Third Infrastructure Development Policy Loan

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The Third Infrastructure Development Policy Loan Program for Indonesia is intended to: (i) increase the quantity and efficiency of central Government spending on infrastructure through improved public service obligation (subsidy) policy, and expenditure planning and budgeting; (ii) improve sub-national infrastructure services through increased sub-national government spending and an improved incentives framework; (iii)in crease private investment in infrastructure through the establishment of a fiscally sound, credible and transparent Public-Private Partnership (PPP) framework; and (iv) enhance governance for infrastructure through improved land acquisition, environmental protection, and procurement and audit processes within the Ministry of Public Works. The current operation focuses on the most important infrastructure reform achievements of 2009,'prior actions' which are critical for the objectives of the program: 1) the Government is developing a scheme of output-based grants to sub-national governments when evidence is provided of new working piped water connections for poor households; 2) the level of infrastructure investment by key Government ministries has been substantially increased, providing an important foundation for higher economic growth; 3) the Government has prepared revisions to Perpres 67, the law which governs infrastructure PPPs, extending its operation to PPPs of sub-national governments; 4) the Government i s improving the accuracy and transparency of electricity subsidy forecasts, providing greater impetus towards ultimately reducing the subsidy; 5) the Government is establishing new institutions to improve the availability of long-term financing for infrastructure PPPs; 6) recent legal reforms are now facilitating land acquisition for infrastructure projects; and 7) the Ministry of Public Works Director General of Highways (Bina Marga) has established an internal taskforce to provide advice and assistance to the procurement committees that are responsible for individual procurement processes.