45b euro set for Indonesia infrastructure

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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