OPINION - Alman Helvas Ali, CNBC Indonesia
09 February 2022 10:55
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Photo: Indonesian Defense Minister Prabowo Subianto's meeting with the French Minister of the Armed Forces Florence Parly, some time ago (Doc. Indonesian Embassy in Paris)
French Minister of the Armed Forces Florence Parly is scheduled to land in Jakarta today, Wednesday (9/2/2022) night. Parly will hold a bilateral meeting with Indonesian Defense Minister Prabowo Subianto the next day. It is certain that one of the main agendas carried by Parly is the continuation of the contract for 36 Rafale fighter jets made by Dassault Aviation, in addition to lobbying for the sale of Scorpene-class submarines made by the Naval Group. Previously, Parly was scheduled to visit Jakarta on January 22, 2022, but was postponed due to the worrying developments of Covid-19. The visit of the former Air France executive is special because Indonesia is the only country to visit in the Asia Pacific.
At the Defense Ministry Leadership Meeting on January 20, 2022, Prabowo stated that the contract for the acquisition of 36 Rafale fighter jets is currently awaiting contract activation. Rafale's contract is only one of several contracts signed by the Ministry of Defense in 2021 pending activation. The activation of these contracts will largely depend on the government's fiscal capacity, particularly financing from the Ministry of Finance for the Ministry of Defense in the 2022 fiscal year and beyond. If examined further, the activation of contracts signed by the Ministry of Defense in 2021 can be divided into two categories.
First, a contract that has received a Financing Source Determination (PSP) from the Minister of Finance Sri Mulyani Indrawati. Of the 31 activities that received PSP worth US$ 5.8 billion, at least two activities have been signed by the Ministry of Defense until the end of 2021. Two of them are related to the Indonesian Air Force weapon system, namely the
Lead-In Fighter Trainer (LIFT) aircraft and its support and
Multi Role Transport Tanker aircraft and their support. There is still time until April 30, 2022 for the Ministry of Defense to sign contracts for other activities that are accommodated in the PSP.
Second, a contract that has not yet received a PSP from Sri Mulyani. There are at least three activities whose contracts have been signed by the Ministry of Defense but are not yet included in the 2021 PSP, namely the purchase of Rafale fighter jets for 5.8 billion euros, the procurement of FREMM frigates for 4.1 billion and the acquisition of Bell 412 helicopters for an unknown value. For these contracts, financing certainty awaits the issuance of the PSP from Sri Mulyani this year. Towards the end of 2021, the Ministry of Defense has proposed four additional PSPs to Sri Mulyani for approval.
In the 2022 budget year, the Ministry of Defense will receive an allocation of IDR 3 trillion in Companion Pure Rupiah (RMP) from the Ministry of Finance. This value is in accordance with the author's article entitled "The Clouds of the 2022 Expenditure Financing" published by CNBC Indonesia on September 6, 2021. Even though the need for RMP this year is around Rp. 12 trillion (US$ 870 million) to accompany the 2021 PSP worth US$ 5.8 billion. In other words, only a small part of the contract in the 2021 PSP will receive an RMP allocation in order to enter the activation stage.
The contract for the acquisition of two A400M transport aircraft for 484 million euros and a T-50 LIFT aircraft for US$ 227 million can still be covered by the available RMP allocation. For contracts that have been signed and received an RMP in the 2022 fiscal year, contract activity awaits the signing of a
loan agreement between the Ministry of Finance and
lenders . It is not yet known which
lenders will finance the purchase of weapons in the 2021 PSP, but it is suspected that they could come from European, Middle Eastern, East Asian financial institutions or state-owned banks overseas branches. It is estimated that there is still an allocation of one or two contract slots that can be covered by the available RMP, depending on the amount of the agreed contract value.
An example is the planned acquisition of 25
Ground Control Interception (GCI) radars for the Indonesian Air Force. The procurement of the GCI radar is considered strategic and urgent because there are a number of air defense radars that have exceeded their life cycles and must be replaced immediately, in addition to the need to establish new Radar Units in border areas. Sri Mulyani has allocated US$ 750 million in the PSP to purchase the air defense radar and three European radar manufacturers have shown interest. If the Ministry of Defense can sign a contract for the procurement of 25 GCI radars no later than April 30, 2022, then there will still be an RMP allocation from the 2022 fiscal year APBN.
The fate of a number of weapons procurement contracts that have not received the PSP will be determined in the next few months. A number of sources state that Indonesia has signed the final contract for six Rafales worth US$1.1 billion in December 2021 using the 2021 PSP. Meanwhile the fate of the other 30 Rafale fighter jets will be determined by the List of Foreign Loan Priority Plans (DRPPLN) published by the Ministry of Planning. National Development/Bappenas. The DRPPLN is the entry point to get the PSP from Sri Mulyani, although not all the list of activities in the DRPPLN will be approved for inclusion in the PSP.
The main problem with the Rafale and FREMM contracts is that contracts are signed before the budget is available and this is contrary to Presidential Regulation Number 16 of 2018 concerning Government Procurement of Goods/Services, in particular Article 52 (2). If the planned purchase of Rafale and FREMM is included in the DRPPLN and obtains PSP from Sri Mulyani this year, then under normal circumstances contract activity can be carried out as early as 2023. This is based on the assumption that the new RMP will be available in the 2023 fiscal year, as well as the signing of the
loan agreement .
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