Institutional Transformation of Public Private Partnership to Ensure Low Transaction Costs: Case Study of Infrastructure Provision at the Ministry of Public Works and Housing of the Republic of Indonesia

Abstract

This paper provides an example of reconstruction of Public-Private Partnership (PPP) as governance structure at the ministrial level, using a perspective of transaction costs (Ho et al., J Manag Eng, Ho et al. 2015). This reconstruction is required since the performance of PPP scheme and interest of private sector to participate in the infrastructure provision is still practically low. Soft Systems Methodology-based Action Research (Checkland and Scholes 1990; Checkland and Poulter 2006; Hardjosoekarto, Syst Pract Action Res 25:493–509, 2012, Human Resource Manag Res. 3 49-53, 2013; Hardjosoekarto et al. 2013) is used to explore the form of PPP governance in organizational level as a part of hierarchy of policy formulation (Bromley 1989). According to previous study conducted by Ho, Levitt, Hsu, and Tsui, three main sources of transaction costs are identified: principal-principal conflict, renegotiation and hold-up problem, and soft budget constraint. This paper, however, only focuses on renegotiation and hold-up problem as the main sources of transaction costs. It is suggested that in the implementation of PPP, the Ministry of Public Works and Housing required a PPP Unit that serves as champion on the top by establishing new Directorate General that specially handling infrastructure investment.