Indonesia: Infrastructure Part V – Final

THIS POST WAS ORIGINALLY PUBLISHED NOVEMBER 15, 2009

Indonesia: Infrastructure Part V – Final

According to ADB, projections for 2009 and 2010 assume that the Government will implement major policies outlined during the election campaign, such as fostering infrastructure development and reforming the bureaucracy. The Government plans to support development of infrastructure in 2010 through new tax incentives and expenditure of Rp93.9 trillion ($9.4 billion).

Jakarta Post reports that this month the Government will review a presidential regulation on public-private partnerships (PPP) and a presidential decree on government project procurement rules to ease bottlenecks hampering development. In particular, a new provision to the presidential regulation No 67/2005 on PPP will be added — so that a government private partner can divest its share in an infrastructure project, which it won through a bidding process, to another company. Another major issue to be resolved is the land acquisition. According to Jakarta Post a total of Rp 2,100 trillion (US$222.5 billion) is needed to finance infrastructure projects in the country annually, of which the Government can only provide 15 percent. The other Government estimates are reflected in this Table:

Source:  PRIVATE SECTOR PARTICIPATION IN ASIAN RAILWAYS

Foreign investors show a keen interest in Indonesian Infrastructure. This was confirmed this week by the Chairman of the US Chamber of Commerce Robert S. Milligan: “It seems that the infrastructure sector was the most attractive one. The sector we can develop is, for instance, toll roads.” Also this week Indonesian President discussed in Singapore expansion of Chinese participation in the matter.

One of the key issues in Infrastructure financing is the funding required for its maintenance. This graph shows required sums:

Source: Ministry of Transportation

Within the limits of Internet Blog it is impossible to cover such immense issue –  Infrastructure development n Indonesia. However, in addition to already supplied,  I would like to add more useful links to documents that may be helpful in research on the subject:
First, and the most informative is Public-Private Partnerships. Infrastructure Projects in Indonesia

This is a complete official list of PPP projects for investors

• Infrastructure Development in Indonesia
• INDONESIA INFRASTRUCTURE: BUILDING INDONESIA’S ECONOMIC FUTURE
• Infrastructure PPP in Indonesia
• Australian participation in Infrastructure projects
• AUSTRALIAN INDII
• STRATEGIC INITIATIVES TO ACCELERATE INFRASTRUCTURE DEVELOPMENT IN INDONESIA
• Public Private Partnership on Transportation Infrastructure in Indonesia
• REBUILDING THE INDONESIA INFRASTRUCTURE
• TollRoads Private Sector

This ends my brief survey of Infrastructure projects in Indonesia – of course, it is a small part of all information available – but, in my thinking, gives an idea on this important issue???

Indonesia: Infrastructure Part II – General Arrangements

THIS POST WAS ORIGINALLY PUBLISHED OCTOBER 28, 2009

Indonesia: Infrastructure Part II – General Arrangements

The Government of Indonesia formed out general strategy of national development that has three tiers: pro-growth, pro-poor, and pro-job. Infrastructure development is one of the key elements of this strategy; Public-Private-Partnership (PPP) being the cornerstone. It is considered that the PPP option is the most viable to accelerate economic growth in Indonesia.  This arrangement turns out to be perfect to protect private sector and, at the same time to achieve the most effective cooperation with the Government.
(Note: detailed description of PPP is provided by Asian Development Bank in its brochure: Public–Private Partnership (PPP) Handbook ).

As it is mentioned in excellent thesis  Infrastructure Investment in Indonesia: Process and Impact , Indonesia has adopted a regional approach in developing infrastructure by dividing the country into three regions (as depicted in the above graph) : the developed region located in the Western part of Indonesia and the developing and the newly developing regions located in the east.
The legal framework for the Indonesian PPP scheme was established by  Presidential Regulation No. 67 of 2005 on the Partnership of the Government with Business Entities in the Provision of Infrastructure (“Perpres 67/2005”).  The essence of it is presented in the document Infrastructure Development:

The National Committee for the Acceleration of Infrastructure Provision (KKPPI) was established by the Government of Indonesia to coordinate the acceleration of infrastructure provision with the objective of national economic recovery. (Details are here)

National Development Planning Agency (Bappenas) is the major planning adviser on infrastructure, while the Coordinating Ministry of Economic Affairs oversees the short-term issues.
General allocation on Infrastructure expenditures in the country’s budget are reflected in this graph:

Source: © Office of Chief Economist, Bank Mandiri
In March 2009 the National Development Planning Agency (Bappenas) released the Public Private Partnerships (PPP) Book (first edition). It contains 87 projects (among them – 25 transportation, 32 toll-road, 20 water resources) – with total value of US$ 4.5 billion.
All these are divided into three subcategories:
(i)  projects ready to be offered,
(ii) priority projects, and
(iii) potential projects.

Indonesia: Infrastructure (Part I)

THIS POST WAS ORIGINALLY PUBLISHED OCTOBER 15, 2009

Indonesia: Infrastructure (Part I)

Infrastructure is the crucial element for mining. Indeed, if there is no way to transport production results – there is no business. In my posts the subject I will try to outline major ideas on the situation in infrastructure, as well as some investment opportunities. Of course, this is a vast subject – and it is impossible to make a comprehensive analysis within the Blog, but I suppose that some of the information will be useful for readers.

Many analysts agree that inadequate infrastructure is one of the main factors that could prevent Indonesia from reaching its full growth potential. Understanding this, the Government is addressing an infrastructure agenda  and doing all necessary to tackle this complex, technically detailed, and challenging issue. The policy to improve infrastructure has been one of the priorities in the past years – a number of policy initiatives and plans were undertaken including the introduction of several sectoral reform initiatives, infrastructure summits, the launching of infrastructure packages, and the introduction of regulatory and institutional reforms – one of the biggest is focused to attract public- private partnership (PPP) in infrastructure. The reason for PPP is simple:  of the estimated requirement of US$140b level of investment, two thirds of the amount was expected to come from private sources.

Watch this Bloomberg video: Progress On Indonesia Under President Yudhoyono

If we look at the transportation sector, roads in and around major cities are heavily congested, while many inter-urban and rural roads are in poor condition. This is very typical for other sectors of the economy: a problem of insufficiency and spatial difference in infrastructure availability and service. There is an acute requirement for upgrade of electricity supply sector – major systems are located far from the points of demand – this affects business operations to a great extent (e.g. blackouts in Jakarta) .

For those who are interested in exploration of the subject I highly recommend Dissertation Thesis by Mohammad Mustajab: Infrastructure Investment in Indonesia: Process and Impact
This is by far the most detailed study (updated in 2009), that among the other things discuss the following:

• How are infrastructure investment decisions formulated?
• Who defines the need for new infrastructure investment in Indonesia?
• What goals of new infrastructure investment have emerged?
• Whose goals have emerged?

I will suggest looking at this comparative Table:

 © Mohammad Mustajab, 2009

Just today The Jakarta Post  published an opinion: That old song: Infrastructure that I am taking the liberty to reproduce here:
President-elect Susilo Bambang Yudhoyono’s decision to include basic infrastructure development as key programs of action for the first 100 days of his government is  a strategic move given our huge infrastructure deficit.
Crumbling infrastructure, an acute lack of electricity, poor and inadequate road networks, and grossly inefficient seaports and airports have all long been among the strongest barriers to new investment and a primary cause of our economic inefficiency and uncompetitiveness on a global scale.
But we cannot avoid a feeling of déjà vu.
Notably, Yudhoyono also made basic infrastructure a key component of his first 100-day program, during his first presidential term. He went ahead with convening the first infrastructure summit and exhibition in mid-January 2005, despite the massive, devastating earthquake and tsunami that struck Aceh and Nias Island less than one month earlier, killing hundreds of thousands of people.
In early 2006, Yudhoyono launched a comprehensive infrastructure-reform package stipulating more than 150 policy measures, and convened the second infrastructure summit later that year. Among important measures already implemented were the establishment of a US$300 million infrastructure fund company and better regulatory frameworks for the management and sharing of risks and public-private partnership (PPP) in infrastructure provision.
Funding has always been one of the main problems in infrastructure development as it requires long-term investment, while tariffs charged by infrastructure providers or operators are subject to government regulations. Since most bank loans have short maturities, the government-sponsored fund not only could provide alternative financing, but also serve as a catalyst for other creditors and investors.
There have been clear-cut regulations to secure the financial sustainability of service provision, allowing investors to be more confident that infrastructure tariffs will be sufficient for them to repay their investments with a reasonable return but will not be so high that they harm consumer interest or make projects politically unacceptable.
But only a small number of the hundreds of infrastructure projects offered thus far have been taken up by investors, and many of them have been delayed either by protracted bidding procedures or land-acquisition problems.
Foremost among the barriers is land acquisition, the main reason being inordinately weak implementation of the 2005 regulation on land acquisition for public interests, which was hailed as a breakthrough in streamlining the process of land appropriation. This regulation stipulates in technical details the procedures and step-by-step processes for negotiations on land prices; land appraisal; deadlines for negotiations; and composition of land committees for price negotiations; as well as the role of the National Land Agency.
We don’t think the enactment of a law on land acquisition for basic infrastructures  would be a good, feasible way out. Besides such legislation taking a long time to deliberate, it would be politically unacceptable to make such a law in isolation from the long-delayed overall land-ownership reforms.
If the government really is serious about wooing investment to accelerate infrastructure development, it needs only to act firmly in enforcing its 2005 regulation on land acquisition.
This regulation allows for the forceful acquisition of land, yet it is still based on market prices, and even mandates the President to revoke property rights of dissident landowners as a last-resort measure, if all negotiation and consultation avenues have been exhausted.