Draft Paper on Infrastructure_long Version

7/31/2019 Draft Paper on Infrastructure_long Version

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Policy Paper on Infrastructure1

RECOMMENDATIONS to GOVERNMENT

Below are summary recommendations to problems within infrastructure projects both from the perspec-

tive of users and providers of infrastructure:

Problems 1:

Unclear rules and regulations regarding permit, approval and land lease, which lead to uncertainty of

cost, requirements to do business and procedures to do tenders

Recommendation to problems 1:

Proposed project/tender by the government should be clear from the first place (timetable, cost,feasibility study, regulations, etc) and given guaranteed by the government

Issue effective Laws to support and accelerate building of infrastructure To effectively doing the land lease, it is not all about regulation but more on understand local pol-

itics and culture and doing intense communication, clarifying the benefits of the project to the

people.

Problems 2:

Lack of coordination between central and local, among ministries and local government, which lead to

unclear plan and project within the territory (no integrated and synchronize blueprint)

Recommendation to problem 2:

Make integrated blueprint that connect the central and provincial project within the same terri-tory. Thus, there will be no overlap program and hesitance to do such program

Involve business people from the first place to hinder the stumble block to the project offered The GOI should give clear directions and commit on coordination among the governmental level,

both in central and local. This need also be backed up by strong political will

Problems 3:

Bureaucracy which make longer and convoluted process to get permit and license as well as land lease.

Thus, short period of project implementation is available.


Cut off unnecessary bureaucracy & create a plan from the beginning what the costs on each stepof the process to get permit, license, as well as approval

Clear, simple and transparent bureaucracy processProblems 4:

Red tape and corruption are considered to be common in every project. This making doing business cost-

ly and thus not competitive


Law enforcement need to be binding to seamless the whole process on doing project. This willhinder the corruption along the process

1Author by Lena Herliana, Manager EU-Program ACTIVE, Business Support Desk, Indonesian Chambers of

Commerce and Industry (KADIN Indonesia) for the ACTIVE Program supported by EU


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Problem 5:

Lack of long term access for infrastructure development both from government as well as from financialinstitutions


Financial institution should also support the funding for the infrastructure by more easy access tothe fund as well as by lowering the lending rate

Government should provide sufficient budget to set up project as soon as possibleProblem 6:

Lack of capacity of governmental people to provide clear decision, act fast in reasonable timeframe


Enhance the capacity of government level both staff and the echelon to plan project effectivelyand efficiently

Problem 7:

Lack of political willingness to support the infrastructure development


Put the improvement of sector as long term agenda rather than political interestProblem 8:

Lack of sufficient land infrastructure connectivity to link with the production area, processing area as well

as with the seaport


Create and implement a long-term plan for land connectivity development and update existingintegrated transportation plans for greater Jakarta

Start to build and improve land connectivity access outside Java to accelerate the regional devel-opment among economic corridors

Reactivate extension of road networks in provinces/districts to improve access to markets, anddeal with the contractual and capacity issues that cause significant continuing under-

performance

Need to focus on rail development in Java to move the freight from the roads to ease the conges-tion which has been in obesity status. On the other, need also to develop mass transportation

modes for fast mobilization

Continue supporting the capacity build out at Tanjung Priok and commit to upgrading and ex-panding new port facilities as identified across the archipelago

Continue to improve the efficiency of port operations in the regions and close the gap in outputcompared with that of other regional ports

Commit to have efficient trading across borders comparing to regional best practice which in-clude small numbers of documents needed for doing export-import, short time (dwelling time) to

do export-import and competitive cost on doing export-import

Local shipping to get the same treatment as foreign shipping companies, especially the exemp-tion of value added tax to fuel oil and loading and unloading of goods export and imports


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The framework of the Paper

The concept of the paper is as follow. The first section, the background, gives brief explanation on infra-structure development in Indonesia. These include the financial support, the performance to GDP, and

current effort done by the government. The second section showing the current performance of Indone-

sia infrastructure based on world survey and index on this sector, comparing this with the neighboring

countries, especially with ASEAN and Asia-Pacific region. In this section will be identified also which re-

lated infrastructure are contributed most to the cost of doing business and underperforming. The third

section is listing the opportunities given by the government and explains the current status of the project

being proposed. The projects related to the underperforming ones, which are seaport, connecting roads,

and rail development. The fourth section is discussing problems heading to infrastructure development

within the related project addressed by users and providers of the infrastructure. Those are being com-

piled from the survey. The last sections are some recommendations to problems which being proposed

by business people in this sector.

1. Background

Infrastructure development in Indonesia remains inefficient despite a significant increase in government

spending on development projects over the last six years. The State budget shows that from 2005 to

2011, there was a 25.5 percent increase in government spending on infrastructure project per year.

However, even though there is increase on the budget, the ratio of infrastructure spending to gross do-

mestic product is still far the ideal level of five percent (Table 1). From the 2011 budget, the ratio is only

account for 2.1 percent.

Table 1: Allocation Fund for Infrastructure (Rp Trillion)

Source: Bappenas, 2012

Furthermore, this government infrastructure spending did not significantly contribute to economic

growth. It was showed from its infrastructure coefficient elasticity which stands only at 0.17 in 2011, farlower than that of China 0.33 and India 0.21.

According to LIPI economist Latif the inefficient infrastructure development was mainly caused by three

factors. First, infrastructure budget realization process is very slow. As of September 2011, the utilized

budget stood at only around 30 percent. Second, the budget proportion for physical development was

very low. Most of the budget was utilized in paying consultants, planning, and monitoring and project

fees. Lastly, the government showed too much tolerance towards violations of regulations supposedly

aimed to maintain infrastructure quality. The same opinion goes as well from LP3E Kadin Researcher Wi-

dyono which states that the infrastructure spending does not reach its optimality.

2010 2011 2012 2013

Total State Budget 1,126.15 1,229.60 1,435.41 1,544.80

Share Infrastructure to State Budget 5% 7.20% 7.10% 7.40%

GDP 6,436.30 7,427.10 7,909.86 8,424.00

Share Infrastructure to GDP 0.87 1.20 1.28 1.36

Min 5 percent of GDP 321.82 371.36 395.49 421.20

Total Infrastructure 56.13 89.02 101.55 114.66


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Infrastructure is still a big problem in Indonesia. The cost of doing business in Indonesia is rather expen-

sive. Indonesian companies spend at least 14.08 percent of their average production costs on logistics

adding to 27.02 percent of the national GDP. This is a much higher than in other Asian countries, such asRep. of South Korea, where companies only spend around 12.5 percent of their production cost on logis-

tics (Figure 1).

Figure 1: Logistic Cost

Source: Menko Perekonomian, 2012

From that average production cost, most is spent for transportation, which account for 66.8 percent. The

rest is for administration as well as for procurement cost (Figure 2).

Figure 2: Production Cost Composition

Source: Kadin, 2011

According to GCI 2012, infrastructure is indeed among the most obvious shortcomings in Indonesia.

Spanning nearly two million square kilometers and consists of five main islands and about 30 small archi-

pelagoes, with 17,508 islands and a population of over 234 million people, obviously faces a mammoth

challenge that the government must settle to ensure equity in infrastructure development.

Inequality in access to infrastructure and public services is not only experienced by rural communities,

but also those who live in urban areas. For example, with regard to water services, there are 85 million

people living in the service areas of water utilities, but only 35 percent of them are served.

0 5 10 15 20 25 30

United States

Japan

Rep. Korea

Indonesia

Logistics Cost to GDP

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00

United States

Japan

Rep. Korea

Indonesia

Logistic Cost to Production


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Decentralization reform put more pressure on infrastructure development in Indonesia. Under the law,

all public service delivery functions except for defense, foreign affairs, monetary and fiscal policies, trade

affairs and the legal system have been delegated to local governments since the launch of regional au-tonomy in 1999. Hence, decentralization poses daunting challenges for policy coordination.

Furthermore, Indonesia still has high uncertainty as to which level of government is responsible for the

provision of various services despite a number of regulations to clarify the matter. In addition, local gov-

ernments lack of capacity to generate income makes them highly dependent on the central govern-

ments transfers, indicating that decentralization does not necessarily improve equality in access to pu b-

lic services.

However, it is worth noting that infrastructure alone is not a sufficient condition for economic growth. It

is the complementarily between infrastructure development and other factors such as human capital

that significantly affects the countrys economic growth.

1.1 Public Private Partnership

In 2011, the Government of Indonesia reacted to the needs of infrastructure and launched the Master

Plan for the Acceleration and Expansion of Indonesias Economic Development (MP3EI). The develo p-

ment plan is designed to propel Indonesia into the worlds top 10 econom ies by 2025. The realization

requires investment of some 2,100 trillions of rupiah over the next 13 years. One of the benchmarks is to

cut the logistic costs from the previous 27% of GDP to 15% of GDP in 2025.

Figure 3: Source of Funding for MP3EI

Source: MP3EI, 2012

The government is committed to raise over 32% of the total infrastructure spending identified in MP3EI

via the state budget (APBN, 7%) and indirectly via State-owned Enterprises (SOE) to invest an additional

25% of funds needed for the infrastructure projects (Figure 3).

The government has made an estimate that only about 20 projects within Master Plan for the Accelera-

tion and Expansion of Indonesia Economic Development (MP3EI) programme can commence

(groundbreaking) this year. Meanwhile, the total number of MP3EI projects has reached 84, with a total

investment value of Rp 536 trillion.

152

536

400

473

599

Investment (Trillion IDR)

APBN SOE PPP Private Funding Gap

2160

Total Investment in MP3EI

(IDR Trillion)

Major

Opportunity

for the private

sector


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In addition to this public share the government is offering public-private partnerships (PPP). Private sec-

tor engagement in these PPPs can be hedged by the Indonesia Infrastructure Guarantee Fund (IIGF) and

potentially qualify for the Viability Gap Funding (VGF) from the Ministry of Finance. In Figure 3 this addi-tional opportunity for private investment is identified by the infrastructure funding gap.

Table 2: Summary of Public Private Partnership Projects By Sector/Sub Sector

Source: Bappenas, 2012

New PPP projects were published by the Planning Agency BAPPENAS on 4 July 2012. The proposals have

been submitted by ministries and local governments, in their capacity as the responsible parties for the

project implementation. Among the 58 development projects (being worth US$ 51 billion; Table 2), three

projects are ready to offer, 26 are labeled as priority projects, and 29 are still to be developed further.

The three ready-to-offer projects are the Tanah Ampo Cruise Terminal in Karangasem (Bali), a Solid

Waste Management Improvement Project in Bandung (West Java), as well as the Medan-Kualanamu-

Tebing Tinggi Toll Road (North Sumatera).

The seaport project and the connecting road and railways are account for 4 projects, 14 projects and 3

projects accordingly. Only one project of connecting road and one of seaport development are ready for

offer to the investors. The rest are spread in the priority and potential list project (See Appendix on List

project).

To speed up infrastructure development, the government had also taken several measures, such as is-

suing infrastructure bonds, conducting organizational development in order to monitor budget usage,and making a regulation on land acquisition. The recently announced by the government is the badly

needed implementing regulation on land acquisition (Presidential Regulation No. 71/2012).

This regulation is expected to ensure the acceleration on infrastructure development by providing clear

solutions on how to settle land disputes, which has become a major constraint for development for

years.

Previously, the processes to acquire land for government infrastructure projects were often marred by

conflicts between landowners, citizens and project developers, while the legal process to settle such dis-

putes in court could drag on for years and in some cases indefinitely.

No Sector/Sub-sector Quantity Project Cost (US$ Million)

1 Air Transportation 4 1,354.00

2 Land Transportation 3 136.00

3 Marine transportation 4 2,875.12

4 Railways 3 4,783.00

5 Toll Road 14 33,147.53

6 Water Resources 0 -

7 Water Supply 18 1,978.82

8 Solid Waste and Sanitation 6 453.00

9 Telecommunication 0 -

10 Power 6 6,478.50

11 Oil and Gas 0 -

TOTAL 58 51,205.97


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The new law stipulates that all legal proceedings pertinent to land acquisition for a government-

commissioned infrastructure project should be completed within 436 working days at the most. The law

also allowed a more democratic process for providing a 60-day public consultation period before acquir-ing land.

The National Land Agency (BPN) is authorized under law to assign an independent appraisal team, con-

sisting of independent financial experts with expertise in agrarian issues certified by the BPN, to deter-

mine the value of compensation due to be paid to the public.

The valuation process must be completed in 30 days and it can be paid in the form of money, re-

settlement, landownership, or stock ownership in the government project.

Landowners who disagree with the compensation settlement or the proposed land price can file a legal

complaint and seek court rulings up to the Supreme Court. Each court is given a maximum of 30 days to

come to the rule on such a case.

1.2 Objectives

The aims of the paper are as follow:

Giving clear conditions on infrastructure development in Indonesia and showing how importancethis sector is for the economic growth.

To present an in-depth appreciation of the port sector in Indonesia and the importance of landconnectivity (railways and roads) as supporting infrastructure to inter and intra islands as well as

international activities Promoting the PPP projects under the seaport and land transport Give recommendation for accelerating the existing infrastructure project to support the 2025

economic development

1.3 Methodology

The paper was prepared by having research desk, disseminate questionnaire and engage in and hold on

seminar/workshop. The research desk is undertaken to have better picture on Indonesian Infrastructure

performance, both from macro and micro side. While questionnaire was intended to have perspective of

business people on how Indonesia infrastructure conditions is and what are the most infrastructure

needed to support their business. This then will lead into some actions needs to be addresses by the

whole stakeholders on how to break stumble block heading to this sector. Seminar/workshop is also

parts of having the perspective on this sector as well as a media to communicate the results of the paper.

The output will be the policy action needed to be implemented on the short term.

The next section will expose the current performance of infrastructure development in Indonesia com-

pare to the neighboring countries, especially ASEAN and Asia-Pacific regions.


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2. Performance

As an archipelagic country Indonesia faces considerable challenges in establishing the extensive infra-

structure of all modes of transport, communications and public essentials prerequisite for its economicand social development. As indicated in Table 3, Indonesias geography and the distribution of industry

and resources poses a major challenge for efficient and low cost logistics. Indonesia is the worlds largest

archipelago spanning more than 5000km. About 60% of its population of about 240 million people lives

on Java but the remainder is distributed among 6000 inhabited islands which are often very sparsely po-

pulated. Java is also the centre of manufacturing, while resources are widely spread over the archipelago.

Even though Indonesia has a significant number of strategic ports and international airports, these hubs

are focused on Jakarta, in Java, creating major challenges for inter-island connectivity and development.

Many of the inter-island connections are conducted through small commercial and non-commercial ports

and hundreds of small domestic airports.

Table 3: Infrastructure Environment and Challenges of Indonesia

Source: Herliana, L., et al, 2010

Those than creates high cost differentials among regions on products like staple foods and basic products

for industry and construction, which leads to constraints on development.

There are reasons why transport infrastructure and transport services play a major role in the outcomes

of economic performance of any economy, including Indonesia. As been explained before on the back-

ground section, the most cost is spent for physical transportation. Below performance will also reveal

that.

2.1 Current Performance

In this paper, the benchmarks of current performance of Indonesia infrastructure sectors are based on

Logistics Performance Index by World Bank and Global Competitiveness Index by World Economic Forum.

Distances More than 5000km across from northwest to southeastCoverage 6000 inhabited islands

Equipped only by:Ports: 25 strategic; 111 commercial; 614 non-commercial

Airport: 27 with international flight status; 100s more domestic

Distribution of

People

Total population: 240 million peopleSumatra: 20%

Kalimantan: 10%

Java: 60%

Sulawesi: 8%Irian Jaya: 1%

Distribution of

Activities

Manufacturing: Java Natural resources: Outside Java

Integration and

Development

Integration of Indonesias 33 provinces now an imperative for development Regional integration with ASEAN and ASEAN-based FTAs and EPA with Japan Competitiveness in regional and international supply chains


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2.1.1 Based on LPI 2012

Indonesia ranks 59th out of 155 economies in the LPI 2012, which is used in this study to benchmark the

current performance of Indonesias infrastructure sector. While Indonesias ranking remains above theaverage performance of the group of lower middle income economies of which it is a part, its ranking did

fall from 43 in the 2007 LPI.

Figure 4shows Indonesias ranking is currently the lowest in the six largest ASEAN economies. Within

APEC, Indonesia ranks ahead of Peru, Russia and Papua New Guinea. This composition is not much differ-

ent from the previous LPI 2010 and LPI 2009.

The strengths and weaknesses in Indonesias relative performance are revealed by more detailed analysis

of the six components which make up the LPI, namely:

Timeliness of deliveries

Ability to track and trace consignments Quality and competence of logistics services Ease of arrangement shipments Infrastructure quality and Efficiency of customs clearance.

Figure 4: Global Ranking and Scores

Source: LPI, 2012

Figure 5 shows the scores of Indonesia against APEC, ASEAN 6 and lower middle income economies for

these six components. Indonesia performs relatively better in timeliness, tracking and tracing and inter-

national shipments and relatively worse in logistics competence, customs and infrastructure, even

though it equals or is above the average of lower middle income economies.

Singapore(1)

Hongkong,

China(2)

Japan(8)

UnitedStates(9)

Canada(14)

Australia(18)

Taiwan(19)

Kore,Rep.

(21)

China(26)

Malaysia(29)

NewZealand(31)

Thailand(38)

Chile(39)

Mexico(47)

Philippines(52)

Vietnam

(53)

Indonesia(59)

Peru(60)

Ru

ssianFederation(95)

PapuaNewGuinea(128)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

LPIScore

ASEAN 6 Average

LMI

Average


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Figure 5: Indonesia Score Compares with ASEAN 6 & Lower Middle Income Countries

Source: LPI, 2012

When looking on the quality of related-transport infrastructure, the business respondents to the surveys,

associated with the LPI 2010 scores and rankings, show particular concerns. Two-thirds of respondents

evaluated the quality of port infrastructure as low or very low and more than 83% considered that road,rail and airport infrastructure was low or very low (Figure 6).

Figure 6: Respondents Evaluating the Quality of Transport Infrastructure as Low/Very Low

Source: LPI, 2010

2.1.2 Based on GCI 2011-2012

When compared with GCI 2011-2012, Indonesia related-transport Infrastructure quality is indeed among

the most obvious shortcoming in Indonesia. Ranked as 76 th out of 142 (Figure 7), Indonesia is below the

average of the ASEAN 6 and APEC countries (Figure 8)

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Customs

Infrastructure

International shipments

Logistics competence

Tracking & tracing

Timeliness

APEC Ave

Lower Middle Income

ASEAN 6

Indonesia

66.67, 20%

83.33, 25%83.33, 25%

83.33, 25%

16.67, 5% Ports

Airports

Roads

Rail

Warehousing/transloading facilities


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Figure 7: Indonesia Ranking on Infrastructure

Source: GCI, 2011-2012

Figure 8: Indonesias Score in Related-Transport Infrastructure Compared to ASEAN 6 and

APEC Countries

Source: GCI, 2011-2012

0 1 2 3 4 5 6 7

Singapore (3)

Malaysia (26)

Thailand (42)

Brunei (56)

China (44)

Indonesia (76)

India (89)

Philippines

(105)

Vietnam (90)

Scores

0 1 2 3 4 5 6 7

Roads

Railroads

Seaport

Air

Transport

Electricity

Scores

APEC Average

ASEAN 6

Indonesia


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The graph also reveals that among other related-transport infrastructure, the connecting roads; railroads

and roads, as well as seaport are under performance. It scores are below the median of the scoring.

However, when compared to selected Asian countries, Indonesia is well ahead of Philippines, Vietnamand India.

When looking on last three concessive period of the index, Indonesia is gradually improved its infrastruc-

ture performance. It ranks are reaching better from its last 84 in 2009-2010 to 76 in 2011-2012, and it

scores also show the same (Table 4).

Table 4: Indonesias Infrastructure Score Based on GCI

Years Ranking Score (out of 7)

2009-2010 84 (133) 3.2

2010-2011 82 (139) 3.6

2011-2012 76 (142) 3.8Source: WEF, 2009-2012

However, during that concessive period of that survey, business perceptions on doing business in Indone-

sia reflected that Indonesia infrastructure are among the third most inefficient beside corruption and bu-

reaucracy. Those make Indonesia uncompetitive.

2.2 Current Condition of Related-Transport Infrastructure

2.2.1 Roads

Land transport depends principally on road and, to lesser extent, rail networks. There is an enormous

backlog of national and sub-national road development which estimated to be in the order of 20,000 ki-

lometers.

Figure 9: Road Network 2006-2010 (km)

Source: PDDA, 2011

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2006 2007 2008 2009 2010

Km

Year

National

Provincial

District/Sub-region


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According to Land Transport Department (Figure 9 and Figure 10), the total length of roads in 2010 was

446.278 kilometers, of which only 49% was estimated to be in a good or satisfactory condition, the rest

are in bad stake. The share of bad roads mostly experienced in sub-national roads. Sub-national roadsaccount for 80% of the total road network so they cannot be ignored.

Figure 10: Road Condition in 2010

Source: PDDA, 2011

Pushing ahead with the development of sub-national roads is essential if the untapped growth potential

of much of the country is to be realized. While building national road links can be supported by aid fi-

nancing, and there is multi-national agency support for areas of east and west Indonesia, most of the

sub-national road development and routine maintenance is normally financed through the country

budget. However, most of the state budget is used for the operational and administrative cost. Even

there is infrastructure budget; the used of it never optimal (Widyono, 2012).

The growth of road is only moving in the average of l7 percent from 2006-2007, but remind stagnant dur-

ing 2007-2009 when most Asia countries experiencing economic crisis. The year after, there is huge in-

creased on the new road development which reaches 35 percent growth in the whole region. However,

there is backlog on provincial road. The percentage of provincial road in bad position is higher than on

that in 2008; even there is additional new road on development. The same goes as well to national road

which the percentage of bad stake is increased from the previous years.

The developments of roads are still focusing in Java, mostly in Jakarta. Table 5 shows that even Java are

the fifth largest in size after Kalimantan, Maluku & Papua, Sumatera and Sulawesi, however, the most

length of the roads are in this area.

Further data shows that the new road mostly developed in Jabotabek area, area surrounding the Jakarta

city, which mostly in the form of toll road. These toll roads are built to connect the peripheral area to Ja-

karta city.

0.00

20.00

40.00

60.00

80.00

100.00

120.00

National Provincial District/Sub-region

(%)

Heavy damage

Minor

Fair

Good


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When one looks a map of the island of Java, Jakarta seems so small compared to the rest of it. The land

area of Jakarta is not even 1 percent of the land area of Java. But that is all that is small about Jakarta.

Jakarta is still a favorite investment destination and as a city it has gained a foothold in the internationalarena. Most investors are favorable to put their money in Java rather outside Java. This is because out-

side Java has not been equipped with proper infrastructure, services and business center.

Table 5: Size, Population, Length of Road, and Vehicles Numbers (in %)

Source: PDDA, 2011

The government mindset to only focus on the toll road to ease the traffic for people and freight move-ments might not be the best solutions to the existing problems. There are other modes of land transport

infrastructure which can be considered possible to connect the hinterland area with the industrial area as

well as with the port systems, such as rails. However, those still need be back up with proper sub-

national roads. Without any proper access that links the production area into the processing

area/industrial area then into the market, the whole policy on land transport will be useless.

The inadequacy and quality of the road infrastructure will then result in congestion, delays, high operat-

ing costs, and poor safety. The main problem being identified is lack of regular maintenance of the road

network, followed by overloading of vehicles, demand/capacity imbalance, lack of funding, lack of prod-

uctivity and management, and weak and uncoordinated institutions (WTO, 2007).

2.2.2 Rails

Currently there are four regional operations Java, South Sumatra, West Sumatra and North Sumatra

with 6700 km of track of which 4400 km is in operation (3100 km on Java and 1300 km on Sumatra). The

remainder was closed due to the tight competition with road transport. From those, only 10% consists of

double-tract railway.

Railway has been a very important mode of transport because it is a mass transport which is affordable

for most Indonesian people. Rails can also support the freight movement since it increase land transport

capacity. Despite its importance, the development of this transport is lagging behind the other land

transport, especially the highways and toll road.

Up to 2005 (Table 6), the amount of infrastructure and rolling stocks has been declining. The rail line

network has been shrinking; the stations and locomotive in operations have been decreasing.

Table 7showed the low level performance of railway. The railways share of passenger transportation is

stagnant, at 7% of total passenger transport, and the share of cargo transportation is under 1%.

These low levels of performance, the broken track, the aging locomotive and stations have contributed to

declining performance of the railways.

Sumatera Java Bali&NTT Kalimantan Sulawesi Maluku&Papua

Size of Area 20.6 7.2 4.1 32.3 10.8 25.0

Population 21.2 58.6 5.3 5.6 7.3 2.0

Length of the road 33.8 26.8 9.8 9.1 14.2 6.3

Vehicles Numbers 17.9 65.0 5.9 6.0 4.2 1.0


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Table 6: Railway Infrastructure and Rolling Stock

Source: PT KAI & Dephub, 2010

Table 7: Rail Transport Shares Worldwide

Source: Lubis, 2009

Up to now, the government has not yet considered railway as the most economic transport system for

freight transport as well as for investment because some several factors, even though some study shows

that cost on rail is cheaper than roads (Margner, H, 2012):

- Transportation on rail track is still lacking on logistic (loading and unloading) and weaken by not yetwell maintained tracks- Lack of coordination in between the different transport systems- Not proper coordinated schedules between the different systems- Not yet any logistics management specifically in exchange between systems, like truck to railway,

train to ship, ship to truck, etc.

- No political will which showed by the low level of infrastructure budget for this sectorFurthermore, under the new Law 23/2007, there are some aspects need to be known by the investors:

- Clear separation of infrastructure operation and operation of trains, rolling stock- Private train operator allowed: on infrastructure owned by government- Private railways permitted to be build: to transport their own goods after bought the land to buildthe infrastructure on itFrom current regulation, the Infrastructure of the Railway is owned by the Indonesian Government and

managed by the Director General of Railways. The existing operator of the Railways is the state owned PT

Kereta Api Indonesia.

2.2.3 Ports

Ports are of vital importance and significance to regional cooperation and national integration. The mari-

time sector is a key mode of domestic and international cargo and passenger transport. Although Indone-

sia is an island nation, it has a surprisingly small domestic ocean-going fleet.

1939 1955/1956 2000 2009

Rail track (000 km) 6811 6096 4030 4818 down 30% in 70 year

Stations and depots (unit) 1516 571 570 down 62% in 53 year

Locomotive (unit) 1314 530 316 down 76% in 70 year

Passengers (million) 146.9 191.9 207 up 40% in 54 year

Year

Condition

COUNTRYPassenger Transportation Share

(%)

Cargo Transportation

Share

(%)

China 53 71

India 22 51

Korea 22 31

Malaysia 8 8

Thailand 12 12

Japan 29 5

EU & USA < 10 10 - 30

Indonesia 6 - 7 < 1


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Furthermore, data shows that 95% of our Entire Domestic and International Trade Carried by Sea Trans-

portation, however, Indonesia does not have its own trans-shipment port capable of accommodating di-

rect calls from large trans-oceanic vessels. Those have to be trans-shipped through Singapore and Malay-sian Port before entering Indonesia.

According recent government reports from the government, there are some problems still exist within

Indonesian ports. This sector still faces major infrastructure constrains. The best evidence of this is at In-

donesias largest port, Tanjung Priok (TP), Jakarta. TP handle about 60 percent of imports and exports (in

value terms) flow. Thus, the importance of a more productive TP cannot be understated.

Some problems within the port sector:

- Turnaround time- Dwelling time container import- Access road congestion- Transshipment container- Implementation NSW- Port facilities- Port network

According to recent report by Doing Business 2012, Indonesia ranks 39 from 183 on the ease of trading

across borders. Trading across borders measures the time and cost (excluding tariffs) associated with ex-

porting and importing by ocean transport, and the number of documents necessary to complete the

transaction. The indicators cover documentation requirements and procedures at customs and other

regulatory agencies as well as at the port. According to that data, exporting a standard container of

goods in Indonesia requires 4 documents, takes 17 days and costs $644. While importing the same con-

tainer of goods requires 7 documents, takes 27 day and costs $660.

Refer to best practice on regional (Table 8), Indonesia is lag behind Korea, Singapore, and Malaysia. If

Indonesia could do the same as them, as a result:

In term of documentations to do export & import, if best practice (Korea) is adopted, cost savingis estimated to be 41%.

In term of times to do export & Import, if best practice (Singapore) is adopted, cost saving is es-timated to be 79%.

In term of cost on doing export & import, if best practice (Malaysia) is adopted, cost saving is es-timated to be 32%.

Table 8: Potential Trade Transaction Cost Savings if best practice is adopted

Source: Doing Business, 2012

The next section will further explore the projects being offered by the government under the PPP

Scheme which covered in PPP Book 2012, especially for the Seaport development and Connecting roads

and rail development.

Indicators IND

Documents to exports 4 3 Korea 2 France

Documents to imports 7 3 Korea 2 France

Time to exports 17 5 Singapore 5 Hongkong SAR

Time to Imports 27 4 Singapore 4 Singapore

Cost to exports 644 450 Malaysia 450 Malaysia

Coct to imports 660 435 Malaysia 435 Malaysia

Regional best practice Global best practice

Potential Trade Transaction Cost Savings if best practice is adopted


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3. Infrastructure Opportunities Offered by the Government

3.1 Railways Development

Railway transport is vital in some parts of the country especially in more industrialized and most densely

populated areas. Railway transport system is needed for the large number of passengers and larger of

bulk cargos.

Realizing the importance of such mode transport, the government has worked out a program to revitalize

the countrys railway infrastructure. One of the programs is to work on the railway project under the PPP

scheme.

Under the new PPP 2012, the government offer 3 project related railway infrastructure, which listed un-

der the potential group. Below are the brief explanations.

3.1.1 Rantau PrapatDuriDumaiTl. KuantanMuaro Railway

Building a network of railway transportation in the region of Sumatera is believed to be one of the quick

measures to accelerate the realization of people's welfare.

As one part of the railway development plan of Trans-Sumatera Railway network, this section is much

needed to address the surge in transport for a variety of crops especially the abundant production of oil

palm kernels or crude palm oil (CPO) along the coast of Sumatera.

Table 9: Project Estimation on Rantau Prapat-Duri-Dumai-Tl. Kuantan-Muaro RailwayEstimated Project Cost

(US$ million)

Construction

start

Construction

endLocation

3,780.00 2015 2018 North Sumatera and Riau Province

Source: PPP Book 2012

The government, together with the private sector, was set to start working next year on the mega Trans-

Sumatra Railway project, a 2,168-kilometer railway connecting Banda Aceh with Lampung (Table 9). The

new master plan has been recently completed by the Transportation Ministry which was in line with the

governments Master Plan for the Acceleration and Expansion of Indonesias Economy (MP3EI).

Currently, government and private sector were conducting feasibility studies on a few of the regions in

the megaproject, including areas in South Sumatra and Sei Mangke, North Sumatra, and are expected to

be completed by the end of this year 2012 to meet the 2013 deadline to begin work on the project.

The total investment for the project is estimated between Rp 60 trillion Rp 70 trillion, which will be ex-

ecute under the PPP scheme. Under the PPP, the government will issue concessions with 25- to 30-year

periods and contribute 20 percent of the total investment needed to develop the railway, while the pri-

vate sector and state-owned enterprises would contribute the remainder.


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The Trans Sumatera Railway consisting of (Figure 11):

Besitang-Banda Aceh: 484 km Rantau Prapat-Duri-Dumai: 246 km Duri-Pekanbaru-Teluk Kuantan-Muaro: 397 km Teluk Kuantan-Muaro Bungo-Jambi: 370 km Jambi-Betung-Palembang-Tanjung Api-api: 340 km (Including Sei Mangkei-Bandar Tinggi-Kuala

Tanjung)

KM3-Bakauheni: 70 kmFigure 11: Map for Future Trans-Sumatera Railway

Source: RIPNAS Transportation Ministry, 2011

This is the first phase of the railway network which will stretch from the border of Sumut to Jambi, with a

network length of 625 km, namely from Rantauprapat to Dumai, Riau. The railway network from Rantau-

prapat to Dumai will continue to Duri - Pekanbaru - Teluk Kuantan - Indragiri Hilir, and further developed

until Muaro in Jambi Province.

3.1.2 Integrated Terminal of Gedebage (Railway), Bandung, West Java

The integrated terminal of Gedebage will be equipped with (Figure 12):

- Regional Bus Terminal (15 Ha)- Commuter Rail Station (15 Ha)- Multipurpose land (30 Ha)

The function of integrated transportation district in primary center of Gedebage is a solution for the sys-

tem and the regulations of public transport condition in Bandung, which is disintegrated between railway

station, local and regional bus station.


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Development of a multipurpose transport terminal for the city of Bandung is intended to improve the

existing railway container terminal to be a centre of activities during implementation of long halted de-

velopment plan for Gedebage dry port. It will also serve as a combination of land transportation terminalsuch as inter provincial bus, city mini bus station or other transportation modes (multipurpose terminal

development).

Figure 12: Project Map


Table 10: Project Estimation on Integrated Terminal of Gedebage

Estimated Project Cost

(US$ million)

Construction

start

Construction

endLocation

133.00 2014 2015 Bandung, West Java


The terminal will serve passengers for inter-city and intra-city destinations. So far, Bandung City has had

two terminals for transportation activities; namely, Leuwi Panjang Terminal, which serves westward des-

tinations and Cicaheum Terminal for eastward destinations. The project plans to start on 2014 (Table 10).

Up to now, Bandung municipality is still facing difficulty on providing area for transport vehicles in the

present terminal. It has been counted that there are around 4,000 city transport vehicles that are pre-

sently not accommodated in the terminals. The location of railway station is also far from the containershipping station which is Gedebage.

The development of Gedebage as the container terminal (TPKB) has been in the Regional Spatial Plan

(RTRW) of West Java. Gedebage TPKB has not played an optimal role because accesses to and from Ge-

debage are still bad. Conditions of the route and emplacement are not yet adequate, especially ware-

housing. Different with any existing dry port, Gedebage is rail based dry port.

The conditions are exacerbated by the fact that the logistics line from Gedebage that is oriented to the

Port of Tanjung Priok is not connected to the port. So far, the railway line stops at Pasoso Station, which

is located about 2km from the dock in Priok.


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3.1.3 Revitalization of Yogyakarta Rail Station & Pedestrianization of Malioboro, DI Yogyakarta

The National Development Planning Agency (BAPPENAS) is now working on a document for the plannedrevitalization of the Malioboro area, a popular tourist arcade in the city.

It is expected to be finished by the end of this year, before revitalization work begins in 2013. The revita-

lization project would cover the three main areas of Tugu train station, Jl. Malioboro and the supporting

area, with funds estimated at US$870.0 million (Table 11).

Table 11: Project Estimation on Revitalization of Yogyakarta Rail Station & Pedestrianization of

Malioboro


(US$ million)

Construction

start

Construction

endLocation

Capex: US$ 870.0 millionOpex: US$ 26.0 million/year

2013 2015 Yogyakarta, DI Yogyakarta


Revitalization of Yogyakarta Railway Station Area:

Tugu station is located in the center of Yogyakarta City. The land for re-development lies between two

rivers, Code River to the east and Winongo River to the west.

Figure 13: Map Project Location

Source: BAPPENAS, 2010

Pedestrian

Area

Rail StationArea


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The re-development of Tugu Station land covers (Figure 13):

- Site 1: Commercial facility in the train station;- Site 2: Retail and ruko building;-

Site 4: Hotel;- Site 8: Apartments; and- Site 10: City Park

Malioboro Pedestrianization:

From a traffic management perspective, Malioboro Pedestrianization will also affect Ahmad Yani Street,

as the route Malioboro-Ahmad Yani is a one-way street to the south. The route starts from the railway

tract in the north and ends on the zero point intersection (Post Office) in the south. The west side of the

main route is used as a slow lane currently used by non-motor vehicle traffic, parking andong and pedi-

cab, while for the east side of the area, is used for motorcycle parking. The pedestrian tract, both in the

west and east side of the area, is currently used by peddlers and vendors. The Malioboro Pedestrianiza-

tion re-development comprises of a mix of parking and community facilities.

The two sites (Tugu Station land and Malioboro) are adjacent to each other. It is envisaged that the rail

station re-development under a PPP modality will fund the modernization of the existing railway station,

the provision of parking facilities and the Malioboro Pedestrianization.

The project is expected to revitalize growth in the local economy and improve it as a tourist destination.

3.2 Connecting/Feeding Road

Table 12: List of Toll-Road Project


No Proyek PPP


(US$ million)

Construction

start

Construction

end Location1 Medan Kualanamu Tebing Tinggi Toll Road 628.00 2013 2015 North Sumatera

2 Pandaan Malang Toll RoadEstimated Project Value : US$ 420.00 million

Land acquisition : US$ 325.66 million

2014 2015 East Java

3Terusan Pasteur Ujung Berung Cileunyi Gedebage Toll

Road

Estimated Project Value : US$ 688.00 million


2015 2017 West Java

4 Cileunyi Sumedang Dawuan Toll Road

Estimated Project Value : US$ 1,015.80 million


2014 2015 West Java

5 Pasir Koja Soreang Toll RoadEstimated Project Value : US$ 612.50 million


2015 2017 West Java

6 Tanjung Priok Access Toll RoadEstimated Project Value : US$ 612.50 million


2011 2014

(operation)

DKI Jakarta

7 Tegineneng Babatan Toll RoadEstimated Project Value : US$ 318.20 million


2015 2017 Lampung

8 Palembang Indralaya Toll RoadEstimated Project Value : US$ 111.00 million


2015 2017 South Sumatera

9 Medan Binjai Toll RoadEstimated project value: US$ 214 million

Land Acquisition: US$ 28.40 million

2015 2017 North Sumatera

10 Pekanbaru-Kandis-Dumai Toll RoadEstimated project value: US$ 1,690.00 million

Land Acquisition: US$ 97.44 million

2014 2016 Riau

11Strategic Infrastructure and Regional Development of Sunda

Strait

25,000.00 2015 2025

(operation)

Lampung-Banten

12 Serpong - Balaraja Toll RoadEstimated Project Value : US$ 687.00 million


2015 2017 Banten

13 Balikpapan Samarinda Toll Road

Estimated Project Value : US$ 1200.00 million


2015 2017 East Kalimantan

14 Manado Bitung Toll RoadEstimated Project Value : US$ 353.00 million


2015 2017 North Sulawesi


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Most of the connecting road projects being offered by the government are in the form of toll road. These

roads are to accommodate the inter-traffic within the city/ports, to have alternative route, to bring good

from production area to the ports, as well as to link the industrial area zone with the ports, and to easetraffic movement from one region to the others. Under the new PPP scheme, the government has offers

about 14 toll-road projects which will be groundbreaking this year as well. 13 of the project are listed as

the priority while the remaining is on ready to offer project. Those projects are listed in the Table 12.

The government support for the project can be in the form of land acquisition execution, partial con-

struction of the toll road, or take the form of Viability Gap Funding for the projects.

For Medan-Kuala Namu toll-road and non-toll road which has chosen as the Ready for offer project under

the PPP scheme, the government has formed a special team to accelerate the progress. The team com-

prise of provincial and regency government, as well as the central government.

In addition, Governor of North Sumatera also has formed a team for accelerating the process of land ac-

quisition. One of the efforts made is providing compensation benefits to former employees of PT Perke-

bunan Nusantara (PTPN) who still l ive in the area.

Up to now, the biggest problem on having the road project on the way is the land acquisition problem.

Take for example the Medan-Kuala Namu project. Due to unresolved land acquisition process, the tender

pre-qualification is delayed from original plan of July 2012 to August 2012. However, although the tender

being delayed, but the project tender itself can likely be implemented only next year. The process is de-

layed in order to avoid a stalemate because of the difficulty of land acquisition when construction

process begins.

3.3 Seaport Development

The government has continued to pursue stronger ties between the regions through port development.

Funding constraints for port construction have been dealt with via allocations from the state revenue and

expenditure budget (APBN) as well as from the PPP.

According to Transportation Ministry, until 2030, the development of ports in Indonesia will cost US$ 46

billion, or the equivalent of Rp 439.67 trillion. Foreign investors are expected to contribute approximately

US$ 31.5 billion, or 68.3 percent of the total funding where the rest will be contributed by the govern-

ment (US$ 14.6 billion or 31.7 percent)

Under the PPP 2012 scheme, the government has offered 4 maritime projects to be groundbreaking this

year counted for 2,875.12 US$ Million. Table 13 listed the project offers.

Table 13: List of Marine Transportation Project

Source: PPP, 2012

No Proyek PPPEstimated Project Cost

(US$ million)

Construction

start

Construction

endLocation

1 Tanah Ampo Cruise Terminal, Karangasem, Bali 36.00 2013 2014 Karangasem, Bali

2 Expansion of Tanjung Priok Port, Cilamaya

Karawang West Java

1.032,36

Land acquisition: 2,36

2015 2018 Karawang Regency,

West Java

3 Development of Maloy International Port, East

Kalimantan

Phase 1 : US$ 350.00 million

End stage : US$ 1,780.00 million

2015 2017 East Kalimantan

4 Development of Pelaihari Port, South Kalimantan 26.76 2015 2018 South Kalimantan


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Under the list, Tanah Ampo Cruise terminal is categorized as the Ready for Offer project, while the re-

maining are listed as the potential projects.

As Indonesian seaport are still far from adequate in terms of ship line, depth, equipment, and goods exit

and entry accesses, the government plans to introduce a nationwide freight transport program to im-

prove the movement of goods along the countrys vast waterways. The system is believed to be effective

also in suppressing sea freight traffic congestion.

The program is called Pendulum Nusantara (Pendulum of the Archipelago). It aims to create a single sea

corridor for moving goods within Indonesia. Under the program, the government will use six seaports

Belawan, Batam, Tanjung Priok, Tanjung Perak, Makassar and Sorong as the main gateways. It is be-

lieve that this program will reduce logistics costs by 20 - 30 percent from current conditions.

Currently, Indonesia has 1,975 ports, with 110 commercial ports managed by four state-owned port

companies. The government also has 614 state-run, non-commercial ports and more than 800 special

terminals, or dedicated as private terminals.

Other PPP projects for 2012 2015 are asserted below:

Source: Kemenhub, 2012

Port Location Province Scheme Stakeholder

Kuala Enok Riau ev./ Operations/

Maintenance

DGST/ PELINDO I

Cilamaya West Java ev./ Operations/

Maintenance

DGST/ PELINDO II

Pelaihari South Kalimantan ev./ Operations/Maintenance

DGST/ PELINDO III

Tanah Ampo Bali ev./ Operations/

Maintenance

DGST/ PELINDO III

Tg. Perak (APBS) East Java ev./ Operations/

Maintenance

DGST/ PELINDO III

Maloy East Kalimantan ev./ Operations/

Maintenance

DGST/ PELINDO IV

Garongkong South Sulawesi ev./ Operations/

Maintenance

DGST/ PELINDO IV

Bau-Bau North Sulawesi ev./ Operations/

Maintenance

DGST/ PELINDO IV

Luwuk/Tangkiang Southeast Sulawesi ev./ Operations/

Maintenance

DGST/ PELINDO IV


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4. Some Potentials and Handicaps

According to business people in infrastructure sector, they see potential for increased European invest-

ment for following sectors:1. Seaport development2. Railway development3. Connecting/feeding road development (bridge, non-toll road, intercity road other than Java)They believe that European suppliers could successfully place goods and services in those sectors. These

arguments were supported by the fact that:

- They have quality of goods and services offered- Excellent after sales services- Competitive price offeredHowever, some of the foreign investment as well as from domestic is reluctant to invest in Indonesia in-frastructure because some of the following, even though some has already invest, but they found some

stumble block heading to this project. Most of the handicaps listed from the perspective of users as well

as from providers indicate the same matters:

USERS

1. Unclear rules and regulation regarding permit, approval and land lease, which lead to uncertain-ty of cost and requirement to do business

2. Lack of coordination between central and local, among ministries and local government, whichlead to unclear plan and project within the territory (no integrated and synchronize blueprint)

3. Bureaucracy which make longer process to get permit and licensing as well as convoluted/ com-plicated process

4. Red tape and corruption which make doing business costly and not competitive5. Lack funding commitment from financial sector as well as from the government for infrastructure

development

6. Lack of sufficient land connectivity to link with production area to processing area, as well as toseaport

7. Lack of adequate supply, such as raw materials, energy, equipment, as well as skill-workers

PROVIDERS

1. Unclear rules and regulatory for having permits, approvals as well as land lease which make un-clear process and procedures for having tenders

2. Lack of coordination between and among central and local government as well as the ministries3. Bureaucracy problems which lead to long process to have on approvals, permit and to clear land

lease. Thus, short period of project implementation available

4. Corruption and red tape, which now charges are considered to be common in every project5. Budget constraint which most infra project need long-term funding6. Need to strengthen the governmental people to provide clear decision, act fast in reasonable

timeframe

7. Most project is now competing on low price instead of the quality of the project8. Political willingness both in central and local, indeed influence the infrastructure development


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5. Recommendations

Below recommendation is based on response to the questionnaires disseminate to business people thatheld from July-September 2012. This is in line with list of problems being raised by business people within

the sector.

1. Cut off unnecessary bureaucracy & create a plan from the beginning what the costs on each stepof the process to get permit, license, as well as approval

2. Proposed project/tender by the government should be clear from the first place (timetable, cost,feasibility study, regulations, etc) and given guaranteed

3. Make integrated blueprint that connect the central and provincial project within the same terri-tory. Thus, there will be no overlap program and hesitance to do such program

4. Business people should be involved from the first place to hinder a stumble block to the programinitiated by the government

5. Enhance the capacity of government level both staff and the echelon to plan project effectivelyand efficiently

6. Issue effective Laws to support and accelerate building of infrastructure7. The GOI should give clear directions and commit on coordination among the governmental level,

both in central and local. This need also be backed up by strong political will

8. Clear, simple and transparent bureaucracy process9. Financial institution should also support the funding for the infrastructure by more easy access to

the fund as well as by lowering the lending rate

10.Law enforcement need to be binding to seamless the whole process on doing project. This willhinder the corruption along the process

11.Government should provide sufficient budget to set up project as soon as possible12.Need to focus on rail development to move the freight from the roads to ease the congestion

which has been in obesity status. On the other, need also to develop mass transportation modes

for fast mobilization

13.To effectively doing the land lease, it is not all about regulation but more on understand local pol-itics and culture and doing intense communication, clarifying the benefits of the project to the

people.

14.Continue supporting the capacity build out at Tanjung Priok and commit to upgrading and ex-panding new port facilities as identified across the archipelago

15.Continue to improve the efficiency of port operations in the regions and close the gap in outputcompared with that of other regional ports

16.Commit to have efficient trading across borders which include small numbers of documentsneeded for doing export-import, short time (dwelling time) to do export-import and competitive

cost on doing export-import

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