- What is the IIGF?
- Why was the IIGF established?
- What is the relationship between IIGF and the World Bank?
- What types of guarantees does IIGF offer?
- Why is IIGF a “single window”?
- How does IIGF work?
- What is the Indonesia Infrastructure Guarantee Fund Project (IGFP)?
- What are the respective roles and responsibilities of the IIGF and the World Bank vis-à-vis IGFP?
- How does the World Bank project IGFP support IIGF?
- How is IIGF funded?
1. What is the IIGF?
The Indonesia Infrastructure Guarantee Fund (IIGF) is an independent State Owned Enterprise (SOE) 100% owned by the Government of Indonesia (GOI). IIGF was established in December 2009 under Government Regulation No. 35/2009 to be the sole institution — or the “single window” — for appraising, structuring, processing claim payment and providing government guarantees for infrastructure Public-Private Partnership (PPP) projects in Indonesia.
2. Why was the IIGF established?
Faced with increasing demand for infrastructure to support Indonesia’s economic growth, GOI has prioritized attracting private capital, expertise and efficiency into public infrastructure development. GOI is committed to providing a robust framework for private financing of infrastructure, and has established the IIGF as the “single window” to provide guarantees designed to mitigate the private sector’s exposure to the risk of Government actions/inaction vis-à-vis specific PPP contracts/agreements. Indonesia’s Presidential Decree No. 78/2010 outlines the guarantee regime under the IIGF, and the supporting Minister of Finance Regulation No. 260/2010 details how guarantees would be issued to PPPs.
3. What is the relationship between IIGF and the World Bank?
IIGF has been developed by the GOI with support from the World Bank, building on relevant international experiences involving the use of government guarantees to leverage private financing of infrastructure. With World Bank technical support, IIGF has developed a standardized, world-class set of operational norms and procedures as well as guarantee-appraisal standards, corporate governance and other critical functions of the IIGF. Such support has helped build IIGF’s institutional capacity and established its credibility in the marketplace. The World Bank is also providing financial assistance to IIGF under the Indonesia Infrastructure Guarantee Fund Project (IGFP).
4. What types of guarantees does IIGF offer?
IIGF offers two types of guarantees:
(i) IIGF guarantees which are backed by IIGF’s own capital.
(ii) World Bank-Supported IIGF guarantees which are backed by World Bank financing. These guarantees are not World Bank Group guarantees, but rather IIGF guarantees backed by financial support provided under the Indonesia Infrastructure Guarantee Fund Project (IGFP). World Bank-supported IIGF guarantees will only support projects that would be eligible for World Bank Group support.
Both types of guarantees—IIGF Guarantees and WB-Supported IIGF Guarantees—follow government regulations and a common set of internationally accepted norms and operational procedures codified in IIGF’s formal documentation (i.e., Operations Manual or OM).
5. Why is IIGF a “single window”?
IIGF is the single window to appraise infrastructure PPPs seeking government guarantees in order to provide consistency, clarity and standardized procedures, as well as better management of MOF fiscal risk vis-à-vis government guarantees. Under the single window approach, IIGF uses a single set of standardized, world-class operational norms, procedures and guarantee-appraisal standards codified in IIGF’s OM developed with technical assistance from the World Bank. IIGF has been using these procedures to process all IIGF guarantees since November 19, 2012. This brings standardization to the GOI approach to provide credible guarantee support to PPPs that demonstrate a high quality of project preparation, including financial and structuring parameters as well as environmental and social safeguards.
6. How does IIGF work?
IIGF is designed to be a credible and the sole provider of government guarantees in Indonesia. This is ensured through a robust governance structure minimizing risk of political interference, high standards of transparency and disclosure, ring-fencing of IIGF’s assets, and a mechanism to ensure full operational independence of IIGF.
It is important to note that IIGF is a guarantee fund and not an implementing agency for PPP projects; the government agency responsible for each PPP is called the Contracting Agency (CA). For each project, the relevant CA makes an inquiry to IIGF regarding potential guarantee coverage, in response to which IIGF provides the CA with a comprehensive guidance package—including eligibility criteria, detailed checklist for the application package, as well as environmental and social safeguards requirements. IIGF provides guidance and consultations to CAs to help understand the process, PPP regulation, guarantee mechanism, role and requirement for guarantee appraisal etc on the basis of which CAs may submit a guarantee application package to IIGF. Once the CA submits its application package for a project, IIGF: (i) screens the CA’s submission to determine whether the project is eligible to proceed and what risks need to be covered; (ii) conducts detailed appraisal on whether to provide guarantee, based on CA’s pre-feasibility study and IIGF’s own analysis; (iii) structures the guarantee package; (iv) issues the guarantee, and subsequently, monitors the project during construction and operations to ensure relevant parties implement the project according to their respective responsibilities under the Guarantee Agreement (GA) and Recourse Agreement (RA). In the event of a guarantee call, IIGF will undertake claim assessment and make the associated guarantee payment to the guarantee recipient. A recourse mechanism subsequently enables IIGF / MOF to recover such payments from the concerned CA.
7. What is the Indonesia Infrastructure Guarantee Fund Project (IGFP)?
IGFP is a World Bank project designed to support IIGF’s institutional and operational development toward becoming a world class institution and an effective single window to appraise infrastructure PPPs in Indonesia requiring government guarantees, and establish its credibility in the market.
Under IGFP, IIGF can utilize part of the financing for technical assistance to develop IIGF’s institutional capacity to screen, appraise, and associated activities to provide guarantees for infrastructure PPPs in accordance with operational procedures and appraisal standards codified in IIGF’s OM. This technical assistance is also helping build capacity in CAs, which are responsible for their respective PPP projects, to be able to meet the appraisal criteria of IIGF. This technical assistance also raises the awareness and understanding of other key project stakeholders and relevant parties vis-à-vis IIGF’s guarantee operations.
Under IGFP, IIGF can also access World Bank financing to back IIGF’s guarantees to qualifying projects. These guarantees are not World Bank Group guarantees, but rather IIGF guarantees backed by financial support provided through the IGFP. World Bank-supported IIGF guarantees will only support projects that are eligible for World Bank Group support.
8. What are the respective roles and responsibilities of the IIGF and the World Bank vis-à-vis IGFP?
IIGF has adopted, and committed to implement in all of its operations, the IIGF OM, which includes IIGF guarantee appraisal procedures as well as social and environmental safeguards. As mentioned above, IIGF is not the implementing agency responsible for specific projects, but rather applies its procedures and standards codified in its OM toward screening, appraising, and structuring IIGF guarantees. In practice, this is implemented by IIGF providing advice to CAs on PPP project preparation so that projects meet its appraisal standards and comply with applicable regulations and criteria prior to guarantee issuance.
IIGF guarantees that are not backed by the World Bank loan are appraised and approved by solely by IIGF; i.e., these are not appraised by the World Bank prior to IIGF’s approval and provision of such guarantees.
For World Bank-supported IIGF guarantees provided under IGFP, IIGF will appraise projects jointly with the World Bank and obtain the World Bank’s No-Objection prior to approval and issuance of these World Bank-supported IIGF guarantees. World Bank-supported IIGF guarantees can only be provided to projects that are eligible for World Bank assistance.
9. How does the World Bank project IGFP support IIGF?
First, IGFP will help improve the quality of infrastructure PPPs being prepared by various CAs through the Technical Assistance provided to IIGF. Technical assistance provided to IIGF is designed to help it execute guarantee operation based on its OM. Based on its OM, IIGF’s advice to CAs on how to meet its appraisal standards to secure a guarantee will play a critical role in improving the quality of project preparation.
Second, IIGF’s use of World Bank financing under IGFP (to provide World Bank-supported IIGF guarantees) will enable it to work jointly with the World Bank to appraise projects. IGFP will help IIGF signal to the market that the quality of its appraisal standards, governance and other internal controls are high, and that IIGF will issue guarantees based on sound project appraisal and will remain a financially viable guarantee agency.
10. How is IIGF funded?
IIGF is capitalized by contribution from the Government of Indonesia’s budget (authorized capital of approximately US$ 1 billion). In addition, IIGF can access financial assistance provided by the World Bank under IGFP to provide World Bank-supported IIGF guarantees.