Legal Chapter for the IKN Pre-Feasibility Study
The relocation of Indonesia’s capital city to IKN has been ongoing since 2019. The Indonesian Government currently offers several funding schemes to both private and public sectors for the development and construction of IKN, including the Public-Private Partnership (“PPP”) Scheme, namely the Unsolicited IKN PPP Scheme.
Based on GR 17/2022 and Minister of PPN/Head of Bappenas Regulation No. 6/2022, Unsolicited IKN PPP projects requirement must be met, i.e., (i) must be listed in the IKN Master Plan and Details of the IKN Master Plan, (ii) economically and financially feasible and (iii) has added value in the form of technological innovation. The following are the stages for the implementation of the Unsolicited IKN PPP Scheme:
- Approval Stage, which includes the Unsolicited IKN PPP project’s planning and budget allocation.
- Preparation Stage, which includes the Prospective Initiating Business Entity’s submission of the Letter of Intent (LoI) and a PPP proposal, including the FS and its supporting documents, as well as the submission, evaluation, and refinement of such FS and its supporting documents.
- Transaction Stage, which includes the procurement and establishment of the Special Purpose Vehicle (SPV), the signing of the IKN PPP Agreement and the financial closure of the SPV.
- PPP Agreement Implementation. The assets will be handed over to the government after the IKN PPP Agreement expires.
It is worth noting that the implementation of the Unsolicited IKN PPP scheme is expected to take between 6 to 19 months, with the project’s Commercial Operation Date (“COD”) set for December 2024.
A business entity that implements Unsolicited IKN PPP Projects is entitled to receive a revenue stream from the Government Contracting Agency (“GCA”) in the form of Availability Payments (“AP”) or periodic payments made to the business entity under the terms of the PPP Agreement. The AP can only be provided for projects in which I there is no revenue from the service user/no end user who can be subject to tariff-based payment; (ii) the potential revenue is deemed insignificant to cover the Business Entity/project investment, which is not financially feasible; or (iii) the infrastructure provided to the public is provided for free (e.g. non-toll roads).
The business entity initiating the Unsolicited IKN PPP Project must propose how many years the payment will be obtained, and the GCA/relevant government agency will determine whether such a proposal is viable for implementation. Once it is decided, it will be set out under the PPP Agreement along with the terms of payment, specification, performance indicators, and calculation formula for AP, and monitoring, incentive and penalty system for the implementation of the AP scheme. On top of that, AP shall only be paid when the infrastructure is completed and declared ready to operate.
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