Traffic jams mean extra cost for businesses

Rendi A. Witular, The Jakarta Post, Jakarta

A chief executive officer of a state cement firm in East Java once said that the most devastating factor that could affect the firm's production cost lay not in fuel spending nor workers' wages, but on congested highways.

The CEO said a raise in utility costs could still be offset by increasing the prices of the products, or cost-cutting measures during production, but an executive could do nothing about congested highways.

"Highway congestion is beyond our control. If there is no improvement in highway capacity in the next two years, the roads will be too crowded, and our trucks will be put in fourth place after trucks that carry staple foods, fuel and fertilizer," said the CEO.

In such a situation, the company's distribution chain will often be interrupted, which would result in severe financial losses -- not only for the producer but also for customers, particularly companies that depend heavily on the availability of cement, such as the property and infrastructure sector.

The relatively distressed highway networks and capacity in the nation of 220 million people is already apparent, as evident in the everyday congestion on nearly every road linking one province to another in Java, the country's center of economic activities.

According to the Ministry of Public Works, from 1978 to date, the country has only managed to build 606 kilometers of new highway, or an average of 24 kilometers per year.

Meanwhile, new cars and trucks that hit the road reached 300,000 units on average annually in the same period.

Aside from lacking funds to finance the construction of new roads, especially toll roads, the lower-than-expected pace of expansion could also be attributed to an unclear mechanism in land acquisition, and in rate policy.

Investors are reluctant to take part in this sector, due to the absence of clear-cut rulings on the role of state-owned toll road operator PT Jasa Marga, which functions both as regulator and player.

"There are so many barriers that confront the private sector in trying to engage in the toll road business," said Hendrianto Notosoegondo, director general of regional infrastructure at the ministry.

"But all the barriers will eventually be eliminated with the introduction of the revised Highway Law, which will pave the way for the private sector's participation in the toll-road business," he said.

The House of Representatives endorsed in September a key bill on highway development, which was to help eliminate lingering barriers in the construction of toll roads.

It contains a clause that partly eliminates the public's right to protect land ownership, unless an agreement is made on the compensation awarded by the government for the land.

Some articles also allow land disputes to be resolved in courts, without halting the on-going construction project.

Currently, the government remains helpless in dealing with land disputes. Numerous infrastructure projects in the country have run aground due to problems related to land acquisition, with investors facing widespread protests and rejection from landowners, backed by regional administrations.

Until now for instance, it has not been able to settle a land acquisition dispute which has halted a toll road project in a segment of the Veteran-Ulujami stretch of the Outer Ring Road in South Jakarta.

The project was originally set for completion in May 2003.

These problems have dampened investors' appetites for investing in the business. Besides, there are several obstacles that have yet to be addressed by the law, one of which is the unclear role of Jasa Marga, which currently serves as both the regulator and player. At present, Jasa Marga is involved in all toll road projects, whether as a joint venture or as the sole constructor.

Another factor that should be taken into consideration is also a policy on rates, as well as the concession period for operating the road -- which is important so investors can calculate the feasibility of their business.

However, Hendrianto was upbeat the new law would eliminate those barriers. He pointed to a clause in the new law, which would stipulate the establishment of an independent body specifically tasked with regulating and supervising the toll road sector, as late as September this year.

Toll road projects planned for the next five years

Length (km) Estimated Investment (US$m)

Priority I
Jakarta Outer Ring Road (JORR) Section W1 10 80
JORR Section E2 E3 14 75
Cikampek-Padalarang stage II 40 170
Total 64 325

Priority II
JORR section W2 7 68.7
Gempol-Pasuruan 32 107.7
Semarang-Bawen 24 71.3
Cikampek-Cirebon 114 371.0
Semarang-Demak 25 84.1
Medan-Binjai 21 80.6
Makassar section 4 11 24.9
Palembang-Indralaya 25 49.7
Surabaya-Madura 5 70.0
Cileunyi-Sumedang-Dawuan stage I 23 105.5
Surabaya-Mojokerto 37 148.8
Waru-Wonokromo-Tanjung Perak 18 310.7
Waru-Tanjung Perak stage I 14 66.9
Palimanan-Plumbon (widening) 6.0
Cibitung-Cikampek (widening) 36.6
Surabaya-Gempol (widening) 14.0
Sedyatmo (widening) 41.0
Total 356 1,657.0

Source: Ministry of Public Works