IIGF Risk Allocation Guideline English-Revisi 2015-Final@

PUBLIC PRIVATE PARTNERSHIP (PPP) IN INDONESIA:
RISK ALLOCATION GUIDELINE

As mandated by
Minister of Finance Regulation No. 260/PMK.011/2010
PT PENJAMINAN INFRASTRUKTUR INDONESIA

INDONESIA INFRASTRUCTURE GUARANTEE FUND (IIGF)
March 2015
FOREWORD BY THE MINISTER OF FINANCE OF THE REPUBLIC OF INDONESIA
The implementation of Public Private Partnerships (PPP) in Indonesia over the years shows that the allocation of risk is a very
important factor in determining the success of a PPP project. Failure to identify, measure and allocate risk has made past PPP
projects unable to meet their expected goals, both in terms of improving the quality of service and tariff efficiency. This is evident
in a number of PPP projects, especially in the toll road, electricity, and water sectors, where the provision of reliable infrastructure
services at an efficient tariff could not be guaranteed. Proper risk allocation in PPP projects is not strictly an issue for Indonesia, but
is also a critical factor in the success of PPP projects in many countries.
Proper risk allocation in PPP projects warrants special attention as it helps ensure the sustainable provision of viable and reliable
infrastructure services for the public. Additionally, it helps build private sector confidence with regard to receiving reasonable
returns on their investment. Proper allocation of risk also helps to ring-fence the state budget from sudden shocks, as exposure to
PPP projects become more measured and better managed.
As mandated in the infrastructure guarantee regulation (Presidential Decree 78/2010 and MoF Decree 260/2010) which has been
regularly amended since it was first issued in 2011, the IIGF’s efforts to develop and improve the Infrastructure Risk Category and
Allocation Guidelines have been very beneficial to the development of PPP policy, as they were professionally crafted by
experienced IIGF staff. To what extent these guidelines will prove beneficial however, depends greatly on how Contracting Agencies
choose to utilize them when designing risk mitigation plans for the provision of infrastructure for the people.
Bambang P.S. Brodjonegoro

Minister of Finance, Republic of Indonesia
i
FOREWORD
Indonesia Infrastructure Guarantee Fund / IIGF is established by the Government of Indonesia as one of the institutions that is
expected to support the acceleration of infrastructure projects development under Public Private Partnership (PPP) scheme in
Indonesia. The critical roles of IIGF are:
 As the GoI’s contingent support provider through provision of government-related contractual risk guarantees;
 Enhancing the quality of the PPP transaction; and
 Encouraging standardized and accountable approach for PPP implementation as being the single window processor for
guarantee provision.
Through IIGF, the guarantees are made available with the aim of providing more certainty in achieving the necessary financial
closing, by way of improving the creditworthiness or bankability of the PPP projects. IIGF business modelis heavily relies on the
current PPP and guarantee regulatory framework which should emphasize on :
 Project feasibility (technical, legal, economic, financial, social and environmental);
 Contracting Agency’s readiness for implementation of PPP scheme; and
 Ability of Contracting Agency to manage project risks which properly allocated to them.
With regards to the emphasis on the proper risk allocation, this Risk Allocation Guideline becomes very essential asa key reference
in assessing and allocating risks for the purpose of guarantee provision, as mandated by the regulation. This Risk Allocation
Guideline is also intended to be a key reference for:
 Contracting Agencies in developing the PPP Contracts as well as the Guarantee Application Package (GAP) to be submitted to IIGF
for guarantee provision; and
 Investors and financiers in assessing their potential investment and financing for PPP projects in Indonesia.
Nevertheless, it is important to note that during implementation, some risk allocations may have variations to what have been
outlined in this Guideline, as they are subject to actual project and/or sector specific conditions, or agreed commercial position
between the parties.
ii
This Guideline shall be continuously improved and reviewed periodically, minimum once for every 12 months, by way of gathering
feedbacks from key stakeholders as has been conducted when developing this Guideline, such as: Ministry of Finance, Sectoral
Ministries, Investment Coordinating Board, Bappenas, BPPSPAM, BPJT, Regional Government, Investors and Developers, Banks,
Multilateral Development Agencies, as well as Consultants and Experts in infrastructure risk.
Sinthya Roesly
President Director
Indonesia Infrastructure Guarantee Fund
iii
TABLE OF CONTENTS
REMARKS FROM MINISTER OF FINANCE REPUBLIC OF INDONESIA……………………………………………………….…………………………………..…… i
FOREWORD – PRESIDENT DIRECTOR, INDONESIA INFRASTRUCTUREGUARANTEE FUND.…………………………………………………………..……….. iii
TABLE OF CONTENTS…………………………………………………………………..….………………………………….……………………….………………..…. v
DOCUMENT LOG AND REVISION TABLE………………………………………..……....………………………………………………..………………..………….. viii
LIST OF FIGURES.……………………………………………………………………..……....……………………………………………………………………..…….. viii
LIST OF TABLES.……………………………………………………………………..…………………………………………………………………….…………..…… viii
DEFINITIONS AND GENERAL TERMS..…………………………………………………………………………….……….…………………………..…………..……. xi
GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT...................................................................................................................... 1
1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA ......................................................................................................... 1
2 PPP STRUCTURES IN INDONESIA ........................................................................................................................................................ 2
2.1 GENERAL PPP STRUCTURE ........................................................................................................................................................................... 3

2.1.1 Usage-based PPP (Wholesale infrastructure) .................................................................................................................................. 3
2.1.2 Availability-based PPP (Retail infrastructure) .................................................................................................................................. 4
2.1.3 Operation and Maintenance (O&M) contract ................................................................................................................................... 5
2.2 SECTORAL PPP STRUCTURE ......................................................................................................................................................................... 6
2.2.1 PPP Structure in Water Supply Sector .............................................................................................................................................. 6
2.2.1.1. Water Full Concession ................................................................................................................................................................................ 6
2.2.1.2. Water BOT .................................................................................................................................................................................................. 7
2.2.2 PPP Structure in Waste Management Sector .................................................................................................................................... 8
2.2.2.1. Solid Waste BOT ......................................................................................................................................................................................... 8
2.2.2.2. Wastewater BOT ......................................................................................................................................................................................... 9
iv
2.2.3 PPP Structure in Toll Road Sector ................................................................................................................................................. 10
2.2.3.1. Toll Road Concession ............................................................................................................................................................................... 10
2.2.3.2. Toll Road Operation and Maintenance ...................................................................................................................................................... 11
2.2.3.3. Toll Road with Combination of Full Concession and O&M .......................................................................................................................... 12
2.2.4 PPP Structure in Railway Sector .................................................................................................................................................... 13
2.2.4.1. Railway Concession .................................................................................................................................................................................. 13
2.2.4.2. Railway O&M ............................................................................................................................................................................................ 14
2.2.5 PPP Structure in Power Sector ....................................................................................................................................................... 15
2.2.5.1. Electricity BOT.......................................................................................................................................................................................... 15
2.2.5.2. BOT Minemouth ....................................................................................................................................................................................... 16
2.2.6 PPP Structure in Seaport Sector .................................................................................................................................................... 17
2.2.6.1. Seaport full concession ............................................................................................................................................................................ 17
2.2.7 PPP Structure in Airport Sector ..................................................................................................................................................... 18
2.2.7.1. Airport full concession ............................................................................................................................................................................. 19
2.2.7.2. Airport O&M ............................................................................................................................................................................................ 20
3 EVALUATION OF RISK ALLOCATION ASPECT FOR PPP PROJECT AND INFRASTRUCTURE GUARANTEE PROVISION .................................. 21
3.1 RISK ALLOCATION PRINCIPLE IN THE CONTEXT OF PPP PROJECT IMPLEMENTATION .................................................................................................. 21
3.1.1 Risk Allocation Implementation in the Preparation and Transaction of a PPP Project .................................................................... 22
3.1.2 Risk Allocation Implementation in the Provision of Guarantee to PPP Project by IIGF .................................................................... 24
4 INFRASTRUCTURE RISK ALLOCATION GUIDELINE .............................................................................................................................. 25
4.1 PPP RISK CATEGORY................................................................................................................................................................................ 25

4.2 RISK MATRICES BY PPP SECTOR .................................................................................................................................................................. 29
4.2.1 Risk Matrix for PPP Water Supply Sector ....................................................................................................................................... 29
4.2.1.1. Water BOT ................................................................................................................................................................................................ 29
v
4.2.1.2. Water Concession ...................................................................................................................................................................................... 35
4.2.2 Risk Matrix for PPP Waste Management ............................................................................................................................................ 41
4.2.2.1. Solid Waste BOT ......................................................................................................................................................................................... 41
4.2.2.2 . Wastewater BOT ..................................................................................................................................................................................... 47
4.2.3 Risk Allocation Matrix in Toll Road Sector .................................................................................................................................... 52
4.2.3.1. Toll Road Concession ................................................................................................................................................................................. 52
4.2.3.2. Toll Road O&M ........................................................................................................................................................................................... 57
4.2.3.3. Toll Road with Combination of Full Concession and O&M ........................................................................................................................... 62
4.2.4 Risk Allocation Matrix in Railway Transportation Sector ............................................................................................................... 68
4.2.4.1 . Railway Concession ................................................................................................................................................................................ 68
4.2.4.2 Railway O&M ............................................................................................................................................................................................. 73
4.2.5 Risk Allocation Matrix in Electricity Sector.................................................................................................................................... 78
4.2.5.1 Electricity BOT........................................................................................................................................................................................... 78
4.2.5.2 Minemouth BOT ........................................................................................................................................................................................ 83
4.2.6 Risk Allocation Matrix in Seaport Transportation Sector ............................................................................................................... 89
4.2.6.1 Seaport Full Concession ............................................................................................................................................................................ 89
4.2.7 Risk Allocation Matrix in Airport Transportation Sector ............................................................................................................... 94
4.2.7.1 Airport Full Concession ............................................................................................................................................................................. 94
4.2.7.2 O&M Airport ........................................................................................................................................................................................... 100
5 SUMMARY .................................................................................................................................................................................... 105
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LIST OF FIGURES
Figure 1. Usage-based structure (“Consession”) ................................................................................................................................. 3
Figure 2. Availability-based Structure (BOT/BOO) .............................................................................................................................. 4

Figure 3. Water Concession Structure ................................................................................................................................................. 6
Figure 4. Water BOT Structure ............................................................................................................................................................ 7

Figure 5. Waste Management BOT Structure ....................................................................................................................................... 8
Figure 6. Waste water BOT Structure .................................................................................................................................................. 9

Figure 7. Toll Road Concession Structure ......................................................................................................................................... 10
Figure 8. Toll Road O&M Structure ................................................................................................................................................... 11
Figure 9. Combination of Toll Road Concession and O&M Structure ................................................................................................ 12

Figure 10. Railway Full Consession Structure ................................................................................................................................... 13
Figure 11. Railway O&M Structure .................................................................................................................................................... 14
Figure12. Electricity BOT Structure ................................................................................................................................................... 15
Figure13.Minemouth BOT Structure ................................................................................................................................................. 16
Figure14. Seaport Concession Structure ........................................................................................................................................... 17
Figure 15. Airport Concession Structure ........................................................................................................................................... 19
Figure 16. Airport O&M Structure ..................................................................................................................................................... 20
Figure 17. Sequence of PPP Risk Allocation Logic ............................................................................................................................. 21
Figure 18. llustration of Risk Allocation in the PPP Agreement ......................................................................................................... 23
Figure 19. IIGF Risk Allocation Guideline and the Prevailing PPP and Infrastructure Guarantee Framework....................................... 24
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LIST OF TABLES
Table 1. Features of PPP Structure Options ......................................................................................................................................... 5
Table 2. Risk Matrix for Water BOT ................................................................................................................................................... 29

Table 3. Risk Matrix for Full Consession Water Supply ..................................................................................................................... 35
Table 4. Risk Matrix for Solid Waste BOT .......................................................................................................................................... 41

Table 5. Risk Matrix for Wastewater BOT .......................................................................................................................................... 47
Table 6. Risk Matrix for Full Consession Toll Road ........................................................................................................................... 52

Table 7. Risk Matrix for O&M Toll Road ............................................................................................................................................ 58
Table 8. Risk Matrix for Toll Road with Combination of Full Concession and O&M ........................................................................... 62
Table 9. Risk Matrix for Full Consession Railway .............................................................................................................................. 68

Table 10. Risk Matrix for O&M Railway ............................................................................................................................................. 74
Table 11. Risk Matrix for Electricity BOT .......................................................................................................................................... 78
Table 12. Risk Matrix for Minemouth BOT ........................................................................................................................................ 84
Table 13. Risk Matrix for Seaport Full Concession ............................................................................................................................ 89
Table 14. Risk Matrix for Airport Full Consession ............................................................................................................................ 94
Table 15. Risk Matrix for O&M Airport ........................................................................................................................................... 100
Table 16. Risk Matrix Summary for all PPP sectors ......................................................................................................................... 105
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DOCUMENT LOG AND REVISION TABLE
Version
Version Description
Description Note
Note
March 2011 First edition A dedicated workshop for gathering the inputs was conducted on 25-26 February 2011.
April 2012 Second edition A dedicated workshop for gathering the inputs was conducted on 14-15 March 2011. The improvements include:
- update on the PPP regulation (as enactment of Presidential Regulation 56/2011)
- update/add diagram describing PPP risk allocation implementation framework in relation to infrastructure
guarantee provision and to basic risk management process
- update on risk matrices, including additional column on specific conditions related to risk allocation
- add new PPP structures(and their risk matrices):
o Electricity: BOT minemouth
o Toll road: Combination of Concession and O&M
o Waste Management: BOT wastewater
April 2013 Third edition Based on inputs gathered thru discussions (e.g. face to face, mail, email and website), the improvements include:
- additional (and sharpening) risk event and mitigation strategy for the risk matrices, such as:
o land tenure risk (duplication of land ownership)
o culture risk
o operational risk – failure on project management (by PC)
o operational risk – failure on project control & monitoring (by PC or CA)
March 2014 Fourth edition A dedicated workshop for gathering the inputs was conducted on 20-21 March 2014. The improvements include:
- update on the PPP regulation (as enactment of Presidential Regulation 66/2013 and VGF regulation)
- update on the description of cooperation scheme for water supply sector, waste management sector, toll
road sector, railway sector, seaport sector and airport sector
- additional (and sharpening) risk event and mitigation strategy for the risk matrices, such as
o limited workspace risk (for the project that needs lengthwise location)
o local culture risk -> social and culture risk
o tariff related risk: the needs for regulatory support (regulation for CA regional)
o demand and revenue risk: socialization and eligibility support program
o Expropriation: that contrasted to the takeover with compensation (nationalization)
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i Version
ii Description
iii Note
March 2015 Fifth edition Based on inputs gathered from stakeholders, both written and through discussion in the period from February 2 to
27, 2015. The improvements to the previous version, include:
o Description on the preferences of the PPP scheme in RPJMN 2015-2019, overview of sectors and structures that
may be undertaken in cooperation with the PPP scheme as in the just recently updated PPP regulation;
o Adjustment of narration about reference on context of the elimination of Law No. 7 of 2004 on Water Resources;
o Additions / adjustments of narration about cooperation of port sector and other sectors;
o Some adjustments to the specific context and the typo in the matrix
o Adjustment of additional risks in the matrix
x
DEFINITIONS AND GENERAL TERMS
BOO Build Operate Own- a PPP contract under which the private party is responsible for the design, construction, operation
and transfer of ownership of the facility upon expiration of the contract period
BOT Build Operate Transfer– a PPP contract under which the private party is responsible for design, financing, construction,
operation of the infrastructure facility and for which it retains ownership during and after the contract period.
PC Project Company; the SPV created by the investors which is the Contracting Agency (CA)’s counterparty under the PPP
contract
Financial Close the date at which all project contracts and financing documentations have been signed, and conditions precedent to
initial drawing of the debt have been fulfilled.
IIGF Indonesia Infrastructure Guarantee Fund a government-owned entity bearing mandate for infrastructure guarantee
provision. Also known as PT Penjaminan Infrastruktur Indonesia (Persero) (PT PII)
(Full) Concession a PPP in which the private sector collects revenue for service fees directly from end users, general public in the form of
tolls, fares or other charges for using the facility.
PPP Public-Private Partnership - a contract under which a private sector party invests in a facility to provide public
infrastructure service to or on behalf of public sector
Off-taker Purchaser of infrastructure service in a PPP contract, usuallythe public party or CA.
CA Contracting Agency – the project owner or the public sector counterparty in a PPP contract (as stipulated by the
prevailing regulations). Also known as Public Authority or Implementing Agency or Penanggung Jawab Proyek
Kerjasama (PJPK) or Public Authority (PA) or Implementing Agency (IA)
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1 PPP in Indonesia: Risk Allocation Guideline
GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT
The infrastructure challenges in Indonesia are imminent. As Government budget has its limitation, hundreds of trillions Rupiah are
expected to come from private sectors within a couple of years to help infrastructure development. Related to this need, the
Government of Indonesia (GOI) has provided the regulatory and institutional framework to attract interests from private sector,
including participation in infrastructure projects under Public Private Partnership (PPP) schemes.
Citing the National Medium Term Development Plan 2015-2019, the PPP scheme is expected to be the backbone of development
financing is cost-recovery, especially in areas where people's purchasing power has been able to implement the user pay principle as
in urban areas. Public funding will be prioritized to finance development in areas of low income communities, accelerating the
development of regional priorities and the services that are social or non-cost recovery. Policy funding will also be directed to open up
opportunities for hybrid financing that combine the potential of funding from the public sector, private and society. The combination
of the financing will be done in a variety of innovative in an effort to accelerate the development in various fields
In the context of the provision of fiscal support for those infrastructure projects, in December 2009, GOI has established PT
Penjaminan Infrastruktur Indonesia (Persero) (PT PII), or Indonesia Infrastructure Guarantee Fund (IIGF), a state-owned enterprises that
are mandated to provide guarantees for private sector’ risks.
Not-compliance with the financial obligation of the public or Contracting Agency (CA) under the PPP contract which may be thriggered
by breach of contract and changes in laws and regulations, IIGF and its guarantees are designed to increase investment comfort to
private investors and lenders, and to ultimately accelerate PPP project implementation in Indonesia.
1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA
In order to improve the creditworthiness of infrastructure projects as an effort to encourage private sector participation in the
provision of infrastructure, the government guarantee can be granted to infrastructure projects provided under PPP scheme, as just
recently stipulated in Presidential Regulation No. 38 year 2015 on cooperation among Government and private entity in the provision
of infrastructure (replace Presidential Regulation No. 67 of 2005 and its amendment) ("PPP Regulation"). As stated in the regulations,
the provision of government guarantees may be given by the Minister of Finance (MoF) through a Government established entity to
provide infrastructure guarantees (Business Entity for Infrastructure Guarantee). Based on Government regulations No. 35 Year 2009,
IIGF is established through state capital injection with the purpose of providing guarantees to infrastructure.
v
Provision of infrastructure guarantee through IIGF is regulated further through the Presidential Regulation No. 78 of 2010 on
Infrastructure Guarantees for Public Private Partnership Projects through the Infrastructure Guarantee Entity for ("Presidential
Regulation 78/2010"), and Minister of Finance Decree No. 260/PMK.011/2010 on Implementation Guidelines for Infrastructure
Guarantees in PPP Projects ("MoFD 260/2010"). In this book, these regulations are defined as “Infrastructure Guarantee Regulation”.
Further, the Government through the Minister of Finance Regulation No. 223/PMK.011/2012 has issued regulation about providing
feasibility support (viability gap fund) as a form of Government support for the project that economically viable but has limited
financial feasibility.
Clause 11 of MoFD 260/2010 mandates IIGF to develop a guideline on infrastructure risk category and its allocation between the
public and private sector (“Guideline for Risk Category and Risk Allocation” or simply “Risk Guideline”), as a key reference for the CA in
developing PPP contracts, as well as preparing and proposing Guarantee Application Package (GAP) to IIGF, and for investors and
financiers in assessing their investment and financing in Indonesia opportunities PPP project.
The Risk Guideline is developed through consultation with key stakeholders, e.g. MoF, Bappenas, BKPM, relevant CAs (Ministries,
Regional Governments), investors/developers, banks, multilateral development agencies, and other parties with competencies in the
field of infrastructure risk. This guideline is also part of publication series by IIGF and is complementary to the IIGF Guarantee
Provision Guideline. These document serve as key references for IIGF in assessing the viability of the GAP submitted by the CAs to IIGF.
2 PPP STRUCTURES IN INDONESIA
In developing this Risk Allocation Guideline, relevant PPP structures eligible under prevailing regulation in Indonesia serve as the basis
to identify infrastructure risks. Besides the generic, cross-sectoral PPP structure, specific PPP sectors are identified to be included in
this Guideline. Such sectors include:
1. Water supply 5. Electricity
2. Toll road 6. Seaport
3. Waste management 7. Airport
4. Railway transport
For additional coverage for this guideline, hereinafter, referring to the just recently stipulated PPP regulation, some sectors of
economic and social infrastructure also has the potential to be applied, i.e. telecommunications, oil, gas and renewable energy, energy
conservation, urban facilities, education, sports and arts, regional development, tourism, health care, prisons and public housing.
2.1 General PPP Structure
Based on PPP Regulation, referring to the respective sector regulation, the CA can be the Minister or Head of Agency or Head of
Regional Government, and in terms of legislation of the public infrastructure provision is carried out by Central SOE or regional SOE,
then the CA role is bourne by the said Central/Regional SOE, thus the CA is the Central/Regional SOE (BUMN/BUMD). For the purpose
of developing this Guideline, the PPP structure is classified based on the nature of service and inherent risks transfer inherent in the
PPP contract. The modalities of basic PPP project structure are Usage-based PPP and Availability-based PPP structure, which the
application is based on an assessment on option of cooperation scheme to formulate a business case to the scope of the project.
2.1.1 Usage-based PPP (Wholesale infrastructure)
In this structure, the scope for PPP is basically the entire works that previously be the responsibility of the public sector. This means
the PC directly provides the service to the end-user, where the Government play its role as the regulator. Sometimes this PPP structure
is referred as the Full Concession model (known in Indonesia as Consession). This structure is commonly found in transportation
sector (e.g. toll road, railway) and utility sector (e.g. water supply).
Public Sector
besides the CA Contracting
Agency
Concession Public Sector
Private Sector
PPP Agreement
Design
Consultant
Project Company
Equity
Project Sponsor
Construction
Contractor Financial
Construction
contract Close
Payment for
Lenders
Service
Operator Debt
Operation
contract
End-User
Construction and Operation Financing
Figure 1. Usage-based structure (“Consession”)

As shown, the CA contractually agrees to provide the PC a concession right for delivering the wholesale service during the PPP period.
In certain sectors where exploitation by the private sector is still considered sensitive (e.g. drinking water), the implementation of this
scheme needs to be examined more carefully, especially in the preparation of the concession agreement includes coverage of a certain
area that are not served by the existing services of the public sector entity.
2.1.2 Availability-based PPP (Retail infrastructure)
In addition to the above, the scope of work in this PPP structure only includes portions of entire works that previously be the
responsibility of the public sector. Most of this type of services involve process plant, the partial scope may cover the provision or
transmission of raw material for the plant or the construction and operation of the plant or the distribution of the output from the
plant to the main network. The PC collects payment from the CA based on the availability of the facility required to deliver the services
(including the facility’s operational cost which is passed through to the CA).
Public Sector Payment for

besides the CA Contracting Service
Agency
BOT Contract Public Sector
Private Sector
PPP Agreement End-User
Design
Consultant
Project Company
Equity
Project Sponsor
Construction
Contractor Financial
Construction
contract Close
Lenders
Operator Debt
Operation
contract
Figure 2. Availability-based Structure (BOT/BOO)
The contractual structure in this type of PPP may apply Build Operate Transfer (BOT) or Build Operate Own (BOO). In both, the PC is
typically responsible for design, construction, financing and operation and maintenance of the facility, of which the output will be
utilised/purchased by the public sector’s CA. The main difference, between the two structures is that the BOT scheme require the
infrastructure asset to be transferred to the government after the PPP contract ends.
2.1.3 Operation and Maintenance (O&M) contract

In addition to the above two structures, based on the PPP Regulation as also relevant to the potential applications in some projects in
toll road and water sectors, the Operation and Maintenance (O&M) contract could also be discussed further in this guideline. As it does
not include the construction of the facility (commonly referred as the brownfield project), O&M contract may refer to a Lease contract
which enables the PC to be responsible for the management, operations and specific renewals of the contracted facility. During the PPP
contract, it is the private sector i.e. the PC who delivers the infrastructure service, but the ownership of the facility is kept by the public
sector. Below is the description of features of the various PPP structures.
Table 1. Features of PPP Structure Options
Activities Availability-based Usage-based O&M
Ownership Government Government Government

Investment Private Private Government
Production √ √ √/-
Distribution - / partial (as long as privatenot √ √/-

bear the demand risk)
Maintenance √ √ √/-
Collection to end user - √ √/-
Time horizon (typically) 20-30 years 20-30 years 5-15 years

Customer Single Buyer/Government Retail Single Buyer/Govt or Retail/Public
Cash flow sources Revenue paid by the state utility Revenue paid directly by retail Portion of tariff revenues
company customer
2.2 Sectoral PPP Structure
2.2.1 PPP Structure in Water Supply Sector

Structure of PPP in water supply sector refers to applicable regulation regarding water supply
system and PPP Regulation. The PPP structure involves PDAM as local government’s water utility
company, as the CA. If the project includes area outside of the PDAM service area, it would involve
the Head of Regional Government to enter the PPP Agreement with the PC.
In line with the regulations and the current projects implementation, there are two main types of
PPP structures which can be applied. They are, namely: Water Concession (wholesale, usage-based
structure) and Water BOT (retail, availability-based structure).
2.2.1.1. Water Full Concession

Local
Local Government Regulatory body
Parliament
Head of Local Govt PDAM

(as the CA) (local utility)
Private Sector
PPP Agreement
Design
Consultant
Project Company Equity Project
Sponsor
Construction
Financial
contractor Construction Close
contract
• Service Connection
Lenders
• Service Payment Debt
Operator
O&M contract
End-user Financing
Construction and Operation
Figure 3. Water Concession Structure

The concession structure for water supply sector consist of (mostly) all possible water supply-related scope of works that can be
granted concession by private sector’s PC, i.e. Transmission, Production, Operation and Maintenance, Distribution and Tariff Collection
from customers. Typically this structure is preferred for a green-field project which requires significant amount of investment, if the
works were planned to be implemented by PDAM (as the existing service provider). Demand risk and tariff adjustment-related risks are
the key risk for the private sector’s PC when implementing this structure.
2.2.1.2. Water BOT

In this BOT structure, the credibility of the CA plays a key role for the successful project implementation. Private sector’s PC can
manage for either Transmission, Production, Operation and Maintenance, Distribution or any combination there of, but not taking the
demand risk or retail tariff collection task. In water concession agreement, the resulted water from the process done by the PC is then
sold to the PDAM where PC will get compensation for the water treatment services.
Local
Parliament
Head of Local Govt PDAM

(as the CA) (local utility)
• Service Connection
BOT (Build, Operate • Service Payment
Transfer) Public Sector
Private Sector
PPP Agreement End-user
Design
Consultant
Sponsor
Construction
Financial
contract
Lenders
Debt
Operator
O&M contract
Financing
Figure 4. Water BOT Structure
Thus, for the success of the project transaction with this structure, the private sector (particularly lenders) need to be convinced that
CA demonstrate good creditworthiness in fulfilling the periodic payment obligation during the contract period.
2.2.2 PPP Structure in Waste Management Sector

In waste management, which includes solid waste management and waste water management, the projects in Indonesia were
implemented mostly using an availability-based PPP scheme, that is similar to the Water BOT structure. The CA in this sector, in
accordance with regulation, would be the Regional Government (i.e. city or municipal government or provincial government).
2.2.2.1. Solid Waste BOT

By referring to applicable PPP regulation, the scope of cooperation is waste treatment. Therefore,
the PC can involve in built dan operate the waste treatment facility at Final Disposal facility, but
usually not include the waste collection or the retail Tariff Collection tasks. Referring to the policy,
the scope of transporting waste has the potential for cooperation, but these have not been
included in the scope of the Regulation of PPP arrangements.
Local
Parliament
Local govt Head of Local Govt

agency (as the CA)
Waste supply arrangement BOT (Build, Operate

Public Sector
- 'take of pay‘ clause Transfer)
Private Sector
PPP Agreement
Residential/ Design
Industrial users Consultant
Sponsor
Construction
Financial
contract Power Purchase
Agreement
Treated Output Lenders
(if applicable)
Sale (if any) Debt
Operator
O&M contract
PLN PLNOthers
Financing
Figure 5. Waste Management BOT Structure

The Regional Government as the CA (usually as the waste supplier which collects from the retail customers and other locations) would
pay a tipping fee for the service provided by the PC either in transporting waste and through the Final Disposal facility in form of
tipping fee. Depending on the selection of technology applied in the project, the output from the process done by the PC could be
utilized or sold to generate additional revenue to the PC (e.g. the electricity to be sold to PLN-state utility company or sales of
processed products such as compost or brick). At the end of the BOT contract period, the ownership of the Final Disposal facility shall
be handed over to the CA.
2.2.2.2. Wastewater BOT

Similar to the Solid Waste BOT, the project can be done in BOT basis.In this case, PC only responsible
build and operate the waste treatment facility or the collection network, but usually not taking either
the waste water collection or the retail Tariff Collection tasks. The Regional Government as the CA
would pay for the service provided by the PC.
At the end of the BOT contract period, the onwership of the Final Disposal facility shall be handed over
to the CA which may operate the facility further until end of the asset life.
Local Parliament Local Government Regulatory Body
Local Government Head of Government

Utility as the CA
Residential/Industrial BOT/Built Operate Transfer Public Sector

Consumer Private Sector
PPP Contract
Design
Consultant
Project Company Equity
Project
Sponsor
Contractor
Construction Financial
Contract Close
Lenders
Operator Debt
Operation Contract
Construction and Operasi Financing
Figure 6. Waste water BOT Structure

2.2.3 PPP Structure in Toll Road Sector

For toll road sector in Indonesia, so far the PPP is perfomed through a wholesale infrastructure (usage-based type) scheme. The CA in
this sector would be Toll Road Authority (BPJT) in Ministry of Public Works.
2.2.3.1. Toll Road Concession

In this structure, the users pay for the toll road services to the PC as the concession (right) holder
which is responsible for the design, construction, operation and maintenance of the facility until end
of contract period. The concession is typically granted to the private sector’s PC with BOT type of
structure. Similar to full concession structure in other sectors that are greenfields, demand risk and
tariff-related risk is most concerned risks for PC. For new roads where the volume of vehicle users are
still limited and uncertain, PC typically require fiscal support to demand risk, either directly or
indirectly.
Minister of PW as
Regulatory Body
Toll Road Authority (BPJT),

as the CA o.b.o Minister of PW
Private Sector
PPP Agreement
Design
Consultant
Sponsor
Construction
Financial
contract
• Service
Lenders
Payment Debt
Operator
O&M contract
End-user Financing
Figure 7. Toll Road Concession Structure

2.2.3.2. Toll Road Operation and Maintenance

In this structure, the PPP is typically for a brownfield project which means that it does not involve design, construction and financing of
the toll road facility. This structure is chosen as the (only) preferred mean for the toll road section which is not commercially and
financially viable if the development cost is included as the scope of PPP.
The O&M operator as the PC maintains the facility and collects toll fee from users on behalf of the government. In practice, PC can pay
concession fee to CA dan keep the residual income from the collected tolls as to incentivise PC in maintaining quality of the service.
Design and Construction Minister of PW as

Regulatory Body
Design
Consultant
Construction
contractor Construction
contract Concession Public Sector
Private Sector
PPP Agreement
Operator Project Company Equity Project

Sponsor
O&M contract Financial
Close
• Service
Lenders
Payment Debt
End-user Financing
Operation and Maintenance
Figure 8. Toll Road O&M Structure

2.2.3.3. Toll Road with Combination of Full Concession and O&M
This hybrid structure can be applied as the solution for a toll road network consisting sections which are built and financed by various
financing sources due to difference in their financial viability profile. In this structure, scope of work to be covered as PPP is separated
by different section, but included as one contract. Thus, the risk profile for each party involved will be distinguished based on the
section being concerned.
Minister of PW as
Design Regulatory Body
Design Consultant contract
- section A
Contractor
- section A Construction
contract
Concession & O&M
Public Sector
contract
Public Sector
PPP Contract
Design Consultant
- section B
Project Company Equity
Project
Contractor
Sponsor
- section B Financial
Close
Service Lenders
Operator Payment
Operation Debt
section A and B
contract

Users
Figure 9. Combination of Toll Road Concession and O&M Structure

2.2.4 PPP Structure in Railway Sector
Resembling to other (land) transport sectors, the infrastructure PPP can be pursued with usage-based type scheme. In accordance with
applicable regulation, the CA in this sector would be Directorate General of Railway, Ministry of Transportation (MoT).
2.2.4.1. Railway Concession
In the concession structure, the Government can grants the authority to PC to collect the revenue
directly from the end-users. The PC scope of works may include, to provide and operate both rail
infrastructure and services which may includes the rolling stocks, stations or tracks only.
Minister of Transportation
as Regulatory Body
Railway Director General,

as the CA o.b.o Minister of
Transportation
Private Sector
PPP Agreement
Design
Consultant
Sponsor
Construction
Financial
contract
• Service
Lenders
Payment Debt
Operator
O&M contract
End-user Financing
Figure 10. Railway Full Consession Structure
With the concerns of huge investment cost and regulated tariff, experiences in other countries show that the project will experience
difficulties in achieving the acceptable financial viability level if the scope includes the rolling stock, station and track at once (unless
the property development, e.g. nearby the station or transit-oriented development (TOD) concept, is included as the scope of PPP).
2.2.4.2. Railway O&M
Similar to the O&M structure in toll road projects, the PPP is typically for a brownfield project which means that it does not involve
design, construction and financing of the railway facility.
Minister of Transportation as
Design and Construction
Regulatory Body
Design
Consultant Railway Director General,
Transportation
Construction
contract Concession Public Sector
Private Sector
PPP Agreement

Sponsor
Close
• Service
Lenders
Payment Debt
End-user Financing
Figure 11. Railway O&M Structure
The O&M operator as the PC maintains the facility and collects toll on behalf of the government. The revenue is then calculated as
portion of the collected tolls.
2.2.5 PPP Structure in Power Sector
In electricity sector, the PPP has been implemented only in the electricity generation part through the
IPP (Independent Power Producer) scheme, instead of other parts of the infrastructure provision service
(e.g. transmission, distribution, tariff collection). Although, can uses either a BOT or a BOO scheme,
Indonesia's PPP project are likely to use BOT scheme which the ownership of assets transferred to the
public sector (PLN) after the expiry of the PPP contract (during the contract period the power plant is
owned by the private IPP).
2.2.5.1. Electricity BOT
Contractually, the private sector’s PC or the IPP is responsible for the design, construction, financing and operation and maintenance
of the electricity generating facility (the plant). The electricity generated by the plant is then sold by the PC to the PLN as the state-
owned utility company (also as the CA) through a Power Purchase Agreement (PPA) as the PPP agreement.
Government of
Regulatory body
Indonesia
PLN
as the CA • Service Connection
• Service Payment
BOT (Build, Operate

Transfer) Public Sector
Private Sector
PPP Agreement End-user
Design
Consultant
Sponsor
Construction
Financial
contract
Lenders
Debt
Operator
O&M contract
Financing
Figure12. Electricity BOT Structure
The PLN as the single off-taker pays for the electricity to PC in periodical basis using a take-or-pay arrangement during PPA period.
Thus, the credibility of the PLN in serving the financial obligation has always been the most concerned risk.
2.2.5.2. BOT Minemouth
A minemouth power plan project is basically a coal-fired power plan with below features:
- it is built with the rationale of minimizing the risks stemming from supply uncertainty and price escalation of the coal as the fuel;
- coal transport cost component is relatively low due to the proximity of the coal mining location to the plant;
- Relatively low quality of the coal as the fuel requires the plant to have an extra facility/technology to improve the coal quality. This
will eventually cause the plant construction and operation cost to be relatively higher than the other plant; and
- The plant location is typically remote from the main transmission line which requires further cost for extra transmission facility.
Government of
Indonesia As a PPP project, the variation toward the risk
allocation scheme in this minemouth plant is not
Ownership PLN
as the CA • Service Connection only depending on the chosen PPP structure. The
• Service Payment
Coal Mining Entity issues of ownership of the coal mining and
Power Purchase Agreement
(BOT/Built Operate Transfer)
Public Sector
determination of both mining and plant’s location
Operation Private Sector
Contract
Coal
Supply
PPP Contract will be very important variables influencing the risk
Users
Contract
allocation scheme in the project.
Coal Mining Project Company
Equity
Operator (Independent Power Producer )
Project Sponsor
As an illustration in developing the risk matrix, the
Design Financial
Consultant Design Contract
Close PPP structure for the selected minemouth project
Contractor Lenders option is a BOT (considering higher technology
Construction contract Debt
Plant
required by the plant) and where the location of
Operator Operation contract coal mining is determined by (and then owned by)
Construction and Operation Financing PLN as the CA.
Figure13.Minemouth BOT Structure
As seen from the above structure, the scope of work as PPP is similar to he typical BOT coal-fired power plant. The main distinction
would be on the risk profile to the parties involved, mainly the coal supply uncertainty and the coal price escalation (in addition to the
risk related to the mine acquisition and the mine operation to PLN in this minemouth project option).
2.2.6 PPP Structure in Seaport Sector

In this sector, regulatory framework of seaport sector in Indonesia allows PPP structure using
usage-based type scheme (or a concession), wherethe CA in this sector would be the Port
Authority of the Ministry of Transportation (MoT).
2.2.6.1. Seaport full concession

In the full concession structure, type of end-users in the project can be retail passengers,
shipline companies and/or companies handling goods (i.e. cargo or container).
as Regulatory Body
Port Authority,
Transportation
Private Sector
PPP Agreement
Design
Consultant
Sponsor
Construction
Financial
contract
• Service
Lenders
Payment Debt
Operator
O&M contract
End-user Financing
Figure14. Seaport Concession Structure
In this sector, where the “Tanah Ampo” Project pursued as PPP, there has been no projects successfully implemented with the scheme
in accordance with PPP regulation. Refers to a business model that is prevalent as a PPP scheme in this sector , the scheme that can be
the implementation option is LPA (Landlord Port Authority) which the government can lease the land ( greenfield ) or get a concession
fee on the control over existing port and related facilities (brownfield) the private PC. In this case , the PC can build or develop the
existing port infrastructure (e.g. warehousing, storing) to improve infrastructure services in its operation,and obtain payment from
users for the port services.
In this scheme, which generally demand risk will be absorbed by the private sector, Government ( as the 'landlord' ) may receive lease
payments or concession fees from PC so it can be used to recover partial or all of the cost of land acquisition and supporting facilities (
eg, break water, access roads and other supporting facilities) which be the government's obligation in this PPP scheme. The amount of
the lease or concession fee is usually be a winner determination criteria in PPP auction, in other words, is determined by how much the
interest of investors. This LPA model are still rather difficult to implement, especially for current conditions in Indonesia. In addition to
the limited capacity of the government budget to finance large investment in basic infrastructure, the determination of the government
agency that became the landlord (e.g. between the Port Authority or ports state-owned entity) should also be assessed further in
compiling those PPP transaction scheme.
2.2.7 PPP Structure in Airport Sector
In this sector, so far there has been no projects implemented with the scheme in
accordance with PPP regulation. Referring to Law No. 1 of 2009 on Aviation article 235,
airport service can be performed by Airport Enterprise (BUBU) based on concession and or
other scheme (including BOT and management contract). The CA in this sector would be
the Directorate General of Air Transportation, MoT.
As general, the scope of work and its type of infrastructure can be divided into:
 Airport infrastructure, consist of:
o Air-side: runway, taxiway, apron, air traffic control (ATC)
o Land-side: terminal
o Commercial area around the airport
 Transportation access infrastructure
o Train access
o Road access
Regarding cooperation option through the PPP scheme, because certain types of infrastructure are not commercial in nature (especially
Air-side), is necessary to evaluate the needs of private PC role, both brownfield area (the airport is already operating) or greenfield
areas (airports in new location). For example, to involve the private PC in greenfield areas, the Government should first provide
transportation access infrastructure adequately, including building anair-side infrastructure through other funding sources.
2.2.7.1. Airport full concession
In the full concession structure, PPP in airport sector may include provision and operation both airport infrastructure and services. The
Government may grants the authority to PC to collect the revenue directly from the retail customers/end-users i.e.retail passengers,
shipline companies and/or companies handling goods (i.e. cargo or container).
as Regulatory Body
Air Transport Director General,

Transportation
Private Sector
PPP Agreement
Design
Consultant
Sponsor
Construction
Financial
contract
• Service
Lenders
Payment Debt
Operator
O&M contract
End-user Financing
Figure 15. Airport Concession Structure
Full concession is usually given to the private sector PC using BOT structure, particularly in the context of expansion in the brownfield
area.
The scope of work of the BU, as set out in the regulations, is to develop and operate both airport infrastructure and existing services,
so it also possible to include the scope of the commercial utilization of the airport area to PC. For greenfield area, the PPP scheme is
more likely to not include air-side infrastructure development as the scope of cooperation with PC.
2.2.7.2. Airport O&M
Similar to the O&M structure in other transportation projects, the PPP is typically for a brownfield project which means that it does not
involve design, construction and financing of the airport facility.
Minister of Transportation as
Regulatory Body
Design contract
Design
Consultant Air Transport Director General,
Transportation
Construction
contract
Private Sector
PPP Agreement

Sponsor
Close
Lenders
• Service
Payment Debt
End - user Financing

Figure 16. Airport O&M Structure
The O&M operator as the PC maintains the facility and collects toll on behalf of the government. The revenue is then calculated as
portion of the collected tolls.
3 EVALUATION OF RISK ALLOCATION ASPECT FOR PPP PROJECT AND INFRASTRUCTURE GUARANTEE ROVISION
3.1 Risk Allocation Principle in the context of PPP Project Implementation

 At the PPP project preparation stage, the suitability of the risk allocation become the substance of risk analysis in the pre-
feasibility study. Based on the context of PPP implementation, definition and formulation of CA obligation to be included in the
PPP contract needs to be based on the risk allocation principle. An optimal contractual risk allocation is proportional to the
maximum value for money.
 The common principle for risk allocation is that (please also see Figure 17),
“A risk should be allocated to party which is relatively able to manage the risk, or having the least cost of absorbing such risk. If
this principle is implemented properly, it is expected that the risk premium and the project cost would be lower leading to
positive impact to the project stakeholders.”
Step 1: "Likelihood"
risk should be able to be Step 2: "Impact"
allocated to the party best able Step 3: 'Lowest Cost"
to control the likelihood of the risk should be able to be
risk occuring allocated to the party best able risk should be able to be
to control the impact of the risk allocated to the party best
on the project outcomes able to absorb the risk at the
lowest cost if the likelihood
and the impact cannot be
controlled
Figure 17. Sequence of PPP Risk Allocation Logic
 The implementation examples of such principle in the market are as follow (can also use Key Questions as in Text Box 1):
• Risks which have not been managed well in the past by government, should be transferred if cost-effective (contruction,
operation), should be borne by private sector;
• Risks which are outside the control of either party, or are equally influenced by both parties (e.g. certain force majeure
events) should be shared; and
• Risks that the government can manage well, or is in a more informed position to control than the private sector (e.g.
planning approvals, legislation risks) should be retained;
• There may also be some risks that, while transferred, may possibly remain an exposure for the public sector (e.g. risk of
sponsor default). If an event cannot be resolved satisfactorily, the government steps in and assumes full responsibility for
the risk (or the project as a whole). Potential project case: delivery of critical social infrastructure and associated services.
Text Box 1: Key Questions for Deciding which Risks to Allocate

Some questions to be answered from both perspective of the public agency and the private entity, first can be by asking: “To what extent can the public agency…
 Manage the likelihood of this risk occurring?
 Manage the impact of this risk?
 Absorb the impact of the risk?
 Take specific measures to manage the risk?”
Logically, the same questions can be asked on the private entity’s ability in a PPP. Finally then we can answer: “Who is best able to manage and absorb this risk?”
In addition to the above considerations, checks should be made to answer the following:
 Similar contracts: Are there specific reasons to deviate from the risk allocation chosen in earlier transactions and described in the model PPP contracts?
 Marketability: Are there any reasons to assume that the private sector will not accept the risk or price the risk at an unreasonably high value?
 Incentives: Do any of the potential risk allocation mechanisms create unintended incentives for the private sector?
 Holistic approach: Do any of the potential risk allocation mechanisms create “gray areas” in terms of responsibility?
3.1.1 Risk Allocation Implementation in the Preparation and Transaction of a PPP Project
 In general, as in Text Box 2, the application of risk allocation is initiated from the PPP preparation stage, mainly through a project risk
analysis as part of the feasibility study (later to be used as the basis for drafting and negotiating the PPP agreement).
Text Box 2: Process, timing, information, and expertise needed for PPP Risk Allocation
 Process: Risk allocation is at the core of the structuring of any delivery method, and requires transaction experience and market knowledge.
 Timing: The initial risk allocation has to be determined before the drafting of the PPP agreement is completed. In practice, the process of drafting the
agreement often triggers discussions on risk allocation, and this can be facilitated by a sound risk assessment.
 Information: Optimal risk allocation in a PPP is by definition project-specific and evolves over time. A good starting point is to look at earlier transactions to
understand the considerations in the risk allocation. Optimal risk allocation in a PPP evolves over time; need to look at more recent contracts.
 Expertise: As in all other steps in risk assessment, risk allocation requires input from a range of disciplines:
o Technical, environmental, permitting, and traffic and revenue experts to determine the risk measures and manageability by risk type.
o Costing experts, to determine the costs of risk mitigation measures.
o Insurance experts, to determine insurability of certain risks (facilitating risk transfer to the private sector).
o Legal experts, to provide the risk allocation framework to be defined in the P3 agreement.
o Finance experts, to determine the marketability of certain risks.
 Preferably these experts have also been involved in project risk identification to ensure a good understanding of the specific risks.
 In evaluating the risk allocation, as part of the tender document during the transaction stage, the draft PPP agreement will
reflect how the identified and evaluated risks are allocated between parties (PC and CA) in the form of contractual clauses.
 From that contract clause, the risk can be described based o the triggering events, occurrence period and the consequences to
each party upon the risk occurrence, either as financial obligations or as non financial obligations, as depicted in the Figure 19:
Risk Allocation in PPP Contract

CA Shared PC
A
B*
C
D*
E
F*
*: Risk that leads to certain financial obligation of the bearer

Figure 18. llustration of Risk Allocation in the PPP Agreement
As a note, contractual financial obligation arise from a risk event “compensation event”and not of the nature of 'relief event' (just
need time extention, without financial compensation).
 Defining the optimal risk allocation can be quite challenging. In a risk allocation discussion, participants are asked to jointly
answer the key questions as described in Text Box 1. It is important to jointly determine a convincing argument for a risk
allocation for each of the risks.
 Next step is to define the mechanisms reflecting this risk allocation. Most mechanisms—like the definition of, and compensation
for, supervening events—are standard, and have been used in most prior PPP transactions. However, project-specific
considerations may lead to adjustments in these mechanisms.
 In a PPP contract, the typical allocation of risks between parties are as below:
 PC normally bear the risk related to financing, design, construction, procurement, operation andmaintenance (then transfer
some of the risk to other party, either consultant, designer, contractor, supplier, operator or user);
 CA representing government typically handle political risk, including change of law which the trigger is (relatively or better)
controlled by the government or public sector;
 Both parties are sharing risk related to Force Majeure events.
3.1.2 Risk Allocation Implementation in the Provision of Guarantee to PPP Project by IIGF
Basically, IIGF guarantee covers the financial obligations of the CA under PPP Agreement where the budget allocation of CA and its
financial mechanism need to be established to ensure the fulfillment of their financial obligations.
The IIGF decision in providing guarantee for risks in a PPP project is made after evaluation of, among others the conformity of the draft
PPP Agreement with the risk allocation principles (reflected in this IIGF Risk Allocation Guideline), as depicted below:
GUARANTEE PROVISION PROCESS BY IIGF
1. Consultation
2. Screening 3. Appraisal 4. Structuring
and Guidance
Evaluation of other aspects Evaluation of other aspects
Evaluation of Risk Aspect Evaluation of Guarantee Impact

Guarantee Application
Package (GAP) Risk coverage Guarantee Risk coverage for
Draft PPP Agreement considered to be Viability Viable guarantee structure
guaranteed by IIGF Analysis evaluation
Based on Yes
Risk Matrix and Risk
Risk Mitigation Plan Allocation
Evaluation on proposed Principles No Guarantee
risk coverage Not covered Not viable Capacity
Analysis
IIGF Risk Guideline

PPP Risk Category IIGF Risk Co-guarantor
& PPP Risk Matrix Coverage Risk Coverage
PPP and Infrastructure Guarantee Regulatory Framework

Perpres 67/2005 Perpres 78/2010 PMK 260/2010
j.o. 13/2010 j.o
Risk
(Infrastructure (Manual of Perpres
56/2011 Guarantee) 78/2010) Allocation
(PPP Infrastructure) Principles
Figure 19. IIGF Risk Allocation Guideline and the Prevailing PPP and Infrastructure Guarantee Framework
Against the IIGF guarantee coverage, Infrastructure Guarante Regulation has defined that the CA’s financial obligations in the PPP
agreement arise from risk that are caused by the following triggering events, as defined below:
a) The action/inaction of the CA or the government other than the CA on issues which are, by law, the CA or the government other
than the CA have the authority or control of such action/inaction;
b) A policy made by the CA or the government other than CA;

c) A unilateral decision made by the CA or the government other thanthe CA;
d) The inalbility of the CA or the government other than the CA in fulfilling its obligations under the PPP agreement (breach of
contract).
4 INFRASTRUCTURE RISK ALLOCATION GUIDELINE
This IIGF Risk Allocation Guideline provides 1) Risk Category and 2) Risk Allocation Matrix to be used as a reference for CA in
preparing risk allocations of the PPP project, which serves as the basis for CA’s preparation for guarantee proposal to IIGF as well as to
enhance the implementation of the risk management frameworkfor PPP project.
4.1 PPP Risk Category
The Risk Category Checklist is developed as a generic list of risk groupings which is expected to be used for generating identified risk
events in each specific PPP project. The identified risk events can be used further for risk assessment stage and developing risk
allocation matrix/strategy.
This checklist is not meant to be exhaustive, therefore particular circumstances in each specific PPP project should also be considered.
1. Site risk is the risk that the project land will be unavailable or unable to be used at the required time, in the manner or at the cost
anticipated, or that the site will generate unanticipated liabilities.Thus, risks included into this category are:
a). Land Acquisitionrisk: risks related to the acquisition process of the required land for the project which may include potential
cost and time over run from the prolonged transaction process;
b). Landsite Unsuitability risk: risks that the proposed landsite may not be used for the project which the causes may include
contamination, discovery of artefacts, delays/rejection in achieving planning approvals, native title, etc;
c). Environmental Risk: risk of liability for losses caused by environmental damage arising (i) from construction or operating
activities during the Project Term, or (ii) from pre-transfer activities whether undertaken by the CA to the activities of the PC or
the Subcontractors.
2. Design, construction and commissioning risk is the risk that the design, construction or commissioning of the facility or certain
elements of each of these processes, are carried out in a way which results in adverse cost and/or project delivery consequences.
Risks included into this category are:
a) Planning risk: risk that the proposed use of the project site in terms of the PPP Agreement and, in particular, the construction of
the facilities on the project site will fail to comply with any applicable laws relating to planning, land-use or building or any
consent required pursuant thereto, or that any such consent will be delayed or cannot be obtained or, if obtained, can only be
implemented at a greater costs then originally projected;
b) Design risk:the risk that PC’s design may not achieve the required output specifications;
c) Completion risk: risk that the completion of the works required for a project may be (i) delayed so that the delivery of the
services cannot commenceat the scheduled Commercial Operation Date (COD), or (ii) delayed, unless greater costis incurred to
keep to Scheduled COD, or (iii) delayed due to variations;
d) Cost overrun risk: the risk that during the design and construction phase, the actual Project costs will exceed projected costs;
e) Commissioning risk: risk that the commissioning date is delayed or the results do not meet specifications of the CA or other
relevant authorities;
3. Sponsor risk is the risk where the PC and/or its sub-contractors are unable to fulfil their contractual obligations to the CA.
4. Financial risk is ther risk related to financial viability aspects of the project. This may refers to a number of risks including the
following:
a) Financing risk: risk that the financiers (debt and equity) will not provide or continue to provide funding to the project;
b) Financial parameter risk:risk that financial parameters e.g. inflation rate, exchange rate, market conditionsafter condition
changes prior to the contractor fully committing to the project, potentially adversely affecting project cost; and
c) Financial structure risk: risk that the financial structure is not sufficiently robust to provide fair returns to debt and equity
holders over the life of the project, and hence calls into question the continuing viability of the project;
d) Insurance risk: any risk that is insurable as at the signing date pursuant to the agreed project insurances but later become
remains insurable however with significant increase of insurance premium.
5. Operating risk is the risk that the process for delivering the contracted services – or an element of that process (including the
inputs used within or as part of that process) – will be affected in a way which prevents the PC from delivering the contracted
services according to the agreed specifications and/or within the projected costs. Risks included into this category are:
a) Maintenance risk: risk that (i) the cost of maintaining assets in the required conditions may vary from the initial projected
maintenance costs, or (ii) adverse input caused by failure to carry out maintenance properly;
b) Latent defect risk: risk of losses or damages arising from latent defects in the facilities included in the project assets;
c) Technology risk: risk that (i) the technology inputs fail to deliver the required output specifications, or (ii) technological
improvements may render technology inputs out-of-date (“technology obsolescence risk”);
d) Utilities risk: risk that (i) the utilities (e.g. water, electricity or gas) required for the operation of a project may not be available,
or (ii) the project will be delayed because of delays due to the removal or relocation of utilities located at the project sites;
e) Resource or input risk: the risk of failure or shortage in the supply of the inputs or resources (for example, coal or other fuels)
required for the operation of a project including in the quality of available supplies;
f) Industrial relations risk: risk of any form of industrial action – including strikes, lockouts, work bans, work-to-rules, blockades,
picketing, go-slow action and stoppages – occurring in a way which, directly or indirectly, adversely affects commissioning,
service delivery or the viability of the project.
6. Revenue risk is the risk that the project revenue is unable to meet the projected level of financial viability, due to the unexpected
changes to either the demand or the agreed tariff or combination of both. In the case, where the PC revenue is derived from service
payments by CA (for example, schemes BOT / Partial Concession, Performance-Based Availability schemes or Availability Payment
Scheme), the risk of non-payment can be included into the category of political risk (sub-sovereign or parastatal risk). Therefore,
risks included into this category are:
a) Demand risk: risk that the demand for a service is unexpectedly lower than that initially projected, due to: 1) triggers (actions,
decision / policy, regulation) of the Government, or 2) the mistakes made by private parties either in the estimation of demand
volume and the associated decline in the quality of service; and
b) Tariff risk: risk that the tariff for a service is lower than that initially projected, due to: 1) the periodical tariff adjustment is not
performed as planned or the level of the adjusted tariff is lower than the projection, or 2) miscalculation of the tariff estimates
or the standard level for requesting tariff adjustment is not met.
7. Network connectivity risk is the risk that the government-controlled network(s) needed for the PC to deliver the agreed services are
removed, not adequately maintained or otherwise changed. This may prevent or frustrate the delivery of the contracted services,
affect the quality of specified outputs or affect the viability (value for money) of the project. Risks included into this category are:
a) Connectivity with the existing network risk: the risk that the access to the existing network is not developed as planned;
b) Network development risk: risk that the required additional network is not developed as planned;
c) Competing facility risk: risk that other similar facility/infrastructure is built which eventualy competes with the delivery of the
contracted services.
8. Interface risk is the risk that the method or standard of delivery of the contracted services will prevent or in some way frustrate the
delivery of the public sector delivered services or vice versa. The risk includes when the quality of work done by government do not
conform or not suitable with those done by the PC, or vice versa.
9. Political Risk is the risk of unforeseeable action/inaction by the CA or any other government authority that materially and adversely
affects the expected Return on Equity, debt service or otherwise results in increased costs to the PC. Risks included into this
category are:
a) Transferability risk: risk that the revenue/profit from the project could not be converted to the foreign currency and /or
repatriated to the investor’s home country
b) Expropriation risk: risk that the government seizes (including nationalisation of) the project assets either directly or indirectly
which may trigger termination of the project contract. This indirect expropriating action type of risk may overlaps with some
financial risks (e.g. tax rate change risk).
c) Change in Law (legislative and government policy) risk: risk of a change in legislation, which are discriminatory and specific that
it can directly reduce the level of financial feasibility project (can be triggered by the actions of the CA or non-CA);.
d) Sub-sovereign or Parastatal risk: risk that the subsovereign or parastatal entity which act as the CA in the project has failed to
perform its contractual payment or other material obligations (i.e. due to unilateral decision).
e) Regulatory consent risk: risk that consents required from other government authorities can not be obtained or, if obtained, can
only be implemented at a greater cost than originally projected.
f) Tax rate change risk:risk that changes in applicable tax rates (income tax rate, VAT) or new taxes may decrease the anticipated
return on equity.
10. Force majeure risk is the risk that a specified event entirely outside the control of either party (e.g. act of god, man-made
catastropic event) occurs and will result in a delay or default by the PC in the performance of its contractual obligations.
11. Asset ownership risk is the risk that events such as loss events (e.g. contract loss, force majeure), technological change,
construction of competing facilities or premature obsolescence occur, with the result that the economic value of the asset may
deteriorate, either during or at the end of the contract term
4.2 Risk Matrices by PPP Sector
After the use of the PPP Risk Category, the identified risk events for each risk category is then evaluated using the risk allocation
matrix provided for each PPP sector and structure (“PPP Risk Matrix”). In developing such matrices, risk allocation principles and best
practices, including relevant regulatory framework in Indonesia were used as references.
Furthermore, as explained in section 3.2.1, this matrix is only a reference and is not rigid, as the eventual risk allocation needs to take
into account the specific circumstances in the project being evaluated.
4.2.1 Risk Matrix for PPP Water Supply Sector

The risk matrices are provided for the 2 identified PPP structures for this sector as described in Water Concession and Water BOT
sections.
4.2.1.1. Water BOT
Risk matrix below refers to a water supply project with BOT (Built, Operate, Transfer) contract that covers Transmission or Production
or Operation and Maintenance or Distribution or any combination thereof, excluding the retail Tariff Collection.
Table 2. Risk Matrix for Water BOT

Water BOT
Mitigation Strategy based on Specific Conditions related to
Risk Category and Risk Event Description Public Private Shared
Best Practice Risk Allocation
1. SITE RISKS
Land acquisition delay and costs Delay and costs increase due to x The Government clears Land requirement for intake
overrun unclear and then prolonged land project landsite before PC location, WTP and
acquisition process procurement process transmission network has
been identified clearly
Land acquisition can't be Unable to acquire project land site x Clear land legal status and Land legal status and use
performed entirely due to difficult land acquisition procedure in project land clearance may become an
process clearance obstacle
Complex resettlement process Costs overrun and delay due to a x Fair compensation for and Land requirement for this kind
complicated resettlement process good communication with of project is usually not
those impacted extensively large, social
impact is relatively small
Land tenure risk Multiple land ownership certificates x Implement validation of land
Water BOT
were discovered when the project is tenure;
implemented Support of the relevant
authorities (BPN, Agency of
Demography, etc.)
Unforeseen difficulties of site Delay due to uncertainty of ground x Land use historical data and As land requirement is not
conditions conditions land investigation extensively large geotechnical
risk may relatively be managed
Limitation of construction working Related to the provision of land for x Good construction methods; If there is a public rejection,
space working space during construction Socialization by government the Government can help
Damaged of artifacts and x Land use historical data and
antiquates in the site land investigation
Fail in keeping site safety x Implementation of good
work safety procedure
Contamination/pollution to the site x Comply with good
environment environment impact analysis
2. DESIGN, CONSTRUCTION AND COMMISSIONING RISKS
Unclear output Time and cost overruns due to x Clarification when the tender CA output specification
specifications unclear output specification process; capacity of good should refer to best practice
design
Design faults Technical commissioning leads to x Good and experienced design Usually identified at
discovery of design faults consultant technical operational test
Delay in completing construction May include delay in returning site x Qualified contractors and
works and access standard contract clauses
Construction cost increase x Certain price escalation factor
clauses in contract
Commissioning risk Incorrect time/cost estimates of x Good coordination between
technical commissioning contractor and operator
3. SPONSOR RISKS
Poor performance of x Credible subcontractor
subcontractors selection process
Default by sub-contractors x Credible subcontractor
selection process
Default by the PC PC’s default leading to termination x Consortium is supported by
and/or step-in by financiers credible and solid sponsors
Water BOT
Default of project sponsor Sponsor (or a member of x PQ process to select credible
consortium) ’s default sponsors
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close x Good coordination with May be caused by conditions
due to market uncertainty potential lenders precedence are not fulfilled
Financial structure risk Inefficiency due to in optimal x Consortium is supported by
project's capital structure credible sponsors/lenders
Foreign exchange rate risk (Non-extreme) fluctuation of foreign x Hedging instruments; Can be shared with the Govt
exchange rate financing in Rupiah when extreme fluctuations
Inflation rate risk Increase of inflation rate used for x Tariff indexation factor; Can be shared with the Govt
estimating life-cycle costs tariff Rebasing when extreme fluctuations
Interest rate risk (Non-extreme) fluctuation of loan x Interest rate hedging Can be shared with the Govt
interest rate when extreme fluctuations
Insurance risk (1) Insurance cover for a certain risk is x Consult with insurance Especially for insurance risk
no longer available from reputable specialists/brokers coverage under force
insurers in the market majeure conditions
Insurance risk (2) Substantial increases in rates which x Consult with insurance
insurance premiums are calculated specialists/brokers
5. OPERATING RISKS
Availability of facilities Due to lack of facilities project x Competent contractor
cannot be completed
Poor performance of services Due to lack of facilities project x Competent operator;
cannot operate Clear output specifications
Industrial action Industrial actions (strike, lockout, go x Good human resources and May be by operator, sub-
slow, etc) industrial relation policies contractors, or suppliers staff
Social and cultural Risk Risks arising from not considering x Implement people-oriented
the culture or social condition of community engagement
local communities during the project program; community
implementation empowerment
Project management failure risk Failure or inability to manage x Develop operations
operational aspect of the Project management plan and to be
performed professionally
Failure of the control and Irregularities were not detected due x x Develop control and
Water BOT
monitoring to the failure of the control and monitoring plans and
monitoring by the PC or the CA periodic evaluations of the
design and implementation
effectiveness
O&M cost overrun risk Mis-estimation of O& M costs or an x Competent operator;
unexpected increase Contract escalation factor
Estimation of life cycle expenditure x Deal/contract with suppliers
is incorrect as earliest as possible
Increase in energy costs - due to x Good unit specifications and
inefficient plant quality
Irregular availability of required x Anticipation measures: Usually this should be
utilities Electricity back-up anticipated as earliest as
facilities/other utilities possible
Shortfall of input quantity Raw water deficit due to reasons x Sound regulation and good
under public sector control coordination of the agencies
Decrease of input quality Declining water quality due to x Sound regulation and good
reasons under public sector control coordination of the agencies
Uncertainty of input continuity x Sound regulation and good Depending on water source
coordination of the agencies location
Shortfall of output quantity x Competent operator;
Penalty mechanism
Decrease of output quality x Competent operator;
Penalty mechanism
6. REVENUE RISKS
Decrease in the demand volume on Resulted in a decrease in water sales x Good socialization program;
project output revenue and the deficit for PC NRW reduction program;
PDAM Financial Management.
Tariff initial determination failure Due to users’ affordability and x Feasibility support (VGF); Supporting legal framework,
willingness are under the feasible rate Supportive regulation. can be a regional regulation
Periodical tariff adjustment is i.e. on tariff indexation to inflation x Good operational performance; Supporting legal framework,
delayed rate Supportive regulation can be a regional regulation
Level of the adjusted tariff is lower Especially after tariff indexation and x Good operation performance; Supporting legal framework,
than initially projected tariff rebasing Supportive regulation can be a regional regulation
Water BOT
Miscalculation of the tariff x Accurate users’ affordability
estimates and willingness survey
7. NETWORK CONNECTIVITY RISKS
Network risk (1) Leakages/contamination in existing x Good supervision & operation
network performance standards
Network risk (2) Breach of authority’s obligation to x Good contract understanding
build and maintain required network by public sector
build connecting facilities by public sector
Network risk (4) Breach of authority’s obligation not x Good contract understanding
to build a competing facilities by public sector
Network risk (5) Limitations of distribution network x Increase management capacity
management constructed by private of the distribution network
8. INTERFACE RISKS
Interface risk (1) Unabsorbed output in early operating x5 6 Due to ‘take or pay’ clause
years in water purchase contract
Interface risk (2) Disparity of the quality of the works x x Remedial action by party who
done by government (as fiscal has lower quality of works
support) and by PC
Interface risk (3) Substantial reworks due to different x Agreement on the applied
standard/ method of delivery standard/method of delivery
in advance
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility x  Local financing
of local currency to the investor's  Off-shore account
home currency  Guarantee from central bank
Currency non-transfer Inability to transfer funds in foreign x  Local financing
currency to the investor's home  Off-shore account
country  Guarantee from central bank
Expropriation risk Nationalization/expropriation x  Mediation, negotiation
without compensation (adequately)  Political risk insurance
 Government guarantee
General change in law (include tax) Can be considered as business risk x
Water BOT
Discriminatory or project specific In form of tax policy by the relevant x  Mediation, negotiation In addition to having a clear
change in law (including tax) authority (central or regional)  Political risk insurance contractual provisions,
 Government guarantee including compensation
Delay in achieving planning Only if it caused by the public x Clear contract provisions
approval sector's unilateral/improper decision including the compensations
Fail or delay in obtaining necessary Only if it caused by the public x Clear contract provisions Usually related to issues
consents (excl. Planning) sector's unilateral/improper decision including the compensations other than planning
Delay in gaining access to the site Only if it caused by the public x Clear contract provisions
sector's unilateral/improper decision including the compensations
Parastatal risk (1) Breach of off taker’s contractual x  Political risk insurance
obligations  Government guarantee
Parastatal risk (2) Due to privatization of the Off taker x  Political risk insurance
10. FORCE MAJEURE RISKS
Natural disasters Catastrophic god’s act events x Insurance, to extent possible
Political Force majeure Events of war, riots, civil disturbance x Insurance, to extent possible
Extreme weather x Insurance, to extent possible

Prolonged Force majeure If above 6 to 12 months, may cause x Either party should be able to Especially if insurance is not
economic problems on the affected terminate the contract and available for certain risks
party (esp. if insurance not exist) trigger an early termination
11. ASSET OWNERSHIP RISK
Asset loss event risk Fire, explosion, etc x Insurance
Asset transfer after the PPP x A robust business due
contract ends diligence (in PFS)
As shown in the matrix, there are some risks which are specific to this structure and sector, while other risks are applicable accross
sectors. The specific sectoral risks in this structure are interface risk (i.e. unabsorbed output in early operating years), those related to
the raw water input to the facility (i.e. quality, quantity and continuity), the parastatal risks (i.e. breach of offtaker’s contractual
obligations and the privatisation of the offtaker) and the demand risk which is basically minimized through a take or pay clause in the
water purchase agreement with the public utility company as the CA.
4.2.1.2. Water Concession

This risk matrix refers to a water supply project with a concession structure that involves water transmission, production, operation
and maintenance, distribution and tariff collection from customers. Typically this structure is preferred for a green-field project which
requires significant amount of investmentby private sector.
Table 3. Risk Matrix for Full Consession Water Supply

Water concession
Mitigation Strategy based Specific Conditions related to
on Best Practice Risk Allocation
1. SITE RISKS
Land acquisition delay and costs Delay and costs increase due to x The Government acquires Land requirement for WTP and
overrun unclear and then prolonged land project landsite before transmission network has been
acquisition process procurement process identified clearly
those impacted extensively large, social impact
is relatively small
Land tenure risk Multiple land ownership certificates x Implement validation of
were discovered after the project is land tenure;
started or implemented Support of the relevant
Demography, etc.)
antiquities in the site land investigation
Contamination/pollution to the x Comply with good
site environment environment impact analysis
Water concession
Unclear output specifications Time and cost overruns due to x x Clarification when the CA output specification should
unclear output specification tender process; capacity of refer to best practice
good design
Design faults Causing extra/revised design as x Good and experienced Technical commissioning leads
requested by the operator design consultant to discovery of design faults
Delay in completing construction May include delay in returning site x Competent contractors and
works access standard contract clauses
Construction cost increase x Certain price escalation
factor clauses in contract
3. SPONSOR RISKS
selection process
Default of project sponsor Sponsor (or a member of x PQ process to select
consortium) ’s default credible sponsors
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close x Good coordination with May be due to conditions
exchange rate Financing in Rupiah when extreme fluctuations
estimating life-cycle costs Tariff rebasing when extreme fluctuations
Water concession
no longer available from reputable specialists/brokers coverage under force majeure
insurers in the market conditions
Insurance risk (2) substantial increases in the rate that x Consult with insurance
insurance premiums are calculated specialists/brokers
5. OPERATING RISKS
cannot be completed
slow, etc) industrial relation policies contractor, or suppliers staff
Project management failure risk Failure or inability of the PC to x Develop operations
manage operational aspect of the management plan and to be
Project performed professionally
effectiveness
O&M cost overrun risk Mis-estimation of O&M costs or an x Competent operator;
Irregular availability of required Can be shared if due to unforeseen x Anticipation measures: Usually should be anticipated
utilities circumstances Electricity back-up in advance
facilities/ other utilities
Water concession
Shortfall of input quantity Raw water deficit due to reasons x Sound regulation and good
under public sector control coordination among agencies
Decrease of input quality Declining water quality due to x Sound regulation and good
reasons under public sector control coordination among agencies
Uncertainty of input continuity x Sound regulation and good Depends on the location of the
coordination among agencies water sources
Shortfall of output quantity x Competent operator;
Penalty mechanism
Decrease of output quality x Competent operator;
Penalty mechanism
6. REVENUE RISKS
Changes in the demand volume on Resulted in a decrease in water sales x Accurate demand survey;
project output revenue and the deficit for PC Good socialization program
Incorrect estimation of revenue x Accurate demand volume
from income generation model survey
End (retail) consumers does not Users’ affordability and willingness are x Feasibility support (VGF); Supportive regulations can be
pay under the feasible rate Supportive regulation. in form of regional regulation
Failure to collect payments Due to failures/non-optimality of x Collection system and good
payments collection system operational performance
Failure of proposed tariff changes Inability of PC to request change of x Good operation performance; Supportive regulations can be
tariff levels due to failure in Supportive regulation. in form of regional regulation
achieving agreed level of service
Periodical tariff adjustment is i.e. on tariff indexation to inflation x Good operation performance; Supportive regulations can be
delayed rate Supportive regulation in form of regional regulation
Level of the adjusted tariff is lower Especially after tariff indexation and x Good operation performance; Supportive regulations can be
than initially projected tariff rebasing Supportive regulation. in form of regional regulation
Network risk (1) Leakages/contamination in network x Good supervision and
operation performance
standards
Water concession
Network risk (2) Breach of authority’s obligation not x Good contract understanding Can be part of revenue risk
to build a competing facilities by public sector
Network risk (3) Limitations of distribution network x Increasing the capacity of
management that constructed by the distribution network
private management
8. INTERFACE RISKS
Interface risk (1) Unabsorbed output in early x
operating years
Interface risk (2) Disparity of the quality of the works x x Remedial action by party
done by government and by PC who has lower quality of
works
Interface risk (3) Substantial reworks due to different x Agreement on the applied
standard/ method of delivery delivery method in advance
9. POLITICAL RISKS
country  Guarantee central bank
without compensation (adequately)  Political risk insurance
General change in law (including Can be considered as business risk x
tax)
approval sector's unilateral/improper decision including the compensation
Fail or delay in obtaining necessary Only if it caused by the public x Clear contract provisions Usually related to issues other
consents (excl. Planning) sector's unilateral/improper decision including the compensation than planning
Water concession
Natural disasters Catastrophic god’s act events x Insurance, to the extent
possible
Political force majeure Events of war, riots, civil disturbance x Insurance, to the extent
possible
Extreme weather x Insurance, to the extent
possible
Prolonged force majeure If above 6 to 12 months, may cause x Either party should be able to Especially if insurance is not
economic problems on the affected terminate the PPP contract & available for certain risks
party (esp. if insurance is not exist) trigger early termination
11. ASSET OWNERSHIP RISKS
Transfer of existing business risk Uncertainty of conditions upon x A robust business due
transfer of existing business diligence (in PFS)
Transfer of existing asset risk Unanticipated condition of existing x A robust asset’s due
assets diligence
Compared to BOT structure, some sectoral specific risks are allocated to the same party, such as risk events related to standard water
input (quality, quantity, and continuity). But, as Full Consession structure covers overall services, pc usually bears demand risk and
interface risk (cannot absorb output ininitial operational period). Other than that, pcis alsomore vulnerable against tariff adjustment
risk as tariff to retail customers/endusers frequently becomes apolitical issue instead of commercial issue when the tariff adjustment
mechanism is executed.
4.2.2 Risk Matrix for PPP Waste Management
4.2.2.1. Solid Waste BOT
Riskmatrix below refers to a BOT structure which the PC is responsible for Production, Operation and Maintenance (i.e.build and
operate the Final Disposal facility), but not taking either the waste collection or the retail Tariff Collection tasks.
Table 4. Risk Matrix for Solid Waste BOT

Solid waste BOT
1. SITE RISKS
Land acquisition delay and costs Delay and costs increase due to x The Government clears Land requirement for Temporary
overrun unclear and then prolonged land project landsite before Disposal facility and Final
acquisition process procurement process Disposal facility have been
identified clearly
performed entirely due to difficulty of land acquisition procedure in project land clearance may become an
those impacted extensively large, social impact
is relatively small
were discovered after the project is tenure;
Demography, etc.)
Solid waste BOT

Society distress Due to potential discomfort from the x Socialization to those

process/output impacted
Failure to apply EIA (Environment x Competent environment
Impact Assessment)/AMDAL aspects specialist consultant
Unclear output specifications Time and cost overruns due to x x Clarification when the tender CA output specification should
unclear output specification process; capacity of good refer to best practice
design
Design faults Technical commissioning leads to x Good and experienced Design faults
discovery of design faults design consultant
Delay in completing construction May include delay in returning site x Competent contractors and Delay in completing
works access standard contract clauses construction works
Construction cost increase x Certain price escalation Construction cost increase
Commissioning risk Incorrect time/cost estimates of x Good coordination between Commissioning risk
3. SPONSOR RISKS
selection process
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close x Good coordination with May also be due to conditions
Solid waste BOT

Insurance risk (2) Substantial increases in rates at x Consult with insurance
which insurance premiums are specialists/brokers
calculated
5. OPERATING RISKS
cannot be completed
Industrial action Industrial actions (strike, lockout, go X Good human resources and May be by operator,
slow, etc) industrial relation policies subcontractors, or suppliers
staffs
Social and cultural Risk Risks arising from not considering the x Implement people-oriented
culture or social condition of local community engagement
communities during the project program; community
effectiveness
Estimation of life cycle x Deal/contract with suppliers
expenditure is incorrect as earliest as possible
Solid waste BOT

utilities Electricity back-up facilities/ anticipated as earliest as
other utilities possible
Disruption of transportation x Good management on waste Government can help even the
routes and schedules certainty transportation system transportation done by PC
Pollution of licit water in x Service level criteria; In the case of PC have met the
transportation Procedure transportation service level
systems
Shortfall of input (waste) quantity x Waste supply guarantee;
Waste management
socialization
Decrease of input quality (i.e. x To limit waste collectors’ Waste collectors’ role may
waste composition) role against waste change waste composition
composition
Incompliance of output quality x Good specifications of
technology used
6. REVENUE RISKS
Changes in the demand volume on Resulted in a decrease in revenue x Synchronized and consistent
project output and the deficit for PC policies with project goals
End (retail) consumers does not Users’ affordability and willingness x Good socialization program; Supportive regulations can be
pay are under the feasible rate Feasibility support (VGF); in form of regional regulation
Supportive regulation.
Periodical tariff adjustment is x Good operational Supportive regulations can be
delayed performance; Supportive in form of regional regulation
regulation.
Level of the adjusted tariff is lower x Good operational Supportive regulations can be
than initially projected performance; Supportive in form of regional regulation
regulation.
7. NETWORK CONNECTIVITY RISK
Solid waste BOT

Network risk (1) Uncertainty in existing waste x Good supervision and Can be uncertainty routes and
collection network operation performance transportation schedules
standards
maintain required waste collection by public sector
network
develop required facilities by public sector
8. INTERFACE RISKS
Interface risk (1) Imbalance between input & treatment x Due to ‘take or pay’ clause
capacity in early operating years in waste supply contract
Interface risk (2) Disparity of the quality of the result of x x Remedial by party who has
works done by government and by PC lower quality of works
9. POLITICAL RISKS
home currency  Political risk Insurance
 Central bank guarantee
country  Political risk Insurance
without compensation (adequately)  Political risk Insurance
General change in law (incl. tax) Can be considered as business risk x
Discriminatory or project specific In form of tax policy by the relevant x  Mediation, negotiation in addition to having a clear
Delay in achieving planning Only if it caused by the authority's x Clear contract provisions
approval unilateral/improper decision including the compensations
Fail or delay in obtaining necessary Only if it caused by the authority 's x Clear contract provisions Usually related to issues other
consents (excl. Planning) unilateral/improper decision including the compensations than planning
Solid waste BOT

Delay in gaining access to the site Only if it caused by the authority's x Clear contract provisions
unilateral/improper decision including the compensations
Parastatal risk (1) Contractual obligation default by PC x  Political risk insurance
as off taker  Government guarantee
Parastatal risk (2) As a result of off taker privatization x  Political risk insurance
or PC’s default  Government guarantee
Termination due to PC’s default x Government guarantee
possible
possible
possible
Prolonged force majeure If above 6 to 12 months, it could x Either party should be able to
cause economic problems on the terminate the PPP contract &
affected party(esp. if insurance is no trigger early termination
longer available)
In the waste management sector the sector-specific risks are environmental risk (i.e. society distress due to potential discomfort from
the process/output, failure to apply EIA (Environment Impact Assessment)/AMDAL), operating risks (i.e. quantity short fall of waste as
input, waste composition risk, incompliance of output quality), network risks (i.e. uncertainty in existing waste collection network,
non-fulfilment of authority’s obligation to maintain required waste collection network and to develop required facilities) and interface
risk (i.e. imbalance between input & treatment capacity in early operating years).
Interesting fact is highlighted as a legitimate action of government to reduce waste production (i.e. 3R programme: Recycle, Reuse,
Reduce) may actually hinder the PC to obtain sufficient volume of waste to be treated. On tha tariff side, the government actually
collects 2 types of tariffs, i.e. waste retribution tariff (i.e. for the waste management service) for operational cost of having waste
disposal facility, and a compensation for negative impact to the environment. This two types of tariff can be supported by an
operational subsidy from the local government’s budget as part of the CA’s source for tipping fee to the PC.
4.2.2.2 . Wastewater BOT
Below risk matrix refers to a project with BOT contract where PC is repsonsible for Production, Operation and Miaintenance (construct
and operate the treatment facility), but not responsible for collecting the wastewater and tariff collection from end users.
Table 5. Risk Matrix for Wastewater BOT

Wastewater BOT
1. SITE RISKS
Land acquisition delay and costs Delay and costs increase due to x The Government clears Land requirement for WTP and
overrun unclear and then prolonged land project landsite before transmission network has been
acquisition process procurement process identified clearly
Complex resettlement process Costs overrun and delay due to a x Fair compensation for and Land requirement is typically
complicated resettlement process good communication with small, social impact is
those impacted relatively minor
started or implemented Support of relevant
Demography, etc.)
Land acquisition delay and costs Delay and costs increase due to x Land use historical data and As land requirement is not
overrun unclear and then prolonged land land investigation extensive, geotechnical risk
acquisition process may relatively be managed
Wastewater BOT
Contamination or pollution to the x Comply with good
Society distress Due to potential discomfort from the x Socialization to those
process/output impacted
Failure to apply EIA (Environment x Competent environment
Impact Assessment)/AMDAL aspects specialist consultant
Design faults Technical commissioning leads to x Good and experienced Usually identified at technical
discovery of design faults design consultant operational test
Unclear output specifications Time and cost overruns due to x x Clarification when the tender CA output specification
unclear output specification process; capacity of good should refer to best practice
design
Delay in completing construction Including in returning site access x Competent contractors and
works standard contract clauses
3. SPONSOR RISKS
selection process
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close x Good coordination with May also be due to conditions
Wastewater BOT
Foreign exchange rate risk (Non-extreme) fluctuation of foreign x Hedging instruments; Can be shared with the
exchange rate Financing in Rupiah Government when extreme
fluctuations
Inflation rate risk Increase of inflation rate used for x Tariff indexation factor; Can be shared with the
estimating life-cycle costs Tariff rebasing Government when extreme
fluctuations
Interest rate risk (Non-extreme) fluctuation of loan x Interest rate hedging Can be shared with the
interest rate Government when extreme
fluctuations
no longer available from good specialists/brokers coverage under force majeure
insurers in market conditions
Insurance risk (2) Substantial increases in the rates x Consult with insurance
when insurance premiums are specialists/brokers
calculated
5. OPERATING RISKS
cannot be completed
monitoring by the PC or the CA conduct periodic evaluations
of the effectiveness of the
Wastewater BOT
Estimation of life cycle x Deal/contract with suppliers
expenditure is incorrect as earliest as possible
Shortfall of input (waste) quantity x Waste supply contract;
Waste management
socialization
Incompliance of output quality x Good specifications of
technology used
6. REVENUE RISKS
Changes in the demand volume on Resulted in a decrease in revenue x Synchronized and consistent
project output and the deficit for PC policies with project goals
End (retail) consumers does not Users’ affordability and willingness x Feasibility support (VGF); Supportive regulations can be
pay are under the feasible rate Supportive regulation. in form of regional regulation
regulation.
regulation.
7. NETWORK CONNECTIVITY RISK
Network risk (1) Uncertainty in existing waste x Good supervision & operation
collection network performance standards
maintain required collection network by public sector
Wastewater BOT
develop required facilities by public sector
8. INTERFACE RISKS
Interface risk (1) Imbalance between input & treatment x Waste supply
capacity in early operating years contract/agreement
Interface risk (2) Quality disparity between works done x x Remedial by party who has
by govt (as fiscal support) and by PC lower quality of works
9. POLITICAL RISKS
Fail or delay in obtaining necessary Only if it caused by the authority 's x Clear contract provisions Usually related to issues
consents (excl. Planning) unilateral/improper decision including the compensations other than planning
Parastatal risk (1) Contractual obligation default by PC x  Political risk insurance
as off taker  Government guarantee
Parastatal risk (2) As a result of off taker privatization x  Political risk insurance
or PC’s default  Government guarantee
Wastewater BOT
Termination due to PC’s default x Government guarantee
Political force majeure Events of war, riots, civil disturbance x Insurance, to extent possible

economic problems on the affected terminate the PPP contract and available for certain risks
party (esp. if insurance is not exist) trigger an early termination
In wastewater management sector, the specific risks are similar to those of waste sector. In this sector, volume and quality of waste
supply usually do not vary very much. Other than that, it is depending on the applied technology and perception of output user
candidates (processed clean water), which output is not commercial in nature.
4.2.3 Risk Allocation Matrix in Toll Road Sector

The risk matrices are provided for the 2 identified PPP structures for this sector as described in section 3.2.3, namely: full concession
toll road and O&M toll road sections.
4.2.3.1. Toll Road Concession

Risk matrix below refers to a toll road project with a concession structure that involves design, construction, financing, operation and
maintenance of a whole toll road facility, including the toll collection from end-users.
Table 6. Risk Matrix for Full Consession Toll Road

Full Concession Toll Road
1. SITE RISKS

Land acquisition delay and costs Delay and costs increase due to x The Government clears Land requirement is usually
overrun unclear and then prolonged land project landsite before massive and influenced by the
acquisition process procurement process planned track
Complex resettlement process Costs overrun and delay due to a x Fair compensation for and Social impacts are relatively
complicated resettlement process good communication with large, esp. in the city and if the
those impacted land is still productive
were discovered after the project is tenure; Support of the
started or implemented relevant authorities (BPN,
Agency of Demography, etc.)
Unforeseen difficulties of site Delay due to uncertainty of ground x Land use historical data and Geotechnical risk potentials
conditions conditions land investigation may be significant as land work
volume is relatively large
site environment environment analysis study
design
Design faults Technical commissioning leads to x Good and experienced Usually identified at technical
discovery of design faults design consultant operational test

3. SPONSOR RISKS
selection process
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close x Good coordination with May also be due to
due to market uncertainty potential lenders conditions precedence are
not fulfilled
Insurance risk (2) Substantial increase in rates at time x Consult with insurance
insurance premium was calculated specialists/brokers
5. OPERATING RISKS
cannot be completed
Industrial action Industrial actions (strike, lockout, go x Good human resources and May be by operator,suppliers,
slow, etc) industrial relation policies or subcontractors staffs

performed professionally by
the project manager
effectiveness of the design
and implementation of the
control and monitoring
Traffic accident or public safety x Insurance of 3rd party
concerns liabilities
6. REVENUE RISKS
Changes in the traffic demand Resulted in a decrease in revenue x Accurate traffic survey; If triggered by Government
projection and the deficit for PC Soft loans in initial operation actions, guarantee request
may be considered
Incorrect estimation from previous x Accurate traffic survey If triggered by Government
model actions, guarantee request
may be considered
Toll collecting company fails to Due to failure/non-optimality of x Collection system and good
collect tolls payment collection system operational performance
Failure of proposed toll changes Inability of PC to request change of x Good operation performance; Supportive regulations can be
toll levels due to failure in achieving Supportive regulation in form of regional regulation
agreed level of service

Periodical tariff adjustment is x Good operation performance; Supportive regulations can be
delayed Supportive regulation in form of regional regulation
Level of the adjusted tariff is lower x Good operation performance; Supportive regulations can be
than initially projected Supportive regulation in form of regional regulation
Network risk (1) Breach of authority’s obligation to x Good supervision and
build and maintain required road operation performance
network standards
Network risk (2) Breach of authority’s obligation to x Good contract understanding Can be part of revenue risk
to build competing road by public sector
8. INTERFACE RISKS
Interface risk (1) Disparity of the quality of the works xx 4 Rework by those whose
done by government and by PC works quality is lower
Interface risk (2) Substantial reworks due to different x Standard agreement/method
standard/ method of delivery to be applied by the related
parties as earliest as possible
9. POLITICAL RISKS

change in law (including tax) authority (central or regional)  Political risk Insurance contractual provisions,
possible
possible
possible
Prolonged force majeure If above 6 to 12 months, it could x Either party should be able to Especially if insurance is not
cause economic problems on the terminate the PPP contract available for certain risks
affected party(esp. if insurance is no and trigger an early
longer available) termination
The toll road sector-specific risks are site risks (i.e. land acquisition-related), revenue risks (i.e. traffic demand risk and tariff risk) and
network risk (i.e. connectivity issue, competing route). As a note, the risk events listed above is still limited to at-grade (on ground)
type of road and fly-over (above ground) type (i.e. not include under-ground/ tunnel).
4.2.3.2. Toll Road O&M
In an O&M Contract, the PC operates and maintains the facility and collects toll on behalf of the government. The revenue is calculated
as portion of the collected tolls incentivise PC in maintaining the quality of the service. The PC will also have concerns on both traffic
and tariff issues.
Table 7. Risk Matrix for O&M Toll Road

O&M Toll Road
1. SITE RISKS
Design faults Causing extra/revised design as x Good and experienced Usually identified at technical
requested by the operator design consultant operational test
3. SPONSOR RISKS
4. FINANCIAL RISKS
not fulfilled
O&M Toll Road

5. OPERATING RISKS
cannot be completed
Poor performance of services x Competent operator;
Clear output specifications
Industrial action Industrial actions (strike, lockout, go x Good human resources and May be by operator,
staffs
and implementation
O&M Toll Road

6. REVENUE RISKS
may be considered
Incorrect estimation of revenue x Accurate traffic survey If triggered by Government
from income generation model actions, guarantee request
may be considered
Failure of proposed toll changes Inability of PC to request change of x Good operational Supportive regulations can be
toll levels due to failure in achieving performance; Supportive in form of regional regulation
agreed level of service regulation.
Periodical tariff adjustment is x Good operational performance; Supportive regulations can be
delayed Supportive regulation. in form of regional regulation
Level of the adjusted tariff is lower x Good operational performance; Supportive regulations can be
than initially projected Supportive regulation. in form of regional regulation
network standards
8. INTERFACE RISKS
Interface risk (1) Disparity of the quality of the works x x Remedial action by party who Construction contract from
done by government and by PC has lower quality of works govt as well as PC should be
aligned in work quality
Interface risk (2) Substantial reworks due to different x Agreement on the applied Construction contract from
O&M Toll Road

standard/ method of delivery standard/method of delivery the govt as well as PC should
in advance be aligned in work quality
9. POLITICAL RISKS
General change in law Can be considered as business risk x
(including tax)
possible
possible
possible
O&M Toll Road

Transfer of existing toll road Uncertainty of conditions upon x A robust business due
business risk transfer from earlier toll road diligence (in PFS)
operator
Transfer of toll road asset risk Unanticipated condition of x A robust business due
constructed toll road diligence (in PFS)
The specific risks in toll road O&M structure (compared to toll road concession) are site risks (i.e. land acquisition-related), design
construction & commissioning risks and the toll road business/asset transfer risks. On other toll road sector-specific risks (i.e.
demand risk, tariff risk, network risk and interface risk), they are still main concerns of the PC, albeit of lesser magnitude than that in
the concession structure.
4.2.3.3. Toll Road with Combination of Full Concession and O&M
The risk matrix refers to the toll road project structure with scope of work to be covered as PPP is separated by different section, but
included as one contract. Related to the condition that the PPP scope of work is differentiated based on section, the risk allocation
scheme is basically a combination between both structures as one toll road network.
Table 8. Risk Matrix for Toll Road with Combination of Full Concession and O&M
Combination of Full Concession and O&M
Mitigation Strategy based on Specific Conditions related
Best Practice to Risk Allocation
1. LOCATION RISK
overrun unclear and then prolonged land project land before massive and influenced by
acquisition process procurement process the planned track

complicated resettlement process good communication with huge especially in the cities
those impacted and the land is still
productive in nature
conditions conditions land investigation may be large as land work
volume is relatively huge
design
Design faults Technical commissioning leads to x Good and experienced design Usually identified at
discovery of design faults consultant technical operational test
clauses in contract
3. SPONSOR RISKS


selection process
4. FINANCIAL RISKS
due to market uncertainty potential lenders conditions precedence is
not fulfilled
no longer available from good specialists/brokers coverage under force
insurers in market majeure conditions
Insurance risk (2) Substantial increases in the rates at x Consult with insurance
calculated
5. OPERATING RISKS
cannot be completed

slow, etc) industrial relation policies contractors,or suppliers staff
monitoring to the failure of the control and monitoring plans and periodic
monitoring by the PC or the CA evaluations of the
and implementation
6. REVENUE RISKS
may be considered
may be considered
End (retail) consumers does not Users’ affordability and willingness x Feasibility support (VGF); Supportive regulations can
pay are under the feasible rate Supportive regulation. be in form of regional
regulation

Failure of proposed toll changes Inability of PC to request change of x Good operation performance; Supportive regulations can
toll levels due to failure in achieving Supportive regulation be in form of regional
agreed level of service regulation
Periodical tariff adjustment is x Good operation performance; Supportive regulations can
delayed Supportive regulation be in form of regional
regulation
Level of the adjusted tariff is lower x Good operation performance; Supportive regulations can
than initially projected Supportive regulation be in form of regional
regulation
network standards
Network risk (2) Breach of authority’s obligation to x Good contract understanding Can be part of revenue risk
8. INTERFACE RISKS
Interface risk (1) Disparity of the quality of the x x Rework by those whose Construction contract from
works done by government and by works quality is lower the government as well as
PC PC should be aligned in
works quality
Interface risk (2) Substantial reworks due to different x Standard agreement/method Construction contract of the
standard/ method of delivery to be implemented by the government and PC should
related parties as earliest as be aligned in works quality
possible
9. POLITICAL RISKS
Currency inconvertibility Unavailability and/or inconvertibility x  Domestic financing
of local currency to the investor's  Foreign financing accounts
Currency non-transfer Inability to transfer funds in foreign x  Domestic financing

currency to the investor's home  Foreign financing accounts
country  Guarantee from central bank
tax)
Government guarantee including compensation

cause economic problems on the terminate the PPP contract and available for certain risks
affected party(esp. if insurance is no trigger an early termination
longer available)
In this combined structure, as there is a minor difference with the previous 2 matrices, the interface risk will be fully borne by the PC.
Therefore, the construction contract to contractor (also for operations) from both public sector and private sector must be aligned in
defining the expected quality of the work towards the whole toll road sections as one integrated network.
4.2.4 Risk Allocation Matrix in Railway Transportation Sector
The risk matrices are provided for the 2 identified PPP structure for this sector as described section 2.2.4, namely: railway concession
and railway O&M.
The identified risks are more relevant to a railway project providing transportation service for passengers rather than for cargos.
Design and construction risks in this sector are typically higher compared to other transportion modes (i.e. road, bridge) due to the
complexity of the applied technology and the required specification to a specific service level of the output. For risks associated with
the cooperation scope with TOD scheme, not be the scope of the principal project risk.
4.2.4.1 . Railway Concession
Risk matrix below refers to a railway project with a concession structure that involves design, construction, financing, operation and
maintenance of a whole railway transport facility, including the fare collection from end-users.
Table 9. Risk Matrix for Full Consession Railway

Full Concession Railway
1. LOCATION RISK
Land acquisition delay and costs Delay and costs increase due to x The Government clears Massive land requirement and
overrun unclear and then prolonged land project land before influenced by the planned
acquisition process procurement process track
complicated resettlement process good communication with huge especially in the cities
those impacted and the land is still
Demography, etc.)

conditions conditions land investigation may be significant as land
work volume is relatively
huge
design
Design faults Technical commissioning leads to x Good and experienced Usually identified at
discovery of design faults design consultant technical operational test
3. SPONSORRISKS
selection process
4. FINANCIAL RISKS

not fulfilled
Insurance risk (2) Substantial increases at the rates x Consult with insurance
insurance premiums were calculated specialists/brokers
5. OPERATING RISKS
cannot be completed
Industrial action Industrial actions (strike, lockout, go X Good human resources and May be by operator, sub-

and implementation of the
control and monitoring
6. REVENUE RISKS
may be considered
may be considered
End (retail) consumers does not Users’ affordability and willingness are x Feasibility support (VGF); Supportive regulations can
pay under the feasible rate Supportive regulation. be in form of regional
regulation
Fare collecting company fails to Due to failure/non-optimality of x Accurate users’ affordability
collect fares payment collection system and willingness survey
Failure of proposed fare changes Inability of PC to request change of x Good operational Supportive regulations can
fare levels due to failure in achieving performance; Supportive be in form of regional
agreed level of service regulation regulation
Periodical tariff adjustment is x Good operational Supportive regulations can
delayed performance; Supportive be in form of regional
regulation regulation
Level of the adjusted tariff is lower x Good operational Supportive regulations can
than initially projected performance; Supportive be in form of regional

build and maintain required rail operation performance
network standards
to build competing track by public sector
8. INTERFACE RISKS
Interface risk (1) Disparity of the quality of the works x x Remedial action by party who
done by government and by PC has lower quality of works
Interface risk (2) Substantial difficulty due to different x Agreement on the applied
standard/ method of delivery or standard/method of delivery
technology or on the applied technology
in advance
9. POLITICAL RISKS
(including tax)

possible
possible
possible
affected party (esp. if insurance is trigger an early termination
no longer available)
As seen from the above table, in railway concession there some specific risks embedded (which some are similar to risks in the toll
road concession), namely: land acquisition risk, demand and tariff risks, and interface risk (i.e. on standard delivery and technology).
4.2.4.2 Railway O&M
Similar to the O&M Contract in toll road sector, the PC operates and maintains the facility and collects toll on behalf of the
government. The revenue is calculated as portion of collected tolls to incentivise PC in sustaining the quality of service. The PC will
also concerns on both traffic and tariff issues.
Table 10. Risk Matrix for O&M Railway

O&M Railway
1. LOCATION RISK
Design faults Technical commissioning leads to x Certain price escalation
discovery of design faults factor clauses in contract
3. SPONSORRISKS
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close x Good coordination with May also be due to CP’s are
due to market uncertainty potential lenders not fulfilled
O&M Railway
Insurance risk Insurance cover for a certain risk is x Consult with insurance Especially for insurance risk
no longer available from good specialists/brokers coverage under force
insurers in market majeure conditions
5. OPERATING RISKS
cannot be completed
Industrial action Industrial actions (strike, lockout, go x Good human resources, May be by operator,
slow, etc) by operator staff industrial relation policies subcontractors ,or suppliers
Failure of the control and Irregularities were not detected due x Develop control and
and implementation
6. REVENUE RISKS
O&M Railway
Changes in the demand volume x Accurate traffic survey; If triggered by Government
projection Soft loans in initial operation actions, guarantee request
may be considered
may be considered
regulation
Failure of proposed fare changes Inability of PC to request change of x Good operation performance; Supportive regulations can
fare levels due to failure in achieving Supportive regulation. be in form of regional
agreed level of service regulation
Periodical tariff adjustment is x Good operation performance; Supportive regulations can
delayed Supportive regulation. be in form of regional
regulation
Level of the adjusted tariff is lower x Good operation performance; Supportive regulations can
than initially projected Supportive regulation. be in form of regional
regulation
build and maintain required rail operation performance
network standards
to build competing track by public sector
8. INTERFACE RISKS
done by government and by PC has lower quality of works the government as well as
O&M Railway
PC should be aligned in
works quality
standard/ method of delivery standard/method of delivery the government as well as
in advance PC should be aligned in
works quality
9. POLITICAL RISKS
General change in law (incl tax) Can be considered as business risk x
Fail or delay in obtaining necessary Only if it caused by the public sector's x Clear contract provisions Usually related to issues
consents (excl. Planning) unilateral/ improper decision including the compensations other than planning
economic problems on the affected terminate the PPP contract and available for certain risks
party (esp. if insurance is not exist) trigger an early termination
O&M Railway
Transfer of existing railway Uncertainty of conditions upon x A robust business due
business risk transfer from earlier railway operator diligence (in PFS)
Transfer of railway asset (including Unanticipated condition of x A robust business due
stations) risk constructed railway facility diligence (in PFS)
Similar to toll road sector, the specific risks in this railway O&M structure (compared to railway concession) are site risks (i.e. land
acquisition-related), design construction & commissioning risks and the business/asset transfer risks. On other toll road sector-
specific risks (i.e. demand risk, tariff risk, network risk and interface risk), they are still main concerns of the PC, albeit of lesser
magnitude than that in the concession structure.
4.2.5 Risk Allocation Matrix in Electricity Sector

The risk matrices are provided for the 2 identified PPP structure for this sector as described section 2.2.5, namely: BOT and
minemouth BOT.
4.2.5.1 Electricity BOT
Risk matrix below refers to a BOT contract (Built, Operate, Transfer) of the electricity generation. The PC (typical known as the IPP) sell
the genereted power to PLN as the off-taker during the Power Purchase Agreement (PPA) period and shall return the plant to the PLN
after the contract ends.
Table 11. Risk Matrix for Electricity BOT
Electricity BOT
1. SITE RISKS
Land acquisition delay and costs Delay and costs increase due to x The Government clears Land requirement for power
overrun unclear and then prolonged land project land before plant has been identified
acquisition process procurement process clearly
Electricity BOT
Complex resettlement process Costs overrun and delay due to a x Fair compensation for and Land requirement is usually
complicated resettlement process good communication with not large and social impacts
those impacted are relatively small
conditions conditions land investigation large geotechnical risk may
relatively be managed
design
Design faults Commissioning leads to discovery of x Good and experienced design Usually identified at
design faults consultant technical operational test
works and returning site access access standard contract clauses
clauses in contract
3. SPONSORRISKS
Electricity BOT
selection process
4. FINANCIAL RISKS
not fulfilled
Insurance risk (2) Substantial increases in rates at x Consult with insurance
calculated
5. OPERATING RISKS
cannot be completed
slow, etc) by operator staff industrial relation policies contractors, or suppliers staff
Electricity BOT
monitoring by the PC or the CA evaluations on effectiveness
of design and implementation
Irregular availability of required x Anticipation measures: Usually anticipated as
utilities Electricity back-up facilities/ earliest as possible
other utilities
Prolonged downtime x
Shortfall of fuel quantity x
Decrease of fuel quality x
Uncertainty of fuel availability x Long-term fuel supply contract
6. REVENUE RISKS
Changes in the demand volume on x Accurate demand volume
project output survey;
regulation
Electricity BOT
build and maintain required network by public sector
8. INTERFACE RISK
Interface risk Unabsorbed output in early x  Good planning
operating years  Good distribution network
9. POLITICAL RISKS
(including tax)
Delay in achieving planning Only if triggered by one party’s x Clear contract provisions
approval decision/not normal by that of including the compensations
related authority
Fail or delay in obtaining necessary Only if triggered by one party’s x Clear contract provisions Usually related to issues
consents decision/not normal by that of including the compensations other than planning
related authority
Electricity BOT
Delay in gaining access to the site Only if triggered by one party’s x Clear contract provisions
decision/not normal by that of including the compensations
related authority
Parastatal risk (1) Breach of off taker’s contractual x  Political risk insurance
Parastatal risk (2) Privatization of the Off taker x  Political risk insurance
possible
possible
possible
longer available)
Assets transfer after KPS Contract x
is completed
Generally, in this electricity BOT structure, the specific risks are asset transfer risk at the end of the PPA period. In addition to that, the
sector-specific risks are parastatal risks (i.e. breach of offtaker’s contractual obligations and the privatisation of the offtaker).
4.2.5.2 Minemouth BOT

Below risk matrix refers to a coal-fired mine mouth power plant with BOT (Build, Operate, Transfer) contract. As explained above, the
PPP structure for the selected minemouth project option is a BOT (considering higher technology required by the plant) and where the
location of coal mining is determined by (and then owned by) PLN as the CA.
Table 12. Risk Matrix for Minemouth BOT

Minemouth BOT
1. SITE RISKS
Land acquisition delay and costs Delay and costs increase due to x The Government clears Land requirement for the
overrun unclear and then prolonged land project land before project depends on location
acquisition process procurement process selected
Land acquisition can't be Unable to acquire project land site x Clear land legal status and Complexity increases if mine
performed entirely due to difficult land acquisition procedure in project land price agreement cannot be
process clearance reached
Complex resettlement process Costs overrun and delay due to a x Fair compensation for and Mine location is usually
complicated resettlement process good communication with remote so such issue may be
those impacted relatively manageable
Unforeseen difficulties of site Delay due to uncertainty of ground x Land use historical data and Risk allocation to public
conditions conditions land investigation sector as mine ownership
option is by the sector
unclear output specification process; good design capacity should refer to best practice
Design faults Causing extra/revised design as x Good and experienced design Usually identified at
requested by the operator consultant technical operational test
clauses in contract
Minemouth BOT
3. SPONSORRISKS
selection process
4. FINANCIAL RISKS
Fail to achieve financial close Inability to achieve financial close x Good coordination with May also be due to CPs are
due to market uncertainty potential lenders not fulfilled
Insurance risk (2) Substantial increases at rates which x Consult with insurance
insurance premiums were calculated specialists/brokers
5. OPERATING RISKS
cannot be completed
Minemouth BOT
slow, etc) by operator staff industrial relation policies subcontractors, or suppliers
staffs
and implementation
Prolonged downtime x
Shortfall of fuel quantity This risk may be triggered by coal x Long-term fuel supply Also under this option mine
price increase in export market contract; is owned by public sector,
Good mine operator; fuel supply risk is closely
Coal price regulation related to mine operation
Decrease of fuel quality This risk may be triggered by coal x Long-term fuel supply Also under this option mine
price increase in export market contract; is owned by public sector,
Good mine operator; fuel supply risk is closely
Minemouth BOT
Uncertainty of fuel availability This risk may be triggered by x Long-term fuel supply Also under this option mine
mismatch between production and contract; is owned by public sector,
power plant operational schedules Good mine operator; fuel supply risk is closely
6. REVENUE RISKS
Changes in the demand volume on x Accurate demand volume
project output survey
End (retail) consumers does not Users’ affordability and willingness x Feasibility support (VGF); Supportive regulations can
pay are under the feasible rate Supportive regulation. be as a regional regulation
delayed performance; Supportive be as a regional regulation
regulation
than initially projected performance; Supportive be as a regional regulation
regulation
build and maintain required T&D by public sector
network
8. INTERFACE RISKS
Interface risk Unabsorbed output in early x  Good planning
operating years  Good distribution network
9. POLITICAL RISKS
Minemouth BOT
tax)
Fail or delay in obtaining necessary Only if it caused by the authority 's x Clear contract provisions Usually related to issues
consents unilateral/improper decision including the compensations other than planning
Parastatal risk (1) Breach of off taker’s contractual x  Politicalrisk insurance
Parastatal risk (2) Privatization of the Off taker x  Politicalrisk insurance
Natural disasters Catastrophic god’s act events x Insurance, if possible
Political force majeure Events of war, riots, civil disturbance x Insurance, if possible
Extreme weather x Insurance, if possible
Prolonged force majeure If above 6 to 12 months, it could x Either party should be able to
cause economic problems on the terminate the PPP contract and
longer available)
Transfer of assets after the PPP x
contract expired
From the above risk matrix, in relation with the selected minemouth KPS project structure options, it is seen that there are some new
risks appeared as a result of coal mine ownership by PJPK namely land risks (related cost of mine acquisition process and mine
geotechnical risks). Other than that, although this structure is selected to minimize power plant fuel availability risk (subset of
operational risks), increased cost and availability of coal supply risks are very much related to mine operation. Furthermore, fuel
supply risk may also be triggered by the disharmony between mine production and power plant operation.
As a mitigation measure, other thanthe involvement of credible mine operator and long-term supply contract, supply and minemouth
coal price arrangements are also required in relation with supply transfer potentials as a result of coal price increase in export or other
industry market.
4.2.6 Risk Allocation Matrix in Seaport Transportation Sector
4.2.6.1 Seaport Full Concession
Risk matrix below refers to a seaport project with a concession structure that involves design, construction, operation and
maintenance of the seaport facility, including tariff collection from customers.
Table 13. Risk Matrix for Seaport Full Concession

Seaport Full Concession
1. LOCATION RISK
overrun unclear and then prolonged land project land before massive and influenced by the
acquisition process procurement process planned track
complicated resettlement process good communication to those huge especially in the cities
impacted and the land is still

Unforeseen difficulties of site Delay due to uncertainty of ground x Land use historical data and Because land is not
conditions conditions land investigation extensive, geotechnical risk
relatively can be managed
design
Design faults Causing extra/revised design as x Good and experienced design Usually identified at
requested by the operator consultant technical operational test
clauses in contract
3. SPONSORRISKS
selection process
4. FINANCIAL RISKS

not fulfilled
calculated
5. OPERATING RISKS
cannot be completed
slow, etc) industrial relation policies subcontractors ,or suppliers
staffs

and implementation
Sea traffic accident or public safety x Insurance of 3rd party
6. REVENUE RISKS
Changes in the demand volume x Accurate traffic survey If triggered by Government
projection Soft loans in initial operation actions, guarantee request
may be considered
may be considered
End (retail) consumers does not Due to users’ affordability and x Feasibility support (VGF); Supportive regulations can
pay willingness are under the feasible Supportive regulation. be in form of regional
rate regulation
Failure of proposed fare changes Inability of PC to request change of x Good operational Supportive regulations can
fare levels due to failure in achieving performance; Supportive be in form of regional
agreed level of service regulation. regulation
Periodical fare adjustment is x Good operational Supportive regulations can
regulation. regulation
Level of the adjusted fare is lower x Good operational Supportive regulations can
regulation. regulation
Miscalculation of the fare x Accurate users’ affordability

build and maintain required network operation performance
standards
to build competing facility by public sector
8. INTERFACE RISKS
done by government and by PC has lower quality of works the govt as well as PC should
be aligned in works quality
standard/ method of delivery standard/method of delivery the gov as well as PC should
in advance be aligned in works quality
9. POLITICAL RISKS
General change in law (incl.tax) Can be considered as business risk x
consents sector's unilateral/improper decision including the compensations other than planning

possible
possible
possible
longer available)
In the seaport concession, similar to the railway concession,the specific risks are land acquisition risk, certain operating risk (i.e. traffic
accident or public safety concerns), demand and tariff risks, and interface risk (i.e. on standard delivery and technology).
4.2.7 Risk Allocation Matrix in Airport Transportation Sector
4.2.7.1 Airport Full Concession
Risk matrix below refers to an airport project with a concession structure that involves design, construction, operation and
maintenance of the airport facility, including tariff collection from customers.
Table 14. Risk Matrix for Airport Full Consession
Airport Full Concession
1. LOCATION RISK
overrun unclear and then prolonged land project landsite before massive and influenced by
acquisition process procurement process the planned track

complicated resettlement process good communication with huge esp. in the cities and
those impacted the land is still productive in
nature
Unforeseen difficulties of site Delay due to uncertainty of ground x Land use historical data and
conditions conditions land investigation
Unclear output specifications Time and cost overruns due to x x Clarification during tender CA output specification
unclear output specification process; well design capacity should refer to best practice
Design faults Causing extra/revised design as x Good and experienced Usually identified at
requested by the operator design consultant technical operational test
3. SPONSOR RISKS

selection process
4. FINANCIAL RISKS
not fulfilled
calculated
5. OPERATING RISKS
cannot be completed

and implementation.
O&M cost overrun risk Mis-estimation of O&M costs or an x Competent operator; Can be triggered by the use
unexpected increase Contract escalation factor; of obsolete technology
Comprehensive business plan
“Hit and run” risk Cost overrun from idle facility due to x Comprehensive business
request from bankrupt airline plan; Competent operator;
6. REVENUE RISKS
Changes in demand volume x Accurate demand survey; Soft If triggered by Government
projection loans in initial operation actions, guarantee request
may be considered
Incorrect estimation of revenue x Accurate demand survey If triggered by Government
may be considered

Failure of proposed fare changes Inability of PC to request change of x Good operational Supportive regulations can be

regulation.
regulation.
build and maintain required network operation performance
standards
to build competing airport by public sector
8. INTERFACE RISKS
done by government and by PC has lower quality of works the government as well as PC
should be aligned in works
quality
standard/ method of delivery standard/method of delivery the government as well as PC
in advance should be aligned in works
quality
9. POLITICAL RISKS

Delay in achieving planning Only if it caused by the public sector's x Clear contract provisions
consents sector's unilateral/improper decision including the compensations other than planning
10. FORCE MAJEURE RISK
possible
possible
possible
longer available)
Similar to the seaport and railway concessions,the specific risks embedded in airport concession, are land acquisition risk, demand
and tariff risks, and interface risk (i.e. on standard delivery and technology).
4.2.7.2 O&M Airport
Similar to O&M Contract in toll road sector, the PC maintains the facility and collects toll from end (retail) consumers. The revenue is
calculated as portion of the collected tolls incentivise PC in maintaining the quality of the service. The PC will also have concerns on
both traffic and tariff issues.
Table 15. Risk Matrix for O&M Airport

O&M Airport
1. SITE RISKS
Design faults Causing extra/revised design as x Good and experienced Usually identified at technical
requested by the operator design consultant operational test
3. SPONSOR RISKS
4. FINANCIAL RISKS
O&M Airport
not fulfilled
Foreign exchange rate risk (Non-extreme) fluctuation of foreign x Hedging instruments; Can be shared with the
exchange rate Financing in Rupiah Government when extreme
fluctuations
Inflation rate risk Increase of inflation rate used for x Tariff indexation factor; Can be shared with the
estimating life-cycle costs Tariff rebasing Government when extreme
fluctuations
Interest rate risk (Non-extreme) fluctuation of loan x Interest rate hedging Can be shared with the
interest rate Government when extreme
fluctuations
5. OPERATING RISKS
cannot be completed
staffs
performed professionally by
the project manager
O&M Airport
and implementation
6. REVENUE RISKS
may be considered
may be considered
Failure of proposed toll changes Inability of PC to request change of x Good operational Supportive regulations can be
regulation.
regulation.
O&M Airport
network standards
8. INTERFACE RISKS
done by government and by PC has lower quality of works Government as well as PC
should be aligned in work
quality
standard/ method of delivery standard/method of delivery the government as well as PC
in advance should be aligned in work
quality
9. POLITICAL RISKS
(including tax)
O&M Airport
possible
possible
possible
Transfer of existing toll road Uncertainty of conditions upon x A robust business due
business risk transfer from earlier operator diligence (in PFS)
Transfer of toll road asset risk Unanticipated condition of x A robust business due
constructed toll road diligence (in PFS)
Similar to toll road sector, specific risk in O&M Aiport structure (compared to airport concession) are site risks (i.e. land acquisition-
related), design construction & commissioning risks and the asset ownership/transfer risks. On other sector-specific risks (i.e.
demand risk, network risk and interface risk), they are still main concerns of the PC, albeit of lesser magnitude than that in the
concession structure.
5 SUMMARY
From the discussions above, especially on each sector and each PPP structure risk allocation, there are some similarities and
differences on how the risks are allocated between the public and private sector, including when the risk should be shared between
the two parties. The summary of similarities and differences is shown in Table 16 below.
Table 16. Risk Matrix Summary for all PPP sectors
Allocation Similarity Difference
Public Sector  Site risk (land acquisition and land status-related)  Revenue risk
 Political risk - Demand risk (Water BOT, Solid Waste BOT, Wastewater BOT,
- Currency inconvertibility and Non transferability Electricity BOT, Mine-mouth BOT)
- Expropriation
- Discriminatory and Specific Change of Law (incl.Tax)
- Regulatory consent
- Parastatal risks
- Authority’s default
 Operational risk
- Input quantity, quality and continuity
 Revenue risk
- Tariff adjustment breach
- Project viability
 Network connectivity risk
- Competing route & connectivity
Private Sector  Site risk (ground conditions-related)  Revenue risk

 Design, construction and commissioning - Demand risk(Water full concession, Airport, Port)
 Operating risks
- Output quantity and quality
 Political risk
- General Change of Law
 Revenue risk
 Financial risks
 Sponsor risks
- PC, Contractor’s Default
Shared  Force Majeure risk  Revenue risk

 Interface risk - Demand risk (Full concession and O&M for toll road,
- Disparity of the quality of the works railway, airport sector) – depends on who triggers the risk

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PUBLIC PRIVATE PARTNERSHIP (PPP) IN INDONESIA:

RISK ALLOCATION GUIDELINE

PT PENJAMINAN INFRASTRUKTUR INDONESIA

Bambang P.S. Brodjonegoro

GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT...................................................................................................................... 1

1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA ......................................................................................................... 1

2 PPP STRUCTURES IN INDONESIA ........................................................................................................................................................ 2

2.1 GENERAL PPP STRUCTURE ........................................................................................................................................................................... 3

4 INFRASTRUCTURE RISK ALLOCATION GUIDELINE .............................................................................................................................. 25

4.1 PPP RISK CATEGORY................................................................................................................................................................................ 25

5 SUMMARY .................................................................................................................................................................................... 105

Figure 2. Availability-based Structure (BOT/BOO) .............................................................................................................................. 4

Figure 4. Water BOT Structure ............................................................................................................................................................ 7

Figure 6. Waste water BOT Structure .................................................................................................................................................. 9

Figure 8. Toll Road O&M Structure ................................................................................................................................................... 11

Figure 9. Combination of Toll Road Concession and O&M Structure ................................................................................................ 12

Figure 11. Railway O&M Structure .................................................................................................................................................... 14

Figure12. Electricity BOT Structure ................................................................................................................................................... 15

Figure13.Minemouth BOT Structure ................................................................................................................................................. 16

Figure14. Seaport Concession Structure ........................................................................................................................................... 17

Figure 15. Airport Concession Structure ........................................................................................................................................... 19

Figure 16. Airport O&M Structure ..................................................................................................................................................... 20

Figure 17. Sequence of PPP Risk Allocation Logic ............................................................................................................................. 21

Figure 18. llustration of Risk Allocation in the PPP Agreement ......................................................................................................... 23

Table 2. Risk Matrix for Water BOT ................................................................................................................................................... 29

Table 4. Risk Matrix for Solid Waste BOT .......................................................................................................................................... 41

Table 6. Risk Matrix for Full Consession Toll Road ........................................................................................................................... 52

Table 9. Risk Matrix for Full Consession Railway .............................................................................................................................. 68

Table 11. Risk Matrix for Electricity BOT .......................................................................................................................................... 78

Table 12. Risk Matrix for Minemouth BOT ........................................................................................................................................ 84

Table 13. Risk Matrix for Seaport Full Concession ............................................................................................................................ 89

Table 14. Risk Matrix for Airport Full Consession ............................................................................................................................ 94

Table 15. Risk Matrix for O&M Airport ........................................................................................................................................... 100

GOVERNMENT INITIATIVE TO ACCELERATE PPP DEVELOPMENT

1 REGULATORY FRAMEWORK ON PPP GUARANTEES IN INDONESIA

2 PPP STRUCTURES IN INDONESIA

2.1 General PPP Structure

2.1.1 Usage-based PPP (Wholesale infrastructure)

Concession Public Sector

Figure 1. Usage-based structure (“Consession”)

2.1.2 Availability-based PPP (Retail infrastructure)

Public Sector Payment for

BOT Contract Public Sector

Construction and Operation Financing

Figure 2. Availability-based Structure (BOT/BOO)

2.1.3 Operation and Maintenance (O&M) contract

Activities Availability-based Usage-based O&M

Ownership Government Government Government

Distribution - / partial (as long as privatenot √ √/-

Collection to end user - √ √/-

Time horizon (typically) 20-30 years 20-30 years 5-15 years

2.2 Sectoral PPP Structure

2.2.1 PPP Structure in Water Supply Sector

2.2.1.1. Water Full Concession

Head of Local Govt PDAM

Concession Public Sector

Figure 3. Water Concession Structure

2.2.1.2. Water BOT

Head of Local Govt PDAM