Indonesia Starts to Strangle on Success

Indonesia, with its economy growing at its healthiest pace since the 1997-98 Asian financial crisis, is starting to burst at the seams from a serious lack of infrastructure development.

A statement last week by the Planning Ministry in Jakarta that the country will require Rp115 trillion (US$12.55 billion) to keep up with exploding development was met immediately with a reply from the country’s Chamber of Commerce that the figure needs to be doubled. It represents less than 3 percent of the country’s projected 2009 gross domestic product of Rp5.29 quadrillion.

It is questionable, however, how quickly the government and the private sector will be able to deliver. A government-sponsored infrastructure summit held in 2005 offered more than 100 projects to the private sector, but lack of proper feasibility studies for many projects, tariff barriers and difficulties in land acquisition scared off investors seeking assured long-term investment returns. The government is still hoping that of the Rp115 trillion, the private sector will put up Rp80.93 trillion through public-private partnership schemes, with Rp32.92 trillion financed from the state budget.

In a bid to draw more private-sector investment, the government plans a risk-sharing mechanism to guarantee investment by setting aside as much as Rp1 trillion from the 2009 state budget. The arrangement would enable private investors recourse if their investments lose money because of such factors as delays in tariff adjustments, default financing, land acquisition or legal issues. Indonesia has also set aside Rp4.8 trillion worth of funds to share the risk in land deliberation issues for toll road projects funded via the PPP program.

The country’s road network, air, rail and sea links and electricity grid are all in desperate need of upgrading. The government in July embarked on a scheme to switch company working hours to weekends to conserve energy at peak periods. Blackouts are a regular occurrence, causing additional losses. It appears that all of these problems will get worse before they get better. Despite the rising threat of a global economic slowdown, economists still believe Indonesia’s economy will grow by 5.5 to 6 percent next year. With exports rising by 29 percent year-on-year in the first quarter and imports up by 42 percent in the same period, the ability of the private sector to manufacture and move goods to markets is in danger of being clogged.

Plans to build 13 gas-powered plants supplying an additional 100 gigawatts of power to supplement energy needs are in disarray, primarily because of a lack of supporting infrastructure, according to government officials. Purnomo Yusgiantoro, Mines and Energy Minister, told a government committee that, for instance, at Grati, a powerplant in East Java, the gas is ready for delivery, but no pipeline has been built to move it. In other areas, Purnomo said, although the pipelines have been laid, the powerplants haven’t been built.

At the ports, both imports and exports are skyrocketing, with some major seaport operators reporting that loading and unloading volumes are averaging increases as much as 15 percent in this month alone, and that port delays are continuing to increase. Vegetables and other perishables are being delayed for two to three days before delivery to food stores, merchants complain.

A recent survey found that it takes as long as seven hours for goods to travel the 30 kilometers from the Tanjong Priok port in Jakarta to Jababeka Industrial Estates, an industrial base for 2,000 companies that account for 15 percent, or US$10 billion of Indonesia’s non-oil exports.

The government last week issued an urgent call for port management to improve its services and expand its container yards. Import-export companies say they are losing as much as US$20-30 per container per day because of delays in cargo handling and document clearing, which have soared from 3-5 days up to 10, in addition to the already-high terminal handling charges.

Trade Minister Mari Pangestu and other officials from the Transportation Ministry and the Customs and Excise Directorate General inspected the port last Thursday, coming away complaining about the lack of infrastructure and unsatisfactory logistical services.

Jacob Friis Sorensen, president director of PT Maersk Indonesia and a member of the European Chamber of Commerce said recently that Indonesia’s cost to handle a 20-TEU (ton-equivalent unit) dry container, at US$667, are far higher than most other regional ports. Malaysia’s equivalent cost is US$432, Singapore’s US$416 and China’s US$390. Thailand’s costs are slightly lower, at US$615 and Vietnam’s are slightly higher, at US$669.

Takuji Kamayama, the Japan External Trade Association representative in Indonesia, said conditions have deteriorated since 2007, especially against regional ports, with research showing that from 2005 to 2007 at Tanjung Priok, it took 3.5 days for officials to check containers to obtain export and import permit documents, compared to 2.5 days in Thailand, two days in Malaysia and just one in Singapore.

Operators complain that in addition to the high tariffs and unsatisfactory services, the high population density of the Priok area means that in coming years there will be no space to develop additional infrastructure.

Jakarta port officials say inadequate capacity and lack of sophisticated data-processing devices are the main problems. Indonesian ports including the Jakarta Container Port (JCP), covering only 100 hectares and featuring 1,200 meters of continuous berths, do not have the capacity to accommodate larger ships, so that they mostly serve as feeders for bigger vessels standing by in Singapore and Malaysia.

The JCP, comprised of both the Jakarta International Container Terminal (JICT) and

KOJA Terminal (KOJA) provides container-handling services to more than 20 shipping

lines with direct routes to more than 25 countries, with annual throughput of 2.3 million TEUs.

“It is a government priority to accelerate flow of goods and find solutions to deal with high costs,” said Pangestu, adding that improving the port infrastructure is part of the government national infrastructure master plan. The government is studying a Transportation Ministry proposal to build dry-land facilities to allow processing of documents not only at the ports but also at industrial estates through the National Single Window (NSW) program, which is scheduled to come into effect at the end of this


The Director of Technical Affairs Customs and Excise, Agung Kuswandono,

said his office has been adding computerized scanners to monitor containers over the past two years, and that the devices now cover 15 percent to 20 percent of the increased flow of goods.

“For checking goods of containers along the port priority lanes it only takes 15 minutes, green lanes only one hour and for red lanes we need four hours to complete the entire procedure using our new scanner devices," Kuswandono told the committee.

In July, JICT said it had allocated US$166 million to expand its terminal to handle up to 3 million TEUs by 2011. Of that, US$100 million is to go for terminal infrastructure, port expansion and installation of on-line service systems. The remaining US$66 million will used to buy more loading and unloading equipment.

Container traffic in Indonesia was 5.74 million TEUs in 2006, a fraction of Singapore’s at 25 million TEUs, according to the United Nations Conference on Trade and Development, at least partly because of Indonesia’s inadequate port handling services.

Kuswandono added that the Jakarta port lacks warehouses and facilities to check goods from the red lanes or those that need more time for checking, as opposed to those from priority or green lanes.

Director General of Customs of Excise Anwar Supriadi, who participated in the Thursday inspection of the port, said the National Single Window program will improve handling times. The program, he said, is designed to minimize human interaction or between officials and those dealing with custom clearances at the port, which is hoped to prevent bribery and other high costs.