Infrastructure Financing through Islamic
Finance in the Islamic Countries
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5.1.2. PPP Framework
The second aspect of a national level policy framework for infrastructure development is to
have an institutional setup which can facilitate investments by the private sector. This is done
in several ways. In Indonesia, the PPP Directorate of Indonesia under the Ministry of National
Development Planning is responsible for overseeing the projects undertaken under PPP
arrangements. Furthermore, the Committee for the Acceleration of Priority Infrastructure
Delivery (KPPIP), constituting members from different ministries, is responsible to facilitate
implementation of strategic and priority projects. Similarly, in Malaysia, a PPP Unit under the
Prime Minister’s Department is responsible for planning and facilitating PPP projects. In
Nigeria, a separate government entity, the Infrastructure Concession Regulatory Commission,
has created regulations that govern PPP projects. In Saudi Arabia, the National Centre for
Privatization and PPP was established recently with a mandate to facilitate the promotion of
PPP in the country. While Sudan’s Five-Year Program for Economic Reform (2015-2019)
recognizes the need to develop PPP arrangements , there are no formal public institutions that deal
with PPP. This reflects the relatively low participation of the private sector in infrastructure projects
in the country. In the UK, there is no unified PPP procurement procedure and different public
bodies deal with infrastructure through PPP concessions. However, they have to follow a
uniform approval process where HM Treasury must approve the project. Furthermore, the
government issued the SOPC4 which provides a framework of standardized contracts that can
be used for PPP projects.
5.1.3. Other Institutional Setups
Given the special features of long-term financing and risks that arise in infrastructure
financing, there is a need to come up with certain institutional setups that can encourage the
private sector to invest in infrastructure projects. The country case studies show that the
following factors would help promote the investment climate for private sector participation.
Institution to Provide Advisory Services: While PT Sarana Multi Infrastructure (PT SMI) is a
state owned financial institution that provides funding for infrastructure projects in the form
of equity, debt and securities, it also provides advisory services related to project development
and assists private sector entities. Since infrastructure projects are large and complex with
little know-how, an institution that can advise private sector investors on financing
arrangements has the potential to increase investments in the infrastructure sector. Similarly,
the Infrastructure and Projects Authority in the UK supports the implementation of the Private
Finance 2 initiative by developing the appropriate commercial and finance capabilities.
Guarantees on PPP Contracts: Investors face various political and commercial risks in
infrastructure projects that are mitigated in different ways. A unique risk relates to the risks
arising from the government not fulfilling the contractual obligations under the PPP contract.
An insurance that can mitigate this risk increases the participation of the private sector in
infrastructure projects. The Infrastructure Guarantee Fund (IIGF) in Indonesia provides
guarantees that government contracting agencies will fulfil the contractual obligations of the
Cooperation Agreement of PPP projects. Similar schemes can be introduced in other countries to
increase PPP in infrastructure projects.