PPP Progress To Remain At A Glacial Pace
The Indonesia Public Works Ministry announced in mid-September 2013 that it had secured 72% of the land required to start the tendering process for the Medan-Kualanamu-Tebing Tinggi toll road project. We believe this slow progress with infrastructure public-private partnership (PPP) projects in Indonesia can be attributed to business environment issues such as land acquisition, and we do not expect these PPP projects to experience a significant improvement in project execution given the general and presidential elections scheduled to be held in 2014.
According to Djoko Murjanto (cited from the Jakarta Globe), director general for highways at the Public Works Ministry, the 72.06km toll road project, located in North Sumatra, needs to complete 75% of its land acquisition before a request to tender the project can be submitted to the Toll Road Regulatory Agency (BPJT). The main block of land to be secured for the project belongs to state plantation company Perkebunan Nusantara . According to the government's report on infrastructure PPP projects (published in March 2012), the project is expected to be tendered under a Build, Operate and Transfer model and start construction works in 2013.
Despite the introduction of a new land acquisition bill (which took effect earlier this year), land acquisition remains a major stumbling block for infrastructure development across Indonesia. This has been most apparent in the country's infrastructure PPP plan, and the slow progress with the Medan-Kualanamu-Tebing Tinggi toll road project highlights this. Out of the 70 PPP projects listed in the government's PPP Report in March 2012, 12 projects were listed at varying stages of the tendering process and three projects were listed as ready to be offered. At the time of writing, we estimate that only nine of them have been awarded, with just one project - the Nusa Dua-Ngurah Rai-Benoa toll road project in Bali - at an advanced stage of construction. Most of them were delayed by a host of business environment issues that include permit issuance, environmental clearance and land acquisition. A key example is the US$3bn Central Java coal-based power plant, the largest PPP project awarded by Indonesia so far (see 'Coal Opportunities Tampered By Inflation And Permits', July 23 2013). The project was awarded in October 2011, but has yet to start major construction works or reach financial closure.
|Not Like Before|
|Indonesia - Infrastructure Industry Value Forecasts|
At present, we estimate that there are around eight PPP infrastructure projects under tender (see table below). While they are expected to be awarded by 2014, we believe the likelihood for a majority of them to be awarded is low. This is because general and presidential elections are scheduled to take place in 2014. This is a key risk to the outlook of these PPP projects as the elections will affect the potential for political stability and pro-business reforms in Indonesia. In particular, we highlight that President Susilo Bambang Yudhoyono is constitutionally prohibited from standing for the presidential elections in 2014. Support for his party, the Democratic Party, has collapsed and there is a growing likelihood that a more protectionist and potentially nationalist candidate could accede to the office (see '2014 Elections Still A Mystery As Factors Conspire Against Democratic Party', September 11 2013). Infrastructure investors could therefore wait for greater political clarity before taking on new projects. Furthermore, most governments typically put on hold key decisions on large-scale infrastructure projects (such as project awards and approvals) till elections are over.
As such, we continue to believe that Indonesia will not be able to maximise the growth potential of its infrastructure sector and this is reflected in our forecasts. We are forecasting real growth for the infrastructure sector to reach 4.4% in 2014, lower than the historical five-year average (2009-13) of 11.6%.
|No.||Project||Company||Date of Award||Status|
|Note: Status As of September 25 2013. Source: BMI|
|1||Nusa Dua-Ngurah Rai-Benoa Toll Road, Bali||Jasa Marga Tbk, Pelindo III, Angkasa Pura I, Pengembangan Pariwisata Bali, Wijaya Karya, Adhi Karya, Hutama Karya,||Aug-11||Under Construction|
|2||Central Java Coal Fired Power Plant, Pemalang||J-Power, Itochu, Adaro Energy||Oct-11||Awarded|
|3||Kemayoran-Kampung Melayu Toll Road, Jakarta||Wijaya Karya, Adhi Karya, Citra Marga Nursaphala Persada, Pembangunan Perumahan, Hutama Karya, Pembangunan Jaya Group, Jakarta Propertindo||Sep-12||Awarded|
|4||Sunter-Rawa Buaya-Batuceper Toll Road, Jakarta|
|5||Ulujami-Tanah Abang Toll Road, Jakarta|
|6||Pasar Minggu-Cassablanca Toll Road|
|7||Sunter-Pulo Gebang-Tambelang Toll Road|
|8||Duri Pulo-Kampung Melayu Toll Road|
|9||Solid Waste Management Improvement Project-Bandung Municipal, West Java||Bandung Raya Indah Lestari, Hangzhou Boiller||Aug-13||Awarded|
|10||Umbulan Water Supply, East Java||na||na||Under Tender|
|11||Puruk Cahu - Bangkuang Coal Railway||na||na||Under Tender|
|12||Bandar Lampung Water Supply, Lampung||na||na||Under Tender|
|13||Maros Regency Water Supply, South Sulawesi||na||na||Under Tender|
|14||Tanah Ampo Cruise Terminal, Karangasem, Bali||na||end-13||Under Tender|
|15||Medan-Kualanamu-Tebing Tinggi Toll Road, North Sumatra||na||na||Land Acquisition|
|16||Lamongan Regency Water Supply, East Java||na||Mar-14||Under Tender|
|17||Sumsel 9 Mine Mouth Coal Fired Power Plant (2 x 600 MW)||na||na||Under Tender|
|18||Sumsel 10 Mine Mouth Coal Fired Power Plant (1 x 600 MW)||na||na||Under Tender|