08 Mar 2023
State Infrastructure Guarantee Agency Gets Revamp to Boost Sector’s Attractiveness to Financiers


A. Background


The Government has moved to expand the remit of its infrastructure guarantee agency in recognition of the ongoing urgent need for private-sector finance to overcome the continuing infrastructure gap in Indonesia, notwithstanding the major progress made to date under the Jokowi administration.


As always, the basic problem boils down to money. The need for new infrastructure is enormous, while the Government suffers from severely constrained financial capacity. Unfortunately, the private sector is frequently reluctant to get involved in large-scale projects in Indonesia for a variety of reasons, including the real fear that they may be canceled by a subsequent administration with other priorities.


To overcome this, the government in 2010 issued Presidential Regulation Number 78 of that year (“PR 78/2010”)[1], which established PT. Penjaminan Infrastruktur Indonesia (PII) as an arm of the Ministry of Finance to act as Indonesia’s infrastructure guarantee agency (Badan Usaha Penjaminan Infrastruktur, “BUPI”), with the remit of providing contingent fiscal support for government infrastructure projects as an agency associated with the Ministry of Finance (“MoF”).


BUPI was initially established by virtue of Government Regulation Number 35 of 2009, with the purpose of providing guarantees for public-private partnership (“PPP”) projects between the Government and private businesses. BUPI acts to guarantee political risk at both the central and regional government levels in order to provide greater certainty and comfort for investors. With BUPI acting as guarantor of the projects, this helps increase their creditworthiness.


B. Expanded Remit


The original implementing regulation for PR 78/2010, that is, MoF Regulation No. 95/PMK.08/2017 (“PMK 95/2017”),[2] stipulated that BUPI may only provide support  for infrastructure projects that are in the public interest.


However, this remit was evidently viewed as too narrow, and so it has now been expanded by MoF Regulation No. 148/PMK.08/2022 (“PMK 148/2022”),[3] which revokes PMK 95/2017 and allows BUPI to provide guarantees to support the provision of infrastructure, whether with or without specific assignment, and to provide guarantees for government-assigned projects in the non-infrastructure sector. (Note: a “specific assignment” is where the government assigns / instructs a particular state body or agency, or state enterprise, to develop an infrastructure project, such as in the case of much of the expressway network in Sumatra).


BUPI guarantees can be issued to cover the risks inherent in infrastructure projects (for example, construction risks), as well as political, default, and other risks.


To maintain its financial capacity to fulfill the guarantees that it provides, BUPI is required to (1) invest its funds, (2) maintain sufficient liquidity; (3) maintain its capital adequacy, and (4) apply appropriate risk management.


Investments may only be made in prescribed financial instruments, such as:

  1. time deposits (including deposits on call and non-negotiable certificates of deposit) at Commercial Banks for Business Activities (BUKU I and above), with the maximum  funds that may be placed with a particular bank amounting to 25% of the bank’s tier-1 core capital;
  2. government securities, such as government bonds and Islamic securities;
  3. securities issued by the Indonesian central bank;
  4. corporate conventional and Islamic debt securities that are listed and widely traded on the stock exchange; and
  5. mutual funds (reksa dana).

To maintain sufficient liquidity, BUPI may take out conventional loans or sharia financing from financial institutions when needed by BUPI (standby loans). However, BUPI is required to maintain its capital adequacy by not exceeding prescribed gearing ratios.


In operating its guarantee scheme, BUPI may seek re-guarantees from multilateral  or other financial institutions under a re-guarantee or co-guarantee arrangement, may engage in collaboration with national and international financial institutions, and may deploy “innovative guarantee products and their derivatives.”[4]


In terms of government support, previously the Ministry of Finance, through BUPI, could provide guarantees on its own, as well as co-guarantees and capital injections in the case of PPP projects. These rules have now been further relaxed so that the government can provide support in the form of (1) payment of compensation to a party performing a government-assigned task, 2) enforcement of BUPI’s right of regress against a guaranteed party in accordance with the prevailing laws and regulations, and 3) other forms of support that comply with the prevailing laws and regulations.


We expect that the Government support available under PMK 148/2022 is likely to prove attractive to financial institutions – especially international ones – and so should encourage them to lend more to large-scale infrastructure projects in Indonesia.


C. ABNR Commentary


Overall, the availability of government backup for BUPI when guaranteeing infrastructure projects under PMK 148/2022 should help encourage greater confidence, especially on the part of international financial institutions, so that they will become more proactive in lending to key, large-scale infrastructure projects in Indonesia.


Further, the Government’s involvement in assisting BUPI to enforce its rights of regress against guaranteed parties should help maintain BUPI’s liquidity. However, in order to be fully effective, appropriate sanctions and penalties for non-compliance by guaranteed parties will need to be set out clearly in a written regulation so that BUPI is armed with the tools it needs to ensure that its rights can be effectively upheld.


However, a potential obstacle to BUPI’s success is the fact that before it can provide strategic project funding, it requires the issuing of a dedicated MoF regulation setting out the details of the specific guarantee scheme to be applied by BUPI. Unfortunately, this might become a bureaucratic obstacle that could delay the release of urgently needed financing.   


If BUPI were to be given greater freedom to independently assess and take risks in the same way that this is done by commercial banks, the project financing situation in Indonesia would likely become considerably more flexible and responsive, thus helping BUPI to achieve its ultimate mission, i.e., speedy invigoration of the national economy. 


By partner Mr. Ayik C. Gunadi ( and associate Ms. Jaime Angelique (


This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law. 


[1] Peraturan Presiden Nomor 78 tahun 2010 tentang Penjaminan Infrastruktur Dalam Proyek Kerjasama Pemerintah dengan Badan Usaha Yang Dilakukan Melalui Badan Usaha Penjaminan Infrastruktur

[2] Peraturan Menteri Keuangan No. 95/PMK.08/2017 tentang Ruang Lingkup dan Tata Cara Pemberian Penjaminan Pemerintah di Bidang Infrastruktur oleh Badan Usaha

[3] Peraturan Menteri Keuangan No. 148/PMK.08/2022 tentang Ruang Lingkup Pengelolaan Penjaminan Pemerintah oleh Badan Usaha Penjaminan Infrastruktur

[4] Article 20 of PMK 148/2022