Michael S. Horn, an Indonesian specialist who is a partner of Coudert Brothers, was a member of the drafting team that prepared the Presidential Decree.
Although the Decree was first conceived during Indonesia's recent infrastructure construction boom, it has a new relevance in the context of International Monetary Fund pressure on Indonesia to regularize a private sector investment regime offering equal opportunities to all investors.
New National Development Framework
Prior to the Decree, many private sector infrastructure projects were developed on an unsolicited basis, leading to some projects being focussed more on the needs of individual investors than the needs of the public.
The Decree addresses this by establishing a national development framework which applies to most infrastructure projects in Indonesia. The cornerstone of this new framework is a publicly available List of Infrastructure Development Projects which it prepared by the Chairman of the National Development and Planning Board, BAPPENAS. BAPPENAS is charged with establishing plans and priorities for infrastructure projects with private sector participation.
All government departments and state owned enterprises proposing new projects must forward the project plans to BAPPENAS, including a pre-feasibility study, an appraisal of the project's feasibility and its suitability for involving private industry, and a plan of the project's financing and resource requirements. BAPPENAS will then decide whether to include the project on the List of Infrastructure Development Projects, which is made available to the public and interested parties.
New Guidelines for Evaluation and Selection of Private Bids
Prior to the Decree, there were no consistent and transparent procedures generally applicable to the selection of private sector participants in infrastructure projects in Indonesia. Some sectors operated on the basis of direct negotiation with proposers of unsolicited projects. Others (eg, telecommunications and toll roads) used competitive bidding based on solicited projects, but the methods used for bid evaluation and contract award were not always clear and did not conform to international best practices.
Apart from leading to uncertainty among investors and government bodies, these practices made the bidding process non-transparent, leading to a perception that some prospective participants received preferential treatment. This in turn discouraged many qualified foreign companies from seeking to participate in Indonesian infrastructure projects.
The Decree sets out the bidding mechanism for infrastructure projects with a level of detail which is not always found in Indonesian legislation. The relevant government entity is required to advertise prescribed details of a proposed infrastructure project in generally accessible printed media. Both at the pre-qualification stage and the ultimate evaluation stage, prospective participants are entitled to receive reasons for being rejected, and even have a right to appeal the rejection to an official Procurement Evaluation Team, which is responsible for overseeing the tender procedures generally.
The Decree sets out in detail the evaluation process for bids, which is divided into three stages. The first stage focusses on the responsiveness of the bid to the terms and conditions of the tender requirements. The second stage focusses on the technical objectives and performance requirements of the project. Bids that survive the first two stages are then assessed on the basis of a financial comparison with the other remaining bids. Evaluations at each stage must be based on the detailed criteria which are set out in the Decree.
The Decree also makes provision for a simplified tender procedure for infrastructure projects of less than 50 billion rupiah in value (approximately US$5 million at the current exchange rate). In these cases, Ministers or other relevant governmental heads are given responsibility to establish the procedures for the tender process. However, the process is required to be "transparent and consistent" and pre-qualification advertising is required in the mass media. However, procedures relating to provision of reasons and rights of appeal do not apply.
Scope of the Decree
One of the major achievements of the Decree is its wide scope of application. The Decree applies to infrastructure projects in a broad range of sectors, including electricity; natural gas and oil; water, harbours and inland waterways; waste water and solid waste; air, sea and rail freight and passenger facilities, including seaports, airports and airfields; toll roads and bridges; and telecommunications facilities.
Purchases by the Government, directly or through state-owned enterprises, of infrastructure goods and services are not addressed by the Decree, but are regulated by the competitive bidding system established by Indonesian state procurement rules. Moreover, projects which are not for the benefit of the general public, such as a captive power plant providing energy only to a specific factory, would also not be subject to the Decree.
Further Developments
There are a number of principles considered by the drafting team which, although only incorporated in passing in the Decree, may be the subject of future implementing regulations.
In particular, while the Decree makes reference to the need for pre-feasibility studies and bid documents to cover the extent of public support required, further consideration may need to be given to implementing regulations which provide guidance on the situations in which public support is appropriate.
Issues that arise in this context include the extent of reimbursement by the Government for public service obligations imposed on the project (eg, concessional pricing for certain classes of citizens) and the appropriateness of additional Government support where benefits of the project to the public are not recoverable by the project investors (eg, the benefit to road users of less congested public roads when a toll road is constructed).
In addition to Coudert's Michael Horn, the Decree's drafting team and contributors included consultants sponsored by the Canadian International Development Agency and World Bank representatives. The project involved the participation of expert commercial legal advisers, not only to take advantage of our years of practical experience in this area, but also to enable legal advisers such as Coudert Brothers to have an in-depth understanding of the policy imperatives and technical workings of the new legislation, to better advise clients seeking to participate in infrastructure projects in Indonesia. Accordingly, companies which may have an interest in participation in major infrastructure projects in Indonesia and have any questions on the foregoing should contact one of our offices throughout the world for more information.