Indonesia Seeks Private Investors for Massive Infrastructure Upgrade

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Nov. 15 – On Wednesday, Indonesia announced US$35 billion plans for new infrastructure projects to address what many view as the single largest deterrent to investment in Southeast Asia’s largest economy.

Coming a day after senior executives at the World Bank vocalized concerns about Indonesia’s deteriorating infrastructure, the Indonesian government announced that of the 56 new projects, 32 would be ‘PPP’ ventures – partnerships between the private and public sector (or, Public-Private Partnerships).

Indonesia’s Chief Economic Minister Hatta Rajasa told reporters that there would be a number of attractive incentives built into the projects to attract private investment.

“We want the PPP scheme to dominate the development projects. It is an important agenda for us to push the private sector to build infrastructure commercially and offer government incentive schemes that will accelerate the inflow of private involvement in infrastructure projects,” he said.

Among the new projects that will be funded by the initiative, which will begin between 2014 and 2017, are several highways, two airports, eight railways, five power plants, and 11 water supply and waste treatment facilities. Most of the 56 projects are on the islands of Java, Sumatra, Sulawesi and Kalimantan. The first 15 projects are expected to start next year, and include a US$447 million upgrade to Jakarta’s sewage system, a new airport in West Java and a port at Kuala Tanjung in North Sumatra to boost coal and palm oil exports.

According to the World Bank, Indonesia can enhance its access to international markets and increase trade if it ameliorates excessive logistical costs.

“The costs of logistics across Indonesia account for some 24 percent of gross domestic product, higher than neighboring countries. Cutting costs and improving the quality of logistics and transportation systems would vastly improve Indonesia’s access to international markets and increase trade,” stated Henry Sandee, a senior trade specialist at the World Bank.

A lack of state investment in the country’s outdated infrastructure has effectively bottlenecked economic growth and frustrated FDI. With these improvements, the World Bank expects Indonesia to continue to experience slower growth this year, but faster growth in the medium to long term.

After suffering a trade deficit of US$660 million in September – following a US$70 million surplus in August – Indonesia must move quickly to stem weakening exports.

Bastary Panji, PPP Director at the National Development Planning Agency (Bappenas), called on the government to remove red tape hindering private investment in PPP projects. According to Bastary, red tape on PPP projects is “what makes the PPP schemes take so long, and what causes investors to get annoyed and review their plans to invest here.”

More details about the upcoming projects, part of Indonesian President Susilo Bambang Yudhoyono’s so-called ‘Master Plan for the Acceleration and Expansion of Indonesian Economic Development’ (PM3EI), should be available to investors in the near future.

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