Photo by President Office

JAKARTA (TheInsiderStories) – The development of projects such as the Jakarta-Bandung fast train, Jabodetabek and South Sumatra Light Rail Transit, as well as Mass Rapid Transit and Bus Rapid Transit in Jakarta over the last three years showcase how the administration of President Joko Widodo is paying special attention to land-based connectivity – and going for broke with borrowed money to finance it.

Ikhwan Hakim, Transportation Director of the National Development Planning Agency, told TheInsiderStories that the government even aims for a grander land connectivity infrastructure next year.

This administration has allocated Rp22 trillion from the 2018 state budget to develop a land-based transportation network, including Makassar-Pare Pare railway, Tran-Sumatra toll road, Padalarang-Cicalengka double track railway and several toll road networks in Java Island.

The Government also aims to be operating 8 new airports by next year, including Kertajati (West Java), Kulonprogo (Yogyakarta), Sebatik (North Kalimantan), Sultan Babullah (Ternate), Syamsuddin Noor (West Kalimantan), Tjilik Riwut (Central Kalimantan), Radin Inten II (Lampung) as well as Ahmad Yani (Central Java).

In addition, the government plans to offer more airport operations to private entities. Currently, there are 25 pioneer airports run by the government through the transportation ministry.

The government will also develop railways in East Kalimantan and South Sumatra, and expects to see progress on the Surabaya-Jakarta ‘semi-fast train’ project. There are also plans to extend a double-double track (4 track) railway network in Jawa to cities like Cirebon, Tegal, Pemalang and Semarang.

The flagship Trans-Java toll road network, which will connect Jakarta and Surabaya, may also be fully completed next year, and the government is considering whether to extend the network to Banyuwangi, at the eastern tip of the island, by the end of 2019.

The upgrade is needed to address the massive backlog of traffic jamming up the land-based transportation network, which is estimated at about 20 per cent or 16,000 lane km of road space.  Indonesia needs to add at least 3,000-4,000 km of road every year to meet the 5% rise in traffic demand.

“The Expressway Development Program, targeting over 6,220 km of expressways by 2025, is estimated to cost IDR 720 trillion (US$54 billion). In the ports sector, an estimated $47 billion is needed up to 2030 for port development. A further $7-13 billion is needed for mass transit investments, as five-year development plans) aims to increase the percentage of trips occurring on public transport in large cities from a current 5-20 per cent to at least 32 per cent,” he told TheInsiderStories.

Overlapping regulations between central government and local parliament approval hamper private investors’ appetite. One example is the Government Regulation  No. 50/2007 which states that any regional government that plans to enter into a Public-Private Partnership agreement that requires regional budget support must seek local parliament approval prior to entering into any such agreement.

As part of this process, a draft PPP agreement must be submitted to the local parliament for review.

However, MOHA 96/2016 requires regional governments to obtain local parliament approval of any project’s available payment mechanism in the relevant fiscal year. It is thus unclear whether local parliament approval before entry into a PPP Agreement includes a long-term regional budget commitment throughout the life of the PPP agreement, or whether such budgetary approval needs to be obtained each fiscal year of payment. Bandung Waste-to-Energy Project was suspended due to failure to obtain such an approval.

Also, separate requirements for the outline business case (OBC) by Ministry of National Development Planning and the Ministry of Finance for example for preliminary feasibility study. This is cumbersome, as all government contracting agencies need to prepare the OBC for a PPP project in accordance with the requirements set out by Bappenas, but must also submit the OBC to MoF in accordance with their requirements, if viability gap funding is needed.

Although the requirements appear to overlap substantially, complying with Ministry of Finance requirements can require significant additional effort, such as social cost and benefit analyses, financial models, and an analysis indicating that VGF is the last resort.  This could slow down project preparation.

 

Writing by Elisa Valenta, Email: elisa.valenta@theinsiderstories.com

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