New Toll Road Regulation: Further Clarity on Tariff Adjustment and Clawback

The Government of Indonesia issued a new toll road regulation to address market concerns around tariff adjustment in special circumstances such as change in government policy. The new regulation also introduced a 'clawback' provision which entitles the government to be paid the upside of the toll road operator's revenue once a pre-agreed financial viability rate is exceeded. These new provisions were first introduced in the New Road Law.

Government Regulation No 23 of 2024 on Toll Road ("GR 23") revoked the previous regulation governing toll roads as set out in Government Regulation No 15 of 2005 (subsequently amended by Government Regulation No 17 of 2021) ("GR 15"). GR 23 was enacted to implement the Road Law No 2 of 2022 ("New Road Law"). According to GR 23, the implementing rules of GR 15 remain effective to the extent they are not contradictory to any provision in GR 23. GR 23 entered into force on 20 May 2024.

Key highlights under GR 23 are set out below. Implementing rules are expected to be issued by the Ministry of Public Works and Housing ("MPWH") to further define the key terms of GR 23.

Tariff Adjustment

• The regular evaluation and adjustment of tariff will be conducted by MPWH every two years based on (i) inflation rate and (ii) fulfilment of the toll road operator (known as "BUJT") of the Toll Road Minimum Service Standard ("SPM") for the last two years. The previous regulations did not expressly make SPM fulfilment a criteria for tariff adjustment, although in practice the Ministry of Transportation ("MOT") would typically consider SPM in its evaluation.
• Upon evaluation, MOT may determine whether the tariff will remain (unadjusted) or be increased based on the inflation rate. There is no deflationary adjustment.
• The regular inflation-adjusted formula is:

New Tariff = Old Tariff (1 + inflation)

The inflation rate will be that of the relevant region (e.g. where the toll road is located) as published by Badan Pusat Statistik (Statistic Central Agency).

• In addition to the above regular adjustment, the New Road Law and GR 23 introduced new grounds for tariff adjustment under specific circumstances to address particular needs or changes that impact the financial viability of the toll road. The special circumstances are:

  (a) Tariff adjustment to meet services in the toll road network system in certain regions. This is implemented through region-based (berbasis wilayah) tariff and/or time-based (berbasis waktu) tariff, which is an adjustment to tariff involving one or more toll roads based on the location or time of use. Additional revenues received from the tariff adjustment (selisih pendapatan) will be treated as non-tax state income (PNBP) and of the State and used for the development of the toll road network. 

  (b) Tariff adjustment to compensate for an additional scope in the BUJT's business plan (provided that the additional scope is approved by MPWH) that negatively impacts the investment viability of the toll road. 

  (c) Tariff adjustment to compensate for new central government policies that negatively impacts the investment viability of the toll road.

BUJT is entitled to receive the compensation under (b) and (c) above and the method of compensation will be determined based on the agreement of the parties under the relevant toll road concession agreement ("PPJT").

Clawback/Compensation relating to Return on Investment

The New Road Law and GR 23 provides that if the level of financial viability of the toll road during operation exceeds the level of financial viability determined by the central government in the PPJT, the excess must be paid to the State as non-tax state income (PNBP). During the tender of a toll road project, MPWH and BUJT would usually agree on a pre-determined financial viability rate of the project and such rate is set out in the PPJT. If the actual rate is higher than that agreed in the PPJT, the State will be entitled to receive the upside as non-tax state income (PNBP). In contrast, if the actual rate is lower during operation, BUJT is entitled to compensation (to be agreed in the PPJT). Details of the clawback and the compensation will be further implemented through MPWH regulations (which have not yet been issued).

It is also noteworthy that while clawback is a new concept in the toll road sector, it has been previously implemented in the administration of other infrastructure projects in Indonesia, such as seaports.

Are existing toll roads subject to these requirements?

There is no express grandfathering under GR 23, and neither does the regulation apply retroactively to projects that have been tendered out by the government in the past. According to GR 23, the tender documents and the concession agreements must expressly contain provisions regarding the clawback and the compensation. As such, if the requirement were to apply to existing projects, the existing concession agreements must be amended and such amendment agreed by BUJT. There is no automatic application to existing toll roads. Further, article 87(2) of GR 23 appears to indicate (although not explicitly, and this has not been confirmed by MPWH) that the clawback applies to new toll roads tendered by the central government.    

Land Acquisition Funding

GR 23 requires BUJT to self-finance land acquisition costs for unsolicited toll road projects, and the cost incurred will be counted towards the total investment cost.

As for solicited projects, per the previous regime, land acquisition cost will be funded by the government. However, if the actual land acquisition cost incurred exceeds the amount of land acquisition cost pre-determined by the government, BUJT is required to self-finance the excess and it will be compensated with an extension of the concession period, tariff adjustment or other methods. Conversely, if the actual land acquisition cost incurred is lower than the pre-determined amount, then it will be compensated with a reduction of the concession period, reduction of tariff or refund of the amount to the government (to the extent it is already expensed out by the government).

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