Availability Payment Research Articles

Study on Basic Requirements and Critical Success Factors (CSF) of Implementing Availability Payment in Public-Private Partnership (AP PPP) in Regency/Municipal Government

Referring to PPP Books 2017-2023 issued by The Ministry of National Development Planning of Indonesia, there is only 1 out of 16 AP PPP projects at the municipal/regency level that have successfully reached the operational stage (6% success rate), i.e. Madiun Regency Public Street Lighting. Several municipal/regency AP PPP projects have failed, for example, Bandung Municipal Public Street Lighting. The widespread failures indicate that the application of AP in regional infrastructure has so far not been successful in Indonesia. This paper aims to identify the basic requirements, critical success factors, and lessons learned from AP PPP implementation in Municipal/Regency Governments. Thus, it is hoped that the future provision of regional infrastructure with the AP scheme can proceed seamlessly. This study used a mixed-method approach that combines qualitative and quantitative data from literature reviews, questionnaires, and interviews. The results showed that the basic requirements for AP PPP include the existence of regulations and institutions. The five main success factors of AP PPP in the Municipal/Regency Government are (1) a well-organized and committed public agency; (2) political support; (3) favorable and efficient legal framework; (4) stable political and economic situation; and (5) public and private sector commitments and responsibilities. The lesson learned from the case study is that fiscal capacity is not the main factor in the success of PPP in Madiun Regency, but rather the willingness of the local government to implement PPP by regularly holding capacity building and maintaining good relationships and communication with each stakeholder involved.

Hybrid Evaluation Model to assess the overall barriers of public-private partnership contracts

Public-private partnerships are increasingly being used in many countries as a common management technique to enhance the delivery of public services and major public infrastructure projects. Understanding the project characteristics and obstacles to a public-private partnership is key for those involved to improve implementation. This study focuses on barriers that arise from public-private partnership contact in field wastewater treatment plants and offers a methodology for evaluating the overall barrier for public-private partnership projects by analyzing the relationships between the barrier elements. A primary list of barrier factors and their eight latent project characteristics were collected through literature reviews, then using the Delphi technique to filter the barrier insights concerning project characteristics and develop the final list using field interviews. 207 valid questionnaires were obtained. The data was deconvoluted into crisp numbers using fuzzy set theory, and a second-order structural equation model was used to validate the conceptual model. The results of the study indicate that the availability payment capability group has the highest score of all the groups in this study. This study proposed a model that enables the private sector to measure and evaluate aggregate barriers in projects so that it is easier for decision-makers to determine whether they can choose the project or not.

Availability Payment Based Public Private Partnerships In Indonesia

Availability Payment Based Public Private Partnerships In Indonesia

DETERMINING CONCESSIONARY ITEMS FOR “AVAILABILITY PAYMENT ONLY” PPP PROJECTS: A HOLISTIC FRAMEWORK INTEGRATING VALUE-FOR-MONEY AND SOCIAL VALUES

Public-private partnerships (PPPs) have been widely applied in infrastructure development around the world. However, reasonable concessionary items are critical to compromise interest conflicts between government agencies and sponsors to ensure project success. A broad literature review centering on PPP transaction structuring revealed two significant research gaps: (1) a lack of attention to the ‘availability payment only’ (APO) funding method and (2) negligence of the public side’s perspective in determining concessionary items. The research objective was to develop a methodological framework for determining concessionary items in APO PPP projects while considering the interests of the public side. This study proposed a value-for-money (VFM) and social values integrated framework which accommodates discounted cash flow (DCF) analysis, bargaining game modeling, and multi-objectives decision-making (MODM). This framework enables a decision-making process based on both an indifferent feasible interval of concessionary items under a discount rate agreed upon by both parties and an optimal set of concessionary items. Additionally, results of a sensitivity analysis indicated that project construction profit can significantly affect feasible and optimal concession items, and the optimal concession period is less sensitive to changes in risk allocation. The application of proposed model indicated that this paper successfully provides a methodology for determining a feasible interval and an optimal concession items group tailored to APO PPP projects. This study paves the way towards a platform for the public and private partners to jointly and quickly come up with sound PPP concessional items in light of the win-win principle, particularly under the APO funding mechanism.

INVESTMENT ANALYSIS OF KARANGAGUNG TUBAN FISHING PORT DEVELOPMENT WITH PPP AVAILABILITY PAYMENT FINANCING

As the largest maritime country, Indonesia holds tremendous potential in fisheries and marine resources, serving as a primary driver for national economic growth. Despite the substantial potential for fishery activities in the Karangagung region, limited infrastructure and government budget constraints hinder the optimization of these activities. This research aims to conduct an investment analysis for the development of a fishery port in Karangagung, utilizing the Government and Business Entity Cooperation (PPP) scheme with Availability Payment financing. The investment analysis methods employed encompass the calculation of Net Present Value (NPV), Internal Rate of Return (IRR), and Benefit Cost Ratio (BCR), considering Availability Payment financing. Additionally, the study will analyze the Life Cycle Cost (LCC) in the development of the Karangagung Fishery Port. Therefore, this research aims to provide a comprehensive overview of both financial and non-financial potential benefits derived from the development of the Karangagung fishery port. Under the Availability Payment scheme, the Project Responsible Party will compensate the Business Entity reasonably for investments, operational costs, and fair profits. They will also be granted permission to provide these services for a specific duration. Upon the conclusion of this period, all assets will become government property. The analysis results indicate that the PPP Availability Payment financing scheme yields a positive NPV, an IRR value of 7.26% with returns in the 24th year, and a BCR value exceeding 1. Hence, this PPP scheme can be deemed feasible for implementation in the Karangagung Fishery Port development project.

ANALYSIS OF ELECTION OF INFRASTRUCTURE FINANCING SCHEMES IN THE DEVELOPMENT OF REGIONAL WASTE MANAGEMENT IN THE DISTRICT AND CITY OF PROBOLINGGO

Regional waste management is a crucial aspect in ensuring environmental sustainability and public health in the Probolinggo Regency and City. One of the main challenges in the development of regional waste management is the financing of the necessary infrastructure to achieve these goals. This research aims to analyze the selection of infrastructure financing schemes in the development of regional waste management in the Probolinggo Regency and City. The research methodology involves field surveys, interviews with relevant stakeholders, and economic and financial data analysis. The investment analysis method used includes calculations of Net Present Value (NPV), Internal Rate of Return (IRR), and Benefit Cost Ratio (BCR), considering Availability Payment financing. Additionally, this study will also analyze Life Cycle Cost (LCC) while considering various financing schemes, including government financing schemes (APBN/APBD) and non-government financing schemes such as Public-Private Partnership (PPP) schemes like Build-Operate-Transfer (BOT) and Regional Loans. The results of the analysis show that all financing schemes, both government and non-government, yield viable results. These three schemes are then validated through Focus Group Discussions (FGD) using financial and non-financial criteria. The selected financing scheme is the regional loan, with the second alternative being APBN & APBD. Meanwhile, the BOT Public-Private Partnership scheme is considered as the last alternative financing scheme.

KAJIAN SISTEMATIS KEBIJAKAN SKEMA PEMBIAYAAN KERJA SAMA PEMERINTAH DENGAN BADAN USAHA (KPBU) PADA SEKTOR PERUMAHAN GUNA MENGATASI BACKLOG DI INDONESIA

The need for housing supply in Indonesia is prodigious. The 2020-2024 RPJMN projects housing funding needs to reach IDR 397.9 trillion or 6.17 percent of all infrastructure financing needs of IDR 6,445 trillion, while the government can only provide IDR fund 127.2 trillion. Fiscal constraints require the government to seek alternative sources of funding so as not to burden the state's finances. On the other hand, the housing backlog in Indonesia is increasing along with the increase in population. Calculation results using BPS data show that until 2021 the backlog figure inhabiting 7.3 million housing units, while the backlog figure has reached 13.5 million housing units. Through the Public-Private Partnership (PPP) scheme, the private sector can be involved in fulfilling the housing supply in Indonesia. To attract the private sector, the government provides support in the form of availability payment facilities considering that the target users are low-income communities (MBR).

Analysis of Project Budget Plan with Public Private Partnership Through Availability Payment (Case Study: Sumadra-Bungbulang Road, Garut Regency)

Investing in road infrastructure can stimulate economic growth and provide support for various developments. To ensure success, it is crucial to allocate funds based on technical calculations and specifications. This article focuses on budget planning for the Sumadra-Bungbulang road infrastructure project using the Public-Private Partnership model as a potential solution to achieve infrastructure goals. Budget calculations show a positive NPV and a Payback Period that meets the concession deadline. Additionally, the IRR target of 12% agreed upon by public and private institutions is also achieved. Therefore, the proposal for the road project through Public-Private Partnership is worthy of consideration by the West Java Governor for short-list or long-list selection.

PPP as a Creative Financing Innovation in The Financing of Makassar Parepare Railway Infrastructure

Provision of infrastructure is needed to accelerate economic growth, improve people's welfare, and realize the availability of better public services. The involvement of the private sector as an innovation in infrastructure development will create better public services. The Government of Indonesia introduced the Public - Private Partnership (”PPP”) scheme in the provision of infrastructure to provide a room for the Government to cooperate with the private sector based on the principle of proportional risk allocation. The PPP project with the Availability Payment (AP) scheme is something new in Indonesia. PT Celebes Railway Indonesia (PT CRI) with its project" Makassar-Parepare Railway " is the first project to use this scheme.

Third-Party Risk in the Availability Payment: The Palapa Ring Western Package

The Palapa Ring Western Package is the first Public Private Partnership infrastructure project in Indonesia implementing Availability Payment (AP). Prevailing regulations allow the Government Contracting Agency (GCA) and Implementing Business Entity (IBE) to determine the system of incentives and penalties of AP in their project contract. This research explores two main issues: (1) whether the IBE has obligation for contingent cost liabilities outside of the contractually determined AP amount in the occurrence of damage caused by a third party which interrupts or disrupts infrastructure service availability and (2) whether the GCA has the right to penalize AP amount to the IBE in the occurrence of damage by a third party which interrupts or disrupts service availability. By applying normative legal research using the statute approach, this research concludes that in this project, the IBE has obligation for contingent cost liabilities outside of contractually determined AP amount in the occurrence of damage by a third party and the GCA has the right to penalize AP amount if the IBE fails to maintain service availability. The contractual allocation of operational and maintenance risk to the IBE creates obligation to bear costs during the project lifetime including those due to third-party risk. Further, the use of formula to calculate AP to IBE is solely based on performance data in maintaining service availability according to contractually agreed standards. Thus, the use of AP in the Palapa Ring Western Package may be a point to reference for future Public Private Partnership infrastructure projects.

A STUDY ON THE APPLICATION OF AVAILABILITY PAYMENT SCHEME FOR URBAN INFRASTRUCTURE IN INDONESIA

The Government of Indonesia encourages the implementation of central and regional infrastructure through Public Private Patnership (PPP) which is regulated by Presidential Regulation no. 30/2015. One of the financing schemes in PPPs is the availability payment (AP), namely periodic payments by the Regional Head to the Implementing Business Entity for the availability of infrastructure services in accordance with the quality and/or criteria as determined by the PPP Agreement (Minister of Finance Regulation No. 260/PMK.08/2016). The AP scheme can be an alternative for PPP projects that are not feasible in terms of user payments because they do not depend on demand. AP is considered still difficult to implement in Indonesian PPPs because it is constrained by various things that need to be evaluated. Through a descriptive narrative approach based on literature review and case surveys, this research analyzes the keys to success, constraints, and recommendations for implementing AP in urban infrastructure in Indonesia. Case studies were conducted on several regional PPP projects in 8 districts/cities in Indonesia that use the AP and user payment schemes, where projects will be compared and evaluated based on the keys to the success of the AP to map constraints and their mitigation. The identification results obtained 13 AP success criteria which are grouped into regulation, institution, and business process aspects. The failure of AP compared to user payments in regional PPP projects is caused by the absence of regional PPP implementation and technical guidelines, the absence of approval from the DPRD and weak coordination with the regional government, the immature experience and preparation of the regional government, and the unpreparedness of regional PPP institutions. The recommendations proposed are the implementation of socialization of PPPs in the regions by the central government, increased coordination between the Regional Government and the DPRD, mature and complete preparation of regional PPP projects, and the implementation of regional PPP capacity building in improving the experience of regional governments.

Study on the Readiness of the Regional Government of South Sulawesi for the Mamminasata Urban Railway Project with Non-State Budget/Regional Budget Financing

Non-Budget Financing The government raises alternative sources of financing to be used to contribute the financing strategic national infrastructure projects that have commercial value and have an impact on improving the Indonesian economy. One example of this scheme is PPP (Government and Business Entity Cooperation). The purpose of this study was to see the readiness of the South Sulawesi regional government in the Mamminasata Urban Railway Project with Non-State Budget / Regional Budget Financing. It is believed that the Public-Private Partnership Scheme with Business Entities (PPP) was believed to be alternative financing that can improve infrastructure development and the efficiency of development implementation which creates the quality of a product and service in the distribution of capital and risk as well as the competence of human resource expertise together. It was hoped that the PPP Project in the construction of the Mamminasata Urban Railway Infrastructure could become a way out in Non-State Budget / Regional Budget financing and become a solution by the National Mid-Term Development Plan (NMTDP) and Regional Mid-Term Development Plan (RMTDP) to achieve the construction of a 3258 Km railway line. The suggestion put forward into this study is the government needs to establish a transportation management body that integrates all modes of transportation and manages commercial areas following the authority of the PJPK in increasing revenue for an investment return on Availability Payment (AP).

Stochastic modelling of maintenance flexibility in Value for Money assessment of PPP road projects

Maintenance flexibility has been promoted as a value driver for long-term public–private partnerships (PPPs). However, the value and risk associated with this value driver have not been properly quantified in the Value for Money (VfM) assessment literature. To bridge the gap, a novel stochastic modelling methodology is proposed to characterize the complex interactions among the lifecycle cost (LCC), performance deterioration and maintenance strategies. Four different maintenance strategies are designed to emulate the practice in the traditional and PPP delivery methods. The LCC includes the direct maintenance cost, user cost, residual value, and payment deduction, the last three often being neglected in VfM assessments. Simulation-based optimization and dynamic programming analysis are used to determine the probability distributions of the LCC and the VfM. A hypothetical highway PPP project under an availability payment model is selected as a case study. The results show that maintenance flexibility is indeed able to reduce the LCC for the private party. However, this private efficiency, if not properly regulated, could cause a reduced asset residual value and an increased user cost, making the public party worse off. In addition, for all potential maintenance strategies, the public sector is found to retain significant lifecycle cost risk, largely in the form of user cost.

Determining the Optimal Concession Period in Cancer Hospital Project using Public-Private Partnership (PPP) with Availability Payment Scheme

The construction of Cancer Hospital in city of X which require total Capital Expenditure of Rp 1,135,834,554,688 can answer the need of comprehensive cancer services in Indonesia. But due to limited local government budgets, forcing local government to find alternative funding through Public Private Partnership (PPP) scheme. One of the newest PPP scheme at the moment is the Availability Payment (AP) scheme.
 Through this research, authors analyze the optimal concession period and the feasibility of this investment plan by calculating the required Capital Expenditures, Operating Cost, and other expense and Risk embedded to the project. The optimal concession period is analyzed by simulation of different concession period scheme ranging from 10-25 years and find the lowest required Availability Payment. The feasibility of the cancer hospital project is analyzed by using Discounted Cash Flow parameter which are Net Present Value, Internal Rate of Return and Payback Period. The risk embedded to the project is analyzed by using sensitivity, scenario and monte carlo analysis.
 From the result of Availability Payment calculation, the optimal concession period for this project is 22 years, this period scenario generates AP payment of Rp 287,712,786,883. The result of this project is financially feasible with positive Net Present Value of Rp 95,490,595,725, the Internal Rate of Return (IRR) of 12,66% which greater than Weighted Average Cost of Capital (WACC) of 11.92% , and Payback Period of 11,17 years. This Cancer hospital Project is financially safe to build by business entity (BUP). From 10,000 trials of Monte Carlo simulation, the project NPV will lies between Rp 59,335,915,203 to Rp 121,260,967,584 with 95% certainties with worst case scenario NPV still positive Rp 40,041,126,128. Based on the sensitivity analysis the COGS expense is the variable that most affecting the overall NPV of this project, followed by the long-term debt interest rate.

An Incentive Analysis of Availability Payment Mechanism in PPP Projects

This study aims to investigate the incentive mechanism of different availability payment methods applied in Public Private Partnership (PPP) contracts. We present a basic model in a multitask environment in which a risk-averse private contractor chooses two types of noncontractible efforts: one is unproductive, in the sense that it saves building cost but sacrifices social benefits; the other one is productive, as it reduces operating cost without social loss. We find that the PPP contract using separate charges for availability and performance is more desirable than using single unitary charge if the government can detect the social loss cause by unproductive effort. However, the latter brings about more social welfare over the former if the social loss is not observable to the government and the observable value of benefit-cost ratio of the unproductive effort is relatively larger than the benefit-cost ratio of the productive effort.

A Comparative Research on the Variations of PPP Contracts: Availability Payment PPP Vs.Concession PPP

Park, Soojin; Hwang, Min; Cho, Man.February, 2020.A comparative research on the variations of PPP contracts,Report,[Sejong]KDI School of Public Policy and Management,KDI School Working Paper Series/20-06,25

Can Public-Private Partnerships Foster Investment Sustainability in Smart Hospitals?

This article addresses the relationship between Public-Private Partnerships (PPP) and the sustainability of public spending in smart hospitals. Smart (technological) hospitals represent long-termed investments where public and private players interact with banking institutions and eventually patients, to satisfy a core welfare need. Characteristics of smart hospitals are critically examined, together with private actors’ involvement and flexible forms of remuneration. Technology-driven smart hospitals are so complicated that they may require sophisticated PPP. Public players lack innovative skills, whereas private actors seek additional compensation for their non-routine efforts and higher risk. PPP represents a feasible framework, especially if linked to Project Financing (PF) investment patterns. Whereas the social impact of healthcare investments seems evident, their financial coverage raises growing concern in a capital rationing context where shrinking public resources must cope with the growing needs of chronic elder patients. Results-Based Financing (RBF) is a pay-by-result methodology that softens traditional PPP criticalities as availability payment sustainability or risk transfer compensation. Waste of public money can consequently be reduced, and private bankability improved. In this study, we examine why and how advanced Information Technology (IT) solutions implemented in “Smart Hospitals” should produce a positive social impact by increasing at the same time health sustainability and quality of care. Patient-centered smart hospitals realized through PPP schemes, reshape traditional healthcare supply chains with savings and efficiency gains that improve timeliness and execution of care.

Value for Money Assessment for Government and Business Entity Cooperation Projects by Using the Availability Payment Model: Proposition Methodology

This paper proposes a quantitative methodology for ex-ante value-for-money (VfM) assessment to select the best modality option between conventional procurement and public-private partnership under the availability payment model for infrastructure provision within the Indonesian context. The proposed methodology incorporates efficient risk allocation principles into assessment to monetize risk retained by the government and risk transferred to the private sponsor. A simple numerical example under different scenarios of risk allocation for a road maintenance project case is presented to demonstrate its applicability. This paper also identifies some relevant issues, acknowledges limitations of the proposed methodology, and recommends directions for future research efforts.

Smart hospitals and patient-centered governance

This paper explores innovative governance models in the healthcare sector. Patients are a key albeit under-investigated stakeholder and smart technologies applied to public healthcare represent a trendy innovation that reshapes the value-driving proposition. This study contributes to the best practice improvement in this sector, showing how health governance can balance the interests of conflicting stakeholders (patients, staff, politicians, private providers, banks, suppliers, etc.) when technology-driven (smart) investments are realized. Characteristics of smart hospitals are critically examined, and governance solutions are considered, together with private actors’ involvement and flexible forms of remuneration. Smart hospitals are so complicated that they may require sophisticated Public-Private Partnerships (PPP). Public players lack innovative skills, whereas private actors seek additional remuneration for their non-routine efforts and higher risk. PPP represents a feasible governance framework, especially if linked to Project Financing (PF) investment patterns. Results-Based Financing (RBF) softens traditional PPP criticalities as availability payment sustainability or risk transfer compensation. Waste of public money can consequently be reduced, and private bankability improved. Patient-centered smart hospitals reshape traditional healthcare governance, with savings and efficiency gains that meliorate timeliness and execution of cares. Transformation of in-patients to out-patients and then home-patients represents, whenever possible, a mighty goal.

Can Public-Private Partnerships Foster Investment Sustainability in Smart Hospitals?

This article addresses the relationship between Public-Private Partnerships (PPP) and the sustainability of public spending in smart hospitals. Smart (technological) hospitals represent long-termed investments where public and private players interact with banking institutions and eventually patients, to satisfy a core welfare need. Characteristics of smart hospitals are critically examined, together with private actors’ involvement and flexible forms of remuneration. Technology-driven smart hospitals are so complicated that they may require sophisticated PPP. Public players lack innovative skills, whereas private actors seek additional compensation for their non-routine efforts and higher risk. PPP represents a feasible framework, especially if linked to Project Financing (PF) investment patterns. Whereas the social impact of healthcare investments seems evident, their financial coverage raises growing concern in a capital rationing context where shrinking public resources must cope with the growing needs of chronic elder patients. Results-Based Financing (RBF) is a pay-by-result methodology that softens traditional PPP criticalities as availability payment sustainability or risk transfer compensation. Waste of public money can consequently be reduced, and private bankability improved. In this study, we examine why and how advanced Information Technology (IT) solutions implemented in “Smart Hospitals” should produce a positive social impact by increasing at the same time health sustainability and quality of care. Patient-centered smart hospitals realized through PPP schemes, reshape traditional healthcare supply chains with savings and efficiency gains that improve timeliness and execution of care.