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

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)
     

View more

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
     

View more

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.
     

View more

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.

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

 

  •  

View more

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
     

View more

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
     

View more

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
     

View more

Our publications

Exploring Alternative Solutions to Infrastructure Financing

Exploring Alternative Solutions to Infrastructure Financing

The rise of infrastructure developments in Indonesia calls for alternative sources of financing and creative deal structures for funding. While this may be seen as a compounding opportunity for investment, the complexity it brings to taxation, accounting and other aspects of financial reporting cannot be discounted. This paper lays out the implications and several key considerations in designing and structuring commonly seen alternative financing solutions.

Indonesian Infrastructure - Stable foundations for growth

Indonesian Infrastructure - Stable foundations for growth

Infrastructure continues to be a top priority for President Joko Widodo’s administration. There has been real progress in these areas in the last year. But there remain several key success factors for the infrastructure program i.e. continued improvement in the investment climate, better coordination within and between government institutions, reduced reliance on SOEs and leverage of private sector funding, capacity building in project preparation and procurement and a new emphasis on finding, training and motivating talented people to manage the projects.

Supplying and Financing Coal-Fired Power Plants in the 35 GW Programme

Supplying and Financing Coal-Fired Power Plants in the 35 GW Programme

PwC Indonesia in conjunction with Indonesian Coal Mining Association has produced a report on supplying and financing the 35 GW programme. The report outlines key ideas for policies that could be put in place to address some of the issues. In particular, long-term cost-based pricing for domestic coal represents an ‘insurance policy’, with a reasonable premium, that would stimulate investment, incentivize exploration, and secure reserves for a generation of power projects.

Contact us

Julian  Smith

Julian Smith

Advisor, PwC Indonesia

Tel: +62 21 509 92901

Triono Soedirdjo

Triono Soedirdjo

Partner, PwC Indonesia

Tel: +62 21 509 92901

Agung  Wiryawan

Agung Wiryawan

Partner, PwC Indonesia

Tel: +62 21 509 92901

Lenita Tobing

Lenita Tobing

Partner, PwC Indonesia

Tel: +62 21 509 92901

Pieter van de Mheen

Pieter van de Mheen

Advisor, PwC Indonesia

Tel: +62 21 509 92901

Follow PwC Indonesia