Infrastructure investors remain skeptical

Infrastructure investors remain skeptical

Rendi A. Witular, The Jakarta Post, Jakarta

The many promises and projects offered by the government during
last week's Infrastructure Summit apparently were not enough to
ease the fears of cautious investors, who still want to see the
promises translated into real action amid the country's weak
bureaucracy and rampant corruption.

"The summit is just the beginning for the government to show
that they can raise investors' confidence. But such confidence
cannot only be ensured by words," said Robert Rankin, managing
director of UBS Investment Group Asia.

"The government should set up two or three infrastructure
pilot projects, in which the process is ensured to be free from
irregularities. Investors won't come back if they see the pilot
projects are tainted with abuse," he added.

The government faces a daunting task in fulfilling its
promises made during the summit, given the fact that most key
state officials nationwide seem to be afflicted with a corruption
mindset and that the bureaucratic system they work in is poorly
coordinated or controlled.

Moreover, it remains unclear as to how the government plans to
ensure that the bidding process for each project is conducted
fairly and transparently, especially when dealing with companies
with close, but informal, links to state officials.

State Minister of National Development Planning/National
Development Planning Board chairwoman Sri Mulyani Indrawati said
all companies, including those with links to state officials and
politicians, could win the projects as long as they managed to
meet the requirements.

She said the tender process would be carried out based on the
existing regulations, but with enhanced transparency.

The government will need around US$150 billion for the
development of various infrastructure facilities. Some $25
billion is expected to come from the state budget; $30 billion
from domestic finance institutions; $10 billion from foreign
donors; and the $80 billion bulk from private and foreign
investors.

In the investment forum, the government offered 91
infrastructure projects worth $22.5 billion to foreign and
domestic investors.

Another reform commitment promised by the government during
the summit was the finalization of all required policies to
improve the investment climate as well as the revision of
problematic regulations within six months. It also pledged to
honor all contracts made with private companies or individuals.

The government also signed a declaration with representatives
of companies from 22 participating countries in the summit,
designed to underscore the government's commitment to removing
the many bureaucratic hurdles to private sector investment.

However, a number of would-be investors at the summit, who
preferred not to be named, were pessimistic that the government
could come up with concrete changes within six months.

"How can we trust this government if it has already failed to
convince the business community of its seriousness in combating
corruption within President Susilo Bambang Yudhoyono's first 100
days?" a foreign investor wondered aloud.

He said his existing operation in Indonesia was still having a
lot of problems with widespread illegal fees collected by
officials from local administrations, the central government, the
police and the military. And, he added, there had been no sign
that the problems would end.

If such corruption remained, he said, what would happen to
private companies involved in these infrastructure projects,
since most would require 10 to 15 years to reach the break-even
point.

Investment projection for 2005-2009

Infrastructure Projects Investment

Roads 114,800 kilometers Rp 214.2 trillion

Energy 25,700 Megawatts Rp 287.8 trillion

Fixed line telephones 12.9 million users Rp 88.8 trillion

Cellular phones 24.3 million users Rp 62.7 trillion

Tap water 28.1 million consumers Rp 16.9 trillion

Sanitation 46.9 million households Rp 18.8 trillion

Total Rp 689.2 trillion