$50 billion to connect Indonesia

By webadmin on 09:33 am Apr 01, 2012
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Albertus Weldison Nonto

With the aim of boosting national trade via comprehensive connectivity, Indonesia is preparing to invest heavily in the development of new projects in the transportation sector.

Indonesia’s government has launched a new plan to tackle the country’s logistics problems, which have long been blamed on a lack of legal backup: connectivity through an integrated sea, land and air logistics system.

The new plan is aimed at speeding up the movement of goods and people within Indonesia, which will in turn streamline, organize and lower the cost of logistics operations country-wide. While this is not a new idea and has been debated for some time, it is finally gaining some traction with the government’s Master Plan for Acceleration and Expansion of Indonesian Economic Development (MP3EI) program.

While businesses have profited from exponential growth in the sector in the past five years, it is common knowledge that logistics costs in Indonesia are among the most expensive in the world. Cement manufacturer Semen Padang, for example, has claimed that 40% of its selling prices go towards covering logistics costs.

With MP3EI, the government has plans to build new ports or enlarge existing ones, increase efficiency in ports management, as well as lay new train tracks in some areas. Under this scheme, the government is also inviting more participation from the private sector, be it to provide financial backup or to develop and run the infrastructure.

Deputy Minister for Transportation Bambang Susantono explains that Indonesian connectivity is aimed at increasing the mobility of goods and people. From a macro perspective, he believes that inter-island, intra-island and international transportation will grow under the plan because the country needs an integrated approach to transportation.  “With MP3EI, Indonesia is putting connectivity at the backbone of the future economy. So we must try to define what is best for our economy,” he says.

Bambang adds that with the government’s limited financial resources, private sector participation is crucial, whether it is to share costs or to undertake specific projects such as the building of a special port for the distribution of crude palm oil (CPO) or coal. At the same time, the government will facilitate the process by providing licensing or clearing land.

Works underway

With a total investment of around Rp475 trillion ($50 billion) in transportation projects between now and 2025, Bambang believes that logistics costs will decrease gradually, as integration between the three main modes of transport increases.

Private-public collaborations are beginning to pick up speed. In the past, Hong Kong’s Hutchison Whampoa invested in Jakarta International Containers Terminal (JICT) in Tanjung Priok and Terminal Petikemas Surabaya (TPS) in Surabaya. Recently, Saudi Arabian company Rak Minerals dedicated some $1.5 billion to develop a 130-km stretch of train tracks in Kutai, East Kalimantan.

Several government-funded projects are also underway. In Bali, the state-owned Angkasa Pura is halfway through its scheme to extend the runway at the airport, to accommodate more people and goods coming to the island. Sea ports in Banjarmasin, Jambi, Pekanbaru and Tanjung Pinang are also slated for extension and development.

In Jakarta, a $2 billion port project at Tanjung Priok in Kalibaru, North Jakarta will kick off by the middle of this year. On its completion, the modernized port will manage approximately 12 million twenty-foot equivalent units (TEU). President director of Pelindo II RJ Lino says that the port is in urgent need of development, to anticipate an increase in the movement of goods: in 2011, 5.8 million TEUs moved through Tanjung Priok, surpassing the expected 4.8 million TEUs.

Another port development on the horizon is the $120 million Port of Sorong, which will be undertaken by a mix of national liners and contractors, with PT Pelindo acting as controlling shareholder. A special port in Kuala Tanjung is also slated to take shape soon with private funding, leaving the government to build train tracks to the area.

To the east, the government is also considering extensions at Bitung Port in North Sulawesi, as well as an international port at Garongkong in South Sulawesi. Lino believes that Sorong will help increase port productivity in eastern Indonesia, as the port will be able to accommodate more mother vessels carrying over 5,000 TEUs. In the future, he says, goods from Papua and northern Australia will not need to go all the way to Singapore for transhipment.

Leon Muhammad, Director General of Sea Transport, stresses the importance of revamping Bitung Port due to its strategic position. The port, he says, will help Indonesia’s fisheries industry as well as act as an exit gate for mining industry smelters in Halmahera, North Maluku.

On the land transportation side, Lino points out that a double train track project connecting Jakarta and Surabaya will be completed by the end of next year. Komodo Airport will also be extended, with private-sector management in the future, to address the increased tourist visits to the region.

In Maluku province, the government plans to introduce the Maluku Trans project, which will combine land and sea transport, recognizing the geographical conditions of the area. And in Jakarta, a Rp2.3 trillion commuter train project will be in operation by the end of next year.

Multiplier effects

Bambang notes that investment in infrastructure projects will create multiplier effects in other sectors. He adds that while many theories claim that investing in one infrastructure project will create impact in three other sectors, this is subject to the type of investment; sea port development is likely to create more opportunities than a land or airport.

In the airport business, he anticipates that there will be a new trend towards the aeorotropolis concept, a mega city with an airport in the middle of it. In this perspective, the government has plans to develop a new airport in Karawang double the size of Soekarno-Hatta International Airport. Bambang estimates that work on the new airport will start soon after the completion of extension works at Soekarno-Hatta in 2016.

Agreeing with the view that Indonesia’s sky-high logistics costs have resulted in lowered business competitiveness, Bambang is hopeful that this will soon be resolved. A Aziz Winanda, head of the East Java Freight Forwarding Association, claims that nearly 27% of selling prices goes toward covering logistics costs, while the global average is only about 7-10%.

The first step to solving the problem, he says, is to build physical infrastructure – with a slew of projects and financing, Indonesia is already prepared in this respect. Next is to improve the soft side of the business, which deals with administration, goods inspection, licensing and, most importantly, the introduction of a single window system where the movement of goods can easily be monitored. He adds that another important cog in this system is vessel management, to monitor the offloading and trucking of goods.

Importance of infrastructure

Bambang observes that, in the Indonesian context, reinforced maritime connectivity is an important feature needed to cut logistics costs. “If the productivity of a port can be improved, this would automatically reduce the cost of logistics,” he says. “Clear infrastructure, increasing positive sentiment towards Indonesia and support from the macro-economic level; a combination of these things will accelerate our economy,” he points out.

Lino notes that in his experience at Pelindo II, port productivity can be increased by optimizing existing facilities. Therefore he sees human resources development as another crucial facet in the equation. But ultimately, he agrees that physical infrastructure is Indonesia’s real need at the moment, and believes that the country is in urgent need of new container terminals to drive the progress of the connectivity program. In this regard, he plans to speed up the development of the new Tanjung Priok port in Kalibaru, as well as Sorong Port in Papua to respond to the increase in movements in and around eastern Indonesia and countries in the eastern Pacific.

Other sources in the industry believe that another aspect in need of improvement within the national logistic plan is the revamping of industries supporting port operation. It is common knowledge, for example, that customs clearance processes remain a problem in some ports. Forwarding businesses, too, sometimes contribute to inefficiencies in port operation. GA