PERSPECTIVES ON THE PORT INVESTMENTS IN

INDONESIA

Henry Sandee

World Bank Indonesia Office

Jakarta, December 2013

THE IMPORTANCE OF PORTS IN RAPIDLY GROWING INDONESIA

The Indonesian economy has been growing 5-6 percent during the last few years

Ports play a key role in facilitating economic growth

The efficiency of international ports has impact on your competitiveness

The efficiency of domestic ports has impact on the inter-island trade flows

FURTHER STRENGTHENING THE ROLE OF INTERNATIONAL AND DOMESTIC PORTS HAS BEEN RECOGNIZED AS PRIORITY ISSUE

Investments in port efficiency, upgrading and extension

Dwell time reduction

National Single Window

Integrated inspection

New terminals

Cold storage facilities

However, it depends also on…the quality of regulations

Various regulations have a negative impact on port efficiency

Some regulations do not facilitate upgrading and extension processes

DOMESTIC (TEUs)

INTERNATIONAL (TEUs)

TOTAL (TEUs)

2012 4.768.192 7.873.150 12.641.342

2030 18.344.644 29.423.403 47.768.047

INDONESIAN CONTAINER THROUGHPUT INCREASING FROM 12 MILLION TEUs IN

2012 BECOME MORE THAN 40 MILLION TEUs IN 2030

THE NUMBER OF IMPORTED AND EXPORTED CONTAINERS IN JAKARTA IS GROWING RAPIDLY

3,689,783 3,984,278

3,804,905

4,612,512

5,649,119

6,600,000

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2007 2008 2009 2010 2011 2012

Tanjung Priok Throughput (TEU)

nReduce dwell time in ports and making feeder ports more efficient?

nIncrease automation in ports and encouraging 24/7 operations?

nEnsure safe and cost-effective port development and expansion through land reclamation and dredging?

Do you want to:

Then you need to attend Port Planning & Development Indonesia, 01 - 04 December, 2014 -

Shangri-La Hotel Jakarta, Jakarta, Indonesia

Visit our website www.portdevelopmentasia.com to find out more

Critical Project – Fast Track

Tanjung Priok New Container Terminals

Tanjung Perak New Container Terminals

Belawan Extension of Container Terminal

Port projects to be completed in next five year

Banjarmasin New Container Terminal

Pontianak Extension of Container Terminal

Batam Container Terminal

Madura Development of new port area

Cilamaya (West Java) Development of new port area

Palembang General cargo or bulk handling facilities

Kuala Tanjung New Container Terminal

Panjang General cargo or bulk handling facilities

Ambon, Dumai, Teluk Bayur, Makassar, Banjarmasin, Bitung, Tanjung Emas, Probolinggo, Balikpapan/Kariangau, Jayapura, Sorong, Pasean, Maloy, Pelaihari, Sei Gintung, Gorontalo, Pantoloan, Pare-pare.

General Cargo, Container and Bulk Terminal

SOME ISSUES IN PORT DEVELOPMENT

Ships returning from Eastern Indonesia are filled for 15 percent only (backhaul)

Limited commercial interest to invest in ports in Eastern Indonesia

Uncertainty about the Negative Investment List specifying the possible participation of FDI

Cabotage policy as a constraint to port investment?

BACKHAUL PROBLEM IN EASTERN INDONESIA

8

• Low frequency of container transport to Eastern Indonesia • Shipping operators offer up to 70% tariff discounts from Eastern Indonesia.

SEA FREIGHT COSTS TO AND FROM EASTERN INDONESIA

Sorong - Surabaya (Rp 5 million)

Surabaya - Sorong (Rp 15 million)

Sorong - Jakarta (Rp 7.5 million)

Jakarta - Sorong (Rp 17 million)

Surabaya - Makassar (Rp 2 million)

Makassar - Surabaya (Rp 2 million)

Sea freight costs / TEU

PENDULUM AS A SOLUTION TO PROMOTE PORT DEVELOPMENT?

PRELIMINARY ANALYSIS ON THE PENDULUM SUGGESTS

It can be carried out profitably but the leg Makassar-Sorong needs to be subsidized

It may support investments in main and feeder ports in Eastern Indonesia (frequency and reliability)

Bitung as an alternative for Sorong requires further assessment

The role of private sector involvement remains unclear

NUMBER OF DAYS NEEDED TO SHIP GOODS FROM JAKARTA AND SURABAYA TO SORONG

PORT INVESTMENTS ARE TAKING OFF, HOWEVER….THERE ARE SOME ISSUES TO BE SOLVED…

There are three port development strategies….which one is the ‘official one” with full Government endorsement?

PPP tender schemes and the Negative Investment List create uncertainties

Regulations of various departments impact on port efficiency (dwell time) and interest to investment in ports

Reluctance to invest in ports in port efficiency remains a bottleneck

IN SPITE OF ALL EFFORTS AND INVESTMENTS….DWELL TIME IN JAKARTA IS INCREASING………

6.6

6.0 5.5

6.3 6.2

6.3

6.3 6.0 6.2 6.0

6.3 6.4

8.3

7.6

6.8 6.7 7.1

7.8

8.8

10.1

0

2

4

6

8

10

12

DWELL TIME IS ALSO INCREASING IN THE PORT OF SURABAYA…..

Pre-clearance exceed 50% of the import clearance time

Activities carried out included unloading containers, stacking in CY, preparing PIB, and payment of Customs duties

5.48

4.22

1.82

1.50

2.51

2.44

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

January 2013 February 2013

(day

s)

Pre-clearance Customs clearance Post clearance

THERE IS NO CORRELATION BETWEEN DWELL TIME AND NUMBER OF CONTAINERS IMPORTED.. (2012)

WHY IS IT SO DIFFICULT TO IMPROVE PORT EFFICIENCY?

New cranes have been installed, skills of staff has been upgraded, management more professional, etc.

But……

Various departments issue regulations that have a negative impact on port efficiency

There is the danger that they may also impact on the construction of new terminals

EXAMPLE 1 HORTICULTURAL LAW

Government decided that not all ports were well equipped to do the necessary controls for horticultural imports

Surabaya was selected as the main import gateway for Java

Imports subsequently transported by truck to Jakarta

The Law has contributed to increased congestion in selected ports such as Surabaya

EXAMPLE 2 PRE-SHIPMENT VERIFICATION

Government decided that a large number of imported goods need to be checked at the port of origin to avoid illegal imports, wrong specifications, etc.

Inspections to be done under supervision of Indonesian companies

Shipments from ASEAN ports often arrive earlier in the ports of Jakarta and Surabaya than the pre-shipment reports leader to delay in import clearance

EXAMPLE 3 – NEW REGULATION ON IMPORTS THAT ARE BEING PARTLY RESOLD

Many large manufacturers import not only for their own production processes but also to fulfill the needs of e.g. service providers, repair shops, etc.

In this case, they need to set up a new trading company and apply for a new license

These new companies are automatically classified as red lane importers which causes substantial delay in the clearance process

TO CONCLUDE….

Port development will be big business in Indonesia

There remains the need to consolidate expansion plans and synchronize the strategy how to include Eastern Indonesia

Role of foreign is likely to become clearer in the near future

The limited success in improving port efficiency is a concern

More work is needed to understand the impact of laws and regulations on port efficiency and port attractiveness to investors

Do you want to Create Smarter Portswith Enhanced Connectivity ThroughStrategic Investment?

Then you need to attend Port Planning & Development Indonesia, 01 - 04 December, 2014 - Shangri-La Hotel Jakarta, Jakarta, Indonesia

Featuring:nThe Future of the Indonesian Port System and Investment Opportunities: Head of Planning, Ministry of Transportation, IndonesianExamining the Key Challenges and Opportunities for Dredging and Reclamation Works at Indonesian Ports: Director of Port and Dredging, Directorate General of Sea Transport, Ministry of Transportation, IndonesianExpanding the Makassar New Port (MNP) into a hub for Eastern Indonesia: Deputy Director of Port Facilities, Pelindo IV

Visit www.portdevelopmentasia.com to register