The government has made a drastic budget cut of IDR 81.38 trillion to the Ministry of Public Works, reducing the original budget of IDR 110.95 trillion.
This reduction is expected to impact the continuation of road construction, road repairs, toll roads, and reservoir and dam projects for irrigation.
A Public-Private Partnership (PPP) scheme, as outlined in Presidential Regulation No. 38 of 2015, is already in place for infrastructure development.
However, a scheme revision is necessary to address the shifting obligations and responsibilities between the government and private sector due to decreased government capital contributions.
UGM public policy expert Dr. Agustinus Subarsono stated that the PPP scheme has enabled infrastructure projects to proceed, as the funding comes not only from the government but also from business entities like state-owned enterprises (SOEs), regional-owned enterprises (BUMD), and private companies.
However, the budget cut will affect the planning and continuation of infrastructure projects across Indonesia.
“With ongoing projects and new government policies on budget efficiency, the way forward to keep projects running is to revise the partnership scheme, redefining the rights and obligations of each party,” Dr. Subarsono said on Thursday (Feb. 13).
He noted that the budget cuts in the Ministry of Public Works will reduce government capital contributions within the PPP scheme, meaning private sector players will need additional incentives.
“I believe the private sector should be offered extra incentives, such as extending the project management period by several years, as they will need to increase their investment,” he added.
Dr. Subarsono emphasized that continued synergy between the government and private sector is critical for infrastructure development, especially with growing infrastructure needs driven by population growth.
“Given the government’s limited budget, mobilizing private sector funds is a key strategy for accelerating infrastructure development,” he explained.
He further highlighted that the demand for high-quality infrastructure will increase alongside the rising educational levels of Indonesians.
“We need to acknowledge that the private sector is generally more advanced in technology and management than the public sector, so partnering with private companies will also provide valuable learning opportunities for the government,” he concluded.
PPP is a mechanism for mobilizing funds from businesses or the private sector. It also reduces the government’s role in infrastructure development.
Dr. Subarsono pointed out that, based on the experience of Western European countries, public-private partnerships can accelerate development because governments can allocate limited funds to projects supported by private capital.
Various sectors can continue to develop when private-sector funding supplements the government’s limited capital.
“I think this approach is better than halting projects. With greater financial support from business entities, infrastructure quality will also improve compared to relying solely on the government’s limited funds,” Dr. Subarsono said.
Author: Kezia Dwina Nathania
Editor: Gusti Grehenson
Post-editor: Afifudin Baliya
Photograph by: Ministry of Public Works