Gov’t to Grant Credit Guarantee, Interest Subsidy for Drinking Water Investment

In a bid to ensure adequate drinking water supply to all Indonesians and to stimulate 100 percent access to drinking water, the Government deems it necessary to grant credit guarantee and interest subsidy for payment obligations of the regional water company PDAM to lending banks.

Based on this consideration, President Joko “Jokowi” Widodo on 4 July 2019 signed Presidential Regulation Number 46 of 2019 on Granting of Guarantee and Interest Subsidy by Central Government to Ensuring Adequate Drinking Water Supply.

The Presidential Regulation states that to ensure adequate drinking water supply, the Central Government considering the state finance shall grant: a. guarantee for credit payment of the PDAM to lending banks and b. subsidies on bank interest.

“Investment credit  – which is a credit allocated to give guarantee and subsidies for PDAM  – will be given based on an agreement on investment credit between the PDAM and banks,” article 2 paragraph (2, 3) of the Presidential Regulation reads.

In the meantime, guarantee from the Government constitutes 70% (seventy percent) of payment of PDAM’s principal investment credit which is due and the remaining of thirty percent (30%) shall be the risk of the lending banks.

Nevertheless, there are several conditions to obtain guarantee as intended, among others: a. showing good performance for two consecutive years proven by performance results from the Development Finance Comptroller (BPKP) and b. determining average cost higher than full cost recovery based on provisions of laws and regulations for two consecutive years or from before the guarantee period start and until the guarantee period ends.

“The guarantee will be granted by the Central Government through an issuance of Central Government Guarantee Letter by a minister overseeing government affairs in financial sector,” Article 5 of the regulation reads.

The Central Government must also have an umbrella agreement signed by the minister overseeing government affairs in financial sector, governor or regent/mayor, and director of PDAM before granting any guarantee.

Meanwhile, governor or regent/mayor who sign the umbrella agreement must obtain approval from the Regional Legislative Councils (DPRD) indicating their support to subsidized loan programs, guarantee, and deduction of general allocation fund (DAU) and/or revenue sharing funds (DBH).

In the event that the PDAM fails to pay some or all payment which is due based on their agreements of investment credit, 70% (seventy percent) of PDAM’s principal investment credit payment shall be borne by the Central Government. “The payment as intended will be count as PDAM’s debt to the Central Government,” Article 10 paragraph (4) reads.

Further provisions regarding the procedure for granting guarantees by the Central Government, procedures for submitting bills and making payments, as well as the mechanism for deducting DAU and / or DBH as intended, according to this regulation, are regulated by a ministerial regulation overseeing government affairs in financial sector.

The Presidential Regulation also states that the Central Government allocates budget to fund interest subsidy in the State Budget and the subsidy will be granted by the minister overseeing government affairs in financial sector.

“Interest subsidy for lending bank will be paid once every 6 (six) months: on 1 April and 1 October,” Article 17 reads.

Furthermore, the minister overseeing government affairs in economic coordination has established a coordinating team to monitor and evaluate the granting of guarantee and interest subsidy to the PDAM.

Members of the team consist of ministry overseeing ministerial coordination, synchronization, and control in economic sector, ministry overseeing home affairs, ministry overseeing government affairs in financial sector, ministry overseeing government affairs in public works, ministry overseeing government affairs in national development planning, and government institution overseeing government affairs in national/regional development finance comptroller.

“Guarantee and interest subsidy are granted by the Central Government to lending banks which have signed an agreement on investment credit with the PDAM as of the date of the promulgation of this Presidential Regulation until 31 December 2022,” Article 20 paragraph (2) reads.

“This Presidential Regulation shall apply as of the date of its promulgation,” Article 24 of Presidential Regulation Number 46 of 2019 which is stipulated by Minister of Law and Human Rights Yasonna H. Laoly on 8 July 2019 reads. (Pusdatin/ES)

Translated by : Rany Anjany Subachrum
Edited by : M. Ersan Pamungkas