JAKARTA (TheInsiderStories) – Indonesia’s efforts to accelerate development of priority infrastructure projects started taking shape this year, as the Committee for the Acceleration of Priority Infrastructure Delivery (KPPIP), slowly but sure sought out and pinpointed constraints hampering billions of dollars worth of projects; the solutions they announced should expedite action.
KPPIP, whose steering committee is chaired by Coordinating Economic Minister Darmin Nasution, was established last year and has smoothed the way for major projects, including a 2,000-megawatt coal-fired power plant in Batang, Central Jakarta, to come to fruition after a long delay in development.
Speaking to The Insider Stories on Wednesday (23/08), Rainier Haryanto, Program Director of KPPIP, explained how the committee deals with inter-ministerial coordination and turns itself into a ‘one-stop center’ for both planning and development of priority infrastructure projects.
Rainier, who has more than fifteen years of experience working in various infrastructure engineering-related sectors in the Middle East, Asia and Australia, also discussed progress on infrastructure projects deemed “priority” by the government.
Below are excerpts from the interview:
What is the impact of infrastructure development on the economy?
According to the World Bank, every $1 invested in the infrastructure sector will generate $4 in return. Even so, we have learned that there is no generic formula that will work in every country. That’s why we need to come up with our own calculation.
We have forged a cooperative agreement with LPEM-UI [The Institute for Economic and Social Research of the University of Indonesia]; together we hope to calculate what the economic impacts of infrastructure development will be on the economy. We will showcase examples from strategic national projects.
What is the expected outcome of this cooperation?
We would like to know how infrastructure development affects growth in the country’s regions, how it will distort the local economy, succeed in stimulating employment, and so on.
Do you think greater infrastructure spending has a strong correlation with economic development?
Infrastructure development stimulates many other industries, including cement, steel, and construction […] Also, with better roads, travel time will be shorter which signifies we can be more efficient.
What is the progress of the government-private sector’s infrastructure financing scheme (KPBU) up to the first half of this year?
It is still progressing well. For example, the Drinking Water Supply System (SPAM) project in West Semarang is now moving forward. There are also these waste-based power plant projects in Tangerang and Jakarta. We are also pushing to accelerate completion of the Yogyakarta – Bawean toll road project. There is a total of 6,700 Megawatts of power plant projects that will see financial closing.
We are trying to speed up the second phase of the MRT project. The ball is with the Ministry of Public Works and Housing. We are also working on the Patimban project, the LRT project in South Sumatra and the one in Jakarta, as well as the Balikpapan-Samarinda and Medan-Binjai toll roads. There remain land acquisition issues there, but we have exerted efforts to resolve them. With regard to waste water treatment in Jakarta, we have secured loans from Japan: JICA will participate. The bottom-line is that we are pushing this.
What is the progress of the Medan-Binjai toll road?
There are two constraints [in land acquisition]. First, we need to acquire land from the Navy and land occupied by the Grand Sultan hotel. Mr. Sofyan Basyir has consulted with the North Sumatra provincial government, suggesting an exchange of land with the Navy, by which they would set up somewhere else. We are reviewing all possibilities. With regard to the Grand Sultan Hotel, that’s actually government-owned. There is also another breakthrough: the State Asset Management Agency (LMAN) is committed to provide bridging funds we asked for. The total figure stands at Rp 48 trillion.
What has been done by the government to settle the prolonged land acquisition issue for the Batang power plant?
There are two issues. One is the result of involvement of NGOs who reported to the Japanese Parliament that local people had their land taken away from them without proper compensation. We helped Bhimasena Power Indonesia prepare CSR documents that showed what they should do to resolve this matter. Once the CSR programs are unveiled, one problem could be solved. Second, there is the matter of land certification: we have met with Mr. Sofyan Basyir and recommended he prepare any necessary certificates [proving ownership of the land].
Is this kind of case unique with Batang or does it pop up in other infrastructure projects?
“Apart from Batang, we keep seeing this same problem emerge, especially in power plant projects. We have adhered to Law No. 22, providing proper compensation, but it is likely there are some efforts from certain NGOs [to stir up trouble].”
“There are certain projects, for example, one in Yogyakarta; I heard there was an NGO that came down to organize a protest, but it wasn’t even based in that city: they had come from Lampung. Now everyone agrees that it is unfair to land owners if the government fails to give compensation in line with the market price. But what happened was they had already been offered fair compensation, but someone – a provocateur – urged them to keep bargaining for a higher, higher and higher price. That makes it difficult. We think there was someone stirring up the locals.
In a holistic view, what are the main problems of infrastructure development?
Land acquisition. It remains the key one. Second, funding. We need to involve the private sector, but the problem is that even after they expressed interests years ago, we only just opened the door for them last year. We made a breakthrough and showed the people we can do it. The Batang project, Umbulan, Palapa Ring: those are progressing well. So people start to trust us, to believe in progress, even though some are still uneasy, asking what if the old problems raise their head again. That’s the part where we need to convince them.”
“We are now encouraging the private sector to participate, especially to help from the equity side and secure debt.
From the government side, we know we can’t afford to finance all of the infrastructure projects, because our state revenue is not sufficient to fund them all. That’s why we need a breakthrough. One that is currently being considered is to look for financing from multilateral agencies for projects that previously relied on financing from the state or regional government budgets.
They could offer grants and we will share technical aspects of the work with them. Then, the funding from the state budget could be simply directed to non-commercial projects.”
There is also this non-state budget infrastructure funding (PINA) scheme. How to select projects worthy of support from this scheme?
It has not been easy; many infrastructure projects are initiated by state-owned companies. Not many are purely carried out by the private sector. There are also many projects that are in fact not really feasible for the private sector.
Can you give us detail about how many are listed as “national strategic projects?”
There are currently 245 projects with a total of $322.8 billion required. Those are multiyear projects and are in all vital sectors, like power, roads, water facilities, sanitation and so on. There may be a positive impact involving a sovereign ratings upgrade [by Standard and Poor’s] to ‘investment grade’. All now see that Indonesia indeed offers great prospects.
What we do is that we give them [investors] no guarantee [over returns], but promise transparency. This makes a big difference. It is important to be aware of the risks that the private sector may assume, but what is most important is transparency.
What is the main obstacle to KPPIP’s operation?
Coordination. This has to be untangled and we have to be able to deal with the sectorial ego of each separate government agency. Obstacles exist – not just in terms of coordination on a state-level, but also within each project. That’s why we have to improve our communication.
About Japanese investors: what are they are most attracted to invest in?
They are focusing on the phase one MRT project – the $1.86 billion one – and Patimban’s $1.25 billion worth of projects. In Patimban, the investors include Mitsui and Marubeni.
For the waste water project, JICA helped with financing.
(Written by Linda Silaen and Yosi Winosa, email: linda.silaen@theinsiderstories)