Indonesia's vital infrastructure drive stalls at first hurdle

Indonesia's vital infrastructure drive stalls at first hurdle

Dean Yates and Tomi Soetjipto, Reuters/Jakarta

After running errands for a Jakarta printing shop all day,
Syamsul takes the evening train home. The carriage is pitch dark
inside, it is stifling hot and virtually impossible to move among
the tangle of sweaty limbs.

"I used to sit on the roof, but not anymore. I don't want my
wife to end up a widow," said Syamsul, 26, as other commuters
clambered up the side of the carriage to space on the top.

Syamsul is not the only one frustrated by Indonesia's decrepit
infrastructure. Foreign investors say they are increasingly
concerned at faltering attempts by the government to kickstart a
massive infrastructure program.

In January, President Susilo Bambang Yudhoyono offered 91
projects worth US$22.5 billion at a high-profile infrastructure
summit that attracted hundreds of investors.

That was the first phase of a five-year plan to spend $145
billion on roads, railways, power stations, water supplies, water
treatment plants, seaports, airports, gas pipelines and
telecommunications infrastructure.

Eight months later, just six projects have been tendered, all
tollroads, officials said. Two of those were only recently
awarded while two others were withdrawn and will be re-tendered.

Businessmen said the government had been stymied by
bureaucrats or state-owned firms who either opposed the
involvement of the private sector in such projects or were
confused by vague or incomplete regulations.

Other problems have been procuring land for projects, working
out competitive rates of return, complications from devolution of
power to Indonesia's regions which confuse who has authority, low
tariffs that do not cover costs, and graft.

"There is a lot of disappointment that more projects haven't
been tendered but the disappointment is more acute because it
looks like the bureaucratic resistance is even more ferocious
than anticipated," said James Castle, a prominent business
consultant in Jakarta.

"My own view is that once you get a breakthrough on a few, the
others will fall pretty quickly, but the first few are proving
harder than anyone anticipated."

Another problem, some businessmen say, is there are few, major
competitively tendered projects to use as a benchmark.

During the 32-year autocratic rule of former President
Suharto, who was toppled in 1998, big infrastructure projects
were sometimes awarded to companies owned by close business
associates with little competitive bidding.

Since Suharto fell, various cash-strapped administrations have
had other priorities, from stemming violence to rebuilding the
financial sector and stabilizing the economy.

Raden Pardede, head of a special government infrastructure
team, acknowledged the current tender process was moving slowly
but said Indonesia wanted to make sure tenders were attractive.

"Land ownership and bureaucracy are the main barriers to why
there are some pending projects. I want to emphasize that it is
not as easy as it looks," said Pardede.

The statistics paint a grim picture for Indonesia's 220
million people.

Some 47 percent of households have no electricity and only 14
percent of the population is serviced through water utilities,
the World Bank said in a major report on infrastructure last
December.

Just 1.3 percent have access to a sewerage network, while
fixed line telephone access covers 4 percent of the population.

In addition, public infrastructure investment dropped sharply,
from $8 billion in 1994 to $1.5 billion in 2002, in the wake of
the 1990s Asian financial crisis, the report added.

In Jakarta, traffic jams affect everyone. And last month a
massive power cut disrupted electricity supplies to tens of
millions of people on the main island of Java.

"Indonesia's infrastructure quality ranks among the lowest in
the region and is affecting growth, poverty reduction, foreign
investment and the environment," the World Bank said.

The country expects growth of around 6 percent this year from
5.1 percent in 2004.

Sofyan Wanandi, a prominent Indonesian entrepreneur, said the
burden on business from dilapidated infrastructure was high.

"This hinders all our investment, creates a high cost economy
and various other problems. It makes us less competitive," he
said.

Jakarta had planned a follow-up infrastructure summit in
November, but that has been put off until February.

Officials have said up to 50 percent of the $145 billion in
projects would have to come from private investors.

Back on the Jakarta train, commuter Syamsul gasps for air.

At one city station, Deni, a 23-year-old mechanic, brushes off
the risks before he climbs up onto the roof.

"It's so hot inside. I'll just hold on tight when it speeds,"
he said.