Risk Control and Management - Implementation Guidelines for Provision of Infrastructure

The Government recognizes that there is a critical need with respect to the provision of infrastructure and that this need will be best driven with additional Government support and participation. The types of support that the Government envisages will rely heavily on the State Budget (APBN) and therefore requires the application of acceptable and appropriate risk control and management principles.

The types of risk stipulated in this Minister of Finance (MoF) Regulation, No. 38/PMK.01/2006, are Political Risk, Project Performance Risk, and Demand Risk. Political risk in the Regulation relates to compensation payable to owners of assets and business entities. Unfortunately, the Regulation is not as explicit on how the risk is to be apportioned on any specific project. Project Performance risk comprises of location risk and operational risk, and includes among other issues; delay in acquiring land, land value increases, delays in commencement of operations, changed output specifications, and changes or cancellation of tariffs. Finally, Demand risk relates to discrepancies between expected and actual returns.