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Tuesday, December 22, 2009

Unprecedented infrastructure development?

The Jakarta Post, Rendi A. Wintular, Jakarta, Mon, 12/21/2009 11:52 AM, Review & Outlook

JP/R. Berto Wedhatama

For the government’s economic team, 2010 will be a decisive year to demonstrate its competence in settling the accumulation of five years of homework resolving the protracted problems that are stifling infrastructure development.

A set of policies aimed at expediting key infrastructure projects, notably highway and power projects, were unveiled in late October for all levels of government to work on.

Among the policies widely expected next year is a revision of a 2006 presidential decree on land clearance for public interest and a law on the revocation of land ownership rights.

According to Public Works Minister Djoko Kirmanto earlier this month, a revision to the presidential decree would include the halving of the land price negotiation period from 120 days to 60 days. The private sector will also be allowed to start construction of government-initiated projects as soon as 51 percent of the required land has been cleared.

Djoko is optimistic that all land-purchase policies, especially those for toll road projects, can be passed by the end of January. However, revisions to land clearance laws, he said, would take longer as they would need to be deliberated among lawmakers.

According to Djoko, the government’s negotiation team for land clearance will also be overhauled because its members are made up of incompetent officials working for local administrations.

Most infrastructure projects have hit roadblocks as landowners refuse to sell their land at market prices, demanding prices that often reach irrational levels.

Of the 1,000 kilometers of toll road projects linking the Eastern and Western tips of Java, planned in 2004, only around 40 kilometers have been constructed thus far, according to the Public Works Ministry.

The Central Statistics Agency reveals growth in highway capacity, excluding toll roads, only reached an average of 3 percent annually between 2002 and 2007.

As of the end of 2007, Indonesia only has 421,535 kilometers of road linking its 1.91 million square-kilometers of land.

Analysts have voiced concerns that limited highway capacity — including toll roads — has already created a bottleneck in logistics and distribution of goods, undermining the nation’s competitiveness.

In order for the private sector to feel secure in building more highways, toll roads and power plants, the government is slated to form a company next year that will cover all risks when participating in government-initiated infrastructure projects.

The company, dubbed as PT Penjamin Infrastruktur Indonesia, will function as an insurer to any risk exposed to the private sector.

The company will complement the already established state-run financing company PT Sarana Multi Infrastruktur in managing the construction of infrastructure.

Aside from highway and toll road projects, the government has also pledged to accelerate the development of its first and second phases of 10,000-megawatt (MW) power plants.

Nearly half of the projects included in the first phase could be ready by the second half of 2010, falling short of the target of being entirely operational in 2009.

Among the policies proposed to accelerate construction is a revision to a set of regulations that will eventually enable state-run power company PT Perusahaan Listrik Negara (PLN) to have flexibility in determining the electricity prices purchased from independent power producers (IPPs).

Under the existing regulations, the government is setting a price cap for PLN when negotiating an electricity purchase with the private sector, regardless any impact from inflation and unexpected soaring costs of plant construction.

According to the Energy and Mineral Resources Ministry, only 18 percent of 50 private companies willing to construct power plants have so far secured a deal with PLN and licenses from the government.

Due to the difficulties, several resource-rich provinces are currently under a protracted plague of electricity shortage.

Aside from limited electricity supplies, the business community is also concerned with interruptions in power distribution due to PLN’s already overstretched facilities.

The company, which has a monopoly in electricity distribution, has recently suffered problems in its storage and transmission networks, which has resulted in rotating blackouts in many parts of the country, most notably in Greater Jakarta.

PLN will need an investment of US$933 million to overhaul and expand its transmission networks next year, according to the company’s president director Fahmi Mochtar.

The company, he said, could only provide 78 percent of the funds, with sourcing for the outstanding amount still being worked out.

Critics have said problems in the company’s sagging facilities had actually been noticed by policy makers as long as five years ago. However, no measures have been proposed.

A combination of stiff bureaucratic mentality and poor coordination among ministries and agencies have contributed to sluggish infrastructure development.

Doubts are lingering in the business community over the ability of economic ministers and bureaucrats to resolve the coordination problems, exacerbated by overlapping regulations.

Several key policies to watch for:

  1. Policy synchronization for spatial planning.
  2. Revision in land clearance regulations and laws.
  3. Reform at the National Land Agency.
  4. The forming of the risk-mitigating company for infrastructure PT Penjamin Infrastruktur Indonesia.
  5. Regulation issued on forest conversion.
  6. Revision to government regulations on the use of idle land.
  7. Revision to government and ministerial regulations to increase the portion of coal allocated for the domestic market.
  8. Revision to regulations related to PLN’s purchase of electricity from the private sector.

Source: The Office of the Coordinating Minister for the Economy

The author is a staff writer at The Jakarta Post.


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