RISK ASSESSMENT AND ALLOCATION IN INDONESIA’S LOCAL GOVERNMENT AVAILABILITY-PAYMENT PPPs
RISK ASSESSMENT AND ALLOCATION IN INDONESIA’S LOCAL GOVERNMENT AVAILABILITY-PAYMENT PPPs

Summary/Abstract: Developing nations face severe infrastructure deficits exacerbated by fiscal constraints, making Public-Private Partnerships (PPPs) a crucial financing mechanism. The Availability-Payment (AP) model is preferred for socially essential projects as it transfers demand risk to the public sector. However, implementing AP-PPPs at the sub-national level in developing economies like Indonesia presents distinct challenges, starkly evidenced by a high local failure rate. This study addresses a critical gap by systematically identifying risks and analyzing allocation preferences for local government AP-PPPs in Indonesia. Employing a sequential mixed-methods approach, a narrative review distilled 39 risk factors, which were then assessed through a survey of national PPP experts. The analysis reveals a risk profile dominated by institutional failures, with 59% of risks rated as high or extreme severity. A systemic diagnosis structures these risks into a causal hierarchy of four thematic groupings: a root-cause cluster of governance and institutional crises, its manifestation in planning and preparation failures, the inherent vulnerabilities of the AP scheme, and a derivative cluster of operational consequences. The allocation pattern uncovers a core paradox: while the optimal allocation of 83% of extreme risks to the public sector adheres to standard principles, it simultaneously creates a high probability of failure by burdening the institutionally weakest party. The significantly lower risk transfer to the private sector (33.3%), compared to national benchmarks, signals a systemic incapacity for risk sharing, rooted in project unbankability driven by local governance deficits. Therefore, the findings function primarily as a diagnostic instrument, issuing an unequivocal policy imperative: the fundamental prerequisite for viable local AP-PPPs is not contract refinement, but the urgent strengthening of local government governance and core competencies.

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