Public Private Partnerships in a Multi-Level Governance Setting: A Study of the Indonesian PPP Program in the Water Sector

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Smith, Christine A

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Bianchi, Robert

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2020-01-15
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Abstract

As Indonesia is a country with a huge population, access to water has become a crucial issue for Indonesia that needs specific attention. According to the Ministry of Planning (Bappenas), in 2009 only about 49.8 per cent of households in urban areas and 45.7 per cent in rural areas had access to a piped water supply. However, access to water installation decreased further in 2011. Unfortunately, as in other developing countries, Indonesian public investment in this sector has failed to keep pace with demand. From 2011 – 2014, state budgets were able to cover around only 44 per cent of the investment needed to achieve target levels, while the sub-national level total funding for water infrastructure represented only 0.04 per cent of their total budget.
This situation led the government to seek an alternative solution through the implementation of a PPP scheme. Unfortunately, progress in this context has arguably been stagnant. From 2005, there have been only two PPP projects, from twenty-five offered, that can be considered to be successfully implemented. This situation might be caused by the complexities of the water governance arrangements, which involve multiple and multi-level actors. Most empirical studies of PPP arrangements concentrate, however, on the horizontal relationship between public and private sector actors. Despite many studies mentioning the involvement of actors from each governmental level, this area of PPP arrangements has generally been neglected. By contrast, this study uses a multi-level governance approach to address the vertical interaction between various governmental levels in the adoption and implementation of PPP projects.
To address this matter, this study employs a mixed-method approach through a sequential explanatory design in which surveys, documentary analysis, case studies and focus group discussions are used for quantitative and qualitative enquiry. The surveys were aimed to understand the current situation of the implementation of the Indonesian PPP program in the water sector, while the case studies were concerned to gain a deeper understanding of PPP development in a multi-level governance situation. An email survey, with responses from 28 actors from central and sub-national governments who have experience in managing a PPP program, was supported by an online survey with 100 respondents from subnational governments. Semi-structured interviews were conducted with 29 respondents who held key positions in relation to the Indonesian PPP program. In addition, two focus group discussions were employed to road test and finalise the policy recommendations developed at the end of the study. Findings from the surveys revealed that for sub-national governments, the role of local leader is important in promoting PPP adoption in their respected regions. Those surveys also indicated the inadequacy of local human resource capacity, relating to both the PPP concept and the associated regulations, as issues that need to be solved urgently. They also suggested that acknowledgment of local objectives by the central government when endorsing PPP projects for sub-national level adoption is essential. This study also argues that in order to be able to work in a multi-level governance situation, firstly, the project must be legitimate and sustainable. In this regard, the research suggests the importance of local leader commitment and the need to identify and empower actors that can act as local institutional entrepreneurs to mobilise the resources needed for project implementation. Furthermore, the findings also showed that effective sharing of roles between governmental tiers contributes to the success of water supply PPP projects in terms of both bankability and marketability. However, coordination problems between government tiers have been known to contribute to significant delays in PPP project adoption and implementation. Issues surrounding institutional arrangements, lack of local leadership, inadequacies in the regulatory framework, and political intervention are identified as the four main problems to be resolved in the Indonesian water supply sector PPP program. To deal with those matters, coordination mechanisms, such as a formal method of coordination based on a hierarchy approach as well as a market-based mechanism, can be proposed. In addition, the creation of type II multi-level governance institutions was seen to be useful. This research has made significant contributions to the existing literature on public private partnerships by extending the multi-level governance perspective, not only to the study of PPP regulations but also to their PPP adoption and implementation. The study also contributes by offering a new framework to study the development and implementation of water PPP projects based on the pragmatism approach. In practical terms, this study also provides guidance to the Indonesian central government for further enhancement of the PPP policy and strategy development in the water sector. This guidance relates to re-designing the capacity building program, streamlining the process of PPP adoption, and rolling out an incentive-sanction mechanism to support the adoption of PPP at the sub-national level. Furthermore, this study is able to inform Indonesian sub-national governments in regard to the essential matters required to pay attention to when adopting PPPs especially in the water supply sector.

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Thesis (PhD Doctorate)

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Doctor of Philosophy (PhD)

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Dept Account,Finance & Econ

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The author owns the copyright in this thesis, unless stated otherwise.

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Public Private Partnerships

Water Supply Sector

Multi-level Governance

PPP adoption and implementation

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