Pre-qualification opened for Pekanbaru water supply project (though briefly)

The Directorate for PPP Promotion under BAPPENAS reports on their website that pre-qualification is open for parties that want to register their interest in participating in the tender process for the Pekanbaru water supply project. The full announcement is available here.

According to the announcement, the project anticipated to be worth just under IDR 1.4 trillion, or just over USD 100 million, and is being tendered under Indonesia's unsolicited PPP project framework.

The unsolicited project framework is summarised briefly in Indonesia's latest PPP book, and in more detail in chapter VII of Presidential Regulation 38/2015 concerning cooperation between government and business entities in the provision of infrastructure, but essentially, it means that some private party proposed this project and the tender is being run to subject the proposing party to some degree of competition.

Perpres 38/2015 allows for three ways to compensate the proposing party for their "intellectual property" and initiative in proposing the project:

  1. 10% advantage in the evaluation process;
  2. A right-to-match the price of the winning bidder; or
  3. To get paid out the value of their intellectual property by the winning bidder.

It's not clear from the announcement which of these is being proposed for the Pekanbaru project, but many potential investors I have spoken to over the years have expressed a lack of enthusiasm for entering a tender process where another party has an advantage.

Participating in a tender process through to the end can easily cost on the order of USD 5 million, and as I have noted in other posts, profit margins are thin in competitively tendered infrastructure projects. If one party has a 10% advantage, or a right to match, they will almost certainly win the tender process. In such a situation, most investors will save their time and money, and not bother participating in a tender like the ones envisioned for this project.

Beyond the regulatory challenges, there are other reasons to think that this tender may not be the most competitive. Interested parties have only one week to register their interest and receive the pre-qualification documentation, from the 26th to the 30th of October. And, they need to register their interest in person in Pekanbaru between the hours of 10:00 and 14:00. The announcement on the PKPS website is the only one I can find, and as far as I can tell it only went live on the afternoon of Tuesday the 27th of October.

So, if you are an investor interested in Indonesian water projects and would like to give this a go, you'd better get moving quick!

And/or, in future, set up an email alert for changes on the PKPS website...