Closing the gap between demand and supply

By webadmin on 05:06 pm Jul 03, 2012
Category Archive

Ardhian Novianto

Changing lifestyles, growing incomes and an increase in business activity in the country have bumped air passenger movement numbers up by 25% to 125 million. Airport infrastructure development has been slow to meet the demand.

With national economic growth still above 6%, a new middle class has emerged and with it has come a fresh demand for mobility through the use of airlines. Usually, the growth of aircraft passenger numbers is twice that of economic growth, which would mean Indonesia should expect a 12% boost.

In fact, air passenger movement data has shown a much-higher-than-expected spike of more than 20%. “The demand has increased remarkably, and we have to move quickly to increase the supply. We plan to develop 44 new airports all around the country,” says Deputy Minister for Transportation Bambang Susantono.

“Kualanamu-Medan is one airport construction project that will be completed this year, and 11 other airports are currently under construction. In addition, the groundbreaking for Soekarno-Hatta International Airport’s expansion project will start in July this year. Other airports are still in the planning process. I know the progress is not as fast as expected by the industry, but we are moving forward.”

As a sprawling archipelago with a population of 240 million, Indonesia now has 233 commercial airports, of which 25 are managed by state-owned operators PT Angkasa Pura I and PT Angkasa Pura II. In response to the surge in the number of passengers, the government wants to build 44 new airports, a figure that includes the relocation of eight existing airports. The budget needed to develop airports for the period 2010-2015 is about Rp32 trillion. However, classic challenges such as land acquisition and government budget constraints remain.

The latter will be overcome by public private partnerships (PPP), a system in which the government invites private parties to participate in airport construction and management. In addition to the state-owned operators, a number of foreign private companies will join in the airport development efforts. “For example, GVK Power and Infrastructure Limited will develop the new airports in North Bali and Yogyakarta,” says Bambang.

GVK is an Indian private company that has had success in developing and managing airports in Mumbai and Bangalore. GVK Reddy, its chairman, estimates that the two Indonesian projects will cost between $1.5 billion and $2 billion. 

Meanwhile land acquisition remains a thorny issue that hinders the implementation of infrastructure projects. Indeed, there is hope in the new Land Acquisition Law, although how it will be implemented remains a question. Another issue is that, for an airport like Soekarno-Hatta, which is already surrounded by towns and residents, acquiring the necessary land will cost some Rp4 trillion. 

Dual function

Airports have two vital functions to perform within a country’s infrastructure: to support economic growth and to distribute welfare.
The former depends on the economic law of supply and demand. In this case, the government may allow the private sector to help get the job done through a public private partnership. The latter, involving the mobilization of basic goods and people to open up isolated areas in the country, is the obligation of the government.

Adding to this, a new trend has emerged recently: today’s airport does not simply house airlines or support the infrastructure of a city. Its role has shifted to include being the gatekeeper of the economy, a support for tourism and business activity, a node on a transportation network, as well as the base for a city around it. 

“This is different from a city airport – its function is to support the activities of a city. An airport city is one that becomes a center of economic and social activity, and is integrated with surrounding areas. We will move in this direction, and it will be more interesting as different kinds of private partners join us,” observes Bambang.

Still, the reality is that private partners cannot be left to run the show on their own, and the government must set the tone and pace for the implementation of every project. Legal uncertainties and weak enforcement of regulations, a long-winded bureaucracy and conflicts of political interest remain problems that hamper projects from being completed on time, let alone accelerated.

Despite this, Bambang is optimistic that Indonesia will enter a new era of rapid mobilization for people and goods. Even in the face of complaints of very slow progress, he points out that the picture is not all bad.

“Kualanamu, the second biggest airport after Soekarno-Hatta, will be ready for operation this year. This is progress. Others airports in Pekanbaru, Tanjung Pinang, Pontianak, Bangka, Jambi, Palembang, Padang, Balikpapan, Surabaya and Bali are in various stages of construction. Everything is moving in the right direction.”

Jakarta jam

Built with a capacity of 22 million, it’s no surprise that the 51.4 million passengers who last year passed through Jakarta’s Soekarno-Hatta International Airport, the country’s largest, found the experience a little uncomfortable.

The expansion of the airport is slated to start this month. In this project, Angkasa Pura II will revitalize Terminal 1 and 2, as well as the cargo terminal, and get a start on airport infrastructure including the airport railway project.

Angkasa Pura II has already set aside Rp1.4 trillion from its 2012 capital expenditure.  “The expansion will up the capacity of the airport to 62 million passengers,” says president director Tri Sunoko. However, even this extension will not be sufficient to meet the city’s needs for the long term. “By 2019 it will already be saturated,” notes Bambang.

Anticipating the high growth in airline passenger numbers, the government has plans to develop a new airport east of Jakarta. “It will be too difficult to expand Soekarno-Hatta in the future, due to the high cost of land acquisition,” says Bambang. “Even now, if the land acquisition costs for the current planned expansion project are too high compared to those of developing the new airport, we will choose to directly develop the new airport and cancel the expansion of Soekarno-Hatta. The decision will be decided in the next couple of months.”

In the meantime, to develop the infrastructure surrounding and supporting the airport, the Ministry of Transportation is targeting completion of construction of the airport railway within two years. It will consist of two lanes, an express and a commuter line. The express line will connect to Manggarai, Sudirman, Tanah Abang, Duri, Angke and Pluit, while the commuter line will use existing infrastructure between Manggarai, Sudirman, Tanah Abang, Duri, Grogol, Bojong Indah, Kalideres, Tanah Tinggi and the airport.  GA