The Indonesian Chamber of Commerce and Industry (Kadin) has hailed the US$8.6 billion in deals sealed during President Susilo Bambang Yudhoyono's visit to South Korea as a breakthrough in Indonesia's economic relations with the north Asian country.
However, without the full support of the government, they could eventually come to nothing, Kadin chairman M.S. Hidayat has warned.
Speaking Thursday to reporters on board a Garuda flight from Denpasar from Seoul, Hidayat said the realization of the projects needed to be prioritized by the government.
"Especially for the two massive projects to be undertaken in East Kalimantan, the government needs not only to provide tax breaks, but also adequate guarantees given the huge costs involved," he said.
He was referring to the coal liquefaction project and coal transportation rail link to be developed by Posco Engineering and Construction Co. Ltd and their partners in the province.
Under one of the deals signed during the visit, Korean conglomerates Posco Engineering and Construction Co. Ltd., Kenertec Co. and Samsung Securities Co. agreed to construct a coal liquefaction plant in East Kalimantan at a cost of about $5.5 billion.
The Korean companies will collaborate with Indonesian firm PT Nuansa Cipta Coal Investment in developing the project.
In addition to the coal liquefaction project, Posco and Kenertec will also team up with state-owned railway operator PT Kereta Api Indonesia and Nuansa Cipta Coal Investment to build a rail line for the transportation of coal in East Kalimantan that it is estimated will cost some $2 billion.
Hidayat said that problems could arise during the financing of the projects. "If the government fails to provide sufficient support, they could end up as nothing more than agreements on paper."
Hidayat pointed to the fact that a number of Chinese firms had signed contracts to build coal-fired power plants for state power utility PLN. But the Chinese financial institutions that had agreed to finance the projects withdrew after the Indonesian government refused to issue guarantees, which had led to delays in their construction.
In addition to guarantees, fiscal incentives such as tax breaks were also needed, Hidayat said.
"In remote areas like Kalimantan, the condition of basic infrastructure, such as the road network, is very poor, This will greatly add to construction costs."
Yudhoyono and his delegation, including a number of Cabinet ministers, arrived Thursday evening in Denpasar from Seoul. They are due to hold talks with an Australian delegation led by visiting Prime Minister John Howard on Friday morning.
The two leaders are also scheduled later in the day to officially inaugurate the Australia-Bali Eye Center, which was built with financial assistance from Australia.
The center is dedicated to the victims of the bomb attacks that rocked the resort island in 2002 and 2004.
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