Q&A: Indonesia Infrastructure Finance's Harold Tjiptadjaja

Q: The Widodo administration has made infrastructure improvement central to its domestic agenda. How do you expect the political climate to affect opportunities for private investors?

A: Since 2014 the Indonesian government has been pushing a lot on infrastructure both through the state budget as well as through state-owned enterprises. But they also realized they need the private sector to join in, so right now there’s an opportunity for private investors to enter the market. After 10 years there is always a changing of the guard, but if you believe this administration will continue after the next election then it is likely we will have stability for the next seven years. I always tell investors and developers that now is the right time to start developing your project. Developing an infrastructure project can take years, so if you start now you have time to finish before the next administration takes over.

Q: What are the biggest challenges facing private investors that want to participate in the sector?

A: The developers in the market right now are all medium-sized companies, because the private infrastructure sector has just emerged in the last 10 years. So the central question is how you can build enough capacity and size to go for a successful exit. For example, in the power sector there is a rule of thumb that you need at least 1,000 megawatts of capacity to have a decent IPO. It might be lower for renewables, because the market appreciates renewable and clean energy more than traditional power plants. But the fact remains that you cannot remain small and find an exit. Building a platform by combining energy assets is one way to attain scale and eventually attract investors to take your stake.

Q: Do you see opportunities for investment beyond the infrastructure projects themselves?

A: There are other attractive opportunities around infrastructure, mostly around supply chains and supporting industries. In the case of a solar power plant, the plant itself might not be your thing, because the tariff is fixed and there’s very little upside. But if you look at the whole value chain, they need the panels and all the electrical instruments to construct that solar power plant. In hydro power, where the government is targeting 14,000 MW of capacity, plants require turbines that are either produced locally or imported from overseas, so you can invest in manufacturers or importers. It’s a market that has yet to be explored.

Q: Have you seen any investments recently that target these areas?

A: In the last year there was an investment by Asia Climate Partners in a US battery company – Fluidic Energy – that also has operations in Indonesia. These batteries are meant to be used as a backup for solar power, wind power, or any other renewable energy source. There’s an opportunity to use them not just in the domestic energy industry, but to make Indonesia a base to build and export to other Southeast Asian countries as well.

Q: Where do infrastructure projects most often run into problems?

A: One of the worst enemies of infrastructure in Indonesia is delay. It’s not a question of whether the project will be done, but by how much it will be delayed. You need to make sure you’ve taken account of that possibility in your business plan. Otherwise you might become frustrated at having not reached the size you’d planned for earlier, and if it goes on long enough you may even have to sell it down at a valuation you wouldn’t like.

Q: What causes these delays?

A: When you are setting up a power plant, you may need hundreds of permits before you can even start construction. And if you have four or five projects you must repeat the process four or five times. It’s not like some areas of consumer investment, where if you get a license to operate a cinema you can build five in one city. If you are building a fiber optic network for multiple cities you have to go through the process over and over again. And sometimes when you are in the middle of the process suddenly the person in charge changes, and then you have to start from zero again. So this is the kind of patience you need. You might have thought that you could build 1,000 MW in five years, but in reality it’s only 500 MW. This means that your IPO target, which was in three years, might have to be extended to seven years.

Q: What investment strategies are best suited to the sector?

A: In consumer you just have your own market, but in infrastructure you have to deal with many government institutions as well as specific sector challenges. So if you’re investing in infrastructure you have to pick just one sector where you know you are strong, where you know the ins and outs, and then try to add value based on your knowledge and experience. If you’re in toll roads, then you have to go in toll roads all the way – the same for power and ports. Otherwise, if you try and combine multiple kinds of assets, I think it will be difficult for you to see a profit.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Southeast Asia
• Infrastructure
• Infrastructure
• Indonesia