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Facing Indonesia's infrastructure challenges

Interview - April 11, 2014
The Ministry of Public Works of the Republic of Indonesia is the government institution in charge of providing infrastructure for the country. In an interview with United, the Minister of Public Works Mr. Djoko Kirmanto discusses the infrastructural challenges that Indonesia faces in achieving sustainable economic growth and the government’s focus on improving national connectivity in 2014
DJOKO KIRMANTO, MINISTER OF PUBLIC WORKS
DJOKO KIRMANTO | MINISTER OF PUBLIC WORKS
What is the major obstacle to the realization of the Master Plan of Acceleration and Expansion of Indonesia’s Economic Development (MP3EI)?
 
The lack of infrastructure is the most significant challenge we face. Infrastructure projects need to increase in accordance with the growth of the population and urbanization in Indonesia. To support sustainable economic growth, infrastructure development in Indonesia is essential. The focus in 2014 is to improve national connectivity in order to reduce development disparities, increase accessibility to remote areas, and foster growth and equity. 
 
The need for infrastructure investment for the 2010-2014 period increased from Rp 1,429 trillion rupiah (IRD) to 1,923 trillion IRD. This is twice as much as the infrastructure investment need for the 2005-2009 period. Of the total investment 559 trillion IRD has come from the state budget. Approximately 355 trillion IRD comes from the local budget and 340 trillion IRD from state-owned enterprises. Around 344 trillion IRD comes from the private sector. This leaves a funding gap of 323 trillion IRD so we must find alternative sources of funding to fill this gap. 
 
How do you plan to enhance national road capacity? What projects are of highest priority? 
 
To increase national road capacity we will build 1,799 km of new roads and 45,645 km of new bridges. We will also widen 17,525 km of existing roads and rehabilitates a total of 4,830 km of roads.
 
In 2014, the Ministry of Public Works has allocated 37 trillion IRD to enhancing national road capacity in Indonesia. The focus will be on maintaining the service performance of existing national roads and improving servicing techniques through road technology research and development. There will also be improved regional development and enhanced coordination between central and local governments in the handling of roads.  
 
The Ministry of Public Works has a number of specific priority projects within the MP3EI for the 2014-2017 period, including: The Balang Island Bridge, The Enarotali-Tiom National Road, The Palu-Parigi Express Way, The Manalo-Bitung Expressway, The Balikpapan-Samarinda Expressway, The Mamminasata Road Development Bypass and the Access Road to Belang-Belang Port. 
 
Can you discuss the progress that has been made on the development of economic corridors in Sumatera, Java, Kalimantan, Bali-Nusa Tenggara, Sulawesi, and Papua-Maluku Islands?
 
The development of economic corridors is an attempt to increase the economic potential of each region of Indonesia. As a country consisting of thousands of islands, each major island or region has its own strategic future and role in achieving Indonesia’s 2025 vision. Taking this into consideration, six economic corridors have been identified in the following regions: Sumatra, Borneo, Sulawesi, Bali-Nusa Tenggara, Java, Papua-Maluku Islands. Across these corridors a number of economic activities are being fostered including: production centers, natural resource processing, energy, mineral processing, agricultural processing, fisheries, driven industry, tourism and services.
 
To support the development of the main economic activities within these corridors, there will be a total investment of 4.7 trillion IRD in the 2011-2014 period. The government will contribute around 8% of this in the form of basic infrastructure provision. The remaining funds will be provided by state owned enterprises as well as private sector and public private partnerships (PPP). 
 
Can you give an overview of your ministry’s move towards sustainable development?
 
In the National Development Planning Concept, there are three mainstreaming policies that must be adopted by every Ministry in Indonesia. One of these policies addresses sustainable development, mandating “the meeting of present needs without compromising the ability of future generations to meet their own needs.” In order to achieve comprehensive sustainable development, we endeavor to integrate three developmental pillars: Economic Development, Social Development, and Environmental Development.
 
The area we are focusing on most is Environmental Development. The Ministry of Public Works is implementing green construction and green city concepts as well as reduce-reuse-and-recycle policies. The Ministry has recently enacted the National Action Plan for Mitigation and Adaptation to Climate Change and the Action Plan for Reducing Green House Gas Emissions, and these have provided guidance in our infrastructure development. Implementing the green construction concept ensures a focus on developing infrastructure that prioritizes environmentally friendly construction and energy saving. The green city concept incorporates green planning and design to develop green communities. This means building green infrastructure for waste management, transportation, water, energy, and building. Our immediate aim is to achieve 30% green open space, zero waste, eco-drainage and zero runoff. 
 
What strategies is the Ministry of Public Works using to improve water quality?
 
There are several strategies that the Ministry of Public Works has adopted to improve water quality. Firstly, we are improving the management performance of the body responsible for drinking water (PDAM) through principal debt restructuring and periodic competency testing, education and training. Secondly, we have already established reasonable rates and reduced water losses to 20%.
 
There has also been an increase in funding through the Special Allocation Fund, which is aimed at helping rural drinking water services and providing incentives for private water companies. It is very important to encourage the provincial, district and city governance bodies to invest in the further development of drinking water.
 
Strategies for improving water sanitation include better coverage and quality of wastewater services, as well as increasing community participation in the management of wastewater. It is vital to develop institutional wastewater treatment and to do this it is necessary to develop alternative sources of sustainable financing, such as public-private partnerships.
 
What Government incentives are there to attract PPPs for Public Works infrastructure?
 
The Government has been actively conducting regulatory and institutional reforms in order to encourage PPP investment. These reforms are generally made in relation to foreign investments, including legal reforms to allow easier repatriation of profit and protection from nationalization. Additionally, more business sectors will be open to foreign investors and corporate tax will remain at a 25% flat rate. We are also further integrating central and regional government services to allow a more uniform licensing process. 
 
The Government also provides fiscal support for PPPs, with the Project Development Facility (PDF) available for contracting agencies to finance feasibility studies. Land acquisition funds have also been established and infrastructure finance through loan, equity, or additional credit facilities are also available for projects that are commercially feasible. To increase investment security even further, a Government Guarantee can be given by the Indonesia Infrastructure Guarantee Fund (IIGF) to cover against delays land acquisition and political turmoil.
 
How is the ministry for Public Works attempting to increase private sector competitiveness in the construction industry?
 
To increase competitiveness in the construction industry it has been essential to create links between large scale and small-scale contractors. In order to do this, the Ministry of Public Works encourages smaller contractors to specialize so that the larger contractors can utilize them and share construction work.
 
We further this model by dividing the small contractors into three sub-categories: eligible, ineligible, and unregistered. Ineligible contractors undertake an empowerment program, where they receive technical assistance, training, and access to financial institutions. Unregistered contractors are given a similar program and encouraged to register as a construction agency. 
 
What are the areas where you would like to see increased cooperation between Indonesia and the USA?
 
There are several investment opportunities in Public Works infrastructure that the US could take advantage of. There are ten toll road projects with an investment value of US$ 31.5 million. There are five drinking water projects with an investment value of US$ 590 million. There are also two sanitation projects with an investment value of US$ 70 million. It is important that cooperation between our nations is increased and these excellent investment opportunities taken advantage of.
 
Can you reflect on the international perception of Indonesia and the best way to communicate its unique achievements to the world?
 
As a developing country, Indonesia is one of the worlds easiest countries to invest in. This is reflected by Indonesia’s investment grade credit rating and the rapid improvement in the quality of our infrastructure.  Hopefully in the future we can increase the infrastructure quality even further. The best way to communicate our achievements is probably through some of the big infrastructure investment conferences. The Indonesia Infrastructure Conference and Exhibition (IICE) and the Regional Governor Conference (RGC) are some of the largest infrastructure events in the world. We invite all the big multi-national investors from all over the world. It is an excellent way to convey Indonesia’s potential.

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