this is what the private investors who are eager to Indonesian infrastructure projects should consider before moving forward.
The Indonesian government needs private sector help to reach its ambitious goal to improve the inadequacy of the country's infrastructure. According to estimates of officials, it will cost more than $ 400 billion over the next five years. However, analysts say that the largest economy in South Asia will have to make some important changes to attract much needed private sector investment.
President Joko Widodo, known as Jokowi President, says he wants to aggressive ramp of infrastructure projects such as ports, toll roads, and power stations to help support economic development and International countries. Last week, Indonesia has seen several major infrastructure projects worth over $ 9 billion launched in Central and East Java and South Sumatra. The launch finally came after long delays, partly caused by land acquisition problems -. One notorious problem long in the largest archipelago in the world
Last month, Jokowi also announced that the government will invest $ 22 billion in infrastructure projects and $ 3 billion more in state enterprises (SOE) that are involved in the push for infrastructure to one degree or another.
These companies include electricity supplier PT Perusahaan Listrik Negara (PLN), construction company PT Waskita Karya and PT Kereta Api Indonesia, rail provider in the nation. Although the funds, the government injected into infrastructure projects is more than twice the allocation of last year, it is still far from what needs to Indonesia is to achieve its objective, and this is public-private partnerships (PPP) come in.
Although infrastructure projects in Indonesia are dominated by SOEs, the government claims to provide "equal opportunities" for all players, said Rudy Salahuddin Director of planning the infrastructure investment coordinating Board in Indonesia (BKPM). According to Salahuddin, the government is eager to add plants to its existing network to provide 35,000 megawatts of electricity. Other priority projects include two dozen seaports, more than 1,000 kilometers of toll roads, and 15 airports across Indonesia.
East Programme of the National Road Improvement Indonesia (AusAID)
"The government realized they do not have enough money to fund these projects, "said Salahuddin. "That's why we offered public-private partnerships."
These infrastructure projects by the government priority, "power is always one that sees the most transactions" because it is considered a investment "most viable" in Indonesia, where demand for electricity has long prevailed over the offer, said Luke Devine, head of the energy, mining and Infrastructure Group at Baker & McKenzie Asia Pacific.
the government says additional electricity supply will be distributed to many remote islands of eastern Indonesia, and it will eventually boost economic growth to six percent or more. to achieve this, PLN would need a of $ 77 billion. However, Nur Pamudji, President of the public company, told reporters last year that the government can not come up with about 52 percent of the .
apart from power plants, analysts said ports and toll road projects will be lucrative for investors, especially in a country where about 17 percent of the expenditure of a company dedicated to logistics. It is certain that by the data of the Chamber of Commerce and Indonesian industry. According to its report, the transportation costs for the land and the sea are higher in Indonesia compared to neighboring countries. This offers a great opportunity for private investors, who must win a first tender to be a partnership with public companies - such as toll road operator PT Jasa Marga and PT Pelindo IV ports giant -. In a PPP scheme
For toll roads, the government has given assurances that land acquisitions should run smoothly, thanks to a 2012 law on land acquisition for public interests which entered into force on January 1. "the government can now apply the acquisition of land for the public interest," said Salahuddin. "It is a certainty that we can offer investors."
This combination of state-budget allocations, investments in public companies, and easier land acquisition makes the government confident of exceeding its expectations on infrastructure projects, according to Salahuddin. But some analysts remain doubtful, despite a better investment climate in Indonesia. the realization of foreign and domestic investment reached $ 37 billion last year, an increase of 16.2 percent from 2013. However, "it is still quite an exaggeration to say that the [investment climate] Indonesia is quite favorable, "said Alejandro Perez, chief investment officer for infrastructure and natural resource investment advisory arm of the World Bank, the international Finance Corporation, Jakarta.
Jason Paris
Many overlapping regulations could hinder private sector investment, particularly foreign investors. "For example, power plants projects should normally involve Bappenas, the Ministry of Energy, and other departments," said Perez, referring to the National Development Planning Agency. "This creates a lot of uncertainty . "
analysts also warn that the weakening of the rupiah against the US dollar could further dampen the value of the country in terms of profitability." There is a concern [among investors] because they have use rupiah in all transactions, "says Devine." Because the rupee has declined in recent years, while on the other hand, investments in US dollars add good profits. "
all sectors are not roses Perez said the geothermal energy sector in Indonesia. - in which one of the main players is Sumitomo Corp of Japan -. could be "difficult and risky" for investors "geothermal projects risky because you do not know if there are enough resources until you drill a well, "says Perez. He added that each drilling costs US $ 8 million, and in practice, mining companies normally drill three to five wells. But before the drilling begins Similarly, mining companies must allocate money to build access roads and fields, according to Perez.
Another sector that is considered bad game is water. "For many people, it is a right that everyone should have access to," says Perez. For this reason, the participation of the profits in search of foreign investors in this sector could even be interpreted as a violation of the . local constitution
investors will also continue to monitor whether Jakarta has implemented simplification of bureaucracy. - something that promised Jokowi since the start of his presidency in the past, appeal documents tenders for projects such as toll roads and seaports in Indonesia have often taken the time to be issued. "Too many deals were postponed by the government," said Devine. "that is why there has been one port project in the last five years. "
While analysts say they would not be surprised if Indonesia does not meet its infrastructure spending target this year, it is expected that foreign investors, mainly from the countries Asia such as Japan, Korea, Thailand and China, remain optimistic about the PfP offers.
"There are many foreign investors who bid on these projects," said Devine. "If the government is serious about to happen, I'm sure [investments in] infrastructure will continue to pick up. "