – Hatfield, to strengthen the project level AMDAL. Similarly, in Palapa Ring East Project the IIGF advised the private investor to conduct extensive public consultations with Indigenous People in the affected areas. The project involves deployment of fiber optic cables and the construction of microwave towers, both on land and at sea, as the backbone of the national telecommunications system. However, the deployment of cables has the potential to affect the indigenous people in the area. The IIGF is insisting that the private investor obtain the necessary approval and consensus to ensure that the land that will be used by the Project has received approval from the local Indigenous Peoples, apart from the applicable regulations.


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Box 3: Wildlife Corridor on the Balsam Toll Road

The Indonesian Ministry of Public Works and People's Housing plans to build a new toll road connecting The International Airport of Sultan Aji Muhammad Sulaiman (Sepinggan Airport) in Balikpapan City with Samarinda City of Kalimantan Timur Province. The Balikpapan – Samarinda toll road, also known as Balsam toll road, will consist of 5 sections with total length about 99.12 km. The project is guaranteed by IIGF. By design, the toll road will cross two conservation areas namely Taman Hutan Raya (TAHURA) Bukit Suharto in Kutai Kertanegara District and Hutan Lindung Sungai Manggar (Sungai Manggar Protected Forest) in Balikpapan City. It is known that some endemic and protected species of wildlife such as, sun bear, are found in their natural habitat in the conservation areas. Therefore, the project is considered to be triggering OP – 4.04 Natural Habitats as the project could cause habitat fragmentation and interfere with wildlife mobility. During the project appraisal, the ENS Division of IIGF recognized this issue and recommended the project owner to build a wildlife corridor to connect the fragmented habitat of Tahura Bukit Suharto crossed by the toll road. It is said that the Balikpapan – Samarinda toll road will be the first toll road in Kalimantan that will have a unique feature of wildlife corridor.

Factors subject to World Bank control

53. Adequacy of supervision. The overall Bank engagement with the IIGF has progressed well. The missions were regular, with a wide array of expertise to cover the broad range of project activities, and the Aide Memoires contained clear action plans. For example, the Bank team continuously worked with the IIGF in identifying prospective sub-projects that could be appraised for component 1 loan, from as early as 2013. In relation to E&S safeguards, the Bank’s E&S experts have periodically conducted site visits with the IIGF’s E&S teams to sub-project sites to share experiences and build the IIGF’s E&S capacity. For more details, please refer to paragraph 71. 54. Adequacy of reporting. The team provided comprehensive Implementation Status Reports, clearly highlighting the major issues. This facilitated receiving good guidance from management, and assistance in dealing with project implementation issues, such a sub-project identification and project extension. Factors outside the control of government and or implementing entities 55. Slow build-up of project pipeline. By design, the IIGF could give guarantees to PPP projects that had been prepared as per its standard operations manual and tendered with the IIGF guarantee commitment to all prospective bidders. This meant that the IIGF could not guarantee any PPP project that had been already awarded to private parties or was in financial close stage. This reduced its potential project pipeline in initial years. In addition, the project preparation processes were slow to ramp up due to weak institutional capacity of government contracting agencies. 56. Small size of the loan relative to sub-project guarantee needs. Most projects seeking guarantee from the IIGF were large sized and had a correspondingly large requirement for guarantees. For example, the median of the IIGF guarantee size is about USD120 million, more details are provided in Annex 6. Therefore, there appears to be lesser incentive to obtain the commitment under component 1 loan.


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IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME

A. QUALITY OF MONITORING AND EVALUATION (M&E)

M&E Design 57. The project’s M&E system had certain design limitations. For their part, the Key Indicators for project success (Table 1) do provide a reasonable basis for assessing performance in terms of the key PDO objective – institution building19 but the indicators provide a limited basis for gauging the broader economic and social impact from the loans under components 1 and 2. Overall, the project’s M&E system served well for the project’s evaluation but had limited utility to monitor interim performance aspects of the IIGF operations such as for M&E of E&S safeguards. 58. In addition, the design of Indicators could have had a sharper focus on performance, such as (i) some of the end year targets, such as for the Indicator #3, could have been specified in value terms to emphasize the leveraging impact of the IIGF’s capital base on the supported PPP projects, especially in relation to component 1; (ii) the Technical Assistance Loan under component 2 could have had indicators to monitor how the IIGF helped build institutional capacity of government contracting agencies and how they were supported in project preparation activities. However, there weren’t any specific Key Indicators to reflect progression or impact of this activity. 59. Absence of targets for environmental and social management. Improving the environmental and social safeguard management of the supported PPP projects was another key deliverable from the project design as the IIGF was to implement its standard operations manual to appraise and monitor all guarantee projects and thereby enhance the quality of project implementation in this area. However, there weren’t any indicators devised to measure them either included as part of the Key Indicators or in the Intermediate Outcome Indicator. Their presence in intermediate outcomes would have fast tracked implementation of institutional processes in these areas and placed greater focus on the sub-project preparation as per higher standards of environmental and social safeguards management. 60. Intermediate Indicators. There was only one Intermediate Outcome Indicator (“IIGF maintains unqualified opinion on its financial statement from reputable audit firm”), which is a good metrics for measuring financial management but perhaps other quantitative targets (such as, “return on equity”, “asset quality”, “capital adequacy ratio”, “solvency” and/or “economic rate of return”) could have been considered to assess prudent financial management and business growth.

M&E Implementation 61. Given the scale of the operations, the M&E data collection and analysis has been systematic and regular. The IIGF has been regularly submitting its quarterly progress reports, consisting of (i) procurement and disbursement plan, (ii) interim financial review report, (iii) portfolio level environmental and social safeguard report, (iv) IIGFP quarterly operations report, and (v) latest available financial statements (audited/ unaudited, as applicable). In addition, external auditors performed annual audit of the IIGF as an institution and provided their professional opinion on the conduct of business.

19 As the project aimed specifically at building IIGF’s institutional capacity to appraise PPPs for guarantee support, and ultimately help establish Indonesia’s credibility in the international PPP market.


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M&E Utilization 62. Although, the M&E system was somewhat useful in gauging the project’s progress, but due to the previously mentioned design constraints had limitations in providing more discerning information to support strategic decision-making and course-correction. In addition, since the component 1 loan was not utilized, it is difficult to gauge the efficacy of the M&E utilization to the actual need for monitoring of this component.

Justification of Overall Rating of Quality of M&E 63. There were significant shortcomings in the M&E system’s design, making it somewhat difficult to assess the achievement of the stated objectives and test the links in the results chain. Therefore, the overall rating is assessed as ‘Modest’. Rating of M&E: Modest

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE

Environmental and Social Compliance

64. The project was assessed as a category 'A', due to nature of infrastructure sub-projects that would be supported by the loan under component 1. Accordingly, the requisite safeguard instruments, including an Environmental and Social Management Framework were prepared to address any negative environmental and social impacts. These were disclosed in-country and in the InfoShop. 65. During project implementation, the IIGF faced challenges in implementing its environmental and social safeguards due to a variety of factors – including, weak capacity of GCAs and general reluctance to spend time and resources to undertake early E&S works prior to PPP tender, and evolving E&S capacity of the IIGF (for details please refer to paragraphs 50, 51 and 52). The Bank team extended its active support to help the IIGF, such as through periodic interactions between the Bank’s E&S team and the IIGF, joint site visits and participation in capacity building programmes of the Bank. Notwithstanding these difficulties, compliance ratings for safeguards were never below ‘Moderately Satisfactory’, since the loan disbursements were only under technical assistance component of the project. Overall, the Social Safeguards performance of the project is rated ‘Moderately Satisfactory’ at ICR.

Fiduciary Compliance 66. Financial Management. At the time of project appraisal, a financial management assessment was conducted that concluded that the IIGF satisfies the WB’s requirements for financial management arrangements. The main risk of the project will be due to the fact that the IIGF is a newly established institution with limited track record. To overcome this, the FM arrangement would have to rely on the operations manual, which had been finalized with WB assistance, and appraised by the WB. The overall risk of the project at the time of appraisal was considered ‘Substantial’ before mitigation and ‘Moderate’ after mitigation.


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67. In addition, a specific interim results indicator for the project was for the IIGF to maintain an unqualified opinion from is external auditors on its financial statements. Indeed, the IIGF has continuously maintained an unqualified opinion from its external auditors. During the course of each financial year, its internal auditors also prepare specific internal audit reports on financial management and procedural compliance, which are tabled to the audit committee of the IIGF Board. For the financial monitoring of the Bank, the IIGF submits its interim financial review report, quarterly operations report, and latest available financial statements (audited/ unaudited, as applicable). The project’s internal controls have been sufficiently implemented based on the FY 2018 audit report received. Internal audit was conducted regularly and there are no significant findings. Overall, the FM is rated for the project as ‘Satisfactory’ at ICR. 68. Procurement. The procurement under the project was conducted for the technical assistance loan under component 2. These were for procurement of consultants that were based on Quality-cum-Cost-Based Selection method, as per the Bank’s guidelines. Most of these contracts were reviewed by the Bank on an ex-post basis and only one contract was subject to prior review, as per applicable policies. For acceptability of financing under the project loan, the Bank has reviewed the selection processes of these contracts (subject to post review), together with the terms of references and signed contracts, on exceptional basis and found that these were generally consistent with the procedures specified under the Legal Agreement and the Bank’s Consultant Guidelines (of January 2011) applicable for the Project. All procurement documents were properly filed, maintained and readily available for the Bank’s procurement ex-post review. None of the firms that were awarded the contracts included in the Procurement Plan were under sanctions by the Bank. Overall procurement performance is, rated ‘Satisfactory’ at ICR.

C. BANK PERFORMANCE

Quality at Entry

69. The project was unique in terms of its design (for details please refer to paragraph 40) and in terms of the institution it was supporting (IIGF – a guarantee fund). The project design had gone through extensive analytical work and consultations. The project had been preceded by the Bank’s assistance to the government through AAA advisory work to establish the guarantee regulations supporting the transparent functioning of the IIGF and adoption of its standard operations manual. The task team had also analysed the appropriateness of different financing options20, such as Partial Risk Guarantees, Deferred Draw-Down Option (DDO) Loan and a guarantee related Development Policy Loan (DPL). However, these options were rejected given the nascent PPP project pipeline in Indonesia, differences in applicability of individual financing arrangements and the need for the Bank to provide intensive ongoing support21 to the IIGF (to establish itself) in appraisal and issuance of guarantees in a transparent and independent manner. The Bank team had actively supported the MOF through extensive planning, analysis, and consultation. Extensive consultations were helped with the government, private sector, banks and civic society organisations. The “single window” concept for the appraisal

20 Such as – (i) Partial Risk Guarantees (which were not found suitable given the low volume of anticipated PPP projects in the near future); (ii) Deferred Draw-Down Option (DDO) Loan that could have allowed the GOI to exercise the draw-down option when it needed additional capital to honour a guarantee call. A key benefit of the DDO would have been that the 3-year term could be extended to a maximum of 15 years (which was rejected because DDOs were being typically used in the context of lending operations pertaining to catastrophe risk management and Development Policy Loans (DPL DDOs) and did not properly provide for the necessary TA support to help establish and maintain the operational standards of the IIGF; or (iii) a guarantee related Development Policy Loan (DPL), which was considered to have a limited strategic rationale given the role that was being played by other ongoing DPLs in Indonesia. It would also not have provided for an ongoing engagement with the IIGF in the development and appraisal of PPP infrastructure operations. The Team, therefore, elected to support the institutional development of the IIGF and establish it as a credible, single window for appraising PPPs according to an OM acceptable to the WB. 21 The IIGF was expected to benefit from the Technical Assistance, which is critical to its institutional development. This included significant and timely enhancement of its capacity vis-à-vis project appraisal and other key functions to establish its credibility in the market.


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of all government guarantees for infrastructure PPP projects was also reinforced though a Presidential Decree and Ministerial Regulations on Government Guarantees based on the support that the WB had provided. In addition, the Bank had assisted the IIGF in developing a standard operations manual that was consistent with the Bank’s standards and facilitated the adoption of corporate governance framework that had been funded by the Government of Singapore and the Temasek Foundation. Therefore, from the objective of institution building a lot of thought and effort had been placed in providing a solid foundation to the IIGF as an institution and making it ready to implement the project. However, as mentioned previously, the project’s design suffered some design constraints (for details please refer to paragraphs 56, 57, 58 and 59) that have likely impacted some of the outcomes of the project. 70. While some of the challenges were known and the project design incorporated suitable measures to address them, the collective impact of the internal and external challenges could not have been reasonably foreseen. For instance, as project pipeline could not be identified at the project design it was difficult to ascertain a median or an ideal facility size but it was felt that even having a small size of the component 1 loan would have a strong signalling effect. Similarly, the weak safeguards capacity of the implementing agency was also known and measures such as, preparing the IIGF’s standard operations manual, conducting joint appraisals (IIGF-WBG) for select sub-projects to enhance the IIGF staff capacity and use of TA loan to support appraisal and operational capacity of the IIGF were incorporated. However, what could not have been reasonably forecasted at project design stage was how some of the external factors would impact the project’s implementation such as, the increase in the prudential limit on the ratio of guarantees issued to IIGF’s capital base from 4x to 10x through an amendment in the IIGF regulations in 2017 and the reluctance of GCAs to conduct comprehensive environmental and social safeguards activities prior to PPP contract award. Therefore, the overall Quality at Entry is rated ‘Moderately Satisfactory’.

Quality of Supervision 71. Despite the project having witnessed significant turnover of the TTLs, the quality of supervision has been satisfactory. The supervision missions have been proactive in providing advice in relation to the prospective PPP projects being considered by the IIGF, strengthening IIGF’s E&S functions, capacity building of GCAs in relation to E&S activities and in strengthening the project level safeguards application. For example, between 2015 and 2018 the aide memoires of supervision missions have reflected on strengthening of IIGF’s E&S functions, especially in the sub-project level application such as in relation to land acquisition. The mid-term review mission (June 2015) noted that while the GCAs have been complying with corresponding GOI regulations, the IIGF would need to make additional efforts in encouraging and influencing the GCAs to be in compliance with the IIGF's OM. The supervision mission of July 2016 comprehensively identified the conditions to be fulfilled by Palapa Ring sub-project developers (prior to and during the project implementation) and actions to be taken by the IIGF in ensuring compliance to its OM during project implementation through the Joint Monitoring Committee (between the GCA, Sub-project developers and the IIGF). The projects quickly achieved financial close and did not require the WB commitment for component 1 loan. The supervision mission of December 2016 prepared an action plan to help the IIGF strengthen sub-project level application. In early 2017, there were a series of intensive discussions with the Banks local safeguards team, including review of sub-project documents, site visits and planning for further technical assistance in this area. The IIGF also submitted its revised draft of the OM in August 2017, which was subsequently commented by the Bank team as there were still gaps in operations that needed to be addressed (based on sub-project application). The supervision mission in 2018, continued further with close interactions with the IIGF on strengthening this function. In addition, the bank team has been supporting the strengthening of E&S function of the IIGF. Select examples are provided in Error! Reference source not found. below. Similarly, the supervision on procurement and financial management for the component 2 loan has been consistent and without any noted concerns. However, the Bank team could have done timely project restructuring to address design


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shortcomings so that the country could have fully benefited from the project. For example, to raise the component 1 issue with the CMU and possibly to request additional financing to enlarge the component, to improve M&E, include intermediate indicators and raise targets. Therefore, the overall Quality of Supervision is rated ‘Moderately Satisfactory’

Table 4: WB Capacity Building Support to the IIGF to strengthen E&S safeguard implementation

No Activities Participant Date and Venue Purpose

1 Sharing experience with PLN West Java Region for E&S Safeguard implementation of Upper Cisokan Hydropower project. Site visit facilitated by the WB Safeguard Team.

a) Krisnan Somadikarta - WB Jakarta

b) Yuki M.A. Wardhana - IIGF ENS Head Division

c) Dwi Susanto - IIGF ENS staff

1st March 2017 Upper Cisokan Hydro project site - West Java

Sharing experience with PLN regarding environmental and social safeguard implementation and Land Acquisition process

2 Environmental and Social Impact Assessment course held by Learning Center on Environmental and Social Sustainability - Vietnam (Partly funded by the World Bank)

Dwi Susanto - IIGF ENS staff

21-23 April 2017 Hanoi, Vietnam

Knowledge sharing on ESIA preparation, implementation and management.

3 The World Bank Environmental and Social Framework training held by the WBG

a) M. Wahid Sutopo - Business Executive Director of IIGF

b) Dwi Susanto - IIGF ENS staff

c) M. Irfan Abadi - IIGF ENS staff

Jakarta 29-30 August 2018

E&S Framework guideline and implementation for project funded by World Bank

4 Course on Infrastructure Project Preparation, especially for land acquisition phase Course held by Indonesia Network Learning Centre for Environmental and Social Sustainability (BPN-UGM-World Bank)

a) Dwi Susanto - IIGF ENS staff

b) Annisa Nur Fauziah - IIGF ENS staff

Yogyakarta 16-21 December 2018

Course on land acquisition process for project preparation based on Indonesia regulation and international best practice.

5 Site visit with World Bank team for SPAM Lampung Project

a) Erwin S. Sukandar – IIGF b) M. Irfan Abadi – IIGF c) Jarot Joko Subroto – IIGF d) Dwi Susanto – IIGF e) Ida Ayu Indira – World

Bank f) Krisnan P. Isomartana –

World Bank

Lampung 3 December 2015

Sharing experience with World Bank regarding environmental and social safeguard implementation


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6 IFC - IIF Workshop on Environmental and Social Risk Management

a) Yuki M.A. Wardhana - IIGF ENS Head Division

b) Subhan Maulana Syifa - IIGF ENS Staff

Jakarta 2-3 May 2017

Technical training on key environmental and social (E&S) aspects of infrastructure projects specifically on aspects applicable to the E&S due diligence

7 Site visit with World Bank Team for Pandaan Malang Toll Road project


b) Indira Dharmapatni - WB Jakarta

c) Yuki M.A. Wardhana - IIGF Safeguard Head Division

d) Dwi Susanto - IIGF Safeguard staff

e) Rido Mubayyin - Monitoring team

Malang- East Java 3-4 August 2017


8 Site visit with World Bank Team for SPAM Umbulan Project


b) M. Ridho - IIGF ENS Head Division

c) Dwi Susanto - IIGF ENS staff

d) Jarot Joko Subroto - ENS Satff

Pasuruan, East Java 7-8 December 2016


Justification of Overall Rating of Bank Performance 72. Although there were some shortcomings, the Quality at Entry and Quality of Supervision are individually rated as ‘Moderately Satisfactory’. Hence, the overall rating for World Bank performance is rated ‘Moderately Satisfactory’. Rating of Overall Bank Performance: Moderately Satisfactory

D. RISK TO DEVELOPMENT OUTCOME

73. Overall the project has laid the foundation of a strong guarantee institution, but it still requires experience and expertise to evolve into a mature institution. Until now the bulk of focus of the IIGF has been on ex-ante guarantee appraisal, structuring strong contractual arrangements and limited monitoring for the effective delivery of the underlying sub-projects. Although it is a substantial experience (between 2012-2018), however it still has not given the IIGF the full life-cycle experience of a guarantee operation. Typically, the IIGF guarantees range from 12 – 15 years. The IIGF would need to manage effectively the political, regulatory and financial management risks of the underwritten contractual obligations of the GCAs. 74. Political/legal risks negating contractual and financial commitments. Indonesia is still perceived as a risky destination for foreign investors, in part because Indonesia’s legal framework is often unpredictable,22 and greater legal

22 For instance, in February 2015, the Indonesian Constitutional Court invalidated Law No. 7/2004 on Water Resource Management. A decade previously the court had decided that the law was ‘conditionally constitutional’, which meant that the law could still be


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certainty still looks a long way off. Still, it looks unlikely that the degree of legal uncertainty will deteriorate further in any significant way. Consequently, the probability of this risk occurring is rated as low to moderate, although the cost to development outcomes would be high, if the event occurred. 75. Financial risks emanating from poor financial management of GCAs. A major portion of the risks underwritten by the IIGF relate to the payment obligations of the GCAs, which in turn are linked to the financial management reforms/ discipline that the GCAs would need to undertake. This in turn would need to be enforced by the Ministry of Finance. Being a fully owned subsidiary of the MOF, it is anticipated that the MOF will be fully committed to enforce fiscal discipline on the GCAs to ensure the financial sustainability of the IIGF. Consequently, the probability of this risk occurring is rated as moderate, although the cost to development outcomes would be high, if the event occurred. 76. Technical risks arising from slow development of project pipeline and concomitant sector reforms. As mentioned previously, the development of the PPP market in Indonesia has been slow, which has led to a slow build-up of well-prepared project pipeline thus limiting the IIGF’s potential sub-project base. This issue has high significance as by its design, the IIGF can only give guarantees to PPP projects that have been prepared as per its standard operations manual and tendered with the IIGF guarantee commitment to all prospective bidders. This has meant that the IIGF cannot guarantee any PPP projects that have not been tendered with the IIGF guarantee commitment and have been already awarded to private parties or are in financial close stage. In recent years (2016-2018), there had been some progress in PPPs, but the pace of progress remains slow. It’s difficult to imagine significant breakthroughs anytime soon in the introduction of PPPs into Indonesia. Consequently, the probability of this risk occurring looks high, and the cost to IIGF would be continuing lost opportunities on guarantee operations, which could undermine the IIGF’s profitability if the current sub-project pipeline were to tail off. In addition, a lot more push in sector reforms is required to achieve cost-reflective tariffs and sector sustainability. If these are not concurrently undertaken, then it would lead to funding stress in the sectors and that could lead to an adverse financial impact on the contingent liabilities of the IIGF under its guarantee operations. This should also be viewed, in reference to the recent MOF regulation enhancing the leveraging capacity to 10x of IIGF’s equity. Consequently, the probability of this risk occurring is rated as moderate, although the cost to development outcomes would be high, if the event occurred. 77. Institutional risks. Most of the IIGF’s guarantees have become effective in the last three years and a majority of underlying sub-projects are still to achieve commercial operations date (COD). Therefore, there is a high concentration of projects in development and construction phase. This also implies that a majority of them will enter into early gestation or operations stabilization phase together in the next two to three years. While the IIGF has diversified into a few sectors, it has a high concentration of early stage projects. This would also be the case with E&S safeguards implementation management. Therefore, this poses moderate portfolio level or institutional risks to the IIGF, although the cost to development outcomes would be high, if the event occurred. 78. Conclusion on risk. In view of the above risk analysis, the ICR’s rating of Risk to Development Outcomes remains ‘Substantial’.

invalidated, if implementing regulations were deemed inadequate. Critically, these implementing regulations included issues of particular interest to the private sector, namely commercialization; privatization; and full cost recovery principles. The decision of February 2015 deemed the implementing regulations inadequate in relation to Article 33 of the Constitution, and the Court invalidated the Water Resources Law. Article 33 of the 1945 Constitution says, inter alia, “Sectors of production which are important for the country and affect the life of the people shall be under the powers of the State.” Also “The land, the waters and the natural resources within shall be under the powers of the State and shall be used to the greatest benefit of the people.”


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Rating of Risks to Development Outcomes: Substantial

V. LESSONS AND RECOMMENDATIONS

79. Designing an appropriate scale of operations. Although, the provision of loan was not a key motivator for the Project, a larger scale of the operation would have enhanced focus on both sides and may have resulted in more effective outcomes. However, determining an appropriate scale was a challenge as (i) a viable project pipeline could not be identified it was difficult to ascertain a median or an ideal facility size, (ii) there was a low certainty that such a project pipeline could be developed fast and so it was felt risky to commit a high guarantee facility that may not get utilised. 80. Need for a responsive project design. The project design could not help the IIGF with larger guarantees and did not effectively meet the guarantee capacity enhancement needs of the IIGF as it remained constrained to the extent of its balance sheet. This is further substantiated by the fact that the IIGF could not utilize the loan under component 1 but required to explore MIGA guarantees for the multi-functional satellite project. A co-guarantee operation could have strengthened the IIGF’s capacity to enter into larger guarantee sizes. 81. Results indicators could have had a sharper focus on performance. The results indicators could have been made more specific to the logical flow of inputs, outputs and outcomes to place the required importance of interim actions and desired outputs.

(i) As mentioned previously, some of the end year targets, such as for the Indicator #3, could have been specified in value terms to emphasize the leveraging impact of the IIGF’s capital base on the supported PPP projects, especially in relation to component 1. Similarly, the Technical Assistance Loan under component 2 could have had indicators to monitor how the IIGF helped build institutional capacity of government contracting agencies and how they were supported in project preparation activities. However, there weren’t any specific Key Indicators to reflect progression or impact of this activity.

(ii) Absence of targets for environmental and social management. Improving the environmental and social safeguard

management of the supported PPP projects was another key deliverable from the project design as the IIGF was to implement its standard operations manual to appraise and monitor all guarantee projects and thereby enhance the quality of project implementation in this area. However, there weren’t any indicators devised to measure them either included as part of the Key Indicators or in the Intermediate Outcome Indicator. Their presence in intermediate outcomes would have fast tracked implementation of institutional processes in these areas and placed greater focus on the sub-project preparation as per higher standards of environmental and social safeguards management.

(iii) Need for more Intermediate Indicators. There was only one Intermediate Outcome Indicator (“IIGF maintains unqualified opinion on its financial statement from reputable audit firm”), which is a good metrics for measuring financial management but perhaps other quantitative targets (such as, “return on equity”, “asset quality”, “capital adequacy ratio”, “solvency” and/or “economic rate of return”) could have been considered to assess prudent financial management and business growth.

82. Greater attention to strengthening the environmental and social safeguards functions. Recognising that the IIGF was a new institution and that there was weak E&S management expertise in Indonesia, the Project could have designed stronger institutional capacity measures, such as (i) implanting experienced E&S staff for a period of time with the IIGF,


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(ii) stipulating the condition of joint appraisal for the first few projects being appraised by the IIGF irrespective of whether they would utilize the loan under component 1, and (iii) incorporating periodic external E&S audits to gauge compliance as an intermediate indicator. 83. Project Design could have designed specific interventions to address the Government Capacity constraints. The capacity constraints and reluctance of GCAs to undertake early E&S activities to access the guarantee loan under component 1 came out as a major inhibiting factor. Even though the project design recognised ‘Capacity Risk’ and ‘Project Design Risk’ as “Substantial”, specific interventions were not included in the project design to overcome the GCA related issues. 84. Need to re-examine the future rules of guarantee provision by the IIGF and its strategic positioning. By its design, the IIGF is not allowed to guarantee PPP projects that have already been awarded. This has not only constrained the potential sub-project base for the IIGF but has also placed limitations on the private sector to access the risk-mitigation products of the IIGF. It is likely that this rule was embedded to help support the IIGF in its early stage of development and now needs re-examination to help expand the IIGF’s scope of guarantee and diversify its market base. Looking forward, this could be a good opportunity for the GOI/IIGF to review the strategic positioning of the IIGF in Indonesia’s infrastructure financing and its future role vis-à-vis other state-owned and stated-sponsored infrastructure financial companies. 85. Stronger coordination of relevant WBG institutions. On projects which involve private sector participation, stronger coordination of all relevant WBG institutions, such as the IBRD, MIGA and IFC, from design stage to implementation and full completion would make the project more impactful and the project’s outcome more sustainable. In this context, the potential role for Maximizing Finance for Development (MFD) could also be examined in future engagements with the GOI/IIGF. 86. Exploring prospects for a future engagement. During the August 2018 mission, the IIGF informally expressed interest in exploring the co-guarantee instrument of the World Bank and the potential for the IIGF and the Bank in coming together as co-guarantors in the toll road sector, as well as other sectors where there is need for large guarantees on which the IIGF cannot take on a substantial exposure. This would need to be explored more substantially, together with the IIGF and internally within the Bank, in the medium term. In addition, the potential role for MFD as mentioned in paragraph 85 could also be examined in future engagements with the GOI/IIGF. .


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ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS

A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: PDO

Indicator Name Unit of Measure Baseline Original Target Formally Revised

Target

Actual Achieved at Completion

1. Number of projects to which IIGF provided guidance in the Guidance stage of guarantee appraisal, in accordance with the approvedOperations Manual.

Number 0.00 55.00 55.00

31-Aug-2012 30-Nov-2018 30-Nov-2018

Comments (achievements against targets):

Achieved


Target


2. Number of projects screened by IIGF in the Screening stage of guarantee appraisal, in accordance with

Number 0.00 39.00 39.00

31-Aug-2012 30-Nov-2018 30-Nov-2018


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the approved Operations Manual


Achieved


Target


3. Number of projects appraised by IIGF in accordance with the approved Operations Manual

Number 0.00 23.00 23.00

31-Aug-2012 30-Nov-2018 30-Nov-2018


A.2 Intermediate Results Indicators

Component: Intermediate Outcome


Target


IIGF maintains unqualified opinion on its financial statement from a reputable audit firm.

Text Year ending Dec 31, 2012

Audit for year ending Dec 31, 2015 submitted in timely manner

Audit for year ending Dec 31, 2015 submitted in timely manner


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31-Aug-2012 30-Nov-2018 30-Nov-2018


Achieved


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A. KEY OUTPUTS BY COMPONENT

Objective/Outcome 1

Outcome Indicators 1. 2.

Intermediate Results Indicators 1. 2. 3.

Key Outputs by Component (linked to the achievement of the Objective/Outcome 1)

1. 2. 3. 4.

Objective/Outcome 2

Outcome Indicators 1. 2. 3.

Intermediate Results Indicators 1. 2. 3.

Key Outputs by Component (linked to the achievement of the Objective/Outcome 2)

1. 2. 3. 4.

Note to Task Teams: Organize the indicators and outputs around each Objective/Outcome captured in the PDO statement. Please delete this note

when finalizing the document.


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ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION

A. TASK TEAM MEMBERS

Name Role

Preparation

Kalpana Seethepalli Task Team Leader(s)

Ahsan Ali Procurement Specialist(s)

Novira Kusdarti Financial Management Specialist

Indira Dharmapatni Social Specialist

Winda D. Kosasih Team Member

Ekapon Jivasantikarn Team Member

Krisnan Pitradjaja Isomartana Social Specialist

Achmad Zacky Wasaraka Team Member

Anastasia Yolina Kurniawati Team Member

Kai Xin Nellie Teo Team Member

Supervision/ICR

Shyamala Shukla Task Team Leader(s)

Achmad Zacky Wasaraka Procurement Specialist(s)

Novira Kusdarti Financial Management Specialist

Indira Dharmapatni Social Specialist

Dara Malia Lengkong Team Member

Francesco Strobbe Team Member

Krisnan Pitradjaja Isomartana Environmental Specialist


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A. STAFF TIME AND COST

Stage of Project Cycle Staff Time and Cost

No. of staff weeks US$ (including travel and consultant costs)

Preparation

FY10 24.795 266,946.31

FY11 73.887 699,593.66

FY12 24.050 103,886.99

FY13 6.850 28,459.48

FY14 .200 261.36

FY15 1.900 2,267.08

Total 131.68 1,101,414.88

Supervision/ICR

FY13 2.675 42,399.04

FY14 12.300 72,363.23

FY15 10.593 68,407.87

FY16 16.357 130,745.93

FY17 22.415 122,609.62

FY18 24.062 132,597.62

FY19 20.401 123,116.61

Total 108.80 692,239.92


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ANNEX 3. PROJECT COST BY COMPONENT

Components Amount at Approval

(US$M) Actual at Project

Closing (US$M) Percentage of Approval

(US$M)

Component 1. WB-Supported IGF Guarantees

25.00 25.00 0

Component 2. Technical Assistance

4.60 4.60 0

Total 29.60 29.60 0.00

Note to Task Teams: The data in this section has been pre-populated for the first time for your convenience, but it is completely editable. Please delete this note when finalizing the document.


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ANNEX 4. EFFICIENCY ANALYSIS

Background. The PAD (p. 18), anticipated the economic benefits resulting from the IGFP to be at least equal to

the sum of the economic benefits resulting from each sub-project that will receive an IIGF guarantee that is supported by the WB loan. In reality, the WB loan under component 1 was not disbursed. However, the benefits of technical assistance loan under component 2 in relation to institution building, capacity building and project preparation can be construed to facilitate the IIGF guarantees to all of its projects. In addition, as the sub-projects for IIGF guarantees could not have been identified at the project design stage, the PAD did not include a sub-project level economic analysis. Therefore, for the purpose of this economic analysis the ICR undertakes a limited review of economic analysis of the sub-projects and their major economic benefits.

Overview of IIGF’s sub-project analysis. The IIGF has supported most of the major PPP projects in Indonesia since 2016, with substantial economic benefits associated. An illustrative list of examples is provided Box 4 below.

Box 4: Illustrative Examples of Broader Economic Benefits of IIGF’s Sub-projects

As of December 2018, The PPP projects supported by the IIGF guarantees have been mainly in the toll roads, water supply and telecommunications sectors, with the exception of the Central Java Power Project (CJPP) in which the IIGF is a co-guarantor with the larger exposure with the MOF. The economic rates of returns and the direct economic benefits of the IIGF supported projects are substantial (for details please refer to Table 5 below).

Table 5: Economic impact of IIGF’s supported PPP projects

Toll Road Water Supply Telecommunication

WACC 10.1% - 11.6% 9-45% - 10.1% 9.1% - 11.3%

Project IRR 10.2% - 16.1% 12.3% - 14.6% 9.1% - 11.3%

Economic IRR

14.9% - 36% 15.2% - 27.3% 18.8% - 30%

Palapa Ring Project (3 Packages - West, Middle, East):

• Economic Added Value (Gross Domestic Product) 2016-2033: 0.011% (IDR 14.99 Trillion)

• Additional household income 2016-2033: IDR 4.02 Trillion

• Job creation 2016-2033: 483,338 person-year

Umbulan Water Supply Project:

• Economic Added Value (Gross Domestic Product) 2015-2042: 0.002% (IDR 3.47 Trillion)

• Additional household income 2015-2042: IDR 1.23 Trillion

• Job creation 2015-2042: 138,000 person-year Pandaan-Malang Toll Project:

• Economic Added Value (Gross Domestic Product) 2017-2051: 0.69% (IDR 14.95 T)

• Additional household income 2017-2051: IDR 4.85 T

• Job creation 2017-2051: 7,080,417 person-year Source: From IIGF based on the Project Feasibility Studies


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Economic Benefit

• Vehicle Operation Cost saving

• Value of Time saving

• Water use costs saving

• Time saving

• Health costs saving

• Cloud computing: saving business costs

• Business development for the retail & service sector

• Efficiency of supply chain management for the manufacturing and industrial sectors

• Long-term benefits for the education, health, e-Government and environment sectors

• Internet cost savings

• Access cost savings by users

Source: IIGF

Investor discussions. The PAD anticipated that a successful implementation of the IGFP and a strong IIGF would reinforce investors’ confidence as it would reflect as government’s strong commitment to the PPP program. This would in turn lead to acceleration of private investor participation in the PPP program in Indonesia. Indeed, this has been the experience, as expressed by select investors interviewed. For example, investors in a telecom project had a high political risk perception on budget approvals and adequacy of government funds to meet the Availability Payment obligations and before the provision of the IIGF guarantees there was low private sector and bank interest in the projects. Many investors and lenders felt that they may not have participated in their projects if IIGF guarantees were not made available. A bank mentioned that they had prior experience in power and toll road sectors, and were wary of entering new sectors. However, access to IIGF guarantees gave them comfort to enter into new sectors and working with regional governments. For more details please refer to Table 3.

Reduced financing cost and improved terms of debt. As a result of provision of IIGF guarantees to support well

prepared projects, it was anticipated that there would be a decrease in the overall cost of capital, extension of loan maturities and reduced interest rate spread reflecting a lower risk perception of the project. The impact of the IIGF guarantees to project financing has been in two ways, (i) investor confidence has increased in projects requiring government commitments (they have become financeable), and (ii) longer loan tenures (typically, the PPP projects have received IIGF guarantees for a period of 12 – 16 years, which has enabled them to obtain loans with tenures ranging between 12 – 15 years). The impact on interest rate spreads has been difficult to ascertain as the interest rates offered in the Indonesian financial market are based on a variety of factors, such as corporate relationships, sector exposure and prevalent liquidity and market conditions.

Table 6: Illustrative Examples of Loan Tenures in the IIGF’s supported PPP projects

Toll Road Water Supply Telecommunication

Guarantee Tenure 15 years 15 years 12 years

Loan Tenure 15 years 12-15 years 7 – 11.5 years

Use of technical assistance loan. The Bank’s technical assistance loan has supported the IIGF in engaging specialist

consultants and subject matter experts to help the IIGF strengthen its institutional processes, conduct independent appraisal of sub-projects, project monitoring, risk management and support in effective implementation of the IIGF’s Operation Manual (OM). The summary are as follows:


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Table 7: Illustrative Examples of Effective Use of Technical Assistance Loan to IIGF

No. Technical Assistance Summary

1. Project Appraisal Consultant Services for Water Sector and Financial Appraisal Water Sector

Helped the IIGF in obtaining specialist skills to conduct independent appraisal of water supply projects by conducting an assessment of project feasibility and risk based on the proposed guarantee and conduct quality assurance on the results of the project feasibility assessment. This led to the successful provision of guarantee to the Umbulan Water Supply Project. This helped the IIGF identify key risks and plan for suitable risk mitigation. For example, a key risk is the payment failure in monthly bulk water bills by the Contracting Agency (GCA) to the PPP Business Entity. To mitigate this, the IIGF has recommended strengthening the financial structure of the local clean water company (or called “PDAB”) business model as an entity that gets an assignment from the GCA to carry out bulk water sale and purchase transactions with Business Entity. This has resulted in preparation of the business plan and the capitalization plan of the PDAB, and in stricter payment negotiations on water sales agreements with Local Water Company (or called “PDAM”) which is the ultimate off-taker. In Semarang Barat Water Supply Project, a key risk identified was the quality and continued availability of to the PPP project. Towards this end, the IIGF financed the preparation of the hydrological model for the concession period.

2. Project Legal Consultant Services for Toll Road and Appraisal Consultant for Toll Road Project

This supported the IIGF in procurement of national and international advisors to conduct due diligence of projects’ legal, technical and financial feasibility and assessing the project risks. At present, a total of 707 km of toll roads is being built across Indonesia resulting from 10 toll road projects that have been granted guarantees by the IIGF. These include, Batang-Semarang Toll Road, Manado-Bitung Toll Road, Pandaan-Malang Toll Road, Pandaan-Malang Toll Road, Jakarta-Cikampek II Elevated Toll Road, Krian-Legundi-Bunder-Manyar Toll Road, Serang-Panimbang Toll Road, Cisumdawu Toll Road, Probolinggo-Banyuwangi Toll Road and Jakarta-Cikampek Selatan Toll Road.

3. Strategic Consultant for Development of Long-Term Plan/Strategy for IIGF

This helped the IIGF procure a leading international strategy consultant to assist in developing IIGF’s long-term strategy and plan, including the underlying institutional financial model. This has supported the IIGF in business expansion into new areas.

4. Social and Environment Consultants

This helped the IIGF in bridging the gap in its institutional capacity for environmental and social safeguards management. The consultant assisted in the projects’ social and environment appraisal of infrastructure projects, which successfully led to the process of issuance of guarantees by the IIGF.

5. Project Risk Impact Analysis This helped the IIGF in developing its project risk impact analysis framework. By using this framework, the IIGF analyzes the risk impact of guaranteeing each project to the corporate level risk, e.g. in financial impact, reputation impact. The risk impact analysis has been incorporated in Company’s guarantee business process.

6. Consultant for OM Improvement Strengthening of the IIGF’s operations manual was supported through this technical assistance. This has helped the IIGF in updating its Operations Manual based on the new regulations, new organization structure and relevant internal policies with operational experience gained and best practices derived. This fund has provided support for the IIGF’s institutional development, especially in governance.

7. Financial Consultant for Social Infrastructure

This helped the IIGF in the financial appraisal of social infrastructure projects by conducting an assessment of project feasibility and risk based on the proposed


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guarantee and conduct quality assurance on the underlying project’s feasibility assessment. This was a new area for the IIGF. For instance, Sidoarjo Regional Hospital, a project that is currently being processed by IIGF, is located in Krian District, East Java Province and managed by the Sidoarjo Regency Government (Sidoarjo Regency Government). This project will be built to reduce the burden of the Sidoarjo Regional Hospital, which has been the foundation of the increase in the number of patients, which is around 1,200 to 1,300 patients every day.

8. Appraisal Consultant for Multifunction Government Satellite

This is a first-of-its-kind for project for the IIGF. The funds were utilized to procure consultants to assist in the projects’ appraisal. The Government Multifunctional Satellite, a project that is currently being processed by IIGF is considered by the Government of Indonesia to meet data and communication service needs in areas not connected by terrestrial band network services (rural area). Satellite technology has several capabilities in terms of service coverage of a wide area, and is not limited to the territory of Indonesia only, but also can reach regions in Asia. And in terms of ease of application in remote areas, communication devices with satellite media have more advantages over fiber optic cable network systems. This has facilitated the IIGF in providing meaningful inputs to the GCA both in the process of finalizing the project study and structuring the project in order for the project to become bankable. As a result, the GMFS project involves international bidders, and the IIGF is also introducing a co-guarantee scheme, with MIGA.


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ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS

Comments from Ministry of Finance

We appreciate the substantial role of the World Bank in assisting the establishment and the development of the

IIGF as part of the continuous supports to PPP development in Indonesia. We see the establishment of the IIGF as one that symbolized close collaboration between the GoI and the World Bank in pursuing good governance in PPP arrangement. We are still in the strong commitment to promote the role of IIGF as the main MoF tool, particularly as a ring fence for APBN from potential sudden shocks from government guarantee as well as an enhancement to improve the creditworthiness of PPP projects.

Particularly, in relation to the ICR we have some feedbacks as follows:

1. While the government of Indonesia is strongly committed to back up the financial capacity of the IIGF in providing guarantee, we believe that financial cooperation between the IIGF and other international financial institutions will benefit the IIGF in many ways, not only in expanding its guarantee capacity but also in gaining more credibility in the market as well as in acquiring knowledge of the international practices. Therefore, although it is understood that the IIGFP was not yet well utilized, as reported in the ICR, we still expect that the World Bank maintain its commitment in exploring new designs of financial products that can be collaborated and matched with the IIGF scheme. We look forward for other financial cooperation between the IIGF and the World Bank that can deliver those benefits in the future.

2. Since its establishment, the IIGF has been accumulating significant experience and knowledge in providing government guarantees to PPP projects. However, we still see some rooms for improvement in the area of procedures and mechanisms that can be pursued in strengthening the IIGF role in the PPP arrangement. Therefore we expect the World Bank can provide support to the IIGF and the MoF in developing such area in the future.


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ANNEX 6. SUPPORTING DOCUMENTS

[A] Guarantee’s

GA Effective projects: (In Billion Rupiah)

No. Projects Project Value

Maximum Exposure

Guarantee Provider

Gearing Ratio23

GA Signed GA Effective

1 Central Java Power Plant 61,456 300 Co-guarantee 0.03 06-Oct-11 06-Jun-16

2 Palapa Ring West Package 1,229 1,293 IIGF 0.12 29-Feb-16 10-Nov-16

3 Palapa Ring Central Package 1,093 1,211 IIGF 0.12 04-Mar-16 30-Dec-16

4 Batang-Semarang Toll Road 11,046 2,450 IIGF 0.23 29-Sep-16 29-Mar-17

5 Pandaan-Malang Toll Road 5,970 5,623 IIGF 0.53 27-Apr-16 20-Jun-16

6 Manado-Bitung Toll Road 5,123 3,400 IIGF 0.32 09-Jun-16 06-Oct-16

7 Balikpapan-Samarinda Toll Road 9,973 6,120 IIGF 0.58 09-Jun-16 03-Oct-16

8 Umbulan Water Supply 2,057 1,171 IIGF 0.11 09-Jun-16 02-Dec-16

9 Palapa Ring East Package 5,088 5,467 IIGF 0.52 21-Jul-16 10-Feb-17

10 Jakarta-Cikampek II Elevated Toll Road

16,233 600 Co-guarantee 0.06 22-Feb-17 08-May-17

11 Serang-Panimbang Toll Road 5,330 2,053 Co-guarantee 0.20 22-Feb-17 11-Dec-17

12 Krian-Legundi-Bunder-Manyar Toll Road

12,224 649 Co-guarantee 0.06 22-Feb-17 17-Nov-17

13 Lampung Water Supply 750 543 IIGF 0.05 14-Feb-18 14-Aug-18

Subtotal: IDR Billion Rupiah 137,572 30,880 2.93

Subtotal: USD Million 9,475 2,127 2.93

Not Yet Effective GA Projects: (In Billion Rupiah)

No. Projects Project Value

Maximum Exposure

Guarantee Provider

Gearing Ratio

GA Signed

14 Cileunyi-Sumedang-Dawuan Toll Road

8,409 1,430 Co-guarantee 0.14 22-Feb-17

15 Probolinggo-Banyuwangi Toll Road

23,391 2,281 Co-guarantee 0.22 29-Dec-17

16 Jakarta-Cikampek II Selatan Toll Road

14,691 2,280 Co-guarantee 0.22 29-Dec-17

17 West Semarang Water Supply 417 631 IIGF 0.06 23-Nov-18

18 Special Economic Zone - Mandalika

4,454 1,328 Co-guarantee 0.13 28-Dec-18

Subtotal: IDR Billion Rupiah 51,362 7,950 0.76

Subtotal: USD Million 3,537 548 0.76

TOTAL: IDR Billion Rupiah 188,934 38,830 3.7

Total: USD Million 13,012 2,674 3.7

23 Gearing Ratio or Guarantee Leverage Ratio refers to the ratio of guarantee outstanding / IIGF’s equity capital. As of December 31, 2018 the IIGF’s total equity capital was Rp.10.5 trillion (~ USD 722 million).


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[B] Project Preparation Advisory In 2018, the MOF has assigned the IIGF to help GCAs in project preparation by accessing funds from MOF’s Project Development Facility (PDF) to support the GCAs in project preparation and transaction advisory activities for PPPs. Through this activity, in 2018, the IIGF seeks to provide upstream stream support, which in turn will help strengthen the PPP project pipeline for Indonesia. As of February 2019, the PDF has assigned 5 (five) projects to the IIGF, as follows: 1) East Sumatera Crossing Road – South Sumatera cross Project 2) East Sumatera Crossing Road – Riau Project 3) Makassar-Parepare Railway Project 4) Dharmais Cancer Hospital Project 5) Dr. Zaenoel Abidin Regional General Hospital Project [C] Other Activities

(i) Capacity Building Besides guarantee operations the IIGF has been active in capacity building of various stakeholders to enhance awareness on PPPs and provide them with necessary skills to plan and implement PPP projects. encourage. These activities are conducted through the IIGF Institute. These include:

a. General Active Learning Programme (GALP): The programme provides knowledge and basic principles of infrastructure provision through PPPs.

b. Workshops and Seminars: These include a variety of featured programmes such as, Training of Trainers,

Media Workshop, General Active Learning Programme (basic PPP training) and Targeted Active Learning Programme (customised training).

c. Indonesia Infrastructure Roundtable (IIR): The IIGFI along with the University Network periodically organise

policy analysis and project specific case analysis for public dissemination and policy dialogue on infrastructure PPPs.

(ii) Research, Publication and Outreach

The IIGF also sponsors research, publication and outreach activities that are implemented through various national and international agencies. These aim to reach out to wide range of stake holders to encourage PPPs, enhance the policy dialogue and strengthen the enabling environment for PPPs. The IIGF sponsor various activities. such as, knowledge publications, work visits, roadshows, advocacy and network activities. In the past three years, IIGFI has conducted research on the following topics:

a. Value for Money Assessment Tool for Public Infrastructure in Indonesia: The aim of this research is to develop standardized VfM assessment tool for public infrastructure provision in Indonesia. A working paper has been published and a model has been developed (VfM Assessment Tool).


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b. Readiness Assessment of Contracting Agency Readiness for PPPs: A tool to gauge the readiness of local governments to implement PPPs has been developed based. This tool will be tested in 2019.

c. Critical Success Factors of Water Supply System Projects Using PPP Scheme: Through this research, the IIGFI

aims to document the process and identify lessons learnt in implementing water supply projects that are guaranteed by IIGF, such as the SPAM Umbulan and SPAM Semarang Barat.

d. Credit Enhancement of Public Infrastructure Guarantee Scheme in Indonesia: This research plans to showcase

how infrastructure guarantees and other risk mitigation instruments provide credit enhancement and help in enhancing the project’ bankability.


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ANNEX 7. SUMMARY OF BORROWER’S ICR

Introduction and Project Context 1. The increasing demand for infrastructure development to support Indonesia’s economic growth led the Government of Indonesia to provide fiscal support and a better risk sharing framework in attracting private investment. On December 30, 2009 the Government of Indonesia established PT Penjaminan Infrastruktur Indonesia (Persero) or the IIGF, as a State-Owned Enterprises (SOEs) under the Ministry of Finance to be responsible for providing government guarantees for infrastructure projects developed under the Public Private Partnership (PPP) scheme. 2. The IIGF can guarantee political risk of both central and local government as a Contracting Agency to provide certainty and comfort to private investors. The availability of IIGF guarantee enhances the certainty for the private sector and thereby increases private sector financing for infrastructure development in Indonesia. The IIGF also works with international and multilateral institutions in increasing its capacity to guarantee large scale infrastructure projects. 3. PT PII as an Infrastructure Guarantee Business Entity also assists the Government - Ministry of Finance - to ring-fence government contingent liabilities and minimize the direct shock ('sudden shock') to the state budget on infrastructure projects according to respective regulations. 4. In summary, PT PII was established for the following purposes:

(a) Improve creditworthiness and quality of PPP infrastructure projects by establishing clear and consistent appraisal and claim frameworks for guarantees.

(b) Improve the governance and transparency on guarantee provisions. (c) Facilitate the deal flow for Contracting Agencies (i.e., Ministries, SOEs, Regional Governments) by providing

guarantees to well-structured PPPs. (d) Ring-fence Government contingent liability and minimize the impact to the State Budget (e) PT PII acts as guarantor to private sectors for any infrastructure risk arisen as the result of any government

action or inaction which may result in financial loss for PPP infrastructure project, such as delay in license and permit, change in regulations, failure of tariff adjustment, failure of network /facility integration, and other risks covered or allocated to the government in the PPP contract.

World Bank Support 5. The World Bank has provided support and assistance to the IIGF right from its establishment. Prior to the loan, the WB had provided advisory services to help the MOF conceptualize and design the IIGF. 6. As a logical continuation of the above, on 27 May 2013, the World Bank provided facilities amounting to USD 29.6 million to support the IIGF. These included (i) the WB-Supported loan for the IIGF Guarantee amounting to USD25.0 million and (ii) technical assistance amounting to USD4.6 million. The loan has been provided by the World Bank to the Government and then on-lent to the IIGF under a subsidiary loan agreement.


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Loan Utilisation and Performance 7. Up to this date, the utilization of technical assistance portion has reached about 89% of total facility of USD 4.6 million. While for the WB-Supported loan for the IIGF Guarantee, no disbursements were required. As originally intended, the WB-Supported loan for the IIGF Guarantee was designed as a stand-by loan facility itself and was only intended to be disbursed if there were any claims made on the IIGF guarantee issued for the qualified projects. Since no guarantees have been invoked, this outcome (of nil disbursement) can be considered satisfactory, in the context of the intent of the facility. 8. During the last supervision mission in August 2018, the IIGF had discussed the possibility of extending the loan disbursement period by exploring loan commitment under the WB-Supported loan for the IIGF Guarantee for two projects – the Multi-Function Satellite and the Dharmais Cancer Hospital. However, these could not be taken forward as the underlying feasibility studies were not available and the appraisal process could not have been completed within time, as the closing date of end December 2018 was too close. In addition, an underlying inhibiting factor appears to be the reluctance of GCAs to undertake comprehensive environmental and social safeguards activities prior to PPP contract award (due to either procurement time constraints or/ unwillingness to provide for the requisite time for such project preparation), and thereby placing most responsibility on the private party post-contract award. The Bank’s No Objection Letter for committing the loan under guarantee component would have required prior completion of these activities. IIGF’s Guarantee Performance 9. Up to 2018, the IIGF has provided guarantee for 18 projects, with total project value are approximately amounting to Rp 189 Trillion. With the IIGF guarantee, 12 of the guaranteed projects have reached Financial Close that shows that the guarantee provided by the IIGF is able to improve creditworthiness and quality of the underlying PPP infrastructure projects by establishing clear and consistent appraisal frameworks for guarantees. 10. The success of its guarantee business segment can be gauged from the IIGF’s efforts to facilitate and encourage the success of transactions for GCAs. As of December 2018, the IIGF has screened 52 projects, provided guidance to 42 projects and appraised 25 projects. The IIGF has been active in furthering the PPP programme in Indonesia and continues to strengthen its institutional capacity in appraising PPP projects seeking government guarantees as per its standard operations manual. IIGFs Financial Performance 11. The following table shows PT PII’s financial position as of 31 December 2018 (Audited) that expressed in million Rupiah:

Assets 31-Dec-18 Liabilities and Equity 31-Dec-18

Cash and Cash Equivalent *) 1,699,179 Liabilities

Investments 8,673,052 Account Payables 7,480

Accrued Interest Income 86,791 Taxes Payables 1,895

Other Receivables 8,978 Accrued Expenses 42,815

Prepaid Expenses and Advances 2,816 Unearned Income 8,510

Deffered Tax Asset

90,977 Post-employment Benefit Obligation

26,814


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Fixed Asset - Gross 34,921 Two-step Loans 55,127

Accumulated Depreciation (16,145) Total Liabilities 142,641

Fixed Asset - Nett 18,776

Intangible Asset-Gross 5,711 Equity Accumulated Depreciation (4,516) Share Capital 8,000,000 Intangible Asset - Nett 1,195 Unrealised gain from securities

holding composition (103,496)

Deffered Expenses 43,420 Unrealised gain from mutual funds

(1)

Other Non-current Assets 5,346 Unrealised gain from employee benefit

(2,186)

Retained Earnings 2,593,572

Total Equity 10,487,889

Total Asset 10,630,530 Total Liabilities and Equity 10,630,530 *) including Investment in time deposits that matured less than 3 (three) months amounting to Rp 1,6 trillion.

12. The PT PII financial performance highlight during 2012-2018 are show in following table:

(in Million Rupiah)

Description 2012

Audited 2013

Audited 2014

Audited 2015

Audited 2016

Audited 2017

Audited 2018

Audited

Total Assets 4,967 5,196 5,521 7,381 8,924 10,361 10,621

Total Liabilities 50 48 70 94 101 109 140

Total Equity 4,917 5,148 5,451 7,287 8,823 10,361 10,481

Total Revenue 312 393 530 533 821 766 834

Total Operating Expenses

51 88 106 111 189 177 217

Net Income 213 250 346 339 503 470 471

Opex to Revenue Ratio (%)

16.3 22.4 20.0 20.8 23.0 23.1 26.0

ROE (%) 5.5 5.0 6.5 6.0 6.5 4.6 4.6

ROA (%) 5.3 4.9 6.5 5.8 6.5 4.5 4.5

Independent Auditor

PwC PwC PwC PwC PwC PwC PwC

Internasional Rating by: FitchRatings

N/A BBB- BBB- BBB- BBB- BBB- BBB

13. The PT PII Audit Highlights during 2012-2018 are in following:

(a) External Audit observation: The oversight of the Company’s financial performance is guided by its Audit Committee and the appointment of independent external auditors who undertake the company’s annual


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financial audit. For the years 2012 to 2018, the external auditors have provided Unqualified Opinion on PT PII’s financial statements.

(b) Internal Audit: The Company’s internal audit function supports the organization to achieve its objectives through systematic and well-ordered approach to evaluate and improve the effectiveness of internal control, risk management and governance process. Internal Audit is supervised by the Head of Internal Audit who is appointed and dismissed the by President Director based on internal mechanism with approval from the Board of Commissioners. On regular basis (semi-annually), the internal audit division monitors the follow-up done on internal audit recommendations. As of 31 December 2018, Internal Audit has completed 17 audit activities with 87 recommendations of which 84 recommendations follow-up have been completed, while the rest are recommendations targeted to be completed by 2019. Following are a list of the internal audits performed during 2015-2018:

No. Audit Report Year Audit

1 Audit of Human Resource Function 2015

2 Audit of Cash Advance and Bank Disbursement 2015

3 Audit of Corporate Secretary Function 2015

4 Audit of Facility Management 2016

5 Audit of Business Development and Communication Function 2016

6 Audit of Treasury and Investment Function 2017

7 Audit of Guarantee Process of West and Central Palapa Ring Project 2017

8 Audit of Non-Project Disbursement 2017

9 Audit of Corporate Legal Function 2017

10 Audit of Project Legal Function 2017

11 Audit of Guarantee Process of Jakarta - Cikampek II (Elevated) Project 2017

12 Audit of PT PII Institute 2018

13 Audit of Guarantee Process of Probolinggo - Banyuwangi Toll Road Project 2018

14 Audit of Environmental and Social Function 2018

15 Audit of Appraisal Project Function 2018

16 Audit of Procurement Function 2018

17 Audit Guarantee Process of Semarang Barat Water Supply System Project 2018

IIGF’s Environmental and Social Management 14. The IIGF developed its Operations Manual (OM) based on the Environmental and Social Management Framework (ESMF) developed in 2012, which adopted the World Bank’s Environmental and Social Safeguards. However, during project implementation, the IIGF faced challenges in implementing its environmental and social safeguards.

(a) Variance in actual project delivery responsibilities. There were differences in the IIGF’s actual business processes (that were based on the Indonesia’s PPP regulations) vis-à-vis what was anticipated under the ESMF process. The existing Operations Manual of the IIGF (OM) does not fully cover all scenarios of project delivery responsibilities. During the August 2018 mission, the WB team identified 3 working scenarios. Scenario 1: projects where the government Contracting Agency (GCA) is fully responsible for project preparation and construction; Scenario 2: projects where the GCA is partially responsible and requests the Private Investor (PI) to help prepare safeguards instruments; and Scenario 3: projects where the GCA prepares safeguards instruments and the PI does the implementation. Specifically, this relates to the


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safeguards requirements in land acquisition, disclosure and public consultations, and preparing environmental assessments that meet the requirements of the WB safeguards policies, which must be ready during appraisal. It is understood that the IIGF is revising its OM to reflect these scenarios and related work processes (the IIGF Completion Report stated March 2019 as an indicative timeline for revising the document).

(b) Weak capacity and reluctance of GCAs to undertake early E&S works prior to PPP tender. The GCAs have been reluctant to undertake early E&S works citing time and resource constraints. It appears that they would rather prefer the private sector to take up these activities post-contract award. On its part, the IIGF is working with the GCAs and the private sector in increasing awareness on these issues and improving the sub-project design and E&S works during the sub-project implementation. Through this approach the IIGF is striving to meet the requirements of its OM prior during project construction and operations phase.

15. The ENS Division of the IIGF is involved in the guarantee process at various stages. During the screening stage, where initial screening of environmental and social risks of project are undertaken. Thereafter, at the at the feasibility and appraisal stage, where the ENS Division may require additional environmental and social studies to be carried out to strengthen the project’s feasibility study, to determine the environmental and social risks, and to develop a Corrective Actions Plan (CAP) that would need to be carried out by the Government Contracting Authority (GCA) or the Private Investor (PI). Subsequently, the ENS Division is involved in the project monitoring based on the Corrective Action Plan carried out in the appraisal stage and those that would be conducted periodically in accordance with the standard operation procedure of the ENS Division. The results of the monitoring are submitted to the Project Monitoring Division to monitor risk of project which could have an impact on the sustainability of the project. Following are exemplary instances of ESMF implementation in project guaranteed by the IIGF.

(a) Wildlife Corridor of Balsam Toll Road. The Balikpapan – Samarinda (Balsam) toll road, connecting the international airport of Sultan Aji Muhammad Sulaiman (Sepinggan Airport) in Balikpapan City with Samarinda City of Kalimantan Timur Province, consists of 5 sections with a total length about 99.12 km. The project is guaranteed by the IIGF. By design, the toll road will cross two conservation areas namely Taman Hutan Raya (TAHURA) Bukit Suharto in Kutai Kertanegara District and Hutan Lindung Sungai Manggar (Sungai Manggar Protected Forest) in Balikpapan City. It is known that some endemic and protected species of wildlife such as ‘sun bear’ inhabit the natural habitat of the conservation areas. Therefore, the project is considered to be triggering OP – 4.04 Natural Habitats as the project will cause habitat fragmentation and thus will interfere wildlife mobility. During the project appraisal, the ENS Division of the IIGF recognized this issue and recommended the project owner to build a wildlife corridor to connect the fragmented habitat of Tahura Bukit Suharto crossed by the toll road. It is said that the Balsam toll road will be the first toll road in Kalimantan that will have a unique feature of wildlife corridor.

(b) Hydrology Study and Modelling for SPAM Projects. There are several SPAM (Sistem Penyediaan Air Minum or Drinking Water Supply System) projects guaranteed by the IIGF, such as, Lampung SPAM Project, Umbulan SPAM Project, Semarang Barat SPAM Project, Pekan Baru SPAM Project, Jatiluhur SPAM Project, and Karian Serpong SPAM Project. The projects by their nature and design trigger two of seven Environmental and Social Safeguard Principles, namely OP 4.01 – Environmental Assessment and OP 4.37 – Safety of Dams.


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During project appraisal, ENS Division of the IIGF found that although most of projects have been equipped with Environmental Impact Assessment (AMDAL), there is usually no detail and/or depth hydrology and water balance studies. Those studies are important to ensure sustainability of the projects by estimating the sustainability of water supply during the project life and ensuring there will be no conflict with other water users. In order to further assess the potential risks, ENS Division supported by its consultant (Hatfield Indonesia) developed comprehensive hydrology modelling and water balance studies in addition to AMDAL that have been developed by project owner. The studies are useful for the IIGF to take decision on whether the project will be environmentally feasible or not during the appraisal process, while for project owner, it is useful as basis to further develop additional management plans or basis to develop an alternative design as necessary. This is an exemplary instance of E&S management implemented within SPAM projects guaranteed by PT PII, particularly in implementing OP 4.01 – Environmental Assessment. It is also considered to be an additional value of PT PII as guarantor in providing its best services to the client by ensuring environmental and social safeguard principles and managements are implemented during the project appraisal and project implementation.

(c) Palapa Ring East Package. This project has a relatively moderate social and environmental impacts as its main activity is the deployment of fiber optic cables and the construction of microwave towers, both on land and at sea, as the backbone of the national telecommunications system. However, the deployment of cables has the potential of adverse social impacts on the indigenous people in the area. The IIGF guided the private investor to conduct stakeholder consultations in the affected areas of the project and ensure that the land to be used by the sub-project has received approval from the local indigenous people, apart from the applicable regulations.

16. Overall, the IIGF is endeavouring to apply good practices in its environmental assessment such as, the coverage of associated facilities, biodiversity aspects and physical cultural resources, greater stakeholder engagement, and increasing awareness on these issues amongst the prospective bidders prior to tender. The World Bank has been supporting the IIGF in capacity building through collaborative activities. For more details, please refer to Error! Reference source not found.. Other Supporting Activities of the IIGF 17. In 2018 the IIGF has closely worked with the Project Development Facility of the Ministry of Finance, which is managed by the Directorate General of Financing and Risk Management. The IIGF aims to help in the upstream activities to enhance the project pipeline of well-prepared projects that could potentially access its guarantees in the coming years. As of February 2019, the MOF’s PDF has assigned 5 projects to the IIGF to manage the project preparation activities to be financed from the PDF. The 5 projects include, (i) East Sumatera Crossing Road – South Sumatera cross Project, (ii) East Sumatera Crossing Road – Riau Project, (iii) Makassar-Parepare Railway Project, (iv) Dharmais Cancer Hospital Project, and (v) Dr. Zaenoel Abidin Regional General Hospital Project.


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18. In addition, the IIGF has been proactive in the capacity building space through the activities under its IIGF Institute. These include:

(a) General Active Learning Programme (GALP): The programme provides knowledge and basic principles of infrastructure provision through PPPs.

(b) Workshops and Seminars: These include a variety of featured programmes such as, Training of Trainers, Media Workshop, General Active Learning Programme (basic PPP training) and Targeted Active Learning Programme (customised training).

(c) Indonesia Infrastructure Roundtable (IIR): The IIGFI along with the University Network periodically organise

policy analysis and project specific case analysis for public dissemination and policy dialogue on infrastructure PPPs.

Key Factors Affecting Implementation 19. However, the IIGF project faced several challenges during implementation. This resulted in the loan under Component 1 (related to the WB loan to support IIGF’s guarantees to qualified projects) not getting committed to any prospective PPP project(s). There were several factors that appear to have impacted:

(a) A slow build-up of pipeline of well-prepared projects (the first project to be guaranteed by PT PII was in 2016, thus leaving limited time for the potential draw-down period for component 1 loan),

(b) Relatively small size of component 1 loan of USD 25 million as against larger guarantee requirements (such as, the Palapa Ring with a guarantee of USD 600 million).

(c) Some delays in specific projects that were identified late for the WB support. During the last supervision

mission in August 2018, two prospective projects were identified by the IIGF, namely the Multi-Function Satellite project and the Dharmais Cancer Hospital. However, these could not be taken forward as the underlying feasibility studies were not available and the appraisal process could not have been completed within time, as the closing date of end December 2018 was too close.

(d) Reluctance of GCAs to undertake early E&S activities prior to tender. In addition, an underlying inhibiting

factor appears to be the reluctance of GCAs to undertake comprehensive environmental and social safeguards activities prior to PPP tender due to either procurement time constraints or/ unwillingness to provide for the requisite time for such project preparation, and thereby placing most responsibility on the private party post-contract award. On the other hand, the Bank’s No Objection Letter to commit the component 1 loan to the specific sub-project, would have required prior completion of these activities.


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Outcome 20. Overall, the World Bank’s loan facility has provided strategic support to the IIGF in helping it achieve its objectives24 and to emerge as a credible financial institution with high standards of corporate governance. Twelve of the IIGF guaranteed sub-projects have achieved financial close thus reflecting the ability of the IIGF as an institution to reduce the political risk perception of private sector investors and lenders. 21. The IIGF acknowledges the tremendous support provided by the World Bank towards the development of IIGF’s Operation Manual, which is being consistently applied by the IIGF in its day-to-day operations to deliver guarantees for projects under Public Private Partnership (PPP) scheme. In addition, by the utilization of technical assistance portion, the IIGF has improved the project preparation process and quality of PPP projects in Indonesia, the project monitoring, risk management, and institutional capacity (more details on technical assistance utilisation towards the projects is provided in Table 7. )

24 The IIGF’s stated objectives include – (a) to improve creditworthiness and quality of PPPs in infrastructure projects by establishing a clear and consistent appraisal and claim framework for guarantees, (b) to improve the governance and transparency of guarantee provision, (c) to facilitate the deal flow for Contracting Agencies (i.e. Ministries, SOEs, Regional Governments) by providing guarantees to well-structured PPPs, and (d) to ring-fence Government contingent liability and minimize sudden shock to State Budget.


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