UCLG Congress 2012 - Linking Cities to Financing

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Information about UCLG Congress 2012 - Linking Cities to Financing

Published on March 7, 2014

Author: YIPD_Indonesia

Source: slideshare.net


This document was prepared by the Yayasan Inovasi Pemerintahan Daerah (YIPD) in cooperation with GFA as part of the Sub-National Implementation of Decentralization as Contribution to Good Governance program (DeCGG-SNI).

Linking Cities to Financing UCLG ASPAC – Congress Jakarta, October 3, 2012 Reslian Pardede Copyrights: University of Washington

Accessing Infrastructure Financing What kind of infrastructure financing is available for cities in Indonesia? What should cities do to access the financing? 2

Source of Financing ONSHORE FUNDS OFFSHORE FUNDS Cities own funds National Government Other Local Government Financial Institutions Corporations C I T I E S NatGov. Subsidiary Loan/ Grant Agreement Foreign Governments International Donor Agency Financial Institutions Local Corp. PPP Corporations Retail/people 3

Source of Infrastructure Financing for Cities National Government Ministries’ Budget & Mechanism Subsidiary Loan /Grant Agreement Other Local Governt Private Sector Governmt Investm. Fund Corporations (non FI) Retail/ People Financial Institutns Bank Non Bank Loan Grant Grant Loan PPP Budget Mechanism (APBD) Loan Loan Bonds Budget Mechanism(APBD) Cities/Local Government 4

Planning Agency 3 mth after Mediumterm Dev Plan, revised annually RPPLN (Plan for Offshore Financing) REJECTED Feasible ? YES 6 mth after Mediumterm Dev Plan NO Cities Ministries or SOE Evaluation on administration, technical and financial DRPLN-JM (List of Potential Activities) Subsidiary Loan Agreement Procedure 2 Inform plan for DRPLN 4 NO 1 Council Approval 3 Proposal Summary of Prop 5 Increase Readiness Ministries or SOE Meet Req? 6 Detail Proposal YES REVISE/IMPROVE When forwarding the loan, the Government (Ministry of Finance) enters a subsidiary loan agreement with cities. DRPPLN (List of Priority) 7 Ministries or SOE List of Activities (Projects) Meet readiness criteria 8 Source: PER.004/M.PPN/2011 9 Ministry of Finance 5

Type of Financing – Grant Source: National Government/Ministries Offshore funds G R A N T Characteristics: 1. Grant is mostly used for preparation or assistance funds. 2. Cities involvement is quite limited in proposing grant. 3. Ministries can forward funds to cities as either grant or loan (PER.004/M.PPN/2011). Each Ministry has its own mechanism of distributing funds to cities e.g. RPIJM (Public Works). Finding out financing mechanism in Sectoral Ministries

Type of Financing – Loan Source: L O A N National Government (PIP, PT SMI, PT IFF) Offshore funds – through SLA Financial Institutions Other LGs Retail (Bonds) Characteristics: 1. Each financing has a different mechanism but all is subject to PP 30/2011 2. Some lenders are more stringent than others 3. Loan requires strong fiscal capacity, good financial management as well as some degree of transparency More suitable for income generating projects 7

Type of Financing – PPP Source: National Government (PIP, PT SMI, PT IFF) Private Sector (Corporations, State-Owned Enterprise, Local Government Owned Companies and Cooperatives): PP56/2011 allows foreign legal entities P P P Characteristics: 1. The part offered to private sector should be interesting enough for them to participate 2. PPP requires advance knowledge on project structure 3. Initiatives can come from Ministries/Cities or Private Sector A PPP project can be a combination of different financing types 8

Challenges in Accessing Financing Financial Gap. Most cities depend on budget transfer from Government which currently still dominates the city financial income structure (around 70‐80% of the total income) and is just enough for routine expenditures. Prioritization. Considering the limited amount of funds, cities need to prioritize their infrastructure projects. Packaging. Packaging is about how to design financial scheme of a project to be not only attractive but also fits the risk profile of each source of funds. This is all about creativity, skills and experience. Execution. Successful infrastructure financing needs not only good planning but more importantly execution starting with establishing a team, timeline, target. 9

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