To improve connectivity between its vast regions and support economic growth, Indonesia requires more infrastructure financing than ever. As an alternative to the existing Public-Private Partnership (PPP) scheme, the Government of Indonesia has recently introduced a new form of concession, i.e. Limited Concession Scheme (“LCS”) as stipulated under Presidential Regulation No. 32/2020 on Financing of Infrastructure through Limited Right of Utilization (“PR 32/2020”).

Through this regulation, private sector (including, limited liability company and foreign business entity) will be allowed to manage and operate existing infrastructure assets in the form of State-Owned Goods (Barang Milik Negara/“BMN”) or State-Owned Enterprises’ assets (“SOE Assets”), which consist of assorted types of infrastructure, namely: transportation (seaports, airports, railways and bus terminals), toll roads, water resources, sewerage and waste management systems, telecommunications, power plants, renewable energy, oil and gas (“LCS Assets”).

To qualify as LCS Assets, the infrastructure shall already been in operation for at least two years, and the remaining life of the assets shall be at least ten years. The LCS Assets will be put on a long list and announced to public by KPPIP, an ad-hoc committee set up by the Government to accelerate development of priority infrastructure projects in Indonesia.

This financing scheme is expected to become a new funding alternative source for infrastructure development projects. With LCS model, the Government may “recycle” existing operational infrastructure assets to capitalize new development or upgrade of other assets using the fresh upfront money from private sector. In return, the private sector will be granted a concession to operate LCS Assets for certain period of time to guarantee its return of investment.

Private sector interested in the investment may participate in a prequalifying tender to be organized by the relevant authorized institution responsible for each asset. The tender will be based on the estimate value of the upfront fee to be determined the State’s valuer for BMN or by a qualified asset valuation company for SOE Assets.

The private sector granted with concession shall transfer the upfront fee within 6 (six) months after the execution of LCS agreement. Upon transfer of the asset, private sector shall be fully responsible for the operation and maintenance of the asset, including paying applicable tax associated with the asset. The private sector is expected to improve operational off-licence while maintaining services and performance of the asset.