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Cyclists crossing the Kelok 9 flyover in Payakumbuh, West Sumatra on
July 3, 2013. GlobeAsia Both local and international investors have turned
their attention to President Joko Widodo’s ambitious plans. (JG Photo/Afriadi Hikmal) |
The
building of infrastructure in Indonesia is the key to understanding the extent
of progress in the country.
During the
World Economic Forum on East Asia, a question will be asked: Is Indonesia doing
enough to show the public and investors they can trust that infrastructure
development is moving ahead toward growth and becoming competitive in the
region.
Indonesia,
meanwhile, has been given the opportunity to showcase development and attract
investment while playing host to the WEF event.
The
administration of President Joko Widodo has set an infrastructure target, to be
achieved by 2019, in which 24 seaports, 15 airports, power plants with a
capacity of 35,000 megawatts and nine million hectares of agriculture land will
be developed.
This was
reiterated by WEF Indonesia committee member and Trade Minister Rachmat Gobel
in a recent briefing to ambassadors and prominent business leaders.
The
administration is confident in its programs to build dams, toll roads and
railways to boost the local economy and raise the living standards of local
communities.
Joko
traveled to Aceh in March to inaugurate a number of projects in the area.
In North
Aceh, he presided over the groundbreaking of the Keureuto dam — the largest to
be built this year and expected to increase agricultural output in the region.
The
construction of the dam will allow the irrigation of other regions which are in
a deficit of rice production.
The dam is
being built by state-owned construction companies Brantas Abipraya, Hutama
Karya and Wijaya Karya.
It will
hold 167 million cubic meters of water and irrigate 4,768 hectares of
agricultural land. The reservoir will also prevent flooding in the downstream
region.
Joko then
moved on to Sabang, Indonesia’s most western tip, where he jump-started the
construction of the Seunara reservoir, which has been stalled for more than
nine years due to land clearance issues.
The issue
was eventually solved as Joko negotiated with over 200 local residents who had
been holding out for a larger compensation package.
“After
talking to the residents, they have no problem. We have the budget, what’s
important is the reservoir will be completed this year and function,” said
Joko, who was accompanied by Aceh Governor Abdullah Zaini and Public Works and
Housing Minister Basuki Hadimulyono.
The
reservoir will provide water and help the local community boost income through
the development of water tourism and aquaculture.
Veteran
infrastructure expert Scott Younger says the president’s move to resolve the
stalled Seunara project provides encouragement.
“He has
quickly recognized the serious issue of lack of water storage across the
country and acted on it. It is also positive that he has inaugurated the
long-defined Keureuto project.
“With this
early action it would seem that the president will certainly be trying to meet
the target of 13 dam projects for this year,” Younger said.
But, he
says, the longer-term concern is the lack of engineering and construction
industry capacity to carry out all the work planned in the administration’s
term, not just in water storage but across the infrastructure space as a whole.
Undaunted,
the president pressed on to Lhokseumawe, the home of Kertas Kraft Aceh.
The company
stopped production years ago, but the president has voiced he would like to see
it running again as to contribute to the local economy.
“For more
than 15 years I have wanted the company to be in operation again. There is
adequate supply of raw materials from the forests which can be managed by the
local people.
“We can plant
fast-growing sub-tropical trees such as albizia or pine and we don’t have to
wait 15, 20 or 30 years,” he said.
The
president is no stranger to Aceh. He spent his early working years there and
his first child was born in the province.
“Ibu Jokowi
and I are very familiar with Aceh,” he said.
In Arun,
just north of Lhokseumawe, the president launched the Arun regasification and
storage terminal, marking a milestone in the country’s efforts to shift its
energy consumption toward gas.
The plant
sits on the now-depleted wells of Indonesia’s first natural gas resource, now
run by Perta Arun Gas, a subsidiary of state-owned Pertamina Gas.
“The
facility will regasify LNG sent from Kilang Tangguh in Papua,” Pertamina Gas
president director Hendra Jaya explained, adding that the plant will provide
the state electricity company with gas to power its generators in Belawan,
Medan.
Joko’s
initiative in Aceh marks a significant move in the nation’s infrastructure
building, no president before him has had a similar strategy.
Dams and
roads
This year,
the administration is at work building at least 13 of the projected 49 dams it
wants to construct over the next five years. The cost of the 13 dams will be at
least Rp 12 trillion ($934 million), excluding land-clearance costs. The
projects will be funded by the state budget.
Rising
transportation and logistics costs have also won the attention of the
government.
Many toll
roads are to be constructed and work on the 2,700-kilometer Trans-Sumatra toll
road, which will link Aceh and Lampung, is due to start this month.
The
government has assigned Hutama Karya to undertake the project, as it is the
only large state infrastructure firm not listed on the stock exchange.
Construction
of the road has been estimated to cost Rp 300 trillion, with the government
asking other state enterprises and local governments to cooperate without
reservation.
The first
stage of the project is to build 1,300 kilometers of road. Hutama Karya has
been given an additional injection of funds by the government to get the job
done.
Earlier
Hutama Karya and other state enterprises, including banks, were ready to
finance the project without relying on the state budget but the government
deemed it would create too much of a burden.
During the
previous administration of president Susilo Bambang Yudhoyono, the project was
also to be managed by Hutama Kaya. The project proved difficult to get started
due to financial concerns with investors reluctant to commit to such a
long-term project.
The focus
then turned to building the Medan-Binjai toll road, but that plan has also
changed, with the focus now on the link between Bakaheuni in Lampung and
Palembang, the capital of South Sumatra.
The April
ground-breaking date was chosen at a limited cabinet session presided over by
Joko, Vice President Jusuf Kalla, Public Works Minister Basuki Hadimulyono,
State-owned Enterprises Minister Rini M. Soemarno and Finance Minister Bambang
Brodjonegoro.
An
important part of the decision was the revision of the previous presidential
decree number 100/2014 which put an emphasis on land acquisition as a priority.
In a recent
development, Rini revealed that four state enterprises — Hutama Karya, Jasa
Marga, Waskita Karya and Wijaya Karya — will be tasked to jointly commission
the project.
“The
project will be done in sections. For instance Waskita Karya will do section 1,
Wijaya Karya section 2 and so forth, Part of it will hopefully be completed in
2018,” she said, adding that some sections of the road will be commissioned by
local governments involving the private sector.
Railway
development
Following
Joko’s pledge last year to develop railways in Papua, the Transportation
Ministry will allocate at least Rp 105.6 trillion over the next five years to
build railway networks beyond Java.
“We have
evaluated the budget needs of the Directorate General of Railways at the
ministry for the next five years and according to the new master plan pushed by
the president, completion of the project is slated for 2019,” Director General
for Railways Hermanto Dwiatmoko said.
In business
terms, railway development beyond Java can be complex because of feasibility
and financing, and as a result funding for railway development has to come
either from the state budget or through public-private partnership, he said.
The plan
may appear ambitious but Hermanto insisted that the project will begin in 2016.
It will
contribute to what will become a total national railway network stretching
3,258 kilometers and be the longest railway project since the Dutch occupation
of Indonesia.
Meanwhile,
a feasibility study for the construction of the Trans Papua Railway has already
begun. The new railway track will span 595 kilometers connecting Sorong and
Jayapura.
Home
Affairs Minister Tjahjo Kumolo said that development outside Java is one of the
president’s priorities.
“There are
many regions and border areas which are still untouched by infrastructure
development.
“The
president is committed to developing the eastern part of Indonesia where
infrastructure is less developed.
“We at the
Ministry of Home Affairs have reached a consensus with the Ministry of Public
Works to support and develop infrastructure mainly in Papua, East Nusa Tenggara
and the Kalimantan border areas,” he said.
House
Commission V members who have visited Papua to see the prospective railway plan
say they back the government’s initiative.
They have
also encouraged the people of Papua to support it.
At the
local level, regional officials have discussed the railway project with the
central government but still have questions about the source of finance.
“We will
have certainty on that in one or two months,” said regional secretary Ella
Loupatty.
“We think
that the project will begin from Sorong in West Papua and connect the Sarmi
district in Papua province. If the project is realized, the distribution of
goods will be easier and prices will go down in many areas.”
Hermanto
added that he had asked regional officials to help in the process of land
clearance, which poses one of the major hurdles to any infrastructure project.
He believes
it is feasible to complete the Papua railway project within five years.
“We expect
the project to be expedited although we note that any infrastructure
development in Papua is not easy. But, we can’t delay it,” he said.
Higher
commodity prices
Without the
development of better infrastructure in the area, the price of cement could go
as high as Rp 2 million for a 50 kilogram sack, while basic commodities such as
sugar could cost between Rp 15,000 and Rp 50,000 a kilogram, many times over
the price for such staples on Java.
Commenting
on the rail plans, Younger, the infrastructure expert, says the target dates
are highly optimistic.
“While
railways must be part of the transportation infrastructure build-out, an
emphasis for off-Java railway construction seems difficult to reconcile,” he
says.
“There is
still much to do in rail in Java and especially around the main urban centers,
such as Jakarta and for fast rail links between the major cities. Railways make
sense when there are many people and/or a large volume of commodities to
transport.
“Java and
off-Java highly-populated centers, such as Medan, fill the first criterion and
off-Java in certain specific locations for the movement of commodities.”
And, he
adds, the public-private partnership concept has been around for more than a
decade, but a workable model is still to be found.
More needs
to be done to encourage private investment.
Meanwhile,
a number of countries in the East Asia region such as Singapore, Japan, and
China have expressed interest to invest power plants projects in Indonesia,
according to the Investment Coordination Board (BKPM).
The BKPM
has received 12 new applications for investment permits from foreign investors
to build power plants worth $8.9 billion, or around Rp 116 trillion.
It’s not
just foreign investors looking towards Indonesian infrastructure — many
domestic investors are interested as well.
BKPM
chairman Franky Sibarani said that his office has also received applications
for investment permits from 17 local investors.
GlobeAsia
and the Jakarta Globe are media partners of the World Economic Forum on East
Asia. Parts of this article originally appeared in the April issue of
GlobeAsia.
GlobeAsia
