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Eyeing investment in Indonesian infrastructure

Interview - March 11, 2014
It is no secret that a developed network of transport infrastructure plays an essential role in supporting the economic growth of a country. That is why the Government of Indonesia has made many efforts in order to accelerate development of the transfer sector over recent times. Having enacted a number of laws to facilitate investment and announced over US$35 billion worth of projects for 2014-2017, Indonesia’s Minister of Transport Evert Erenst Mangindaan talsk to United World about how the sector is progressing
How critical is the development of a sustainable and integrated transportation network in the Master Plan for the Acceleration & Expansion of Indonesian Economic Growth (MP3EI)?

Transport plays an essential role in supporting economic growth. The availability and efficiency of transportation services are vital in supporting the production and distribution imperative for economic growth. There is a need to constantly review and improve the transport systems of Indonesia as transportation shortages and disruptions adversely affect the dynamics and stability of the economy and people's lives.

The Indonesian transportation network consists of infrastructure and service networks. The Indonesian infrastructure network consists of traffic and traffic nodes. Sustainability has been ensured through integration of transport modes and the creation of multimodal services. Particular attention has been given to transportation nodes as their transfer and loading capabilities have a very important role in realizing the integration and sustainability of freight services.

In the midst of globalization, Indonesia is well placed to compete in an increasingly competitive market. In an effort to accelerate development in the transport sector, various laws on the operation of transport have been enacted. These laws cover all areas of transport; roads, railways, shipping, aviation, and spatial planning. Specific transportation laws include the following: No. 23/2007 on Railways, No. 17/2008 on Shipping, No. 1/2009 on Aviation, and No. 22/2009 on Traffic and Road Transport.

The Ministry of Transportation is devoted to providing transportation services to the community and business world and the implementation of these laws allow an effective increase in transportation services as outlined by the National Transportation System. This system focuses on a regional approach, connecting small and large Islands. To do this it is necessary to utilize intermodal transport by air, seas, rivers, lakes, crossings, railways and roads to form economic corridors that will remove any imbalance in the development process, bridging small and large Islands.

The economic corridors concept put forward in the Government’s National Connectivity Framework aims to improve intra-island and inter-island transportation and turn Indonesia into an international gateway to Asia, Europe, and America. Explain these economic corridors and how transport is key?

In the MP3EI, forming economic corridors is central to accelerating economic growth by attempting to alleviate various issues with territorial expansion. There are six economic corridors: Sumatera, Java, Kalimantan, Sulawesi, Bali-Nustra, and Papua-Maluku. This national connectivity is achieved through improved main land access, linking economic centers and linking sectors and resources to their facilities and other supporting infrastructure. This intra-and inter-island connectivity is intended to improve regional and global connectivity. Additionally, these economic corridors are expected to connect Indonesia with regional economic centers within the ASEAN (Association of South East Asian Nations) region and the world, in an effort to improve national competitiveness.

However, the priority remains improving transport networks within Indonesia’s 17,000 Islands. The Government has strengthened domestic connectivity through new infrastructure projects relating to the national road network and ferry ports. The archipelago is divided into the northern, southern and central belts and the transportation network acts as a moving bridge, connecting regions in Indonesia separated by river, lake, or ocean. This year, the government is finalizing transport planning in the southern belt, from Sabang to Merauke. This is one of the main strategies for improving connectivity within MP3EI.

The availability of transportation facilities and infrastructure such as good road access, adequate ports, strategic bridges, well-equipped airports, and other supporting facilities such as rail will directly increase Indonesia’s competitiveness and lead to rapid economic growth. Transportation development continues to focus on providing a national transportation system that is reliably supporting the mobility of people, goods, and services. The national transportation system will continue to improve with new transportation facilities and infrastructure and further integration of transportation modes. This will be done in line with environmental protection and national energy policy, fulfilling trade requirements both nationally and internationally.

What current projects are planned to develop and improve the country’s seaports?

Sea transportation is a priority in our island nation; it plays the primary role in stimulating economic growth in isolated and underdeveloped regions, as well as supporting further growth in developed regions. In a way, shipping effectively balances development dynamics through the mobility of people, goods and services.

The contribution of sea transportation to economic development can be seen clearly by the growth of port activity. Port development in Indonesia is proceeding in accordance with decree No. KP414 (2013), which puts forward a National Ports Master Plan outlining the infrastructure development policy for Indonesian ports by 2030. The plan envisions the following 8 key points:

1. Significant private investment
2. Strong competition
3. An Empowered OP and UPP (Operating Plan and User Participation Plan)
4. Completed planning integration
5. Precise and flexible legal frameworks
6. Safe and secure port operation systems
7. Improved protection of maritime environments
8. Developed human resources

The development of the International Hub Global Port in Kuala Tanjung and the Bitung Port, will improve competitiveness and encourage the acceleration and expansion of Indonesia's economic development and the National Logistics System. There will be greater efficiency in the logistics transport systems and an equalization of cargo potential per-region nationally. As part of the National Ports Master Plan there are three hierarchies stipulated: major ports (35 locations), collector ports (217) locations, and feeder ports (988) locations. This focus on development will alleviate poverty in the region by connecting established regions with less developed regions.

The National Ports Master Plan also summarizes cargo growth within Indonesia. General, container, liquid and dry bulk cargoes have increased from a total of 976.7 million tons, in 2009, to 2.144 billion tons in 2030. It is projected that container cargo will double by 2020 and bulk, liquid bulk and dry bulk cargoes will increase by 50 % in 2020 and by a further 50 % in 2030. Consequently expansion and construction of new container and bulk terminals throughout the region will be vital. To undertake such large projects total investment will amount to US$47.064 billion by 2030.

What locations will be chosen for development and how will capacity expansion be financed?

There are several strategic ports located in each region that require investment in port facilities. In North Sumatra these ports are in Belawan Port, Kuala Tanjung, Dumai, Gulf Bayur, Pekanbaru, Batam, Pembuangan, Sibolga, Aceh, Bintan, and Teluk Tapang. The South Sumatran strategic ports are Palembang, Panjang, Jambi, Bengkulu, Teluk Semangka, Bangka, and Belitung.

In Kalimantan the ports are in Pontianak, Teluk Air (West Kalimantan) and Balikpapan, Samarinda, Banjarmasin, and Sangkulirang (Eastern and Southern Kalimantan). The Sulawesi ports are in Makassar, Pare – Pare, and Luwuk. In
Java, the most populous island, the ports are located in Tanjung Priok, Tanjung Perak, Tanjung Emas, Pelabuhan Ratu, Balongan, Cirebon, Cilacap, Jepara, and an additional 13 locations.

The Nusa Tenggara strategic port is in Tanah Ampo and in other eastern regions there is Bitung , Jayapura, Merauke, Ambon, Sorong, and Halmahera.

This sort of expansion requires huge investment, so the government, working within the framework for sea transport infrastructure development will encourage private investment and a shared investment plan through to 2030. The investment split is likely to be private 68.3% and government 31.7 %. Using The Ministry of National Development Planning’s current financing scheme thought Public Private Partnerships (PPP), there are already a number of port development projects that are ready to be offered to investors. These include the development of Ports in Tanah Ampo, Cilamaya, Kuala Tanjung, and Pelaihari.

Ending bottlenecks in Indonesia’s populous capital Jakarta will be essential for the continuity of the economic growth. What roles will the Mass Rapid Transit (MRT) project and particularly the Monorail System play in improving the traffic situation?

Jakarta and Jabodetabek (the greater Jakarta area: Jakarta, Bogor, (Depok), Tangerang and Bekasi) combine one of the widest agglomeration areas in the world. In the last decade, Jakarta’s population growth was around 1.6% per year, whilst Jabodetabek was growing at more than 4.5% per year.

This population trend has been reflected in the growth of motor vehicles, more than 15% per year during the 2001-2008 period. Daily traffic in Jakarta is made up of around 1.47 million vehicles with around 2.463 million round trips being made per day. Congestion remains a significant challenge, particularly in Jakarta. It has been predicted that without major investment in transportation, the 9 million inhabitants of the city would be completely inhibited by traffic congestion by the year 2020.

Therefore, investment in mass public transport is a necessity. The Mass Rapid Transport system (MRT), started in October 2013, will ensure a reduction in traffic congestion. The first phase of this project, the 25.7 km from the southern Jakarta neighborhood of Lebak Bulus to downtown Jakarta (Lebak Bulus-HI), has a 2016 completion target. Consortiums including PT. Wijata Karya, Hutama Karya and the private company Jaya Konstruksi are leading this project. The second phase is the 8.1 km north line (HI-Kota), which is slated for completion by 2018.

The monorail project was established on the 31st of May 2004, between the Government of DKI Jakarta (Jakarta Special Region) and the previously mentioned companies. Despite initial problems with the Jakarta monorail, ground was broken on October 16th 2013. The project currently aims at completing 29 km with two lines. The first will be opened in 2015 (the green line) and the second in 2016 (the blue line).

The MRT and monorail are not the only planned solutions for easing traffic congestion in the capital. Optimizing the Transjakarta Busway will also increase capacity. This optimization will be happening in conjunction with the MRT and Monorail projects. The Master Plan for Urban Public Transport Development in the Jabodetabek Area (Ministerial Regulation No. 54/2013), makes it clear that the mass public transport systems planned must be well integrated, not only within the Jakarta area but also between Jakarta and its outer areas. These include Bogor, Depok, Tangerang, and Bekasi.

Given the scale of the planned projects, what is the strategy for attracting foreign investment to address the transportation infrastructure deficit?

To achieve the 6.3% per year target for economic growth from 2010 to 2014, the infrastructure development budget is 1,626 trillion rupiah (IDR). The government has allocated a further1,626 trillion IDR to the transportation sector, however, budgetary needs for the transportation sector from 2010 to 2014 are around 208, 94 trillion IDR. Consequently, the additional 88,494 trillion IDR will require the involvement of state owned enterprises, local governments and private sector entities.

Efforts to accelerate the development of transportation infrastructure include establishing and encouraging opportunities for the participation of private sector in infrastructure development. These efforts include but are not limited to the following:

1. Eliminating legislative barriers to private and cooperative participation in all areas, including: ownership, planning, financing, construction, maintenance, and management of transportation infrastructure.
2. Encouraging local governments to remove barriers to private investment in the transportation sector.
3. Increasing private sector participation in the transportation sector, including in the field of transportation services to the community.
4. Encouraging joint initiatives between government and private sector in financing the operation of transportation facilities.
5. Simplifying licensing requirements.

The removal of legislative barriers has already begun, with the revision of the following laws:
  • Law No. 23/2007 on Railways
  • Law No. 17/2008 on Shipping
  • Law No. 1/2009 on Aviation
  • Law No. 22/2009 on Traffic and Road Transport
Transportation acts strategically as a bridge for national development by connecting the many islands and regions of Indonesia. Readily available transportation services in all regions of the country are a priority as they create stability and continuity in society by facilitating community, commercial and government activities. It is critical to understand that any interruption of transportation services could trigger significant economic and social problems, which if continued, could threaten the very life of the nation.