Indonesia: Engagement of private sector for irrigation Operation and Management

The government of Indonesia wants to improve the quality and coverage of irrigation services but lacks the capacity and resources to sufficiently invest in and manage irrigation infrastructure. Engaging the private sector through PPPs could leverage external financing and expertise to enhance irrigation system operations. The government is planning to outsource irrigation operations and management to private operators. A new PPIAF-funded activity is supporting the Ministry of Public Works and Housing (MPWH) in developing a PPP transaction model to do that. This activity is being complemented by a grant from the QII Partnership that leverages technology to improve governance and performance management.

The model will be piloted in reservoir-fed irrigation systems and allow private operators to undertake commercial ventures alongside irrigation, for example, fisheries, hydropower, solar power, or tourism. This integrated approach can potentially enhance financial viability and attract private sector interest. PPIAF’s role includes:

• Defining the PPP transaction model for outsourcing performance-based irrigation complemented by associated commercial services. PPIAF will ensure alignment with Indonesian legislation and undertake market sounding to get perspectives from the private sector. The roles of all stakeholders, including the private operator, MPWH, and farmers, will be clarified.
• Proposing criteria for MPWH to identify suitable locations based on financial, technical, climate, and other factors. PPIAF will synthesize inputs from the private sector in developing the proposed criteria.
• Developing a financial model by analyzing costs, revenues, and profit-sharing arrangements to demonstrate commercial viability. Sensitivities and risk allocation will also be assessed.

The transaction model will provide a framework that will allow MPWH to engage a transaction advisor and structure the PPP. PPIAF’s advisory support, market intelligence, and financial analysis will inform the model design and pilot selection. This innovative approach can improve irrigation services through performance-based contracts while creating commercial opportunities and benefits for local communities.

The integrated model also leverages Indonesia’s reservoirs and irrigation assets to attract private expertise and investment. With PPIAF assistance, MPWH can develop new models for using PPPs to sustainably manage water resources and develop inclusive agriculture.