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| Barun Roy: Jakarta's PPP bet | | The Indonesian government has found a model for its development |
| Barun Roy / Jan 26, 2012, 00:58 IST |
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After much hesitation and dilly-dallying, Indonesia seems ready, at last, to undertake what could be one of the world’s most expensive infrastructural projects — a $25-billion bridge across the Sunda Strait that separates the islands of Java and Sumatra. Early last month, President Susilo Bambang Yudhoyono signed a decree for a team to study the technical aspects of the proposed bridge and come up with a design within the next 12 months.
At its narrowest, the strait is 26 km wide. The idea is actually to build a series of bridges traversing three of the strait’s islands – Prajurit, Sangiang, and Ular – carrying a six-lane highway and a double-track railway. If there are no more planning delays, the first traffic across the bridge might begin to flow as early as 2020, ending nightmarish congestions at Merak, on Java, where trucks and cars often have to wait in kilometre-long queues before they can get on a barge to cross.
The bridge assumes importance as Jakarta now realises that lack of proper connectivity among the country’s regions has been largely responsible for holding the economy back. Sumatra, for example, though the most populous island in the world with some 52 million people living on it, at present, has no direct road connection with Jakarta or the rest of the country. The outer islands are immensely resource-rich but are unable to tap their potential fully since they’re ill-served by road, sea and air connectivity. Early last year, the government announced a Master Plan (2011-2025) seeking to remove such deficiencies and undertake a massive programme of infrastructure development covering roads, bridges, airports, ports and power stations.
Indonesia will need to spend some $140 billion on infrastructure between now and 2014. The government can pitch in for 30 per cent of it, which means the rest of it has to come from other sources, including public-private partnerships (PPP). Accordingly, a basket of 16 projects, requiring some $34 billion, was put on offer last year for PPP financing.
Besides the bridge across the Sunda, the basket includes a 185-km, $2-billion coal railway from Puruk Cahu to Bangkuang in resource-rich Central Kalimantan, in Indonesian Borneo. The railway will be the first section of a 1,829-km line that will help ship coal directly from mine heads to the Java Sea instead of having to be barged down the Barito River, which becomes impassable during summer.
Also proposed are four major toll roads involving a combined cost of over $1.6 billion, two of which – 135-km Pekanbaru-Dumai and 24-km Medan-Kuala Namu-Tebing Tinggi, likely to cost $844.6 million and $475.5 million, respectively – reflect the government’s concern to upgrade key parts of the 2,500-km long Trans-Sumatra Highway. The highway is currently a nightmarish two-lane ribbon of a road susceptible to landslides and flooding and in a perpetual state of disrepair. Last June, a private consortium, led by J-Power, Itochu, and Adaro, won the bid to build a $3 billion, 2,000-Mw power station in Central Java.
After many funding debacles in the past, including several ill-planned attempts to build a metro railway for Jakarta (which the Japan International Cooperation Agency has eventually agreed to support), the government now swears by PPP as its best development bet. It believes this model is particularly suitable for energy, transportation and telecommunications sectors in which quick action must be taken to hit the Master Plan development goals.
Right now, Indonesia is in an upbeat economic mood. GDP is growing strongly (around 6.5 per cent). Foreign reserves are at a record high (about $120 billion at the end of June last year). Manufacturing is benefiting from rising wages in China and Vietnam. Capital spending is slated for a nine per cent rise this year. Foreign direct investment rose 60 per cent in 2010 to almost $12 billion and topped $10 billion in the first half of last year. The political condition is stable and expected to remain so through 2014, when the next general elections are due. Prudent fiscal management has contained average deficits at just over one per cent of GDP. Interest rates are low, so is inflation, and consumer appetite for goods and services remains robust.
Signals coming out of the government have been mostly positive. Various sector laws have been reformed and a favourable land acquisition Bill has been passed to benefit infrastructure. Failed state-owned enterprises won’t be mollycoddled any more. Tax holidays for five to 10 years have been announced for large investors in heavy industries like base metals, oil refining, petrochemicals, machinery and telecom equipment.
With Fitch Rating upgrading Indonesia’s sovereign debt to investment grade – which helped a recent bond offer draw $3.6 billion of bids against $1.75 billion asked for – and the Master Plan laying out a concrete design for development, the government believes it’s on a good wicket with PPP and its economic ambitions now stand a better chance to succeed than ever in the past.
rbarun@gmail.com
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