The challenge of implementing public-private partnerships: a transaction costs perspective on waste to energy projects in Indonesia

Abstract

Purpose This study aims to explore the reasons behind the lengthy delays in completing a single public-private partnership (PPP) project in Indonesia and investigates how the transaction costs play a significant role in hindering the project’s success. Design/methodology/approach To broaden insight into the transaction cost theory, the authors used a single case study approach to provide a more in-depth analysis of a context whose complexity can be fully explored. As the primary data sources, 16 face-to-face semi-structured interviews were conducted with the stakeholders directly involved in the project’s initiation, design and execution. Findings This case study demonstrates that transaction cost issues, both political and economic, play a significant role. This study has identified four main problems associated with transaction costs hindering project success, namely, executing agencies’ lack of knowledge and experience, lack of coordination for such a complex governance structure that links too many stakeholders and the financial and political risk that increase the uncertainty and public distrust. Research limitations/implications This study contributes mainly to the PPP and transaction costs economics literature, providing empirical evidence on why major PPP projects may fail to be procured. The Greater Bandung waste to energy (WTE) Project case demonstrates that transaction costs, both political and economic, have played a significant role in the lengthy delay of the PPP project. Practical implications As the project involves many transaction cost issues, mapping the failure factors at the project sites can significantly contribute to the practitioners/stakeholders involved in the PPP WTE projects. Therefore, this study provides a lesson to the policymakers at all levels interested in PPPs to consider the issues of transaction costs related to the PPP projects. It can be used as guidance as well as a reference for future PPP WTE projects in Indonesia. Social implications Mapping the failure factors also signifying the response of the public in the PPP WTE projects undertaken. As the citizens become more rule-conscious and rights-conscious, they demand the opportunity to participate in creating rules and project plans. If the project failed to consult with affected communities and undermined democratic accountability, the angry citizens will confront the government to cancel the project. Therefore, political and economic influences for public attitude play significant roles in making the PPP WTE projects successful. Originality/value This study provides insight into the transaction cost issues that have hindered the completion of Indonesia’s PPP WTE project over the past 15 years. Additionally, the project feasibility analysis should include an understanding of transaction costs for partnering in PPP.