University of Groningen
Value capturing for regional road development
Wisnu, Laksmi
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Publication date: 2019
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Wisnu, L. (2019). Value capturing for regional road development: A responsive institutional design approach for Indonesia. University of Groningen.
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i ISBN: 978-94-034-1293-1
This research was funded by Ubbo Emmius Scholarship, University of Groningen at the Faculty of Spatial Sciences.
Design of book cover by Laksmi T.D.J.W. Wardani Darmoyono
(the Game Board Image was adopted from http://slidemodel.com and used for academic purposes) Printed by Optima
© L. T. D. J. W. Wardani Darmoyono. 2019. All rights reserved.
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ii
Value Capturing for Regional Road
Development
A Responsive Institutional Design Approach for Indonesia
Phd thesis
to obtain the degree of PhD at the University of Groningen
on the authority of the Rector Magnificus prof. E. Sterken
and in accordance with the decision by the College of Deans.
This thesis will be defended in public on Monday 28 January 2019 at 9.00 hours
by
Laksmi Tungga Dewi Jaya Wisnu Wardani
born on 16 January 1977iii
Supervisors
Prof. J. Woltjer Prof. E.J.M.M. Arts
Assessment Committee
Prof. E. van der Krabben Prof. R.L. Holzhacker Prof. H. Winarso
iv
Preface
I would like to express my gratitude to some people who have given encouragement and support to this thesis. First, I would like to thank my professors, Johan Woltjer and Jos Arts. Thank you very much for the encouragement, motivation, advise, substantial contribution regarding value capture and institutional design issues, and, most importantly, put me on the right track so that I can complete the dissertation. Many thanks for the deep discussion on value capture framework and responsive institutional design to Indonesia context and planning practice in general. Special thanks go to the members of the reading committee for the input.
I also sincerely thank Tineke Dijkman, Stiny Tiggelaar, and Sarah Oude Brunink who helped me a lot with the academic administration matters in the faculty. I also gratefully thank Tialda Haartsen, PhD mentor, for the advice and support. I also would like to express my appreciation to the Student Service Center – Psychological Counselling.
Many thanks to K.I.M. van Dam for helping me find the English proofreader. I’m truly thankful to Ms Rosemary Harrison for helping me with the English proofreading. Thank you so much for all your kindness and patience during the whole process. I’m so thankful for the printing support from OPTIMA team. I would also to thank my paranimfen, Ferry van Kann and Atika Sundari; thank you so much for helping me preparing the defense.
I’m truly thankful to all interviewees and discussants in the Netherlands and Indonesia, especially Demetrio Munoz- Gielen, Prof. Kusbiantoro, Pak Andi Oetomo, Pak Irwan Prasetyo, Pak Ferry Anggoro Suryokusumo, Prof. Bekti Setiawan, Gede Budi Suprayoga, Mba Ellyana, Pak Nasa, Pak Anwar, and Onang. Thank you very much to the surveyor, Sofin.
I would also like to thank friends and colleagues at the Institute of Road Engineering, Ministry of Public Works and Housing. In particular Gede Budi Suprayoga, Natalia Tanan, Pak Poernomo Sidi, Pak Agus Bari, dan Ibu Ririn. Thank you for the fruitful discussions, advise, and support.
I would also to thank former colleagues in the Planning department at RuG: Niels, Sander, Tim, Marije, Ferry, Uma, Catherine, Britta, Terry, Ward, and Stefan. Many thanks to Indonesian friends in the Netherlands, Dayu, Glenn, Grace, Rya, Mba Widi, Mareta, Pak Mangara, Arief, Fransiska Yunita, Silvita, and Yenni for being such a wonderful and caring friend – thank you very much! Also, friends in Germany, Canada, and Singapore, Yuliana, Karl, Peter, Adi, Devisari Tunas, Suzana Drillet, Reinaldi Tamin, Rully, and Risca thank you for giving your helping hand when I needed it the most. I also thank friends in Indonesia Aria, Mba Sally, Lia, Dewi, Mila, Ndew, Intan, Iin, Dicky, Nora, Dudy, Joshua, Qodas, Susi, Bagas, Gokie, Farida, dan Adisti. My dearest friends Upay, Tika and Chris, Punto, Dicky, and Ardy thank you for the unconditional support all of these years and for always there standing beside me.
Finally, I would especially like to thank my family, Papa dan Mama, Ira and Adit. Thank you for all your love and support; thank you for Believing in me and the never-ending encouragement, I could not have done this without you.
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Table of Content
1.1. New Challenges in Regional Road Development in Indonesia ... 1-1 1.2. Value Capture for Road Infrastructure in Indonesia ... 1-4 1.3. An Institutional Approach: The New Sociological Institutionalism ... 1-6 1.4. The Relevance of Institutional Design ... 1-8 1.5. Research Objectives and Questions ... 1-10 1.6. Methodology and Materials ... 1-12 1.6.1. Data Collection ... 1-12 1.6.2. Literature Study and Document ... 1-14 1.6.3. Case Study ... 1-14 1.7. Structure of the Study ... 1-15
2.1. Introduction ... 2-19 2.2. Institutions and Their Forms ... 2-19 2.2.1. New Institutionalism ... 2-21 2.2.2. The New Sociological Institutionalism Approach ... 2-22 2.3. Responsive Institutional Design in the New Sociological Institutionalism ... 2-24 2.4. Concluding Remarks ... 2-28
vi 3.1. Introduction ... 3-30 3.2. The Concept of Value Capture ... 3-30 3.3. International Experiences with Value Capturing ... 3-32 3.3.1. Experience in the Netherlands... 3-32 3.3.2. Experience in the United Kingdom ... 3-36 3.3.3. Experiences in Colombia ... 3-39 3.3.4. Experiences in Chile ... 3-41 3.4. Towards a Framework of Value Capture ... 3-42 3.4.1. First Dimension: Contributor (“Who”) ... 3-45 3.4.2. Second Dimension: Collaboration Type (“How”) ... 3-46 3.4.3. Third Dimension: Contribution Unit (“What”) ... 3-47 3.4.4. Fourth Dimension: Scale (“Where”) ... 3-48 3.4.5. Fifth Dimension: Timing (“When”) ... 3-49 3.5. Conceptual Framework for this Study: Combining the Value Capturing and Responsive Institutional Design ... 3-51 3.6. Preliminary Conclusions ... 3-52
4.1. Introduction ... 4-54 4.2. Who: The Role of Public and Private Sectors in Infrastructure Provision ... 4-56 4.3. How: The Provision of Road Infrastructure in the Decentralization Era ... 4-58 4.4. What: Investment in Road Infrastructure ... 4-65 4.5. Where: Spatial Planning for the Provision of Road Infrastructure in Indonesia ... 4-78 4.6. When: Value Capture for Road Infrastructure ... 4-87 4.7. Discussion and Final Remarks ... 4-89
vii 5.2. General Overview: the Kartamantul Regions ... 5-94 5.3. Experience in Infrastructure Provision ... 5-100 5.3.1. The Public Sector: Yogyakarta Municipality, Sleman District, and Bantul District ... 5-102 5.3.2. Searching for Private Sector Involvement ... 5-106 5.4. In Search for Value Capturing in the Kartamantul Regions ... 5-111 5.4.1. Creating Value to Support Road Infrastructure ... 5-111 5.4.2. Challenges to Unlock Value for Road Infrastructure ... 5-112 5.4.3. Capturing the Value for Road Infrastructure ... 5-112 5.5. Mapping the Idea of Value Capturing for Regional Road Provision ... 5-123 5.6. Preliminary Conclusions: Possibilities to Implement Value Capture in the Kartamantul Regions ... 5-128
6.1. Introduction ... 6-130 6.2. The Connector Road: Private Asset for Public Access ... 6-131 6.2.1. Interaction between Public and Private Sectors ... 6-134 The Public Sector ... 6-135 The Private Sector ... 6-138 6.2.2. Elaboration of the Idea of Value Capturing for the Cikampek Case ... 6-140 6.3. Challenges to Create, Unlock, and Capture the Value ... 6-141 6.3.1. Challenges to Create Value ... 6-141 6.3.2. Challenges to Unlock Value ... 6-142 6.3.3. Challenges to Capture Value ... 6-142 6.4. Mapping the Idea of Value Capture for Toll Roads and Real Estate Development ... 6-150 6.5. Preliminary Conclusions: Possibilities for Value Capturing for the Jakarta – Cikampek Toll Road 6-154
7.1. Introduction ... 7-156 7.2. Case Revisited: The Kartamantul Region and Jakarta-Cikampek Toll Road... 7-157 7.3. Responsive Institutional Design for the Implementation of Value Capture in the Kartamantul Regions
viii 7.3.1. Proposal of Institutional Design: A Local Public Service Agency ... 7-165 1. The 5 WHs Dimensions ... 7-167 2. The BLUD Organizational Structure ... 7-175 3. SWOT Analysis ... 7-177 7.3.2. Towards a Coherent Responsive Institutional Design ... 7-180 7.4. Responsive Institutional Design for Value Capture Implementation in the Jakarta–Cikampek Toll Road
... 7-182 7.4.1. A Proposal for Institutional Design: A Joint Cooperation Agency ... 7-186 1. The 5 WH Dimensions ... 7-187 2. Organizational Structure of Joint Cooperation Agency ... 7-190 3. SWOT Analysis ... 7-194 7.4.2. Coherent Approach for Responsive Institutional Design ... 7-196 7.5. Discussion and Recommendations ... 7-198
8.1. Introduction ... 8-201 8.2. Conclusion Regarding Research Questions ... 8-202 8.3. Discussion: Towards Responsive Institutional Design for Value Capturing ... 8-211 8.4. Recommendations for Furthering Future Practice ... 8-217
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List of Figures
Figure 1.1 Research Objectives – Questions – Techniques ... 1-12 Figure 1.2 The Structure of the Research Chapters ... 1-16 Figure 4.1 Map of Indonesia ... 4-55 Figure 4.2 Issues and Challenges in the Road Infrastructure in Indonesia ... 4-57 Figure 4.3 Institutional Arrangements for Financial Support of Local Road in Indonesia ... 4-60 Figure 4.4 Reforms in Fiscal, Institutions, and Regulations Related to Toll Road Infrastructure ... 4-67 Figure 4.5 Overview of Instruments for Public Private Partnership of Toll Roads in Indonesia... 4-70 Figure 4.9 The Challenge in The Provision of Road Infrastructure in Indonesia ... 4-82 Figure 4.10 The Strategic Plan of Road Infrastructure 2015 – 2019, The Ministry of Public Works ... 4-84 Figure 4.11 Financing Gap in Provision of Road Infrastructure in Indonesia ... 4-85 Figure 5.1 Map of Kartamantul Regions in the Yogyakarta Province ... 5-96 Figure 5.2 Organizational Structure of Kartamantul Joint Secretariat ... 5-99 Figure 5.3 The Blambangan Bridge after the Construction ... 5-100 Figure 5.4 Road Condition in the Kartamantul Regions ... 5-102 Figure 6.1 The direct connector road of Grand Wisata at KM 21 Cikampek toll road. ... 6-132 Figure 6.2 The direct connector road of Grand Wisata at KM 21 Cikampek toll road. ... 6-132 Figure 6.3 Map of Jakarta – Cikampek Toll Road and the Location of Grand Wisata Real Estate ... 6-134 Figure 6.4 Revenue of the Jakarta - Cikampek Toll Road 2006 – 2017 (IDR in billion) ... 6-145 Figure 6.5 Traffic Volume of the Jakarta-Cikampek Toll Road 2006-2017……….6-146 Figure 6.6 Traffic Congestion at the Jakarta – Cikampek Toll Road during Peak Hours ... 6-147 Figure 6.7 Comparison of Toll Revenue Achievement in Jakarta – Cikampek Toll Road to others (2016 – 2017) ... 6-148 Figure 7.1 Interactions between BLUD, Local Government, Private Sector, and Joint Secretariat on theProvision of Road Infrastructure ... 7-168 Figure 7.2 Proposal of Organizational Structure for BLUD in the Kartamantul Regions ... 7-176 Figure 7.3 Interactions between Joint Cooperation Agency, Public Sector, and Private Sector ... 7-188 Figure 7.4 Organizational Structure of the Joint Cooperation Agency ... 7-192
x
List of Tables
Table 0.1 Value Capturing Framework ... xxiii Table 2.1 Responsive Institutional Design ... 2-28 Table 3.1 The Neprom Idea ... 3-33 Table 3.2 Heart of Heuvelrug ... 3-34 Table 3.3 Kop van Oost ... 3-35 Table 3.4 Planning Obligation ... 3-37 Table 3.5 Community Infrastructure Levy ... 3-38 Table 3.6 A Tariff ... 3-39 Table 3.7 New Valorizacion – the Bogota Model ... 3-40 Table 3.8 Valorizacion – the Manizales Model ... 3-41 Table 3.9 Impact Fee and Exaction ... 3-42 Table 3.10 Value Capturing Framework ... 3-45 Table 3.11 Value Capture Framework and International Experiences ... 3-50 Table 3.12 Conceptual Framework of this Study: Combining the Value Capture Approach and Responsive Institutional Design ... 3-52 Table 4.1 Responsibility of Government Institutions on Provincial and City/District Roads ... 4-61 Table 4.2 CSR Position as Obligatory – Voluntary Arrangement ... 4-63 Table 4.3 Public and Private (Toll) Road Investment ... 4-68 Table 4.4 General Income for The Local Government (based on Law no. 33/2004) ... 4-73 Table 5.1 The Sharing of Operational Cost at the Earlier Stage of the Kartamantul Joint Secretariat ... 5-97 Table 5.2 Realisation of Local Income ... 5-105 Table 5.3 Classification of Micro – Small – Medium – Large Business in the Kartamantul Regions ... 5-107 Table 5.4 Gross Regional Domestic Product 2013 - 2014 at Constant Price 2010 in Yogyakarta Municipality, Sleman District, and Bantul District ... 5-108 Table 5.5 Elaboration of Value Capture Approach in the Kartamantul Regions ... 5-110 Table 5.6 Create, Unlock, and Capture the Value in Kartamantul Regions ………...5-120 Table 5.7 Mapping Pro – Contra on the Idea of Value Capturing in the Kartamantul Regions ... 5-126 Table 5.8 Challenges to Implement Value Capture... 5-127 Table 6.1 The Increase of Property Value due to the Direct Access to the Toll Road ... 6-133 Table 6.2 Transformation of PT. Jasa Marga to BPJT ... 6-136 Table 6.3 Elaboration the Idea of Value Capturing at the Jakarta – Cikampek Toll Road ... 6-140 Table 6.4 Traffic Volume at the Grand Wisata Gate (Tambun toll gate) ... 6-143 Table 6.5 Revenue of the Jakarta - Cikampek Toll Road 2006 - 2017 (IDR in billion) ... 6-145 Table 6.6 Traffic Volume of the Jakarta – Cikampek Toll Road 2006 – 2017 (in million vehicles) ... 6-146xi Table 6.7 Comparison of Toll Revenue Achievement in Jakarta – Cikampek Toll Road to others (2016 –
2017)………..6-149 Table 6.8 Mapping Pro – Contra of Value Capture Idea for the Development of a Connector Road (Toll Gate) ... 6-152 Table 6.9 Challenges to Implement the Idea of Value Capturing ... 6-153 Table 7.1 Characteristics of the Indonesia case, comparing the Kartamantul Regions and Jakarta – Cikampek Toll Road ... 7-159 Table 7.2 The Proposal for Value Capture Implementation in the Kartamantul Regions……….7-162 Table 7.3 BLUD Tasks in Value Capturing ... 7-174 Table 7.4 SWOT Strategy for The BLUD in the Kartamantul Regions ... 7-179 Table 7.5 Coherent Design of BLUD for Road Infrastructure ... 7-181 Table 7.6 Proposal of Responsive Institutional Design at the Jakarta – Cikampek Toll Road ... 7-183 Table 7.7 The Joint Cooperation Agency Tasks ... 7-191 Table 7.8 SWOT Analysis and Strategy of the Joint Cooperation Agency ... 7-195 Table 7.9 Coherent Design of Joint Cooperation Agency and Value Capture ... 7-197 Table 7.10 Comparison Between BLUD and Joint Cooperation Agency ... 7-199 Table 8.1 Value Capture Conceptual Framework ... 8-203 Table 8.2 Value Capture Framework and Responsive Institutional Design ... 8-210
xii
List of Abbreviations
AMDAL Environmental Impact Assessment Analysis (Analisis Dampak Lingkungan)APBD Regional Budget (Anggaran Pendapatan dan Belanja Daerah)
Bappenas National Development Planning Board (Badan Perencanaan Pembangunan Nasional)
Bappeda Regional Development Planning Board (Badan Perencanaan Pembangunan Daerah)
BKPM Indonesian Investment Coordination Board (Badan Koordinasi Penanaman Modal)
BLU Public Service Agency (Badan Layanan Umum)
BLU LMAN Public Service Agency of State Asset Management Agency (Badan Layana Umum Lembaga Manajemen Aset Negara)
BLUD Local Public Service Agency (Badan Layanan Umum Daerah)
BOT Build Operate Transfer
BPN National Land Agency (Badan Pertanahan Nasional)
BPHTB Land and Building Transfer Tax (Bea Perolehan Hak Atas Tanah dan Bangunan)
BPJT Toll Road Authority (Badan Pengatur Jalan Tol)
BUJT Toll Road Business Entity (Badan Usaha Jalan Tol)
BUMN State-owned Enterprise (Badan Usaha Milik Negara)
BUMD Regional Government Enterprise (Badan Usaha Milik Daerah)
CV Individual Entrepreneurship (Commanditaire Vennosstschop)
CIL Community Infrastructure Levy
DAK Specific Budget Allocation (Dana Alokasi Khusus)
DBH Sharing-revenue fund (Dana Bagi Hasil)
DAU General Budget Allocation (Dana Alokasi Umum)
DPRD Regional Representative Council (Dewan Perwakilan Rakyat Daerah)
CIL Community Infrastructure Levy
CSR Corporate Social Responsibility
EC Economic Corridor
IMB Building Permit (Izin Mendirikan Bangunan)
xiii
KAI Indonesian Railways (Kereta Api Indonesia)
KPK Corruption Eradication Commission (Komisi Pemberantasan Korupsi)
KP3M Office of investment, capital strengthen, and equity capital (Kantor Penanaman, Penguatan, dan Penyertaan Modal)
KPBU Public Private Partnership (Kerjasama Pemerintah dan Badan Usaha)
Lisiba Planned Site for New Residential Development (Lingkungan Siap Bangun) NJOP Sale Value of Tax Object (Nilai Jual Objek Pajak)
MOU Memorandum of Understanding
MP3EI Master plan for Acceleration and Expansion of Indonesia's Economic Development (Master plan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia)
OM Operational Maintenance
P3ADK Economy, development, and local income (Perekonomian, Pengembangan, Pendapatan Asli
Daerah)
PAD Local Own-source Revenue (Pendapatan Asli Daerah)
Pemda Local Government (Pemerintah Daerah)
Pemkab District Government (Pemerintah Kabupaten)
Pemkot Municipality Government (Pemerintah Kota)
PBB Land Building Tax (Pajak Bumi dan Bangunan)
PDRB Gross Domestic Regional Product (Product Domestik Regional Bruto)
PPh Income Tax (Pajak Penghasilan)
PPN Value Added Tax (Pajak Pertambahan Nilai)
PKB Vehicle Tax (Pajak Kendaraan Bermotor)
PBBKB Fuel Tax (Pajak Bahan Bakar Kendaraan Bermotor)
PPP Public Private Partnership
PT Private Company / Limited Liability Company (Perseroan Terbatas)
PT. SMI PT. Sarana Multi Infrastructure PT. IIF PT. Indonesia Infrastructure Finance PT. IIGF PT. Indonesia Infrastructure Guarantee Fund
Raperda Draft Local Regulation (Rancangan Peraturan Daerah)
RAPBD Draft Regional Administrative Budget (Rencana Anggaran Pendapatan dan Belanja Daerah) RDTRK Detailed Urban Spatial Plan (Rencana Detail Tata Ruang Kota)
xiv
RPJM Medium-Term Development Plan (Rencana Pembangunan Jangka Menengah)
RPJMD Medium-Term Regional Development Plan (Rencana Pembangunan Jangka Menengah
Daerah)
Sekda Local Secretary (Sekertaris Daerah)
TCV The Contribucion de Valorizacion
5WHs Framework
Framework for value capturing with the factors:
xv
Short Summary
Value capture is a practice that uses the public potential value of road infrastructure involving private sector contributions. It is of increasing interest to developing countries. The value-capture approach can help local government to manage problems in infrastructure provision following weak capacity, limited budget, and lack of innovation. Value capture is about capturing a part of the increment value from private property following the benefits of related public infrastructure (road, bridge, open space, etc). It aims to return the benefit for public use. The thesis assumes that, in Indonesia, value capture can support the local government in terms of capacity improvement and new institutions, particularly in financing or providing infrastructure from using local resources involving the private sector. Considering that value capturing for infrastructures is relatively new, institutional support is needed for its implementation. There tends to be a lack of public sector capacity and impeding bureaucracy, as well as a need to improve cooperation with the private sector to deliver infrastructure. A responsive design of institutions that adjusts to local conditions could help facilitate cooperation between public and private sector as well as to speed up the infrastructure delivery to the public. Responsive institutional design should be based on local context and local institutional capacity. Responsive institutions are also significant for managing the process of value capturing, which involves a complex set of three stages: creating value; unlocking value; and capturing value. The dissertation shows that each stage has a different process. A fitting “5WH framework” is presented regarding cooperation between public and private sector (who), selecting potential arrangements fitting local conditions (how), encouraging private sector to contribute in-kind or financially (what), assessing the increase benefit and impacts of investment at micro and macro scale (where), and setting the timing of capturing the value (when). A key finding is that value capture is encouraged by the public sector in Indonesia; however, cultural or socioeconomic factors influence the motivation in the private sector to participate. The Indonesian cases show different characteristics of regions responding to the idea of value capturing. In the Kartamantul regions cultural factors such as gotong-royong and guyub are significant in encouraging private sector involvement and contribution. In Bekasi district, value capturing is driven by socioeconomic factors -the private sector voluntarily built a connector road at the Jakarta – Cikampek toll road to capture significant profit from infrastructure investment. These different cases have influenced the design proposal in this dissertation for a responsive institutional design. Clearly, the shape and format of institutions need to accommodate local culture and socioeconomic conditions. Responsive institutional design requires governmental system improvements and facilitates actors’ capacities for value capture implementation. The study proposes a local public service agency (Badan Layanan Umum Daerah or BLUD) and a joint cooperation agency for Indonesian urban planning and infrastructure development practice. The BLUD should be considered particularly fitting for the Kartamantul case, particularly for arranging cooperation with the private sector on investment, development, and maintenance. For the Bekasi case the study underlines the importance of developing a joint cooperation agency, which is an independent institution to arrange voluntary cooperation with the private sector. It is suggested that the formats of a local public service agency and a jointxvi cooperation agency are a good fit to local conditions and context, and therefore offer an essential step in to further supporting the implementation of value capturing in Indonesia.
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Korte Samenvatting
‘Value capture’ is een benadering waarbij de potentiële waarde van infrastructuur wordt gebruikt voor bijdragen vanuit de private sector. Het is van toenemend belang voor met name ontwikkelingslanden aangezien het lokale overheden kan helpen bij problemen in de infrastructuurvoorziening als gevolg van lage capaciteit, beperkt budget en gebrek aan innovatie. ‘Value capturing’ gaat over het afvangen van een deel van de incrementatiewaarde van private ontwikkelingsprojecten als gevolg van de ontwikkeling van gerelateerde openbare infrastructuur (wegen, bruggen, openbare ruimte), en het vervolgens aanwenden van deze waarde voor het publiek belang. Het proefschrift gaat ervan uit dat ‘value capturing’ in Indonesië de lokale overheid kan ondersteunen met capaciteitsverbetering en nieuwe instituties, met name als het gaat om de financiering of ontwikkeling van infrastructuur, en door gebruik te maken van lokale middelen waarbij de particuliere sector is betrokken. Gezien het feit dat het vastleggen afvangen van de waarde van infrastructuur relatief nieuw is, is institutionele ondersteuning nodig voor de implementatie ervan. Er is meestal een gebrek aan capaciteit en belemmeringen door bureaucratie, maar tegelijkertijd een behoefte om de samenwerking met de particuliere sector te verbeteren en infrastructuur aan te leggen. Een zogenaamd responsief ontwerp van instituties, dat zich aanpast aan lokale omstandigheden, kan de samenwerking tussen de publieke en private sector vergemakkelijken en de ontwikkeling van infrastructuur versnellen. Responsief institutioneel ontwerp moet gebaseerd zijn op de lokale context en lokale regels. Responsieve instituties zijn ook belangrijk voor het proces van ‘value capturing’. Hierbij is een complex geheel van drie fasen betrokken: waarde creëren; waarde ontgrendelen; en het vastleggen van waarde. Het proefschrift laat zien dat elke fase een ander proces kent. De dissertatie presenteert vervolgens een '5WH-raamwerk' bestaande uit: de samenwerking tussen publieke en private sector (wie), mogelijke regelingen die passen bij de lokale omstandigheden (hoe), de bijdragen vanuit de particuliere sector in natura of financieel (wat), een oordeel over baten en effecten van investeringen op micro- en macroschaal (waar), en de timing van het vastleggen van de waarde (wanneer). Een belangrijke bevinding is dat waardecreatie wordt aangemoedigd door de publieke sector in Indonesië. Culturele of sociaaleconomische factoren beïnvloeden echter de motivatie in de particuliere sector om deel te nemen. De Indonesische casus laten verschillende kenmerken zien van reacties op het idee van waardebepaling. In de Kartamantul-regio zijn culturele factoren als ‘gotong-royong’ en ‘guyub’ belangrijk om de betrokkenheid en bijdrage van de particuliere sector te stimuleren. In het district Bekasi wordt het vastleggen van waarde bepaald door sociaaleconomische factoren –de particuliere sector bouwde uit eigen beweging een verbindingsweg voor de tolweg Jakarta – Cikampek, om hiermee winst uit investeringen in infrastructuur te halen. Deze verschillende cases hebben het ontwerpvoorstel in de dissertatie voor een responsief institutioneel ontwerp beïnvloed. Het is duidelijk dat de vorm en het formaat van instituties zich moeten aanpassen aan de lokale cultuur en socio-economische omstandigheden. Een responsief institutioneel ontwerp vereist verbeteringen in het overheidssysteem en faciliteert tevens de implementatie van waardecreatie en value capture. De studie stelt een ‘local public service agency’ (dienstenagentschap) zoals ‘Badan Layanan Umum Daerah (BLUD)’ en een ‘joint cooperation agency’ (samenwerkingsagentschap) voor, ten behoeve van de planning enxviii infrastructuurontwikkeling in Indonesië. Het BLUD wordt beschouwd als bijzonder geschikt voor de Kartamantul-casus, met name voor het regelen van samenwerking met de particuliere sector op het gebied van investeringen, ontwikkeling en onderhoud. Voor de Bekasi-casus onderstreept de studie het belang van de ontwikkeling van een samenwerkingsagentschap, in de vorm van een onafhankelijke instelling die vrijwillige samenwerking met de particuliere sector organiseert. De conclusie is dat de instituties rondom een lokaal dienstenagentschap en een regionaal samenwerkingsagentschap goed aansluiten bij de lokale omstandigheden en context en daarom een essentiële stap vormen om de implementatie van value capturing in Indonesië verder te ondersteunen.
xix
Kesimpulan Singkat
Value capture memiliki potensi untuk mendukung penyediaan infrastruktur jalan dengan melibatkan kontribusi dari pihak swasta. Saat ini, pendekatan ini sedang menjadi perhatian di negara berkembang. Value capture memiliki potensi untuk membantu pemerintah daerah dalam menangani persoalan penyediaan infrastruktur akibat kapasitas yang lemah, anggaran yang terbatas, and kurangnya inovasi. Value capture memiliki tujuan untuk mengambil sebagian nilai (value) dari kenaikan properti akibat pembangunan infrastruktur publik (jalan, jembatan, ruang terbuka, dan lainnya). Tujuan utama value capture adalah untuk mengembalikan keuntungan dari pembangunan infrastruktur publik kepada publik. Thesis ini berasumsi bahwa di Indonesia, value capture dapat digunakan untuk membantu pemerintah daerah meningkatkan kapasitas, terutama dalam hal pembiayaan atau penyediaan infrastruktur dengan memanfaatkan sumber-sumber lokal yang melibatkan pihak swasta. Dengan mempertimbangkan bahwa value capture sebagai sebuah pendekatan, maka diperlukan dukungan kelembagaan untuk implementasinya. Hal ini mengingat bahwa pihak pemerintah masih memiliki kapasitas yang terbatas dan persoalan birokrasi; demikian juga peningkatan kerjasama dengan pihak swasta untuk penyediaan infrastruktur. Desain kelembagaan yang responsive diperlukan agar dapat menyesuaikan dengan kondisi lokal dalam mengelola kerjasama antara pihak pemerintah dan swasta serta mempercepat penyediaan infrastruktur bagi publik. Desain kelembagaan yang responsif harus berdasarkan kepada konteks lokal dan kapasitas lembaga lokal sehingga dapat digunakan untuk mendukung penerapan value capture. Keberadaan lembaga yang responsive penting bagi keseluruhan proses value capturing yang terdiri atas tiga tahap, yaitu tahap membuat sebuah perencanaan pembangunan infrastruktur agar suatu area atau kawasan memiliki nilai (create value), tahap membuat agar value yang naik akibat kegiatan perencanaan atau pembangunan dapat digunakan dengan mencari instrument yang tepat (unlock value), dan tahap mengambil nilai (value) dengan menggunakan instrument yang telah dipilih (capture value). Disertasi ini menunjukkan bahwa setiap tahap memiliki proses yang berbeda. Selain itu, juga dibahas mengenai “kerangka 5WH” yang memiliki fokus pada kerjasama antara pihak pemerintah dan swasta (who), mengatur bentuk kerjasama yang sesuai dengan kondisi lokal (how), mendorong pihak swasta untuk memberikan kontribusi melalui pembangunan fisik (atau finansial) (what), menilai peningkatan manfaat dan dampak investasi pada skala mikro dan makro (where), dan memilih waktu yang tepat untuk mengambil kenaikan value (when). Salah satu temuan kunci pada value capture adalah pentingnya dukungan pihak pemerintah; selain itu faktor budaya atau sosioekonomi juga berperan dalam memberikan motivasi kepada pihak swasta untuk berpartisipasi. Studi kasus Indonesia menunjukkan perbedaan karakteristik pada setiap daerah dalam merespon ide mengenai value capture. Di Kartamantul, faktor budaya seperti gotong-royong dan guyub sangat penting untuk mendorong pihak swasta untuk terlibat dan memberikan kontribusi. Sementara di kabupaten Bekasi, faktor-faktor sosial ekonomi memiliki peran penting dalam mendorong pihak swasta untuk membangun infrastruktur jalan penghubung di jalan tol Jakarta – Cikampek secara sukarela agar dapat memperoleh keuntungan signifikan dari kenaikan harga properti. Cukup jelas bahwa bentuk dan format lembaga harus mengakomodasi budaya lokal dan kondisi sosial ekonomi. Desain kelembagaan yang responsif dapat memperbaiki sistem kelembagaan danxx kapasitas para aktor dalam mengimplementasikan value capture. Studi ini mengusulkan bentuk kelembagaan Badan Layanan Umum Daerah (BLUD) dan lembaga kerjasama bersama untuk kasus Indonesia. BLUD dianggap cocok untuk Kartamantul karena dapat mengatur kerjasama antara pemerintah dengan pihak swasta dalam investasi, pengembangan, dan pemeliharaan. Sementara di kabupaten Bekasi bentuk institusi yang diusulkan adalah lembaga kerjasama bersama yang merupakan lembaga independen (bukan bagian dari pemerintah) untuk mengatur kerjasama dengan pihak swasta yang memiliki kapasitas dan ingin berpartisipasi. Bentuk BLUD dan lembaga kerjasama bersama dianggap sesuai dengan kondisi di kedua daerah tersebut, serta menawarkan langkah penting untuk mendukung lebih lanjut penerapan value capture di Indonesia.
xxi
Summary
This study aims to explore the idea of value capturing that may have much potential to support the provision of road infrastructure in developing countries and how value capturing might be implemented through responsive institutional design. Many developing countries – such as Indonesia – experience difficulties in infrastructure provision because of a mix of growth of population and mobility demand, limited funding and institutional capacity. Value capturing offers a new concept to involve the private sector in contributing to infrastructure provision. The implementation of value capturing might provide avenues to deal with the current issues in infrastructure provision of weak capacity, limited budgets, and lack of innovation. This affects the regional growth in economic, social, environment, and physical development, as well as it challenges the goal of decentralization in Indonesian policy. In order to explore the concept value capturing, this study uses a case study methodology to examine value capturing and its institutional design for the provision of road at the Kartamantul regions and the connector road at the Cikampek Toll road. The findings from the case studies show that value capture has the potential to support infrastructure provision at the local level and that a responsive institutional design is needed for its successful implementation.Value capture is about capturing part of the increment value from private property following the development of related public infrastructure (road, bridge, open space, etc.) and return the benefit to the public. In the Indonesian context, value capturing has the potential to improve the local government capacity in financing or providing infrastructure by using local sources. This means the local government could reduce dependency on the support from the national government. Value capture could also be used as an approach to push the private sector to take responsibility for the development impact. However, the implementation of value capture demands institutional support, which the public sector is lacking due to the weak of local capacity and bureaucracy. Therefore, this study proposes a responsive institutional design approach that responds to local condition and manage the cooperation between public and private sector in order to deliver infrastructure to the public. The newly designed institutions should take up responsibilities such as ensuring cooperation between public and private sector, selecting arrangement type that fits local conditions, encouraging private sector to contribute financially or in-kind, assessing and increasing benefits and impacts of investment at micro and macro scale (local to national level), and identifying the potential timing of capturing the value.
International experiences of value capturing from countries such as the Netherlands, the United Kingdom, Colombia, and Chile show the benefits of value capture in supporting infrastructure provision. However, each country has a different approach in implementing value capture for infrastructure development. In developed countries such as the Netherlands and the United Kingdom, dynamic arrangements and flexibility between public and private sectors through negotiation are predominant. While, in developing countries like Colombia, and Chile, the public sector is controlling the interaction process, which makes value capturing arrangements is less flexible. On basis of these experiences, this study has developed further understanding regarding the implementation of
xxii value capturing. In this understanding, value capture has the capacity to encourage the private sector to return part of the increment value benefit from the public infrastructure to the public.
By this, value capturing might help balancing the distribution of value. In addition, this study also develops a “5WH framework” to structure the discussion on value capturing (see Table). The 5WHs refer to the dimensions of: the contributor (who); the arrangement type (how); the contribution unit (what); the scale (where); and the time (when). The elements of this framework help to identify the characteristics of value capturing in a country. On basis of the discussion of international experiences this study also explores the process of value capturing, which involves three stages: creating; unlocking; and capturing. Each stage has a different process of cooperation between public and private sector as well as different arrangements. The creating stage involves planning activity from both parties, while the unlocking stage is about assessing the asset value and increasing the increment value because of the investment and development, and the capturing stage focuses on the implementation of instrument to secure the value, whether for the public or private sector. Another important point that needs to be addressed is the responsiveness to different local contexts and local institutional capacity. The study introduces the notion of responsive institutional design to emphasize the contextuality and actors’ capacity. Local context and institutional capacity relate both to socio-economic conditions, culture, policy and regulations, physical development, infrastructure conditions, and interaction between public and private sector. Contextuality is considered crucial given the need to accommodate to both physical and social factors. Institutional capacity refers especially to the public sector’s skills to answer the infrastructure demand, develop innovation, arrange cooperation with the private sector, and manage limited budget allocation. The combination of contextuality and capacity provides significant information about local conditions that are important to develop an institutional design that is responsive to those local conditions and that enhances successful implementation of value capturing.
xxiii Table 0.1
Value Capturing Framework
5WHs Basic Model Classification Definition
WHO Contributor Public Government obligation and support to infrastructure development through value capture approaches. Private Private contributions to infrastructure development through
value capture approaches.
HOW
Arrangement
types Obligatory - All actors have obligation to follow some “formal” rules in order to support infrastructure development. - “Formal” rules (tax, betterment levy, earmarking, split rate, tariff, impact fee, planning gain, permit, sale of development right).
Voluntary - Negotiation and willingness from actors to support infrastructure development.
- Public Private Partnership (PPP), join development, concurrency, land rent or sale.
WHAT Contribution Unit Financial Direct financial benefit, which could be “capture” and “distribute” for other infrastructure development. In kind Kind of “value” which does not correlate directly with
financial but “distribute” through physical development.
WHEN
Timing Before
development Infrastructure development planning influence “value” changes in land or property before development. After
development Infrastructure development influence to “value” changes in land or property after development. Value added from infrastructure development.
WHERE
Scale ‘Micro
externalities’ Capturing “value” from micro externalities development scale ‘within-project’ or site base. ‘Macro
externalities’ Capturing “value” from broader externalities, not only externalities in the project but macro externalities, which generate by the project (“beyond project”) or area base.
The first three chapters show that the notion of value capturing might have potential for Indonesia’s challenges road provision. The subsequent chapters focus on the specific issues regarding Indonesia. Chapter 4 discusses current Indonesian practice of road infrastructure provision at which the decentralisation policy proves to be important. Decentralization has been transferring institutions at national to local level and it influences the interaction amongst planning actors as well as affects policy and regulations. Indonesian decentralization was expected to improve conditions regarding, (1) the interaction between national, provincial, and local government, (2) the capacity to manage local development, and (3) the development of innovation based on the local condition. However, reality is that the implemented decentralization is far from those points; many of local governments are having difficulty to manage local development and still depend largely on the national government’s support. This is also true for infrastructure provision; lack of innovation slows down the development and maintenance of infrastructure. This study explores how implementing the value capturing concept might provide an alternative approach to deal with current challenges of infrastructure provision in Indonesia.
xxiv The cases in this study are used to explore the possibilities to implement value capturing for road infrastructure in Indonesia. The first case is about regional road provision in the Kartamantul region. This case shows experiences in institutional design supporting the development and maintenance of infrastructure between three regions. The development of the Kartamantul joint secretariat accommodates the dynamic interaction within public sector of the three regions in order to manage cross-border infrastructure. This joint secretariat has the responsibility to facilitate coordination and communication between members and to assist development cooperation between provincial government and private sector. The secretariat’s ability to develop cooperation with the higher level of government institution (provincial government) and private sector proves to be significant to help the public sector improve the quality of infrastructure provision. Further, the joint secretariat addresses the problem of bureaucracy, improves infrastructure provision, and supports innovation that could bring benefit to the infrastructure provision and possibility to the implementation of value capturing in these regions. The Kartamantul case shows the benefit of institutional design to infrastructure provision through the cooperation between local governments and the private sector. In addition, the case shows that cultural factors also might play a significant role. The culture of gotong-royong (‘work together)’ and guyub (‘kinship’) are used to encourage the private sector participation and contribution. Overall, the Kartamantul case provides an overview of possibilities to implement value capturing through institutional design that involves cooperation between public and private sectors by accommodating local culture.
The second case is the connector road at the Jakarta – Cikampek toll road. This case shows value capturing experiences involving a real estate developer (private sector), the ministry of Public Works, and the local government of Bekasi district (public sector). In this case the real estate developer (private sector) had the initiative to build a connector to open the isolated area of Tambun region. Although the private sector was willing to financing the construction and maintenance, the permit process took considerable time (seven years). The reason why it took so long is because the arrangement was considered new and the public sector had formal rules in place to support such cooperation. Another reason related to the negotiation process between both parties about capturing the value; both were trying to get as many benefits as possible from the development. In the end, the public sector succeeded to capture the value and the private sector build the connector road, maintain the road, and build the toll gates facilities at Tambun area. After the development the private sector party captures itself value from the increment value from property sales and rent. While the public sector (local government) has the opportunity for capturing the increment value – using instruments such as planning obligation, land and building tax, and impact fee. The implementation of these instruments helps the government to capture and return the benefit to the public. This case shows evidence of dynamic interactions between different levels of government institutions, particularly between the national and local government. Regular communication and coordination between them helped to cut bureaucracy and simplify the development process. Maintaining cooperation with the national government would also allow for getting assistance on policy and regulation. The innovation in value capturing instrumentation is a benefit to this region, especially as the private sector has the capacity and understands the concept of value capturing. Capacity improvement of the public sector proves to be crucial in this region for expanding the value
xxv capturing concept and getting benefits from investment and development activities. With such capacity, the public sector in this region can manage its cooperation with the private sector and implementation of value capturing for infrastructure provision.
The Indonesian cases indicate that value capturing is a promising idea as an alternative approach for infrastructure provision. However, in the Indonesia context, weak capacity in innovation, bureaucracy, and rigid financial regulation challenge the idea of value capturing.
Therefore, for implementation the public sector needs the support of carefully designed institutions. New institution should encourage interaction and communication between parties in particular in sharing the idea of value capturing and arranging cooperation with the private sector. Careful linking up with culture or socioeconomic factors could motivate private sector parties to participate in value capturing besides encouragement by public sector. In the case of Kartamantul, regional cultural practices such as gotong-royong and guyub proved to be significant in encouraging private sector contribution. Using these cultural factors, the public sector could smoothen negotiation and persuade private sector parties to take responsibility for development impact. A bit different, socioeconomic factor proved to be relevant to cases where economic factors were driven development activity such as the case of the connector road at the Jakarta – Cikampek toll road. Here, the idea of getting significant profit from infrastructure investment motivated the private sector to voluntarily build the connector road.
Both cases have different characteristics that have influenced the design of institutions and instruments for value capturing. Based on the findings, this study proposes an institutional design that is responsive; that is establishing institutions and rules that accommodate to the local context and capacity in order to support the implementation of value capturing. In the case of Indonesia, such responsive institutional design entails accommodating to local culture and socioeconomic conditions for enriching the design of rules and the lay-out of institutions. Those factors also influence interactions between public and private sector as well as the process of capturing the value (create, unlock and seize the value). Linking up with cultural factors might improve the arrangement type, since it could motivate the private sector to work together improving the infrastructure and environmental quality. Socioeconomic factors relate closely to the financial profit that leads to the assessment of benefits and impacts generated by the investment. Information on socioeconomic factors allows both public and private sector parties to negotiate on the increment value and development impact. In order to put cultural and socioeconomic factors into the institutional design, the public sector should improve the capacity in infrastructure management and innovation. The combination of responsive institutional design and value capturing would enhance road development. With the support of responsive institutional design, value capturing has the potential to support the road provision that is beneficial for a region and its growth. In order to safeguard such benefits of value capturing, however, this calls for improvement of the governmental system and the various actors’ capacity to deal with such issues as: cutting through bureaucracy; bridging gaps in communication; supporting innovation; and encouraging cooperation with private sector.
xxvi In chapter 7 this study discusses concrete proposals for responsive institutional design. Two proposals are discussed the local public service agency (Badan Layanan Umum Daerah or BLUD) and the joint cooperation agency. Both forms are considered fit to respectively the local condition in Kartamantul regions and in Bekasi district (Jakarta-Cikampek toll road). The proposed forms could help the public sector to arrange cooperation with the private sector, manage financial and in-kind contribution, and accelerate the development of infrastructure. For the Kartamantul the study proposes to apply the BLUD for arranging cooperation with the private sector about investment, development and maintenance. Although the BLUD has different management approach from government organisation, this format falls under the government policy. This institution allows managing financial income, as long as it is for public benefit. In Bekasi district, the study proposes to develop a joint cooperation agency. This institutional format comprises an independent institution, not part of the government. The design of the joint cooperation agency is based on the condition that private sector has the willingness to participate. Since both public and private parties share similar ideas and responsibilities, the public sector may reduce its domination and be open to such new arrangements, as the joint cooperation agency. For both cases, the format of BLUD and joint cooperation agency are considered to fit well to the local conditions and context and therefore to support the implementation of value capturing.
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VALUE CAPTURING AND REGIONAL ROAD DEVELOPMENT IN
INDONESIA
1.1. New Challenges in Regional Road Development in Indonesia
In developing countries that are experiencing rapid economic and population growth, the provision of infrastructure is considered one of the main challenges for public authorities. The demand for infrastructure is high in response to huge population and economic growth (The World Bank, 2012; Basri & Munandar, 2009). This problem is overwhelming the public sector in most developing countries since they have limited capacity to provide and manage the need for solid infrastructure (The World Bank, 2012). The pressure to deliver infrastructure pushes the public sector to seek a breakthrough alternative that could support development and maintenance.
Value capture is considered as a way to assist the public sector to provide infrastructure (Peterson, 2009). In literature, various authors (Ingram & Hong, 2012; Fainstein, 2012; Booth, 2012; Munoz Gielen, 2010; Peterson, 2009; Janssen-Jansen & Woltjer, 2010) have indicated that the approach of value capturing may help the public sector to manage demand in infrastructure through an innovative arrangement that involves private sector contribution. Through value capturing, the private sector would be encouraged to take responsibility in investment activity and help the public sector by sharing the cost of infrastructure development and maintenance. Various countries – such as the United States, the Netherlands, the United Kingdom, Chile, Colombia, Denmark, and others – have been implementing value capture to support the provision of infrastructure. Value capturing may provide not only valuable funds but also in-kind development (Ingram & Hong, 2012; Fainstein, 2012; Booth, 2012; Ochoa, 2011; Munoz Gielen, 2010; Peterson, 2009; Janssen-Jansen & Woltjer, 2010). This study discusses value capturing for the provision of infrastructure in a context of a developing country. To this end, we focus especially on Indonesia. In order to put the Indonesian experiences in a wider context, we also look at experiences in Colombia, Chile, the United Kingdom, and the Netherlands.
Indonesia is one of the developing countries experiencing rapid growth with limited infrastructure. As a consequence, many regions are finding difficulty in growth and have not been able to secure adequate investment. Obviously, the growing need for infrastructure has been emerging since this country implemented decentralization in 2001 (Basri & Munandar, 2009). Decentralization gives authority to local government to develop and manage regions with limited intervention from the national government. The main idea of decentralization is to accelerate development at city/district level (Dwiyanto, 2009; Hadna, 2009; Basri & Munandar, 2009); it should stimulate development and economic activity in regions based on local capacity (Primadhyta & Supriadi, 2016; Purwanto, 2009; Basri & Munandar, 2009; Hadna, 2009; Sasongko, 2005). The authority comes with the responsibility to reduce dependency on national government support, particularly in planning, development, and finance.
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Transition from a system of centralization to one of decentralization was initially quite smooth (Kirana, 2014; USAID, 2006; Hofman, 2001). However, the implementation of decentralization has challenged the capacity of local government to manage development in the regions (Primadhyta & Supriadi, 2016; Basri & Munandar, 2009; Abidin, 2009). Many local governments were in the process of adapting to the new system and were unprepared for self-government, especially after having worked under the centralization system for 32 years (ibid). Local governments have had difficulty in managing local development and have been continuously engaged in the process of improving their capacity for development and maintenance (Kartika, 2017; Primadhyta & Supriadi, 2016; Basri & Munandar, 2009). Limited local capacity and lack of finance affect local government capacity to deliver infrastructure and development (Basri & Munandar, 2009; Abidin, 2009). Assistance from, and coordination with, national government is still needed (Kartika, 2017; Abidin, 2009; Ray, 2009) to enhance development at the local level (Kartika, 2017; Primadhyta & Supriadi, 2016; Basri & Munandari, 2009; Hadna, 2009).
Nevertheless, decentralization brings to local government the opportunity for exploring some creative options that would give benefit to local development. Value capturing is an example of a potential approach that is likely to help local government’s provision of infrastructure through an arrangement with the private sector. It is expected that the implementation of value capture could improve the condition of local infrastructure and reduce dependence on national government support (Sadli, 2009). Infrastructure is important to regions, especially in drawing in investors. Investment in their regions would add significant extra income to local revenue. Therefore, regions with the capacity to attract investors could encourage them to contribute to the provision of infrastructure using the value capture arrangement. Obviously, private sector investment would push development activity and help local government to self-finance (Basri & Munandar, 2009; Holtzappel & Ramstedt, 2009; Hofman & Kaiser, 2006; Jaya, 2004). Previous discussion has shown that the implementation of decentralization in Indonesia has been very fast, a “big bang” (Firman, 2010; Hofman & Kaiser, 2006). It changed the routine interaction of centralization that focused on national government into a dynamic interaction of local governments. Three phases can be distinguished in the decentralization in Indonesia: (1) the first phase of decentralization (2001-2004) is the transition period of regional autonomy; (2) a second decentralization phase (2004-2014) is the improvement of the regional autonomy and election; and (3) the third decentralization phase from 2014 – onwards is clarified distinction tasks of provincial and local governments.
(1) In the first phase, the public sector focused on transforming and adjusting those government systems that support decentralization (Media BPP, 2017; Dahlan, 2012; Basri & Munandar, 2009; Hendratno, 2007). National government was aware that this phase was critical and could lead to chaotic situations at local level without proper assistance. Therefore, national government introduced policy and regulation, and in addition transferred some national government civil servants to regions with the tasks of assisting the implementation of decentralization and encouraging capacity building (Holtzappel & Ramstedt, 2009; Basri & Munandar, 2009; Firman, 2009). With all of these efforts, it is no surprise that national government succeeded in managing and controlling the transition process (Holtzappel & Ramstedt, 2009).
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The first phases of decentralization had to deal with some challenges that influence coordination between national and local governments, between separate local governments, as well as development at local level. Some authors (Basri & Munandar, 2009; Rayanto, 2009; Holtzappel & Ramstedt, 2009; Firman, 2009; Hofman & Kaiser, 2006) have argued that lacking the capacity to interact with other agencies limited the capacity to manage natural resources, and poor control over development activity triggered conflict at local level. Improvement in government capacity and institutions is needed in order to ensure the implementation of decentralization.
Second phase of decentralization. As a response to this state of affairs, in 2004 the national government introduced Law no.32/2004 on Local Government to replace Law no.22/1999 on Local Government that had been used as the legal foundation of decentralization in the first phase. The implementation of Law no. 32/2004 was the beginning of the second phase of decentralization in Indonesia. The new law was implemented in order to improve the local election and authority that would impact to local government capacity, support local development, and encourage interaction between local, provincial, and national government. This law has been implemented for more than a decade now, however, the public sector is still facing the same problems outlined above (Media BPP, 2017; Firman, 2009; Basri & Munandar, 2009; Holtzappel & Ramstedt, 2009).
Third phase of decentralization. In 2014, the national government introduced Law no. 23/14 on Local Government to replace a previous Law no. (32/2004). The new Law clarifies the distinct tasks of provincial and local (city/district) government. Further, the Law also specifies local government tasks in public service mechanisms, financial management, local innovation, procedures to develop a new region, and others. Clearly this Law aims to encourage the local government to improve local development in public services through innovation. Regarding this, the focus of this study is to examine in detail the problems of local capacity, institution arrangement, and infrastructure provision. On basis of this analysis this study explores the possibilities for improving the provision of road infrastructure using value capture.
This study investigates how value capturing might be helpful in supporting the road infrastructure provision in the context of a developing country and is focused on Indonesia. In general, the provision of road infrastructure in Indonesia is about average. A report from The World Bank (2012) revealed that on average the demographic road density is about 1.5 km per 1,000 people, while the spatial road density is about 190 km per 1,000 km2. This average condition is not ideal for investment in Indonesia because support from road infrastructure is an essential requirement, since the delivery of most goods is based on road transportation (ibid). Aware of the demand for investment, the national Government of Indonesia (GOI) introduced an investment plan, called Master plan for Acceleration and Expansion of Indonesia's Economic Development (MP3EI 2011 – 2025). This master plan focuses on the development of road infrastructure (national, provincial, and toll road) in the six economic corridors (EC) (1) Sumatra EC, (2) Java EC, (3) Kalimantan EC, (4) Sulawesi EC, (5) Bali – Nusa Tenggara EC, and (6) Papua – Maluku Islands EC. Furthermore, the report from the WorldBank (2012) also stressed the importance for the GOI plans on infrastructure of aiming to build approximately 19,000 km of highway in five of the main islands in Indonesia, to develop an integrated transportation network, and to upgrade urban transport in the metropolitan
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area. Obviously, these infrastructure plans need sufficient financial support, which the government is lacking. Involving investment by the private sector or developing cooperation between the government and private sector would be options to support this plan. At this point, the idea of value capturing seems to fit these aims and offers an alternative to infrastructure development and maintenance. Implementation of value capture requires legal support from the government, particularly through institutional setting, policy and regulation.
In order to elaborate on the institutional aspects of these challenges, this study focuses on the institutional design that emphasizes the idea of responsiveness towards contextuality and institutional capacity. Contextuality focuses on cultural factors that influence daily interaction and on physical aspects that affect the quality of the built environment. Institutional capacity stresses public and private sector capacity to deliver road infrastructure development and maintenance in the decentralization era. Output from this study is expected to enrich the discussion of value capturing and institutional design of road infrastructure in Indonesia as well as being relevant to an international audience.
1.2. Value Capture for Road Infrastructure in Indonesia
Value capturing has a long history. A kind of land value capturing was already implemented in colonial North America through property tax system (Smolka & Amborski, 2000:6); these arrangemente involved the government and landowners. Nowadays, property tax is still implemented to provide local revenue and support public development (Lincoln Institute of Land Policy, 2017; Smolka & Amborski, 2000). In the US, property tax contributes to local revenue of around US$ 472 billion annually, which is used to finance the public services development such as schools (Lincoln Institute of Land Policy, 2017). This example of value capturing showed the possibility of cooperation between public and private sector to provide public services. Later, similar approaches can be found in other countries, since such arrangements of value capturing that involve the public and private sectors have the potential to support infrastructure development in regions (Peterson, 2009; Batt, 2001).
The concept of value capturing has been implemented in different countries under various names. In general, value capturing can be defined as a method or technique to seize part of the increasing worth from the private sectors, which gain profit (financial or in-kind) as a causality of public (or private) sector development or investment (Peterson, 2009; Huxley, 2009; Janssen-Jansen & Woltjer, 2010; Zegras, 2003). More specifically, the report from the Center for Transportation Studies, University of Minnesota (Iacono, et al., 2009) elaborated the idea of value capturing. The study introduced a concept of value creation and value capture in the field of transportation finance (ibid). According to this study, value creation is related to accessibility, location, and land value. A better access to transportation facilities would create or even increase the value of the land. Such conditions provide a potential for value capturing, i.e. to capture a portion of profit from the private sector (advantage from the development of a transportation facility) and to distribute the profit in order to fund transportation or infrastructure development for public benefit. Similar studies also linked the idea of value creation and value capture to accessibility, location, and property value (Murakami, 2012; Huxley, 2009; Peterson, 2009). Although we emphasize in this discussion the
C h a p t e r 1-5
relevance for infrastructure development, the idea to create and capture value is more generally rooted in the economic and management perspective (Murakami, 2012; Huxley, 2009; Iacono et al., 2009; Peterson, 2009). In general, value capturing can be considered as a way to encourage the private sector to contribute some part of their profits to public sector development through a voluntary or obligatory arrangement (Ingram & Hong, 2012; Munoz Gielen, 2011; Peterson, 2009; Huxley, 2009). Such a process of value capturing is especially relevant for the provision of road infrastructure as this is usually a task left to public authorities. Road infrastructure involves huge investment – it is expensive – however, it does bring significant benefit to the community (The World Bank, 2012; Coordinating Ministry for Economic Affairs and Ministry of National Development Planning, 2011; Basri & Munandar, 2009). In particular, in developing countries such as Indonesia, the development of road infrastructure would stimulate area or regional and socio-economic growth (The World Bank, 2012; Coordinating Ministry for Economic Affairs and Ministry of National Development Planning, 2011; Basri & Munandar, 2009; Purwoto & Kurniawan, 2009). Following experiences from other countries, the national to local government in Indonesia should take the opportunity to introduce value capturing from infrastructure development. Through cooperation with the private sector, the government could encourage the private sector to contribute to infrastructure development and maintenance. At this point, the government should understand the basic concept of value capturing in order to develop policy and regulation as well as instruments to capture the value.
To get more insight into the concept of value capturing this study discusses some international experiences from developed and developing countries such as the Netherlands, the United Kingdom, Colombia and Chile. These countries have been implementing value capturing to support developments such as the building of roads, bridges, and other infrastructure as well as the maintenance of green open spaces for years (Ingram & Hong, 2012; Booth, 2012; Ochoa, 2011; Munoz Gielen, 2010; Peterson, 2009; Janssen-Jansen & Woltjer, 2010). Value capturing in these countries is based on arrangements that oblige the private sector to contribute to the provision of infrastructure.
The selection of these international experiences is based on their correlation to road infrastructure, institutional arrangements, dynamic interaction, and innovative instruments that would inspire and enrich the discussion of value capturing in Indonesia. Experiences from the developing countries of Colombia and Chile are considered relevant, as they might bear similarities in institutional contexts, arrangements, and instruments to capture value and to support the provision of road infrastructure. On the other hand, experiences from developed countries such as the Netherlands and the United Kingdom are studied as they might offer insights into innovative instruments and flexibility of institutional arrangements that could give inspiration to Indonesia. Generally speaking, value capturing is easy to implement in a country with a clear institutional framework. The relationship between value capturing and planning relies on the capacity of the public sector to encourage the private sector to make a contribution to infrastructure provision through an institutional arrangement based on the local context.
C h a p t e r 1-6
In Search of Possibility: Value Capture and the Indonesian Context
Value capturing has the potential to help the public sector (government) in Indonesia to provide infrastructure with support from the private sector. It seems that the concept of value capturing could give benefit to local government. This approach could help local government to manage the pressure to provide road infrastructure since it offers some instruments that could deliver contributions – either financial or in-kind – through cooperation with the private sector. Private sector involvement in road infrastructure might reduce local government dependency on financial and development support from the national government. Apparently, value capturing supports the concept of decentralization, which is to encourage local government to have the capacity to self-developing infrastructure in its region.
Although value capturing has potential, in Indonesia the idea of implementing value capture is challenging due to institutional problems – conflict between government agencies, bureaucracy, rigid policy regulation, and political interference. Awareness of those problems is significant for this study, particularly in seeking the possibility to implement value capture and to design responsive institutions that accommodate dynamic interaction between all parties, for the development of road infrastructure. A careful institutional design is important for such conditions to ensure the implementation of value capture.
1.3. An Institutional Approach: The New Sociological Institutionalism
Institutional support is necessary to value capturing (Fainstein, 2012; Ingram & Hong, 2012; Peterson, 2009) as well as social acceptance (Babas, Mintsis, Taxiltaris, Roukouni, & Vazakidis, 2015). Careful institutional setting is relevant to value capture, especially the setting of legal foundations to arrange cooperation and to deliver the contribution to infrastructure. Social acceptance is another factor necessary to value capturing; it would prevent conflict and simplify the implementation process. The correlation between value capture and institutions that focuses on managing cooperation between parties, accommodating local context, and arranging social acceptance has put this study to a discussion of the new institutionalism. Understanding the concept of new institutionalism helps this study to design institutions that support value capturing with the emphasis on local context and institutional capacity. With this understanding, it is expected that the design of responsive institutions could get social acceptance.
The new sociological institutionalism stresses an institutional setting that is influenced by the rules, norms, and culture of daily life interaction between actors (Amenta & Ramsey, 2010; Steinmo, 2008; Bell, 2002; Hall & Taylor, 1999). On the basis of literature study, (Hall and Taylor, 1999; Goodin, 1996, Steinmo, 2008) the new institutionalism can be classified into three categories; (1) historical institutionalism, (2) rational choice institutionalism, and (3) sociological institutionalism. Each of them has different characteristics that define the approach to arranging the institutional setting; it determines rules that fit a game. Historical institutionalism discusses the path dependence approach that explains the structure of social, political, and economic preferences, which change in time (Steinmo, 2008; Hall and Taylor, 1996). Rational choice institutionalism regards strategic
