Indonesia Scraps Crucial Port Project

In a decision that encapsulates Indonesia’s perennial problems with construction of badly needed infrastructure, the government appears to have canceled a tender for a US$1.3 billion new container terminal in North Jakarta, two bidders say.

Although the government blamed a lack of cash for ancillary construction, there may be other factors at work, other sources say.

"This is one reason foreign investors steer clear of infrastructure projects. There are too many vested interests who frankly do not want foreign investment in infrastructure,” a veteran consultant on foreign investment in Indonesia told Asia Sentinel. “The problem is that the Tanjung Priok port is okay now and maybe for two to three years but this kind of thing slows down getting new facilities built and in three years it will be inadequate at current rates of growth. For investors, the best sectors are those that are the farthest away from government."

Bernardus Djonoputro, the president-director of Nusantara Infrastructure, which bid for the project through an international consortium that included the Japan-based Mitsui, Taiwan’s Evergreen and the domestic 4848 Global System, was quoted as saying the cancellation was “not good for the government’s image ... and investment climate.”

The 100-year-old Tanjung Priok port, Indonesia’s biggest, “does not have efficient facilities to handle the volume of the trade Indonesia deals with now,” according to a report by the Japan Development Institute. “Especially, the port is facing the problem of limited land unable to hold containers and shallow depth for the berthing of larger size ships now commonly used. This situation piles up the transportation costs in terms of extra time and expenses which not only prevents new investments but also induces the withdrawal from existing business. Therefore, the solution has to be made immediately to attract investments once more to this region.”

Apparently, bidders told The Jakarta Globe, the government scrapped the prequalification tender because it couldn’t afford to jointly finance the project, a rationale met with skepticism. Under the blueprint laid out for the development, the government was required to provide Rp3.5 trillion (US$389 million) for roads and bridges to the area. In addition to its other problems, the Tanjung Priok port is handicapped by the fact that only one traffic-choked major road leads into the facility.

The decision to scrap the tender came despite the fact that the government had shortlisted five consortiums in August. The government started the tender last June and was supposed to announce a winner in October this year.

The lack of roads, highways and electricity has stalled construction of factories and other private enterprise in many parts of the country. The lack of medical facilities in many neighborhoods leads to deaths from common diseases. The government has been pushing a public-private partnership scheme since 2005 to compensate for the lack of government funding for infrastructure projects. Of hundreds of projects prepared for the scheme, however, the government last year picked only five to showcase. But construction has not started on any of them.

Jakarta itself, a city of 12.5 million people, faces critical conditions including choking traffic, minimal mass transportation, scarce clean water resources, seasonal floods and a serious lack of urban sanitation system, with pollutants always being discharged into supposedly clean water. Many of the best hotels urge guests not to drink tap water.

Djonoiputro told The Globe that the government’s lack of preparation made investing in Indonesia’s infrastructure through public-private partnerships “risky.” “Companies could lose $1 million to $2 million spent on a feasibility study to participate in a tender if the tender is canceled,” he said. He suggested that the government establish a clearinghouse directly under the president to manage PPP projects, including marketing, business development, tendering, negotiations and financial completion.

Also expressing disappointment was Boy Thohir, president director of Brilliant Permata Negara, which bid for the project through The Jakarta New Port Consortium. He said the cancellation “will definitely diminish investors’ trust in participating in government-backed projects, despite Indonesia receiving investment grade [ratings] from various rating agencies.”

The Brilliant Permata Negara consortium included Salam Pacific Indonesia Lines, Cosco Shipping and Hutchison Ports Indonesia. Thohir said his consortium had worked hard to arrange adequate finance. “We had prepared enough funds to finance this Kalibaru project. Four overseas lenders and Bank Mandiri had given commitments to us,” he said.

According to minutes of the meeting in which the Transport Ministry informed bidders of the change of plans, an official said the shortlisted candidates would be given priority in another tender to build a port in Cilamaya, Karawang. The government, he said, would assign a state-owned enterprise, which has its own budget, to build the Tanjung Priok port, freeing the government from funding it.

(With reporting from the Jakarta Globe)