Economics and Policy Advisory

How PwC can help you

It’s our job to understand, advise on and solve the complexities involved in the economics and policy of projects, companies, and government policies.

We bring together Indonesian and international economic expertise into one dedicated Economics and Policy Advisory team. We apply financial and economic tools and principles to problems facing businesses, governments and other agencies. Our experience is grounded in the sectors below, but our methodologies are applicable to a wide range of investment and policy decisions.

PwC Indonesia’s Economics and Policy Advisory offers a range of services.

We can help you:

Analyze and project quantitative trends (e.g., market demand) for capital investments
Conduct revenue or demand forecasts to be used for the financial modeling of infrastructure projects.
Quantify projects’ socio-economic impacts on key stakeholders, to support engagements with politicians, regulators and communities.
Calculate projects’ cost-benefit ratios and economic return, required for projects contracting under Public Private Partnership (“PPP”) regulation (e.g., Viability Funding Gap funding applications).
Analyze procurement strategies for capital projects(i.e., public sector delivery, PPP, or some other mode of delivery).
Help ensure accountable, transparent, participative decision making in government that maximizes economic and social outcomes.

Our Services

Demand Analysis
Economic Impact Assesment
Cost-Benefit Analysis
Value for Money Analysis
Feasibility Study/ Business Case
Regulatory Impact Assessment / Policy Analysis
Good Governance

Demand Analysis

What is demand analysis?

An analysis that provides insight into the factors that determine market behavior, and can forecast demand for a product or service.

A demand forecast can help inform strategic decisions on investments and resource allocation. There are a range of forecasting frameworks with different levels of detail, so one of the main issues is to clearly identify the objectives of forecasting and select the appropriate method of forecasting, which will also be influenced by the industry to be assessed.

For example, demand for transport is a derived demand affected by many factors, including demographics, income, value of time, other modes of transport available, and land use patterns. Transport demand forecasting is a critical component in transport infrastructure development and is the primary input in any decision related to the creation and management of transportation infrastructure.

We can help you to:

Review demand forecast studies
Investigate the profile and overview of the potential market
Perform demand analysis, define the market, and develop demand forecasts
Conduct sensitivity analysis
Recommend improvements to the project
Refine detailed specifications (e.g. match station location to sources of demand)

Economic Impact Assesment

What is economic impact assessment?

An analysis of the effect of a business or project on a local economy.

Economic impact assessment is a quantitative method to estimate the economic impacts that a particular project or industry has on the local economy and communities.

This assessment estimates the economic impact of day-to-day business operations (direct impact) as well as their knock-on impact through expenditure down the supply chain (indirect impact), and the expenditure of employees and suppliers’ employees (induced impact).

We can help you to:

Assess the economic impacts of policy decisions
Understand the economic significance of major investments
Understand the economic footprint of your business
Gain deeper insight into the structure of the supply chains of major investments

Cost-Benefit Analysis

What is cost-benefit analysis?

A decision-making tool used to analyze the net economic benefits of a policy or investment or to choose between projects.

Policy-makers need to choose the best quality projects to obtain the best value for money and to enhance economic welfare. Cost-benefit analysis can be used to appraise an investment decision to facilitate the efficient allocation of resources.

Cost-benefit analysis is a technique used to compare the total costs of a program/project with its benefits. It assigns a monetary value on all costs and benefits of a programme, including tangible and intangible returns to people/organizations. Cost-benefit analysis is required for all projects contracting under a PPP structure (Bappenas Ministerial Regulation No.4/2015).

We can help you to:

Analyze the project’s contribution to the economic welfare of a region or country, including social and environmental impacts.
Analyze the economic efficiency of a project to fulfill the eligibility criteria for PPP projects.
Prioritize projects based on the net economic benefits that each project generates.

Value for Money Analysis

What is value for money (“VfM”) analysis?

A decision support method used to compare the project cost to Government under different procurement models.

Under “Traditional Procurement” of an infrastructure project, the Government typically designs a project itself (or contracts the design to an engineering firm), and then launches a competitive tender for construction companies to build the project. Alternatively, under a PPP procurement, the Government typically awards a single contract to the privates sector to design, build, finance, operate, and/or maintain a project. One key difference of the public sector traditional procurement model and PPP delivery method is the allocation of risk between the public and the private sector.

VfM analysis helps to compare Traditional Procurement with PPPs, and provides guidance for Government decision making by determining the delivery method that is the most efficient and offers the greatest value.

We can help you to:

Develop a structured approach to assess the value for money expected from a project using the PPP approach, to facilitate decision-making for a variety of delivery methods
Comply with the Government’s mandate to conduct VfM analysis as a part of the eligibility criteria for PPP projects
Estimate the lifetime cost of a PPP, either as proposed by a private bidder or a hypothetical Shadow Bid at the pre-procurement stage

Feasibility Study/ Business Case

What is a feasibility study/business case?

An overall analysis used to support the decision-making process to determine project viability.

The Feasibility Study (“FS”), or business case process aims to identify whether a project is economically, commercial, technically and legally viable. And, whether improvements can be made to the feasibility. The headline result is usually confirmation that an investor can expect (or not) to earn a rate of return higher than the risk-adjusted cost of capital. An FS typically includes the following

Strategy: fit with Government policies and strategies
Technical: centred on the technical resources available to the project
Economic: assesses the viability, socio-economic costs, and benefits associated with the project
Financial: assesses financial viability based on the projected cash flow and financing structure
Legal: investigates if the proposed project is consistent with legal requirements

The feasibility study may also include a detailed risk analysis across all these areas, as well as potential commercial and transaction structures.

We can help you to:

Conduct business planning and market analysis
Project manage technical and legal advisors to coordinate a single set of recommendations on project feasibility
Evaluate alternative scenarios and their impact on a project’s value
Arrive at tailored recommendation for commercial and transaction structure
Identify high-level risk and mitigation strategies
Decide whether to proceed with the business/ investment idea

Regulatory Impact Assessment / Policy Analysis

What is regulatory impact assessment?

The process of identifying and assessing the expected impacts of regulatory proposals.

A regulatory impact assessment is a document created before a new government regulation is introduced. It can help to ensure that all practical options for addressing the problem have been considered and that the benefits of the preferred option not only exceed the costs, but also represents the highest level of net benefit.

A thorough stakeholder consultation process helps avoid unintended consequences of regulation and improves the drafting of regulations before they are enacted.

We can help you to:

Design regulations that are as efficient and effective as possible
Avoid unintended consequences of regulations
Communicate to stakeholders who will be affected by a regulation and how it will work in practice
Promote systematic decision-making and a comparative approach to policy decisions

Good Governance

What is Good Governance?

Good governance in local service delivery is ensuring decision making is accountable, transparent, participative and maximizes economic and social outcomes given limited resources.

Decentralisation, coupled with democratic reforms, has highlighted the importance of improving key services at the local level such as water, sanitation, education, health, local roads and urban transport. Good Governance in these sectors requires local administrations and their political leadership to develop a broad range of skills and capabilities in matters such as budgeting and planning, contract management as well as sector regulation governing matters such as licensing, access and tariffs.

It also requires understanding and addressing institutional constraints to reform and aligning incentives across key stakeholders such as local parliaments, public and private sector service providers and consumers. Importantly, Good Governance ensures local decision making is accountable, transparent, and participative and makes the best use of available resources. It can result from innovations such as: new modalities for procurement and contract management using performance based contracting; PPPs; and, also from new ways of promoting cooperation such as ‘social contracts’ in the water sector.

We can help you to:

Undertake institutional risk analysis to assess economic and political feasibility of key reforms
Work with stakeholders to align incentives for tariffs/other reforms
Use the range of policy tools in this brochure, such as impact assessments, CBA, RIA and VfM analysis to maximize outcomes given limited resources
Develop new innovations in procurement for local infrastructure such as performance based contracting and PPPs
Develop comprehensive business planning tools for local government-owned utilities