DETERMINATION AND ALLOCATION OF KEY RISK EVENTS FOR TOLLWAY CONSTRUCTION AND OPERATION IN INDONESIA

Djoen San Santoso

Tri Basuki Juwono

Introduction

Infrastructure development is important for economic growth. Main constraint for infrastructure development: government budget. Private participation in infrastructure development.

Risk management.

Transportation in Indonesia

Transportation infrastructure is one of the key facilities. Indonesia Transportation = Road

Tollway construction has been intensified since 2005, including the release of Presidential Regulations concerning the land procurement for public interest.

Tollway in Indonesia

Risk management is not clear. Allocations of risks are not well agreed and some are not stipulated in the agreement.

Attractiveness for investment.

Objectives

To determine important risk events in Indonesian tollway.

To analyze and propose allocation of important risk events to serve as guideline in contract agreement.

Limitation

Only concern about 2 parties:

1. 2.

Government (public) Highway and tollway companies (private)

Research Method

Secondary data:
1.
2. 3. 4.

Research papers on this topic. Previous study. Documents related to tollway collected from government and tollway companies. Brief discussion.
Qualitative risk assessment survey. Interview.

Primary data:
1. 2.

Questionnaire Survey

Assessment of risk are based on 2 points of views:

1.
2.

Probability of occurrence Degree of impact

5-point Likert scale. Allocation of risks Total valid respondents = 15

Risk Events

55 risk events are listed in the questionnaire survey. Categorized into:

1. 2. 3. 4. 5. 6. 7. 8. 9.

Politic and Regulation (11 risks) Tollway company (5 risks) Finance and Economic (5 risks) Design (6 risks) Land Acquisition (4 risks) Construction (8 risks) Traffic (6 risks) Operation and Maintenance (8 risks) Force majeure (2 risks)

Risk Index

Risk Index (RI) indicates the significance of the risk. RI = M(P) x M(I) where: M(P) = Mean of risk probability M(I) = Mean of risk impact

Code

Risk Event

Probability Mean 1.71 1.60 2.00 2.13 2.07 1.80 3.13 Rank 46 48 34 30 32 43 4

Impact Mean 3.46 3.73 3.07 2.87 3.20 3.00 3.36 Rank 9 6 25 33 21 28 7

Risk Index Score 5.93 5.97 6.13 6.12 6.61 5.40 10.52 Rank 33 32 30 31 25 38 4

R1
R2 R3 R4 R5 R6 R7

R8
R9

R10

R11 R12

Instability and insecurity of the region Breach or cancellation of contract Expropriation of the project by government Change in environmental policy and regulation Change in policy and regulation related to tollway Change in business policy and regulation Delay by government in making decision and approval Delay in issuing permits by government Coordination problem among government agencies related to tollway Inability of government to fulfill its responsibilities Problem with public acceptance Cash flow problems due to investor

2.53
2.33

17
23

3.13
2.87

18
27

7.94
6.69

17
23

2.60

14

3.27

13

8.49

12

2.36 2.79

21 9

2.86 3.43

31 5

6.73 9.55

21 6

Probability Code R13 R14 R15 Risk Event Mean Problem in managing income Agreement related problems Credit related problems 2.15 2.29 2.57 Rank 29 26 16

Impact Mean 3.08 2.86 3.36 Rank 19 30 10

Risk Index Score 6.64 6.53 8.63 Rank 24 26 11

R16 R17
R18 R19 R20 R21 R22 R23 R24

Regulation related problems Limited financial transaction

Exchange rate fluctuation Interest rate fluctuation Inflation Bankruptcy of consortium's member or subcontractor Faults in tender specifications Lack of design innovation Faults in contractor's design

2.29 1.86
2.33 2.73 2.67 2.13 1.60 1.87 1.87

27 42
24 10 12 31 49 38 39

2.71 2.86
2.47 3.07 3.27 2.93 2.73 2.40 2.53

37 34
43 15 11 29 36 48 45

6.20 5.31
5.76 8.40 8.71 6.26 4.37 4.48 4.73

29 39
35 15 10 27 48 47 46

R25
R26 R27

Design change requested by government Competition in tender

Project feasibility

2.20
2.36 2.60

28
22 15

3.20
2.50 3.40

16
42 8

7.04
5.89 8.84

20
34 9

Probability Code R28 R29 R30 Risk Event Mean Delay in land acquisition Delay in payment related to land acquisition Over budget in land acquisition 4.13 2.73 3.80 Rank 1 11 2

Impact Mean 4.00 3.27 3.80 Rank 1 12 2

Risk Index Score 16.53 8.93 14.44 Rank 1 8 2

R31
R32 R33 R34 R35 R36 R37 R38

Claim from community related to land right Delay in construction

Problems with subcontractors Over budget due to new safety standard and environmental policy Cost over-run Lack of skilled or experienced workers Problems related to construction materials Severe weather causes low productivity Change in construction plan due to third party interference Low traffic volume Faults in toll system application

2.93
2.53 1.87 1.93 2.87 2.07 1.87 2.67

5
18 40 36 7 33 41 3

2.87
3.07 2.67 2.53 3.20 2.71 2.29 3.17

26
24 40 47 14 38 49 41

8.41
7.77 4.98 4.90 9.17 5.61 4.27 8.46

14
18 42 43 7 36 49 13

R39
R40 R41

1.93
2.93 1.53

37
6 51

2.53
3.80 2.00

44
3 53

4.90
11.15 3.07

44
3 53

Probability Code R42 R43 R44 R45 Risk Event Mean No increment in toll fee Fail in constructing the road feeders Change in plan of road network which directly affecting the tollway Road users do not pay toll fee 2.87 2.67 2.40 1.40 Rank 8 13 19 55

Impact Mean 3.60 3.07 3.00 1.67 Rank 4 17 20 55

Risk Index Score 10.32 8.18 7.20 2.33 Rank 5 16 19 55

R46
R47 R48 R49 R50 R51 R52 R53 R54

Unpredicted increment in personel cost Unpredicted increment in operational cost Increment of import fee
Low traffic volume due to severe weather Low achievement of tollway operator Technology related problems Environmental related problems Asset transfer problems Natural force majeure (act of God)

2.33
2.40 1.53 1.47 1.73 1.67 2.00 1.73 1.60

25
20 52 53 44 47 35 45 50

2.67
2.80 2.33 1.93 2.80 2.20 2.53 2.07 3.40

39
32 50 54 35 52 46 51 22

6.22
6.72 3.58 2.84 4.85 3.67 5.07 3.58 5.44

28
22 52 54 45 50 40 51 37

R55

Political force majeure (war, riot)

1.47

54

3.40

23

4.99

41

Top 10 Risk Events

Based on the value of RI, the top ten risk events are as follows:
Code R28 R30 R40 R7 Risk Event Delay in land acquisition Over budget in land acquisition Low traffic volume Delay by government in making decision and approval No increment in toll fee Cash flow problems due to investor Cost over-run Delay in payment related to land acquisition Project feasibility Inflation Risk Index Score Rank 16.53 1 14.44 2 11.15 3 10.52 4

R42 R12 R35 R29

R27 R20

10.32 9.55 9.17 8.93

8.84 8.71

5 6 7 8
9 10

Allocation of Risks

Top 10 risks were allocated to:

1.
2.

Project stages Suitable party (public or private or share)

Allocation based on previous study, result of questionnaire survey and discussion with experts in tollway.

Risk Allocation to Project Stage

Rank 1 2 3 4 5 6 Code R28 R30 R40 R7 R42 R12 Risk Event Delay in land acquisition Over budget in land acquisition Low traffic volume Delay in making decision and approval by government No increment in toll fee Cash flow problems due to investors Cost over-run in construction Delay in payment related to land acquisition Develop ment Pre-Construction Construc Land Detailed tion Acquisiti Design on Operation

7
8

R35
R29

9
10

R27
R20

Project feasibility
Inflation

Risk Allocation to Suitable Party

Rank 1 2 3 4 5 6 7 8 9 10 Code R28 R30 R40 R7 R42 R12 R35 R29 R27 R20 Risk Event Delay in land acquisition Over budget in land acquisition Low traffic volume Delay in making decision and approval by government No increment in toll fee Cash flow problems due to investors Cost over-run in construction Delay in payment related to land acquisition Project feasibility Inflation Government Highway or Tollway Company

Land Acquisition Risks

Risks related to land acquisition:

1.
2. 3.

4.

Delay in land acquisition (R28) Over budget (R30) Cash flow problems due to investors (R12) Delay in payment (R29)

Possible reasons:
Availability

of cash. Land price is not acceptable. Land brokers and speculators.

Land Acquisition under Government

Rank 1 2 3 4 5 6 7 8 9 10 Code R28 R30 R40 R7 R42 R12 R35 R29 R27 R20 Risk Event Delay in land acquisition Over budget in land acquisition Low traffic volume Delay in making decision and approval by government No increment in toll fee Cash flow problems due to investors Cost over-run in construction Delay in payment related to land acquisition Project feasibility Inflation Government Highway or Tollway Company

Land Capping 110%

Rank 1 2 3 4 5 6 7 8 9 10 Code R28 R30 R40 R7 R42 R12 R35 R29 R27 R20 Risk Event Delay in land acquisition Over budget in land acquisition Low traffic volume Delay in making decision and approval by government No increment in toll fee Cash flow problems due to investors Cost over-run in construction Delay in payment related to land acquisition Project feasibility Inflation Government Highway or Tollway Company

Approval and Toll Fee Increment

Delay in making decision and approval (R7) and No increment in toll fee (R42) are under government control Governments responsibility. R7 is at the development stage. While R42 is at the operation stage.

Low Traffic Volume

Directly related to income.

Allocated to tollway company?
Investment

project so risk is under investor.

Share with government?

Attract

investor to financially less feasible project. Downside risk protection. Downside risk protection with clawback clause.

Cost Overrun and Inflation

Management of project

COST OVERRUN

Change order

Wrong cost estimation

Delay in approval

INFLATION

Tollway company

Government

Project Feasibility

Exists in the Development and Pre-Construction (Detailed Design) stages. At Development stage (tender process), cost could not be recovered if could not win the project. At Detailed Design stage: limited information on the Development stage (ground condition, shifting the toll route due to problem in land acquisition).

Conclusions

Proper identification and allocation of risks are important to attract investors. Regulations on risk allocation should be clearly stated in the agreement. Government is expected to be more proactive in managing land acquisition risks.

Acknowledgement

Toll Road Regulatory Board (Badan Pengatur Jalan Tol) PT. Citra Murni Semesta Dr. Wimpy Santoso, Dr. Andreas Wibowo and Mr. Harlan Pangihutan

THE END THANK YOU

Djoen San Santoso Saitama University djoensan@mail.saitama-u.ac.jp