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Indonesia to Boost Logistics Infrastructure
Indonesia‘s parliament recently approved a law that will let the government acquire civilian land for such uses, as well as for the likes of airports, railways, dams and oil facilities, compensating landowners with cash, land or other forms of payment. It sets out time limits for project announcements and discussion, and establishes a legal process by which landowners and community members opposed to projects can be heard. Under the new law, the whole process must be finished in less than 18 months; today buying land for infrastructure projects can take five years or more.
Infrastructure bottlenecks prevent the country from earning the right to continue to be mentioned alongside the high-growth nations of Brazil, Russia, India and China. They also exacerbate inflation by increasing the cost of moving products and people around the 17,000-island archipelago. Shipping a container within Indonesia from Jakarta to West Sumatra, for example, costs more than four times what it takes to send the same container from Jakarta to Singapore.
Indonesia spent the equivalent of around 3.9% of its GDP on infrastructure in 2009, Morgan Stanley estimated in a report this year, well below the 10% spent by China and the 7.5% spent by India around the same time. Indonesia ranked 75th out of 155 economies in the World Bank’s Logistics Performance Index for 2010, the most recent, down from 43rd in 2007. The index measures the perceptions of international freight forwarders doing business with Indonesia.
Indonesia’s 2011-2025 development plan seeks 4,012 trillion rupiah ($440 billion) of investment, with about 1,786 trillion rupiah assigned to items such as highways, harbors and power plants. To spend the cash effectively, the government must overcome corruption so severe that it’s rated the “most problematic factor” for doing business in the country, according to executives surveyed in the World Economic Forum’s Global Competiveness Report 2011-2012.
Indonesia has signed about $39 billion of accords with Japanese and Indian investors since December, for projects including ports, mass transit systems and power plants. The government aims to add 20,000 kilometers of roads and 15,000 megawatts of power capacity by 2014. It also plans to spend 117 trillion rupiah on 92 port projects, including the redevelopment of the country’s 25 main ports, Deputy Transport Minister Bambang Susantono said by telephone from Jakarta this week.
Dubai-based DP World owns 49 percent of PT Terminal Petikemas Surabaya in Surabaya, East Java, with the rest controlled by state-owned PT Pelabuhan Indonesia III. Hutchison Port Holdings, based in Hong Kong, helps operate the Jakarta International Container Terminal. It acquired the Koja Terminal in 2000.
The Kuala Namu International Airport in Deli Serdang, North Sumatra, would be completed by the end of 2012. The 90,000-square-meter airport will be able to accommodate 8 million passengers and park 33 passenger airlines and three cargo airlines. The construction of the Rp 5 trillion (US$550 million) airport was started in 2007.
The other big transportation project scheduled to be completed next year is the 844 kilometer double track Trans-Java railway project connecting Jakarta and Surabaya. They are also constructing a port in Sorong, West Papua, to help reduce logistics costs that will start in April next year.
The construction of the Kalibaru terminal in North Jakarta would start next year and was expected to be completed by 2014. The Kalibaru terminal should be able to operate in 2014 in order to ease shipment of traffic to the Tanjung Priok port. State-owned port operator PT Pelindo II has forecast that container volume at the country’s main shipment terminal, Tanjung Priok port, will increase by 20 percent next year.
By the end of this year, according to Pelindo II, container traffic is expected to reach 5.8 million 20-foot equivalent units (TEUs), up by 23 percent from 4.7 million TEUs in 2010 and 3.7 TEUs in 2009. Because the port’s current container volume capacity is only 5 million TEUs, Pelindo II has been mulling short-term strategies to cope with the over-capacity problem. Among the strategies is to invest $250 million until the middle of 2012 to buy new container loading cranes comprising of two quay container cranes (QCC) and 11 luffing container cranes (LFF).
This month, a national logistics blueprint to improve infrastructure to and from ports, reduce transport times and uncertainty, and cut costs will be submitted to the president, Irawady said. The goal is to cut logistics expenses to 11 percent to 12 percent of production costs by 2015, from about 14.8 percent currently, he said.
“If you increase capacity on infrastructure, there will be so much more you can do,” said Su Sian Lim, a strategist at Royal Bank of Scotland Group Plc in Singapore. “Indonesia’s true growth should probably be 7 percent to 8 percent.”
