semarang - batang toll road - Photo by the Company

JAKARTA (TheInsiderStories) – The administration of President Joko Widodo is ratcheting up infrastructure spending, with priorities set in logistic, energy and transportation sectors.

Indonesia needs to upgrade its public facilities, including roads, ports, water facilities, but it has been constrained with limited public funds. Widodo’s administration, like his predecessors sought to lure the participation of the private sector in the much needed infrastructure projects.

Joseph Tobing, Director of Finance of Committee for Acceleration of Priority Infrastructure Delivery outlined there are 30 projects that have been selected as priority infrastructure projects in Indonesia for the period 2016-2019 according to the country’s National Long Term Plan.

In total, all these projects together will need some Rp5,519 trillion (US$410 billion) worth of investment. As in 2017, $4.5 billion worth of infrastructure have been completed.

“As we can see today, there are major needs in logistic and energy infrastructure. We have completed about 20 projects by 2016, and in 2018 we have 10 projects to be completed,” he said, Wednesday (4/5).

(Source: KPPIP)

Harold Tjiptadjaja, Managing Director and Chief Investment Officer of PT Indonesia Infrastructure Finance (IIF) said a number of global-scale foreign investors are eyeing toll road business in the country when domestic financing is hardly reliable.

Toll road business in the country is indeed enticing. According to the data from the Public Works and People’s Housing Ministry, the government targets around 1,852-km toll road segments to complete by 2019, and the achievement this year is estimated at 568 km.

Numerous countries, such as China, Japan, Korea, Australia, and Canada, have expressed their interest in the local toll road business. The investors range from pension fund companies, multilateral institutions to infrastructure companies.

To help ease financing constraints in Indonesia, as a company formed by the Indonesian government with support from Asian Development Bank, IIF provide local-currency financing for privately funded infrastructure projects. IIF also get support fund by International Finance Corporation who has invested 20 percent in the firm since 2015.

In addition, another factor catching the eye of foreign investors in Indonesian toll road projects is that the land acquisition issue, which has been a classic problem in the toll road construction, is starting to appear less threatening with the establishment of State Assets Management Agency and bailout funds for business entities.

However the government has acknowledged the issue, by amending the law on public-private partnerships last year to improve transparency and clarity in the tender process of infrastructure projects. It also established the Indonesia Infrastructure Guarantee Fund to arrange government guarantees for public-private partnership projects.

The new measures resulted in the successful tender for the Central Java Power Plant last year, the first public-private partnership deal under the new law and guarantee system.

Last December, Parliament also has passed the Land Acquisition Law, allowing the government to obtain civilian land for public works projects and compensating landowners for the property.

One project up for private sector investment is Umbulan Water in East Java, of which IFC and IIF are the transaction advisers. The tender is expected to be completed later this year. The project will supply clean and reliable drinking water to three million residents in Surabaya, Indonesia’s second-largest city, and four surrounding cities.

“The law, together with Indonesia’s recent credit rating upgrade, which makes fundraising cheaper, would help jump start infrastructure investments this year,” said Tjiptadjaja.