An Infrastructure Financing Scheme for Industrial Development

Abstract

To achieve its vision of becoming a developed and prosperous economy in 2045, Indonesia focuses on expanding its regional development by developing its six economic corridors based on each corridor’s potential industries. Therefore, adequate infrastructure that improves regional connectivity and drives economic activities should be developed to help accelerate the industrial development in each economic corridor. This paper examines the financial feasibility of investing in industrial supporting infrastructure projects and develops financing and institutional schemes for the implementation of public-private partnerships to enhance the attractiveness of the projects for the private sector. The results of life-cycle cost analysis and system dynamics simulation show that with a required initial cost of USD 254 million and operation and maintenance (OM) cost of USD 224.29 million, the development is deemed financially feasible, generating a revenue of USD 872.38 million for a 40-year concession period. From the 45 cost-sharing scenarios investigated, the optimal internal rate of return (IRR) value of 15.62% was obtained, with the private sector covering 64.14% of the initial cost and 73.61% of the OM cost, as well as gaining 76.62% of the total revenue.

Keywords

• financing scheme
• industrial development
• infrastructure projects
• public-private partnership