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Yogyakarta Bus Terminal: The Private Provision of Municipal Infrastructure Essay

1.Short run success evaluated based on stakeholders benefit and motive analysis:-

Benefit & Motivation (Stakeholders)Indicator: Success/Good Performance Political Context
1.Get highest share of operating profits.
Revenue was triple from IDR 100 Million
to over IDR 300 million per year.
2.The revenue came from the city’s
seventy percent share of the terminal
operating profits.
3.Removal of binding public capital constraint though private partnership Motive: Fullfill mandate to provide public infrastructure
Financial achievements-
-In term of Profit for both government and
PPTK shareholders
-Acceleration of infrastructure provision
-Reduced whole life costs
-Reduce overall financial risk for
governance

Organizational Context
1. Give opportunity to local resident with sprit “Jogjanese invest for Jogja Development”. 2. Cash flow was stronger than projected –more profit.
3. The organization asked to develop other facilities that can increase the revenue 4. Not complicated tender documents.
1.5. Can run for 28 years before hand over to the municipal. 2.Motive : Projected return on investment based on equity contributed and social
responsibility spirit)-Having technical expertise and possessing sufficient financial strength -Strong Institutions with appropriate resources (Capacity)

-Generation of additional revenues planning (more commercial development) -Less bureaucratic public management (focus on results/outcomes not project/inputs/documents and trapping agreements) -Better incentives to perform (long term

tenure)

Economic & Social Context
1. Highest Quality Terminal to accommodate growing inter regional bus traffic. 2. Providing on time bus schedule (more reliable) departure and arrivals for more thn 400,000 people and waiting room. 3. Built in within 2 years with under budget cost estimation. 4. 13 entry lanes (higher thn opposed) and other amenities for passenger. (Public motives – Quality Infrastructure, Time and cost saving, Employment opportunity, improve living standard) -Project Quality achievement and on-time project completion (Faster implementation)

-functioning according to its planned purpose of providing service to end-users satisfactorily. -Improved quality of service ( better asset and services)

***Complete stakeholder analysis in apendix
In a Middle run of the project it is considering failure because of the causality effect of the implementation and weakness of procedure strategic planning problem for the long term sustainability that need to be considered during the preparation as well as construction stages of the project.

Political ContextOrganizational Context
Poor legal framework and enforcement
1. Lack of knowledge of the rules prevailing in the BOT as well as not knowing all the bureaucracy and Polish legislations. 2. The tender documents only designed with basic requirement of the capacity requirement instead of specific details. 3. The Business Value not defined in the contract and allocated 15% for legal documentation priority Poor Execution Power

1. Unable to execute the initial plans like convert old bus terminal to night market 2. Cannot eliminate illegal terminals due to corruption of low level municipal staff. 3. Bus operators stopping illegally on the street or in

parking lots.
iii) Poor Financial and Environmental Analysis
1. The government is just hope by allowing building commercial facilities would increase financial return of the project and can attract private sector investment without proper supporting initiatives. 2. The financial consideration is just about share of the profits and bus charges which is not the important criteria of the financial evaluation. 3. Didn’t do analysis about the neighboring city and people’s preference. iv) Lack of competitive procurement & strategy 1. Project revenue expected to come from the rental of commercial space but the city insistence to build the bus terminal first. 2. The government hired manager from PT Matahari hoping he could able to attract PT Matahari as a anchor tenant and this could encourage others to open shops.i) Organizational Capacity 1. Weak institutional capacity and BOT strategy because no experience in the BOT sector. 2. PPTK selection was based on promises on service and share allocation and not on experience basis. ii) Unrealistic time frame The concessionaire was to build all including commercial center and fuel pumps within 2 years is not possible. iii) Liability Risk
PPTK did not establish special purpose company to own and operate concession and the bank loan made directly to PTPK and recourse all the company assets.
iv) Inappropriate sharing of risks and Unrealistic Revenue
1. The finance loan rate at 14.5 % interest for a term of nine years (IDR53 billion) is not relevant. 2. Revenue just sufficient to cover operating cost and debt service and a little to serve PTPK equity investments.

2. To the extent it is a success, what accounts for the good performance? To the extent it is a failure, why?

Table 1 shows good performance indicator in short run and however failure in long term because of the lacking of consideration during the preparation as well as construction stages of the project as mentioned above. 1. During the preparation stage, it didn’t receive support from the Indonesian central government which could be in the form of government policy, government warranty or provision of information regarding the national infrastructure network development plan. 2. No proper system for selection of the most capable contractor for constructing the project.

The term capable is posses a sense of professionalism and experience of BOT which was actually lacking in this project. This lack of professionalism influenced the efficiency and effectiveness of the contractor, thus affected project performance. 3. Information dissemination and lack of communication system also played an essential part along with the project development failure. It fail to distribute the information to the right party at the right time, 4. No supporting managerial capabilities of human resources. Moreover, no continuous control over the construction process as well as the project management process No Continuous monitoring of the work progress in the project, no proper control on all resources required for the project and maintaining a constructive interaction within the project 2.1 Extent of Its failure in the long run is because of the following reasons and evidence:-

ReasonEvidence
1.Didn’t carefully do planning of BOT project for long run sustainability 2.No Extensive feasibility study with use of BOT experts
3.No Appropriate Legal and Regulatory Framework
4.No Competitive and transparent procurement
5.No back up plan for Mitigation and flexibility in managing macro-risks1. Poorly developed bid evaluation methodology, which result of: Lack of prior analysis in respect of project feasibility and risk allocation, Lack of stakeholder consultation, Bureaucratic inexperience coupled with a lack of quality expert advice;

2.Poorly negotiated contractual arrangements, which a result of: Lack of commercial realism by the bureaucracy, Miscalculation of project risks, incompetence because lack of experience in BOT;

3.Poor contract management/ongoing monitoring, caused by:
Lack of experience within government, Lack of resources applied to contract management, Lack of formal structure within government to monitor BOT contracts. ***Project good practice and failure are in table 2 and level of risk allocation in table 3- appendix

3. What should the Mayor do about PTPK’s announcement that it was withdrawing?

Situation analysis
Terminal bus is the public good and it could not create revenues to the PTPK and only condition that creates profit is thought commercial building development.

Culture Context Analysis
The mayor worried PTPK withdrawal can set a poor precedent for future concessions whereby would discourage future investors from bidding municipal projects.

Tool analysis
StrengthWeakness
-Large population
-International religious and cultural sites
-Major education hub-20% students
-Strong political background
-Clean city from corruption
-Known as good governance and environmental leadership
-PTPK strength on construction and manufacture concrete blocks, roof tiles, golf cart n etc. -Weak legal and government monitoring -Earthquake damaged 35000 buildings,100,000 people homeless, business closed, bus routes close -The revenue not sufficient for return to equity management

ThreatsOpportunity
-PTPK and bank have financial and liability risk
-Corruption at low level municipal
-More “shadow terminals”-jombo terminal
-Low cost carriers expending
-Bus route stopped
-Stopped need for ancillary services (restaurant, hotel)
-Public resistance to use the terminal bus-Minister willing to consider government borrowing -Anchor retail tenant can attract other business to pen shop Table 2 : SWOT Analysis
Based on the situation, cultural and SWOT analysis, suggestion to Mayor as a municipal is to have negotiation with PTPK to stay in the contract but as a government will intervene to support the market failure to increase the positive externalities and reduce negative externalities via regulating policy. The mayor can intervene and do some improvement based strategy development matching the SWOT on the following ways :-

1.Risk Identification and Allocation (Opportunity-Weakness-Threats Strategy) All risks associated with the projects must thoroughly identify*. A whole life cycle approach needs to be pursued. This will help to identify the entire gamut of financial and other risks that may jeopardize the viability of the project. Government can negotiate with the bank to offer grants to reduce the interest rate and extend the loan period. This can increase return to investors. *(Appendix)

2.PTPK Capacity and Good governance Strategy for Public (S-W-O Strategy) Government can borrow money from central to initiate building houses and commercial buildings for the 100,000 homeless people and 35000 buildings for
business people in southern part to provide societal benefit (Strategy) PTPK is the expertise in this development area and can use them to do the construction. This development can attract Matahari departmental store chain to cater the need of the people surrounding (Target Public). This will attract other investors with positive externalities to join the development process as well because of the new project development and the goodwill the government have. More public will start to use the facilities because of the housing development. The PTPK can initiate to do collaboration with other agencies to do sub contract on maintenance and administration services and PTPK can concentrate on development area in particular.

3. Create Synergy effect (spill over) based on strengthens regulation and legal framework to create space for the development and indirectly boosts the development of the surrounding areas by following ways:- 3.1 Strategy -Boost Tourism and Education Industry by promote tourism and education to the foreigners, International students and other regions as it already have the strength and huge population. 3.2 Implementation and Planning

1. Tourist and students will use terminal bus and also hotels to stay and access their tourism spots. 2. Commercial building can be built to sell duty free goods and cultural products and can provide shuttle service to boost the mobility of the terminal bus

3. Change strategy by providing transit service from airport to terminal bus can increase tourist and students that want to go to airport.
4. Provide city tour trip to the tourist from the terminal bus for the new tourist. 5. PTPK can built golf cart that can attract tourist to stay in hotel to play golf too 3.3Promotion (Strength strategy)

1.The mayor have to promote the initiatives and planning to the people to support his good initiatives as he is very influential in the society 2.Community Participation
The end users of public infrastructure are the common public. There is a need for involving representatives to address the concerns of the various categories of stakeholders and the government should consider issues while
preparing project involving PTPK Strength.

4. Policy Implementation (Weakness and threat strategy)
i)Industrial Policy
An industrial policy can be devised by incentivize and promote private sector participation for creation of industrial infrastructure in the province. Directed incentives may be provided for industrial investment in the form of interest subsidy, infrastructure development / capital investment subsidy, exemption from electricity duty, exemption from stamp duty and entry tax, ii)Road Sector Policy

Earthquake has spoilt the traffic system and efficient road network is necessary both for national integration as well as for socio-economic development.


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