Indonesian businessmen call for more private sector participation in infrastructure projects

Labourers work on a road construction site in Jakarta on Sept 14, 2017. Indonesian businessmen have made a plea for more private sector involvement in the country's infrastructure development.
Labourers work on a road construction site in Jakarta on Sept 14, 2017. Indonesian businessmen have made a plea for more private sector involvement in the country's infrastructure development.PHOTO: AFP

JAKARTA - President Joko Widodo's push for infrastructure development in Indonesia has been widely lauded but businessmen have made a plea for more private sector involvement in the endeavour, saying this would speed up projects such as the building of toll roads, seaports and energy plants now undertaken by state-owned enterprises (SOEs).

Many such projects have been hampered by a lack of funding.

Latest figures show that the government will need at least 4.7 quadrillion rupiah (S$489 billion) to fulfil the President's plan for more than 240 such projects across Indonesia to be completed by 2019.

But the state budget only covers 41 per cent of the total cost and SOEs make up about 22 per cent, leaving private investors to pick up the remaining 37 per cent. Businesses, however, complain that they are being crowded out from tenders by SOEs which have taken the lion's share of such infrastructure projects across the archipelago.

While real progress has been made in the building of more toll roads and power plants, there have also been delays, for instance the government has only laid less than 10 per cent of a 3,258km-long railway network across Sumatra, Sulawesi and southern Java. Work on this started in 2014 and was originally scheduled to be completed in 2019.

The SOEs' lack of financial muscle also came to bear when news broke recently that state construction firm Wijaya Karya, toll-road developer Jasa Marga and utility company Perusahaan Listrik Negara (PLN), reportedly had to resort to new loans to service existing ones.

Independent power producers have also voiced concern about PLN's move to increase its control over power plant projects across the country as they fear it will be harder for them to obtain financing for these projects, reported The Jakarta Post on Thursday (Nov 9).

In a meeting with Mr Joko on Oct 27, businessmen appealed to him to open up more opportunities for private investors.

According to Indonesian Chamber of Commerce and Industry chairman Rosan Roeslani, public tenders for many government projects have often been awarded to SOEs.

"SOEs need to be what they were meant to be originally which are the agents of development," he told reporters after the meeting last week. "They should be pioneers, doing projects which the private sector cannot."

Vice-President Jusuf Kalla raised similar concerns last year during a Cabinet meeting.

The Jakarta-based lead economist of the World Bank, Mr Frederico Gil Sander, also agreed with Mr Rosan.

He has said that while Indonesia's SOEs play an important role in boosting infrastructure stock, their dominance in government projects also crowds out private investment.

"SOEs have not always delivered infrastructure efficiently," added Mr Sander, referring mainly to two sectors - energy and transportation - which have seen a lack of participation by the private sector.

In energy generation, for instance, SOEs currently oversee 76 per cent of power plants in Indonesia, compared to 33 and 49 per cent being managed by similar firms in Malaysia and Thailand respectively.

State-owned Enterprise Minister Rini Soemarno, who oversees SOEs, has however rejected claims that their dominance in government projects hindered progress.

Speaking at the 'Investing in Infrastructure in Jakarta' seminar organised by The Jakarta Post in September, the minister said private investors found it hard to participate in infrastructure projects, including in Java, the country's most developed island, because of the risks they entailed.

While acknowledging that work still needs to be done to mitigate risks in infrastructure investment associated with land clearance and regulatory issues, Ms Rini said that the projects remain attractive for the private sector, reported The Jakarta Post on Nov 1.

"We are striving to create profitable projects, so we can invite new investors to provide funds for new projects," she said.