Mandiri Sekuritas Construction sector: Bappenas to prepare policy paper for PPP

We went to a workshop on the policy of public private partnership (ppp) in Indonesia yesterday. The program was initiated by National Development Planning Agency (Bappenas) in collaboration with the World Bank and Aus AID. Bappenas requested World Bank to prepare policy paper on PPP in order to inform the incoming government. There were several representatives, which consists of project owner from
government institutions, SOEs, as well as private companies.

These representatives openly discussed about the difficulties which they are facing in dealing with infrastructure related projects. These include (1) lack of government support in project financing, (2) no clear guidance on the steps required to prepare and structure PPPs, and (3) lack of leadership on the PPP agenda. Bappenas acknowledged these difficulties and will indentify binding constraints in PPP framework and program and will also provide possible solutions. The World Bank and Bappenas expect to finalize the policy paper by August 2009.

We believe once the policy paper is completed, it would hopefully pave way for more investments in infrastructure projects, thus benefiting construction companies such as Wijaya Karya (WIKA, Rp345, Buy, TP Rp390) and Adhi Karya (ADHI, Rp445, Buy, TP Rp420). WIKA and ADHI are currently trading at PER09 of 12.5x and 8.5x, respectively.