Analysis of Life Cycle Cost and Public-Private Partnership in the Development of Walini City as Technology Park
Corresponding email: maberawi@eng.ui.ac.id
Published at : 21 Dec 2018
Volume : IJtech
Vol 9, No 7 (2018)
DOI : https://doi.org/10.14716/ijtech.v9i7.2588
Berawi, M.A., Nabila, A., Gunawan., Miraj, P., Abdul Rahman, H., Berawi, A.R.B., 2018. Analysis of Life Cycle Cost and Public-Private Partnership in the Development of Walini City as Technology Park . International Journal of Technology. Volume 9(7), pp. 1469-1479
| Mohammed Ali Berawi | Department Civil Engineering Department, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia |
| Asifa Nabila | Department Civil Engineering Department, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia |
| Gunawan | Department Civil Engineering Department, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia |
| Perdana Miraj | Department of Civil Engineering, Faculty of Engineering, Universitas Pancasila, DKI Jakarta 12640, Indonesia |
| Hamzah Abdul Rahman | Department of Quantity Surveying, Faculty of Built Environment, University of Malaya, 50603 Kuala Lumpur, Malaysia |
| Abdur Rohim Boy Berawi | Department Civil Engineering Department, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia |
Walini is an area with potential for development into a technology park based on its population and economic growth. This paper aims to analyse the investment feasibility of the development of Walini Technology Park and its optimum funding scheme. The life-cycle analysis approach is used to evaluate operation and maintenance (OM) costs and the system dynamics technique to generate revenue. The study will focus on examining scenario alternatives to determine an optimum public-private partnership (PPP) scheme. The results show that development of Walini would require an investment cost of 151 trillion rupiahs (US$ 9.97 billion) and OM costs of 353 trillion rupiahs (US$ 23.3 billion). The development would generate a revenue of 75 billion dollars, with a 35-year concession period. 42 scenarios were considered in order to obtain that with optimal Internal Rate of Return (IRR) values. The optimal IRR score is 15.57%, with a private share of around 49.89% of the initial costs, 60.08% of operational and maintenance costs, and 80.06% of revenue.
Feasibility analysis; Investment cost; PPP scheme; Technology park
Infrastructure and regional development correlate highly with each other in the increasing economic growth of a nation (Berawi & Susantono, 2012; Komarova et al., 2014). They improve connectivity and provide mobility for people in conducting their economic activities. The Indonesian government is attempting to develop a high speed train connecting the capital city with Bandung. The project is expected to increase economic activities and in the long term significantly contribute to the nation’s competitiveness on a global scale.
Previous research has generated the conceptual design of New City Walini. It recommends the adoption of a technology park similar to Silicon Valley in the United States (Berawi et al., 2017a). This concept aligns with the government’s attempt to encourage greater use of technology and industry for the future of Indonesia.
According to Presidential Regulation of the Republic of Indonesia No. 2 year 2015 on the Regional Development Plan (RDP) 2015-2019, the technology park has the potential for development and to increase Indonesian competitiveness as a center for science, technology and innovation on a global scale. The development of technology is a correlation between industrial growth along with technological development by the university. Universities, R&D institutions and industry should be integrated into the region for instance Walini (Berawi et al., 2017a).
Walini’s development requires a fund of 151 trillion rupiahs (Taris, 2016). As such huge amount will heavily burden the state budget, a cooperation scheme between the government and private financing, known as a Public Private Partnership is required to minimize government subsidy into the project. However, its implementation faces several issues, such as the budget, overlapping regulations, resistance from the public, private party guarantees that have not been obtained from the government, and the fact that the proposed projects have not been well prepared (Wibowo et al., 2012).
Moreover, the large funds involved in the development of Walini city will cause a delay in capital return if only a few areas are developed (Taris, 2016). Considering such obstacles, there is a need to re-plan the financing cooperation scheme. Therefore, it is necessary to calculate the life-cycle cost to elaborate the financial feasibility of the proposal.
The development of Walini as a technopark is expected to contribute 25% of revenue to the operator, which consists of two level of tax on construction development amounting to US $ 451 million and Rp. 7 trillion of tax value if the area is operational. Five main areas will be developed in the City of Walini, namely industrial zones, residential areas, education zones, commercial zones and research and development zones. The development of the city will require an investment of US $ 9.97 billion, with OM costs of US $ 23.3 billion, and will generate revenues of US $ 75 billion over 35 years.
Walini city development is planned to use PPP for its financial scheme, with four main schemes possible. The fourth scheme was chosen, as it can produce an optimal IRR value, with more systematic government involvement in the development of the city. The optimal IRR value in the development of Walini city as a technology park, based on the government scheme and private cooperation, is 15.57%. The scheme uses the division of IC + OM Cost + R Sharing. In the scheme, the private sector accounts for 49.89% of the initial investment costs, and 60.08% of the operational and maintenance costs.
This research is supported by a
grant from the Ministry of Research and
Higher Education, Republic of Indonesia, No 413/UN2.R3.1/HKP05.00/2018.
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