Build, build, build seems to be the message of the moment, and will still be in 2011 as the government looks to accelerate infrastructure development across the country.
The sense of urgency within President Susilo Bambang Yudhoyono’s government to ease the growing bottlenecks that are threatening to suffocate economic growth is palpable.
While the last five years have been marked by insufficient funds from the state budget, poor policies, inadequate support from the banking sector and reluctance of the private sector to invest in long-term infrastructure projects, the next five years could herald a new beginning.
With greater government commitment in the form of budget allocation and new regulations, Indonesia is expected to implement the infrastructure development agenda at a faster pace beginning in 2011.
The allocation for infrastructure development derived from the state budget (APBN) has increased significantly to Rp 126 trillion ($14 billion) for 2011, the largest allocation in six years, according to Deputy Finance Minister Anny Ratnawaty.
“The budget for infrastructure development has increased from Rp 108 trillion in 2010 to Rp 126 trillion in 2011 under the government-private sector partnership scheme,” she said.
Government Regulations Nos. 66 and 75 of 2008 created an infrastructure financing holding company called Sarana Multi Infrastructure Pesero (SMI). SMI manages partnerships with the private sector or multilateral finance institutions. It is in cooperation with the Asian Development Bank and the World Bank.
SMI also channels funds via Indonesian Infrastructure Finance (IIF), which now holds Rp 600 billion from SMI, Rp 400 billion from the ADB, Rp 400 billion from the World Bank’s International Finance Corporation and Rp 200 billion from German finance institution DEG.
The National Planning Board (Bappenas) and the Investment Coordinating Board have been assigned to package government projects to make them more attractive to investors, while the Office of the Coordinating Minister for the Economy is focused on 17 priority infrastructure sectors.
“The money that comes from the state budget will be synergized with the money obtained from the non-state budget finance institutions. We look forward to the completion of priority projects, among others, the construction of the 2,792 kilometer-long Sumatra, Java, Bali, Kalimantan, Sulawesi, NTT, NTB and Papua highways,” said Hatta Rajasa, coordinating minister for the economy.
Hatta and Japanese Foreign Minister Seiji Maehara recently signed a memorandum of cooperation on infrastructure development worth $24 billion. The agreement included development of roads, power plants, airports and seaports, as well as the supply of clean water.
The private sector also sounds upbeat. The Indonesian Chamber of Commerce (Kadin), which is optimistic that 2011 will be a good year for infrastructure development, has called on the government to persuade national banks to channel their funds for investment in projects guaranteed by the government.
“Infrastructure is the crucial issue hindering economic growth. Banks should finance infrastructure projects instead of concentrating too much on Bank Indonesia Certificates (SBI) as they do now,” Kadin chairman Suryo Bambang Sulisto said. “Interest rates should be under 10 percent in 2011 to promote the competitiveness of the business sector.”
Kadin recommends accelerating infrastructure development, he added, but the government should push banks to lower interest rates.
Some analysts are taking a less bullish stance on Indonesia’s development. Sofyan Wanandi, chairman of the Indonesian Businessmen Association (Apindo), said that although some big banks have expressed a willingness to support infrastructure development, the problem of land acquisition remains unsolved.
“The government is not doing enough. For the long term, it is not that convincing to the investors,” he said.
Economist Ichsanuddin Noorsy told the Jakarta Globe that, despite the air of optimism, he sees problems ahead due to uncertainty in the legislation process of the Land Acquisition Law.
“It will create problems as land acquisition relates to people’s aspirations and human rights as well. The problems surrounding the Soekarno-Hatta International Airport is a perfect example,” he said. “Although the airport was completed many years back, people still claim the land today.”
Noorsy also said that, unlike China, Indonesia’s development is open to private investment. “China doesn’t offer its infrastructure projects to the private sector fearing that prices will be hard to control,” he said.
Despite the concerns, private companies are still interested in the priority projects. Among the most pressing infrastructure needs this year are construction of a 15,000 megawatt power plant; building or improving around 20,000 kilometers of roads; expanding seaports in the special economic zones; completing the Cikarang dry port; constructing a double-track railway to help transport commodities in Sumatra and Kalimantan; and expanding or improving 118 airports and building 14 new ones.
State-owned toll road operator Jasa Marga Tbk will build seven new toll roads, while Peter Sondakh’s Rajawali Group, which recently acquired a 23.63 percent stake in Nusantara Infrastructure Tbk, is eager to allocate funds to make Nusantara one of the largest infrastructure companies in the region.
“The opportunities in infrastructure development are promising, and there’s room to grow for many more infrastructure companies,” said Jeffrosenberg Tan, head researcher at Sinarmas Sekuritas. “Nusantara Infrastructure positioned itself precisely in this sector and will develop fast in line with Indonesia’s political will and public awareness that infrastructure such as toll roads must be built to spur economic growth.”
Through its subsidiaries, Nusantara Infrastructure operates three toll roads: Jakarta-Bumi Serpong Damai (7.25 km), Bosowa-Makassar (5.95 km) and the toll road for Makassar Airport (11.57 km).
Bakrieland Development subsidiary Bakrie Toll Road, meanwhile, is committed to building four new toll roads worth Rp 15.2 trillion. The company is currently carrying out a land-clearing project over 5.3 hectares to build the Bogor-Ciawi-Sukabumi toll road.
Another private toll road player, Citra Marga Nusaphala Persada Tbk., will begin work on the Depok-Antasari toll road in the second quarter of 2011. Investment in the Depok-Antasari toll road will be about Rp 4.4 trillion.