Indonesia infrastructure projects delay disappoints investors

Workers using heavy machinery are seen constructing the new MRT line in central Jakarta. Investors hoping for President Joko Widodo to speed work on Indonesia’s infrastructure projects have been disappointed, with a plan for a $2bn airport railway line in the capital spotlighting the delays and bureaucratic infighting involved.

Reuters/JakartaInvestors hoping for President Joko Widodo to speed work on Indonesia’s infrastructure projects have been disappointed, with a plan for a $2bn airport railway line in the capital spotlighting the delays and bureaucratic infighting involved. Nearly half the 10 projects to which Widodo gave priority when he took office last year are languishing for lack of cooperation among ministries he has been unable to whip into line. “Somebody has to coordinate the orchestra of stakeholders,” said Emma Sri Martini, head of government-owned infrastructure finance firm Sarana Multi Infrastruktur (SMI). “If decisions for infrastructure are slow, there won’t be activity in any sector.” Widodo is racing against time to create sufficient jobs for the 2mn Indonesians who enter the workforce annually, as he struggles to revive economic growth that has fallen to the weakest pace in around six years. His promised splurge on roads, ports and power plants is critical as Indonesia’s traditional engines of growth, consumption and commodity exports, are faltering, while businesses are shedding jobs fast. When governor of Jakarta, Widodo had managed to break an almost decade-long impasse over construction of a ring road around the Indonesian capital, and investors had hoped to see him, as president, repeat the feat on the national level. Nine months into his tenure, the signs are not encouraging. The airport railway line, designed to cut the travel time to one of the world’s busiest airports to 30 minutes from as much as three hours, has suffered a delay of at least two years in construction. Officials have locked horns over its route and how to fund it, but in the absence of significant government support, it hardly offers private investors a worthwhile return. “The project is indeed taking quite a long time because of the preparation for all the studies,” said transport ministry official Sugiadi Waluyo. Just last month, for example, newspaper Bisnis Indonesia reported that Transport Minister Ignasius Jonan had sought a route change to take advantage of existing tracks. But all the authorities involved must sign off on the change, leading to a delay, SMI’s Martini said. “A single decision might seem simple, but the consequence can be a delay multiplier.” The route must be hammered out before potential investors from countries such as China, Japan and South Korea will take even the first step, she added. As the government weighs the merits of one-off or deferred funding for the railway project, it expects private bidders to get returns chiefly from future traffic volumes and fares. “There’s potentially a lot of appetite for the airport train project, but the main question for investors and lenders is, ‘How do you make money out of it?’” said Mark Giblett, group head of Asia project finance for Sumitomo Mitsui Banking Corp. Many companies prefer to be paid to build and operate railways for a fixed time, as that carries a lower revenue risk, he added, but such a structure meant the government would have to shoulder most of the costs. Another question hangs over the financial feasibility of two railway lines to a single airport, as the state railway firm is set to complete a separate line next year, at a cost of 1.2tn rupiah ($90mn). Government officials say the lines target two different markets, airline passengers and commuters, but investors worry. “Most airport rail links struggle to make money, more so if there are more than one line servicing the airport,” said Raj Kannan, Managing Director of Tusk Advisory, who advises potential investors in Indonesia’s infrastructure projects.