High proportion (67 percent) of rated project and infrastructure companies in Asia Pacific continue to have low exposure to the coronavirus-related disruptions, supported by their essential nature and predictable cash flows - Photo: Special

JAKARTA (TheInsiderStories) – The Government’s emergency decision to halt all elevated transportation projects across the country will certainly exert an impact on private contractors involved in construction, according to Dandung Sri Harninto, Vice Chairman of the Indonesian Department of Infrastructure Development and Infrastructure Structure Committee.

Losses will arise from the funding side for contractors, who almost all rely on bank loans, so that if this policy endures, it is feared it will further delay payment to contractors who need to complete their part of the project.

“The investment value is huge, trillions; ironically, the average interest rate of banking loans is above 11 per cent, enough to put severe pressure on contractors if there any obstacles arise in development,” he said in Jakarta on Thursday (22/2).

Although the tender of a number of projects was won by State-Owned Enterprises, the average private involvement of subcontractors still demands strong external funding.

This is because in the contractual commitments agreed between private contractors and state-owned enterprises, the private sector always provides full capital resources at the beginning in a framework of procurement of goods; this capital mostly comes from bank loans.

The moratorium was issued following a dangerous construction mishap that resulted in 7 workers being injured and narrowly escaping death, on the Jakarta Bekasi toll road project last Tuesday.

The latest construction accident was on a toll road project designed to link the outskirts of Bekasi with Jakarta, the capital city. It was the latest incident on national construction projects in the last two years, bringing the total to 14.

This incident put shares of state-owned construction firms PT Waskita Karya Tbk (IDX: WSKT), PT Adhi Karya Tbk (IDX:ADHI) and PT Jasa Marga Tbk (IDX: JSMR) under pressure on Tuesday.

The Minister explained that the moratorium on those public projects was aimed at allowing ample time for the national Construction Safety Commission to evaluate conditions on all of the projects.

“After the evaluation process was completed, the order to resume the projects or not would be my responsibility,” Minister Basuki Hadimuljono pointed out.

Apart from the evaluation, the moratorium was also intended to assure compliance with existing construction standards and mechanisms by contractors carrying out the projects, the minister said.

This moratorium will likely have an impact on LRT development progress, which has already obtained a huge volume of cash from banks to realize the plan.

The loan agreement for the Jakarta LRT project total Rp19.25 trillion, comprised of Rp18.1 trillion of investment credit and Rp1.15 trillion worth of working capital loans. The lending contract has a grace period of 18 years.

The syndicated loan comes from twelve banks, including state banks, private commercial banks, and foreign banks: Bank Mandiri, BNI, BRI, BCA, CIMB Niaga, PT SMI, Bank DKI, Hana Bank, BTMU, Shinhan Bank Indonesia, Bank Sumut and Bank Mega.

Construction mishaps across Indonesia have claimed the lives of several workers and injured others in recent periods.

Several mishaps occurred on infrastructure projects designated to expedite the 2018 Asian Games sports event slated to be held in Jakarta and South Sumatra capital of Palembang in the next several months.

Indonesia is now intensifying infrastructure projects across the country aimed at improving the nation’s connectivity, hoped to help Indonesia pursue higher economic growth in the future.

Responding to the moratorium on national infrastructure construction projects, Indonesian President Joko Widodo expressed his approval, saying that more detailed supervisory efforts and better management control to monitor those projects are essential to deliver high-quality construction results for the public.

“Whatever the projects are, be it in normal or accelerated ones, they require pertinent and more detailed supervision,” the President said later in the day.

Email: elisa.valenta@theinsiderstories.com