45b euro set for Indonesia infrastructure

Zakki P. Hakim, The Jakarta Post/Jakarta

European private sector and financial institutions have allocated some 45 billion euros (US$58.5 billion) to be invested in infrastructure projects in Indonesia.

However, they are still in the process of evaluating the 91 projects offered by the government at the just-concluded Infrastructure Summit before committing themselves to invest, European Business Chamber of Commerce vice chairman, Michael Olsson, told a business luncheon with top executives of European companies in Indonesia on Thursday.

The government needs up to $150 billion over a five year period to finance 91 projects in the sectors of power, gas pipelines, water and sanitation, toll roads, seaports, airports and telecommunications.

Olsson said European firms would likely be more interested in toll roads projects as the sector promised to be more profitable than the others. He highlighted that toll roads in Java were proven to be profitable and successful, citing the cooperation of private partners with state toll road operator PT Jasa Marga.

On the other hand, he added, investors might not put money into water and sanitation projects, saying that dealing with local administrations was hopeless.

"Everyone is afraid of local administrations. You should not privatize things if you know they cannot work," he said.

The power sector was more interesting, but summit participants still perceived it to be unprofitable especially as they would have to depend on ailing state power company PT Perusahaan Listrik Negara (PLN)'s ability to pay back their investment.

"There is actually up to 30 billion euros ready to be invested in the power sector if the government can convince investors that we can make money from it," Olsson said, adding that the key was to make PLN sustainably profitable.

Although the government has guaranteed that PLN would honor its contractual commitments to its private partners, investors remained unconvinced.

Olsson called the summit "a positive indication" but stated, "I'm impressed, but cautious. I have been here for 12 years, and we can't immediately trust it."

He did not agree with a proposal for the government to start smaller pilot projects in each sector, saying numerous big inter- regional projects would have a better chance of success. He said doing large projects would enable investors to operate at a national scale, putting aside the difficulties in dealing with local administrations.

Apparently, some local administrations were perceived as being "less troublesome", such as Jakarta and East Java.

Olsson said investors were interested in seaport projects in both these provinces, and that they should be able to tolerate these local administrations that were relatively more transparent than others.

Moreover, he said, many investors were also interested in investing in the Soekarno-Hatta International Airport. One investor even asked Minister of Transportation Hatta Radjasa when the government would sell the airport. The minister was speechless, possibly surprised.

Olsson named telecommunications as a favorite among summit participants, but said that state-owned telecommunications firm PT Telkom was too large for investors, and asked when Telkom would be divided.

"The telecommunication market should be rebalanced and reduced so that the dominant player's market share is no more than 40 percent. In that environment, the country's telecom sector would be very strong, even stronger than now," he said.

Lippo Karawaci director and senior technical adviser, Gordon Benton, said that investors should not be discouraged by the "bad public relations" of the notorious red tape of local administrations.

With more than 30 years experience in doing business in the country, Benton said the layer of bureaucracy here was far "thinner" than in Shanghai, for example, where he had to go through an average of 30 approvals.

"In our property business, we have a lot more stages of approvals than the local administration requires," he said, adding that the bureaucracy was very supportive of infrastructure projects if one knows how to deal with them.

"The secret is, never give an impression that your company is tolerant towards bribing officials," he said.

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