Fri, 17 Nov 2000

Low toll charges discourage investors

JAKARTA (JP): Low tolls have discouraged foreign investors from investing in the country's tollway projects, an executive of state-owned toll road operator PT Jasa Marga said on Thursday.

Frans S. Sunito, the Jasa Marga director of development and commerce, said foreign companies were reluctant to invest in toll roads here because of an unattractive policy on tollways and land appropriation problems.

"It is not so much about existing low tolls, but more of the need to introduce a clear policy for future increases," he said on the sidelines of a seminar on infrastructure.

A clear policy on tolls was important for potential investors before they decide to commit to the projects, he added.

"Nobody wants to invest in a loss," he said.

Frans said the government would have to come up with a definite formula for toll increases so that the investor would have firm knowledge of when he could expect a return on the investment.

"So far, toll increases are made based on our proposal to the government and even then they are not granted for certain."

The universal practice of a toll increase formula was to be based on the inflation rate and consumer price index, he said.

Frans said the proposal for the formula was being reviewed by the government to see if it was viable to become a government policy.

Another problem holding foreign investors back was the rule that they would have to bear the cost of land appropriation, Frans said.

He said in the past the government was responsible for the cost of land appropriation, but since the economic crisis, investors were expected to bear the burden.

"It is understandable, because government funding is very limited right now. But investors need to know the extent of the risks they will have to bear," Frans said, adding that he knew from experience the price of land skyrocketed when there was any sign of a buyer.

Economist Sri Mulyani said in the seminar that one of the problems blocking foreign investors from investing in the infrastructure sector was the country's low rates, not only in tollway operations, but also for electricity and the telecommunications service.

Investors, especially foreign ones, will only come if they are sure they will receive rational returns from their investments, she said.

Amitava Banerjee, the International Finance Corporation (IFC) manager and regional representative for Indonesia and Malaysia, said one way to overcome the financing problem of infrastructure projects was to create longer term financial sources, such as bonds.

The development of the infrastructure needed a long-term investment of between 10 and 15 years which could not be covered by bank loans, he said, adding that loans had a short maturity period. (tnt)