September 2011 Edition

E D I TO R I A L

Encouraging Toll Road Development How is the construction of the Trans Java toll road going? This mega project which connects Banten with Banyuwangi for approximately 650 km, has only managed to acquire around 40% of the required land in September 2011. With this condition, could it meet the completion target in 2014? This prestigious highway project in Indonesia is indeed a part of the acceleration of economic development program. But unfortunately, the recurring main obstacle, which is land acquisition, has not been resolved yet. Generally, this is the largest problem faced by toll road development in Indonesia. When compared with other countries, the construction of toll roads in Indonesia is lagged behind. Since Jagorawi toll road was inaugurated on 9th March 1978, Indonesia is only capable of constructing 20 km per year. Malaysia on the other hand is capable of constructing 285 km per year and China can even build up to 5,000 km per year. In this edition, the Sustaining Partnership magazine will highlight efforts made to encourage the toll road industry which actually has a bright prospect in Indonesia. For instance, by integrating toll roads with property development. Furthermore, breakthroughs and regulations to address the issue of land acquisition will be discussed. Moreover, the Solo-Kertosono toll road which is the first Public Private Partnership (PPP) toll road project will also be discussed. The Solo-Kertosono toll road is somewhat unique because besides being the longest segment in the Trans Java Toll Road network (179 km), this segment is predicted to have low traffic. Therefore, a construction scheme which involves the government is required. Another issue which will be discussed is land acquisition regulations which form the basis of land acquisition for infrastructure development. The government has actually been proposing the bill on Land Acquisition since 2010 to the House of Representatives. However, until now, the bill has yet to be approved. The discussion of the bill is currently in the stage of seeking opinions from academics. Most of the governors such as in Java, Sumatra, and Kalimantan have come to House of Representatives to deliver their opinion. Will the bill be passed this year? Please enjoy reading our magazine. Editor

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ADVISOR Deputy Minister for Infrastructure Affairs, Bappenas DIRECTOR Director for Public Private Partnership Development, Bappenas CHIEF EDITOR Jusuf Arbi BOARD OF EDITORS Delthy Sugriady Simatupang, Gunsairi, Rachmat Mardiana, Novie Andriani, Mohammad Taufiq Rinaldi, Ade Hendraputra MANAGING EDITOR B. Guntarto REPORTER/RESEARCHER Sandra Kaunang, Agus Supriyadi Hidayat PHOTOGRAPHER Arief Bakri GRAPHIC DESIGNER Indrie Soeharyo TRANSLATOR FROM INDONESIAN VERSION Setiana

Infrastructure Reform Sector Development Program (IRSDP) BAPPENAS Jl. Tanjung No.47 Jakarta 10310 websites: www.irsdp.org Tel. (62-21) 3925392 Fax. (62-21) 3925390

CONTENT

HEADLINES NEWS

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ENCOURAGING THE TOLL ROAD INDUSTRY

NEVERENDING LAND DISPUTE

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SOLO – KERTOSONO TOLL ROAD, THE FIRST PUBLIC PRIVATE PARTNERSHIP TOLL ROAD PROJECT

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PROPERTY AND ACCELERATION OF TOLL ROAD DEVELOPMENT

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POTENTIAL PPP PROJECTS

POTENTIAL PPP PROJECTS

POTENTIAL PPP PROJECTS

Medan–Kuala Namu–TebingTinggi Toll Road, Prioritized to Develop Trans Sumatera

Jakarta is Ready to Construct Six Toll Road Segments

Cisumdawu Toll Road Cileunyi–Sumedang–Dawuan Toll Road

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PROFILE - PPP PARTNER

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PPP EDUCATION

Indonesia Infrastructure Guarantee Fund Supporting Accelerated Infrastructure Development Toll Road PPP: Reviewed Case by Case

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PROFILE - Achmad Gani Ghazali Akman

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NEWS AT GLANCE

Head of Indonesia Toll Road Authority Actively Tendering Toll Road Projects to Investors

> The Second Amendment to Presidential Regulation 67/2005 > Harmonization of Laws and Regulations in PPP Study

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ENCOURAGING THE TOLL ROAD INDUSTRY Currently, there are only 759.89 km of toll roads in Indonesia from the total of 3,087 km planned to be constructed by the government. The government’s ambition to build the Trans-Java toll road network from Jakarta to Surabaya failed to be realized in 2010. It could be argued that Indonesia’s toll road industry is still sinking.

T he

development and construction of the toll roads in Indonesia is slow, even in comparison to Malaysia. This neighbouring country has built more than 6,000 km of toll roads or roads within the class of toll roads in Indonesia. In 2011, Indonesia has only witnessed the inauguration of a new 1.89 km long toll road! The Minister of Publik Works Djoko Kirmanto inaugurated the Surabaya-Mojokerto segment, section 1A (Waru-Sepanjang), on 8/27/2011, which is part of the 36.27 km long toll road. When calculated, over three decades, Indonesia only constructed an average of 20 km of toll roads, which is equivalent distance of Pancoran to Depok. In contrast, Malaysia is capable of building 285 km per year, or with the Chinese building up to 14 km per day! Why should toll roads be constructed? In Spain or other developed countries, where we are not required to pay a single dime for toll roads (read: freeway), the existence of those roads are truly meant to serve the movement of goods and passengers. Of course, there are different policies in those western countries. They are highly aware of the government’s responsibility to build infrastructures. Whatever means are made, even if sometimes it causes substantial budget deficit. In Indonesia, because the government always argues that it has no funds, the private sector is engaged. Although allocation of state budget for Ministry of Public Works are quite large, the government still faces difficulties in maintaining this, let alone building the toll roads.

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Data from the Ministry of Public Works shows that the total maintenance and construction needs of roads in these stated five years (2006-2010) is IDR 120 trillion. But in reality, only IDR 69.39 trillion is available. This will clearly burden the country’s future finances. Meanwhile, the Indonesian Toll Road Regulatory Agency (BPJT) calculated that IDR 40 trillion is required to build the Trans-Java toll road. Therefore, if the government does not hand over the construction to the private sector, almost 60 percent of the Ministry of Public Works’ budget will be exhausted for the Jakarta-Surabaya toll road. Accusations that infrastructures in Java are prioritized may begin to emerge. If road infrastructure is focused on the island of Java, what about the construction of roads in Sumatra, Sulawesi, and Nusa Tenggara? Then, how about the construction of roads in islands, rich with mining resources, such as Kalimantan and Papua? Thus, we are waiting for the private sector to take part in the construction of the toll roads. Not only it provide an opportunity for the State Budgets to be utilized for building road networks throughout the country, but investors are expected to build toll roads rather soon. The goal is to create a road corridor capable of efficient usage. This is among others reflected in the availability of good quality roads which shortens travel time, saves fuel, and prolongs the life of vehicle parts. The final goal is of increased economic competitiveness of the republic.

For Malang Apple enterpreneur, for example, the SurabayaJakarta toll road is expected to reduce transportation costs. Currently, the price of Malang Apples are more expensive than Chinese Apples due to the high transportation costs as a result of the unavailability of representative road infrastructures. Fishermen in Pelabuhan Ratu, Sukabumi District, West Java, also wishes for the Jagorawi toll road to be continued from Ciawi to Sukabumi, and hopefully until Pelabuhan Ratu. If the travel time from Pelabuhan Ratu to Muara Baru is shorter, the price of tuna which will be exported to Japan, can be higher. Specifically, Law Number 38/2004 regarding Roads stipulates that toll roads are built to smoothen traffic in developing regions; improve the distribution of goods and services; ease the government’s funding burden through the participation of road users; and increase equitable development and justice.

THE RED CARPET OF INVESTMENTS The government has been promising a “red carpet” for investors, including toll road investors. New regulations are issued to facilitate investments. Presidential Regulation Number 65/2006 regarding the amendment to Presidential Regulation Number 36/2005 on Land Acquisition for the Implementation of Development for Public Interest was enacted. Presidential Regulation Number 36/2005 is a revolution of Presidential Decree Number 55/1993 on Land Acquisition for Development Activities in the Public’s Interest.

purpose is to reduce disputes related to land prices. This institution is mandated by National Land Agency Regulation Number 3/2007. There are two important things expected from the government in a toll road project, the issue of land acquisition and certainty in the determination of tariff. Why? Because delay in acquiring land, could increase investment costs. As a result, it will reduce the internal rate of return (IRR). IRR is anticipated by investors. They would not want their efforts in building infrastructures which require complex planning and management result in an inadequate profit margin. Law Number 38/2004 regarding Roads also regulates tariff increase. The law states “Evaluation and adjustment of toll tariffs shall be done every 2 (two) years by BPJT based on the old tariff, which is adjusted to the effects of inflation with the following formula: new tariff = old tariff (1 + Inflation)”. So the regulations guarantee increased toll tariffs once in every two years. Increased toll tariffs will be used to maintain toll roads as well as for continued investments to build a toll road network. If the operation of toll roads is unsustainable and the status changes to national arterial roads, would the government have funds to maintain them? The cost of highway maintenance, operational and patrol

Moreover, the Land Price Appraisal Agency which is a professional and independent institution for assessing the price of land, was established. The

Repairing a hole at Sedyatmo toll road. According to the regulations, the operator is obliged to maintain the quality of the toll roads in accordance with the Minimum Service Standards. If not, the government will not adjust toll tariffs once every two years.

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vehicles, employee salary until asphalt prices increases each year. Without an increase, funds allocated for maintenance will reduce since the operator’s main income derives from fares paid by toll road users. When assessing the language of the Law, in fact, there is no increase in toll tariffs but there is only an adjustment of toll tariffs. Inflation is the basis of toll tariff adjustment. The inflation used is inflation per region. Hence, it is adjusted to the region’s financial ability. Guarantee in the increase of toll tariffs is actually very good. Unfortunately, this does not happen with investors or operators in the railway sector. For example, if PT Kereta Api Indonesia (Indonesian Railway Company) could meet the Minimum Service Standards, there would not even be an automatic rate increase for trains.

EVALUATION The issue is, even with the amended regulations, the government still found 24 unconstructed toll roads. Evaluation was performed by BPJT to review to what extent investors are capable of continuing the projects. On Tuesday (7/6/2011), upon the completion of the due dilligence, BPJT signed an amendment to the Toll Road Development Agreement (PPJT) for seven toll roads with PT Marga Nujyasumo Agung, PT Marga Kunciran Cengkareng, PT Marga Trans Nusantara, PT Marga Lingkar Jakarta, PT Citra Waspphutowa, PT Margabumi Adhikaraya, and PT Transmarga Jatim Pasuruan. Seven of those toll road companies will continue construction of the Surabaya-Mojokerto, Cengkareng-Batu Ceper-Kunciran, Kunciran-Serpong Ulujami-Puri Indah (Jakarta Outer Ring Road West-2), Depok-Antasari, Gempol-Pandaan, and Pasuruan Gempol Toll Roads. Meanwhile, on 6/28/2011, BPJT also signed a PPJT for four toll roads, namely, Solo-Mantingan-Ngawi, Ngawi-Kertosono, Kertosono-Mojokerto, and Serpong-Cinere Toll Roads. Subsequently on 7/7/2011, BPJT also signed amendments of PPJT for three toll roads, namely, Pejagan-Pemalang, Pejagan-Batang, and Cimanggis-Cibitung Toll Roads. This evaluation is really intended to accelerate the construction of toll roads.

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What is the subject of the amendment? To improve bankability. The articles in PPJT are adjusted by considering inputs from banks and business entities. The revision of these articles among others include guarantee for the implementation of the fixed 1% rate but its value is adjusted to the recalculated investment cost. Certainty of funding or financial close is also regulated so Toll Road Business Entities (BUJT) are obliged to enter a loan agreement no later than three months after the process of land acquisition reaches 75%. As for land acquisition with less than 75%, signing of the loan agreement must be done no later than six months from the signing of the PPJT amendment. BUJT must also comply with all loan disbursement requirements no later than five months after the progress of land acquisition reaches 75 percent. As for toll roads where land acquisition is less than 75 percent, loan disbursement eligibility requirements must be met no later than 8 months from the signing of the PPJT amendment. The PPJT amendment which was first to be evaluated, was made possible because the government intervened in order to bridge the relationship between investors and banks. Therefore, the government does not only deliver an ultimatum to toll road investors to complete the construction of toll roads. In accelerated toll road development, there is a possibility that the government offers its own schemes within the framework of Public Private Partnership (PPP) with a greater emphasis on government intervention. Currently, the House of Representatives is preparing the Land Acquisition Bill. The completion of the bill is still being awaited, because it is believed to accelerate land acquisition. In the meantime, the issue of land is an impediment. Less than 40% of land for the Jakarta-Surabaya Toll Road has yet to be acquired. If is not acquired, how can the toll road be built? (*)

HEADLINE NEWS

NEVERENDING LAND DISPUTE On Saturday (27/8/2011), the Minister of Public Works Djoko Kirmanto inaugurated the 1.89 km long Surabaya-Mojokerto Toll Road section 1A (Waru-Along). This is the first toll road to be inaugurated in 2011. The problem is, not only is it less than two kilometers in length, it took five years to complete.

In average, why are we only capable of building 378 meters of toll roads per year? The main problem is the very slow process of land acquisition! The Surabaya-Mojokerto Toll Road for example received the construction license on 27th April 2007. Logically, the 36.27 km toll road should have been completed, but the government’s inability to solve the problem of land caused this project to be abandoned. Investors risk losing money and the economy will cease to grow. The total investment for that toll road is IDR 3.2 trillion. Funds come from PT Marga Nujyasumo Agung (MNA) with PT Jasa Marga Tbk. as its majority shareholder and bank loans come from BNI, BRI, and Bank Bukopin. It is confirmed that such funds have also been received. If only the toll road could have been constructed five years ago, perhaps the unemployment rate would certainly decline. The cement industry would grow. Lamp as well as road sign manufacturers would receive more orders, thus more workers will be employed.

But what is even worse is that land acquisition for the Surabaya-Mojokerto Toll Road project, did not learn from the Jatiasih-Cikunir land acquisition case. Because after a delay of more than two years due to protracted land acquisition, the Jakarta Outer Ring Road Segment E1 Section IV, or better known as Jatiasih-Cikunir segment, was only able to be inaugurated on 28th August 2007. Subsequently, the Ulujami to Cilincing Toll Road could be entirely passed. Vehicles moving from Jagorawi toward Cikampek Toll Road, or vice versa, no longer have to accumulate in Cawang intersection, thanks to the JatiasihCikunir Toll Road. Uniquely, the locals grumble, why wasn’t this built years ago? In 2007, there are many cases of constrained toll roads due to land acquisition. Since acquiring 3,000 square meters of land is difficult, the Waru-Juanda Airport Toll Road in Surabaya, East Java, which should have been completed in June 2007, withdrew from operations. Within that same year, there was a land dispute claimed by Isa bin Baman at the Ulujami Toll Road. Isa insisted that the land was his property, so toll operators must pay compensation. On the other hand, PT Jasa Marga Tbk. declared that land acquisition funds have been consigned at court so one should not consider that Indonesia Highway Corporation does not want to pay.

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With the above various case examples, don’t be surprised if there is romance from the past. People used to joke, if the New Order regime is still in power, there would be no blockages or threats from citizens to build a wall on the Ulujami Serpong Toll Road, Jakarta. Of course, this opinion should not be read as support for the return of the New Order regime, but as an accumulation of disappointment with the present protracted land dispute in toll roads.

design of six toll roads in Jakarta seems to “consume” less land too. Since the toll roads will be built with elevated construction, it only uses a small amount of land for the poles. The problem is, not all toll roads can be built above the sea or with an elevated construction. Why? Because of the doubled cost. It will also be difficult to set a tariff which does not become a burden to the people. This means, we should not only rely on breakthroughs, but also refine the regulations. Possibly, we should not dream too far away, such as connecting every city in Indonesia with a network of toll roads. We should firstly, finish the construction of the Jakarta-

The government may have toll road A highway construction project worker is examining the network design, toll operators may strength of the soil layer. If the mound of soil in the toll have the technical capabilities, and body foundation isn’t strong, it can decrease the quality of the toll road construction. banks may have fresh funds. But in reality, a dispute over one or two blocks of land in the Republic is enough to cause toll road Surabaya Toll Road. construction stagnate for years. Moreover, some people Indeed, this must begin with completing land acquisition. still see toll roads as a commercial property so they feel Especially since it turns out that up until September 2011, only that they have a right to block it and are entitled to receive 39.70 percent of the total area of 4734.48 hectares had been a very high compensation. acquired for 10 toll roads (with a length of 644.20 km). Even nowadays, there is a developer on the Ulujami-Puri Indah project (Jakarta Outer Ring Road W2 North) who still REGULATION rejects the land acquisition proposal. While in fact, the purpose of the toll road is to reduce severe congestion in The land acquisition regulation must be continuously refined. the Cawang-Tomang corridor. Developer does not realize Presidential Regulation Number 65/2006 has replaced how his action has hurt Jakarta’s economy. Government Regulation Number 36/2005. Subsequently,

BREAKTHROUGH Because land for toll roads is very difficult to acquire, Deputy Minister of Infrastructure and Logistics of the Ministry of State Owned Enterprise (BUMN) Sumaryanto Widayatin intervened in the revision of the Road Law especially on articles concerning toll roads. “Therefore, toll roads could not only be built on land, but also above the sea,” he said.

Head of National Land Agency (BPN) Regulation Number 3/2007 was issued (May 2007). In December 2007, the Land Price Appraisal Agency was endorsed with a license from BPN. From the financial side, since February 2007, the government provides land capping funds (Public Service Agency) to assist investors in funding land acquisition. Since October 2008, the government also gives landcapping.

Four BUMNs, namely PT Jasa Marga Tbk., PT Pelindo III, PT Angkasa Pura I, and Bali Tourism Development Center (BTDC), will collaborate to build the 11.5 km Serangan-Tanjung Benoa Toll Road. This is to be the first toll road in Bali.

So if land prices are to rise above the determined price, let’s say by land speculators, Toll Road Business Entities (BUJT) will only bear a maximum increase of up to 10 percent.

The toll road, which will be constructed above the bay, is targeted to start operating during the Asia Pacific Economic Cooperation (APEC) Summit in Bali in 2013. Almost no land acquisition is required, except for the toll road corridors that connect to the arterial road in Bali’s mainland. The

There are progressive matters which the Head of BPN Regulation try to offer. Article 25, for example, regulates the existence of the Land Price Appraisal Agency. The existence of this agency is expected to accelerate the achievement of a consensus about the price of land with the agency’s professional and independent status.

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But indeed, there are still a number of weaknesses. For instance, the Approval Letter for the Determination of a Development Site (SP2LP) from the Regent/Mayor or Governor is often slowly processed. No wonder land speculators can still manage to make transactions before land ownership is frozen (land-freezing). Disputes concerning prices or ownership eventually lead to consignment due to the weak application of regulations. Thus, execution cannot be conducted as soon as possible, with which delaying any development. Another issue conveyed by Imam Nirwansyah from the Indonesian Toll Road Association (ATI) is related to the absence of Key Performance Indicators for implementing land acquisition, starting with members of the Land Acquisition Committee (regional level) to the Land Acquisition Team (central level). “Don’t be surprised if they work slowly. Because the longer they work, the more incentive will be,” he said. A different issue was expressed by Vice Minister of Public Works Hermanto Dardak. “For example, if we were to acquire land for a cemetery. The size is only 1 x 2 meters, but money demanded is not only for the size of such land. Landowners also ask funds for a ceremony. It’s a hassle because we are accountable for state money used,” he said. To further accelerate land acquisition in order to accelerate toll road development, BPN and the National Development Planning Agency (Bappenas) is jointly preparing a bill on the Procurement of Land for Development.

bill will still be disputed. We can even see various suggestions in the Problem Inventory List (DIM) matrix of each fractions. From DIMs prepared by fractions such as PDI Perjuangan, it is visible that most inputs are concerned with the time limit. For instance, PDI Perjuangan suggested that Article 32 paragraph 2 which states “inventorying and identifying control, ownership, usage, and utilization of land” must be given a maximum time limit of 30 days. The previous bill does not mention such a deadline. In fact, the most important issue in land acquisition is how to accelerate the entire process. So be thankful that Article 42 paragraph 3 of the bill stipulates that “the decision of the District Court which is the first and final decision shall be final and binding”. The bill also stipulates that construction activities can commence after the outcomes of land acquisition have been handed over (Article 49 paragraph 2), although payment for compensation has just be consigned at the District Court (Article 49 paragraph 1). Another noteworthy matter is regarding claims from other parties on the land acquisition object that have been submitted to the state. This is the responsibility of the party entitled to receive compensation (Article 45, paragraph 5). This article is very interesting. It avoids third parties from “playing around” with land acquisition because this article serve as the basis and it can inflict a very large negative impact on the economy. (*)

Currently, the bill is already in the hands of the House of Representatives. “The bill will be approved, at the latest, by the end of 2011,” promised Vice Chairman of Commission V (infrastructure sector) Nusyirwan Soejono. The bill consists of 11 chapters and 73 articles. Of course, there will be revisions regarding the number of chapters and articles. Moreover, the substance of the The rest area at KM 97 of Cileunyi Toll Road heading to Jakarta is fairly roomy and is highly demanded by toll road users who would like to take a break while shopping, eating or praying.

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SOLO-KERTOSONO TOLL ROAD, The First Public Private Partnership Toll Road Project The toll road that will stretch for 179 km, will link the city of Solo in Central Java and Kertosono in East Java. This will be the longest toll road in the Trans-Java toll road network. The network plans to connect Jakarta and Surabaya. Nevertheless, more government intervention is needed in order to make this toll road financially feasible so it could soon be constructed.

Is it really financially unfeasible? It should be understood that culturally, there is no kinship or trade relations between Solo-Ngawi-Kertosono. The movement of residents between these three cities is fairly low. When observed, the citizens of Solo prefer to build their relationship with the people of Yogyakarta. Nowadays, with the Prambanan Express train, you could say that there is no distance between Solo and Yogyakarta. Similarly, the citizens of Kertosono also feel culturally and financially closer with Surabaya. Therefore, traffic between Kertosono-Surabaya is more crowded than Kertosono-Solo. If you stand on a sidewalk in the City of Sragen, there would be more long distance trucks passing through, such as cigarette trucks from Kediri to Jakarta. The Solo-Ngawi Kertosono Toll Road must be constructed as it is a part of the Trans-Java Toll Road network. The government targets to complete the Trans-Java Toll Road before 2015, it is impossible to postpone the construction of toll roads because we could not wait until daily traffic increases.

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With a grant fund from the Japan International Cooperation Agency (JICA) in 2007, the government was able to work on several studies to make this project financially feasible. The feasibility study in 2005 showed that the Economic Internal Rate of Return (EIRR) of projects can reach 22% but the Financial Internal Rate of Return (FIRR) can only reach 14%. One option to make the project more feasible is to subsidize investors if the expected income failed to reach the target. However, this option was rejected by the government. Without any “interference” from the government, which investor wants to build a toll road? Funds needed for infrastructure development throughout this country is too significant. Therefore, it is dificult for the government to constructs toll roads by themselves. Where is justice if state funds are directed only to build a toll road in Java, while the streets outside of Java continue to deteriorate?

THE FIRST PPP TOLL ROAD It was finally decided, that the toll road will be built through the Public Private Partnership (PPP) scheme. This is the first toll road PPP project initiated by the Ministry of Public Works, it uses government support in of its construction. 440 km of the new Trans-Java Toll Road is purely built by Toll Road Business Entities (BUJT). Funding and construction work is performed by the private sector, while the government only helps in the process of land acquisition. At the signing of the Solo-Kerstosono Toll Road (16th June 2011), Director General of Highways Ministry of Public Works Djoko Murjanto said, “This toll road is built with the

PPP concept because if it is fully funded by the private sector, there will be no rate of return as it is hampered by the ability of the people to pay toll tariffs.”

2011, the Ministry of Public Works disbursed IDR 149.96 billion for the toll road. State Owned Enterprise (BUMN) PT Wijaya Karya Tbk. won tender as the constructor.

The Directorate General of Highways is right. Without a policy prohibiting logistics trucks from entering non-toll national roads, like the current condition and with high toll tariffs, road user will not be willing to use the toll road. Investments will be in vain. Traffic jams and obstacles in the mobility of goods and people will continue on national roads.

This 2011, with a Budget Execution Allotment Document (DIPA) of IDR 149.96 billion, the structure of the bridge over Bengawan Solo River will be completed. Furthermore, 2 km of toll road in Solo will also be completed.

The problem will become bigger if credit payment from toll roads ceases. Banks will regret financing toll road development. As a result, Indonesia will lag farther behind in terms of infrastructure compared with other countries and the competitiveness of the nation will slump. With committed government support, tender for the SoloNgawi-Kertosono Toll Road was held in 2008. The winner of the project is PT Thiess Contractors Indonesia. Its parent company has experience in building infrastructure projects in Australia. What was the form of government support that made Thiess Contractor Indonesia still interested in participating in this toll road? From the total 179 km, the government will construct 63 km of toll roads. Based on the toll graph, the government will build the far west area (Karanganyar-Colomadu segment for 21 km) and the far east area (Kertosono-Saradan segment for 42 km). Meanwhile, PT Thiess will work on the middle area Karanganyar-Saradan segment. The Director General of Highways ordered that the 63 km toll road built by the government must be completed in late 2013. “The entire toll should be operational in 2014,” said Djoko. The Chairman of Kertosono-Solo Toll Road Task Force, Brawijaya emphasized that the Ministry of Public Works started this project in fiscal year 2009. It focuses on land acquisition and the construction of the toll road bridge structure that crosses over Solo River. “Construction starts from Central Java. We have completed the construction of the 600 m toll road north of Solo. In East Java, construction has not started,” said Brawijaya. In

Brawijaya stated that the Ministry of Public Works has already started constructing from Ngasem, Colomadu, and also several parts north of Solo. “Most of these toll roads will be located on the northern side of national roads from Solo-Sragen-Ngawi-Kertosono,” said Brawijaya. In the initial phase, two lanes with a width reaching up to 3.6 m will be built. This does not include the inner road shoulder (1.5 m wide) and the outer road shoulder (3.0 meters wide) which serves as an emergency lane. If required, it will be increased into three lanes, each, in the future.

SEEKING FUNDS FROM CHINA Since this toll road requires massive government support, don’t be surprised if the investment cost of the Solo-NgawiKertosono toll road is almost divided in half. From the total investment value of IDR 10.98 trillion, it turns out that the government must expend IDR 5.41 trillion which comprise of IDR 1.86 trillion for land acquisition and IDR 3.55 trillion for construction. Billions of rupiahs have been disbursed from the APBN. But it is not enough due to the massive amount of funds required. Therefore, the Ministry of Public Works is seeking a loan amounting to USD 300 million or equivalent to IDR 2.55 trillion from the Chinese government. “Not long ago (April 2011), the Prime Minister of China visited Jakarta. There was a discussion regarding a loan for infrastructure, including toll roads. If there is no funding from China, Rupiah will be use (from the state budget),” said the Director General of Highways Ministry of Public Works. The interest rate from China is actually 3 percent, larger than

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Japan’s interest rate of 1.2 to 1.8%. However, the lending process from China is easier. They are not too concerned with the issue of land acquisition, and the government must quickly start constructing. When calculated, the cumulative total amount of foreign loans of the Ministry Public Works reaches IDR 56.39 trillion. The new loan from China is merely 3.56% of it. This amount is far smaller than the portion of loans from Japan which amounts to 53.50 percent, 25.98% from the World Bank, 8.53% from the Asian Development Bank, and 5.03% from Australia.

QUALITY Are there any obstacles in the implementation of PPP in the toll road sector? The Director for Public Private Partnership Development of Bappenas, Bastary Pandji Indra said, one of the obstacles in the planning of PPP in toll road projects is quality. “Initially, there was reluctance from private investors in cooperating with the government. They doubted that the government can build quality roads but they finally accepted this scheme,” he said. According Bastary, private investors worry that the government will build their portion with bad quality roads. Maintenance will be troublesome when investors start managing the toll roads. “They are afraid of losing profit. It’s a hassle to

continuously fight over road maintenance,” he said. Previously, the government has never directly cooperated in the construction of toll roads. The government built Jagorawi Toll Road and now Tanjung Priok Port Access Toll Road. While the private sector constructs the segments such as KanciPejagan or Cimanggis-Depok Toll Road. As though sympathizing with the difficulties in offering PPP toll road projects, at the Ministry of Public Works, the Director General of Highways emphasized that the quality of toll roads must not be embarrassing. “As a contractor, Wijaya Karya must provide the best quality. Actually, this is also for their own good. If their work is good, they could be recruited by other investors,” he said. In order to maintain quality, said the Director General of Highways, there should be no compromise from the project supervisor. “The government is actually experience in building their own toll roads. We also built the Tanjung Priok Access Toll Road Project. The government handled everything, starting from construction, environmental issues, until HIV/AIDS treatment for workers,” said Djoko Murjanto. Now, Wijaya Karya is not only a contractor. In the 37 km long Mojokerto-Surabaya Toll Road project, Wijaya Karya who joined PT Marga Nujyasumo Agung (MNA) owns 20% shares. So, it is not demanding if Wijaya Karya is required to work as good as possible in this PPP toll road project. (*)

Kanci Toll Road Segment, Cirebon.

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HEADLINE NEWS

Jasa Marga - the largest toll road operator in

PROPERTY AND ACCELERATION OF TOLL ROAD DEVELOPMENT

Indonesia, has changed its business orientation. Not only does it builds and operates toll roads, but is has a larger vision to develop an adjacent business related to toll road corridors.

The shift of business orientation was decided by the Extraordinary General Meeting of Shareholders (EGMS) at the Grand Ballroom of Hotel Dharmawangsa, Jakarta, on 17th March 2011. State Owned Enterprise (BUMN) PT Jasa Marga Tbk. has officially changed Article 18 paragraph 3 of their Article of Association. With this amendment, in addition to toll road construction, Jasa Marga can engage in supporting business activities including property development at areas near toll road corridors; the development of transportation related services; distribution of liquid, solid, and gas materials; and information, technology and communications network facilities related to highway corridors. The policies of Jasa Marga are always black and white. Firm. For matters related to toll roads, Jasa Marga is also keen to have majority ownership even when acquiring certain hampered toll road segments. But it is different in non-toll matters. “In non-toll businesses, Jasa Marga doesn’t need to be the majority owner. We will select partners who are experienced in their respective fields,” said Jasa Marga President Director, Frans S Sunito. Jasa Marga is moving quickly to develop its business, primarily in the property sector. Cooperation has been established with property BUMNs such as PT Pembangunan Perumahan Tbk. Even in 2011, 125 billion of IDR 6.2 trillion of Jasa Marga’s capital expenditure has been allocated for non-toll business which focuses on the property business. For “warming up”, Jasa Marga intends to develop a rest area at KM 88 on Cikampek-Purwakarta-Padalarang (Cipularang) Toll Road. Shopping centers, culinary centers, and an amusement park will be built on 40 hectares of land. There is also a rumor that Jasa Marga along with its partners plan to construct a housing project around the SurabayaMojokerto Toll Road. However, Jasa Marga always denies by stating that the project is merely a feasibility study. The issue of land acquisition is the most complicated problem in this republic. No wonder if Jasa Marga chose not to disclose details of the plan, considering that it would trigger land speculators.

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HEADLINE NEWS

Even though Jasa Marga plans to construct houses, its location would not be a problem because with their primary status as a toll road operator, Jasa Marga could easily make a toll gate. Although of course, the location of such toll gate must be endorsed by an approval letter from the Minister of Public Works.

BREAKTHROUGH Before Jasa Marga “proclaimed” its involvement in the real estate business and out of its core business, there have already been other toll road enterprises that aren’t purely engaged in the toll road sector. Strictly speaking, those toll road enterprises construct toll roads to support other businesses. Why should they think about another business? Because new players in the toll road business might also worry about several weaknesses in the toll road business like those which occurred in past practices. Based on past experience, there are two weak points in the operation of toll business. Firstly, the tariff does not increase as it did in the New Order era. Secondly, the number of vehicles (traffic) passing is lower than that forecasted in the business plan. In Indonesia, almost every toll road which operated before the year 2000 had not increased their tariff. Consequently, toll road enterprises could not gain profit and face difficulties in repaying their loans. Lack of profit could reduce maintenance intensity which creates holes in the roads. This has never occurred in Tangerang-Merak Toll Road. Therefore, low rate of passing vehicles occur at Tanjung Morawa-MedanBelawan, Palimanan- Kanci, Juanda Airport-Waru, and Semarang City Toll

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Toll road and property development

Roads. In comparison, the Inner City, Jakarta-Cikampek, Jakarta-Tangerang, and Sedyatmo Toll Roads seem to continuously have high traffic. Generally, the low number of passing vehicles could be caused by the unconnected toll road networks (between one another) or underdeveloped areas. At Tanjung MorawaBelawan Toll Road for example, Medan Industrial Estate (KIM) was expected to contribute to the flow of vehicles. However, it turns out that KIM did not develop. In addition to “ceased” tariff, the low number of users of Merak-Tangerang Toll Road has also affected the toll operator’s finances. The root of the problem is because the industrial area along the toll road did not grow rapidly. This is also because Bojanegara Port which was expected to support Tanjung Priok Port has not been constructed. How do you connect toll road development? Ideally, how could toll road business as the core business avoid loss and achieve greater profit? Yes, you must make certain formulations. Nevertheless, what you must firstly think

about is how to avoid toll road enterprises from suffering loss. Afterwards, stategies on how to attract more toll road investors must be formulated. One way is by combining two or more profitable businesses by building a toll road as well as a property area. Not just housing, but also shopping centers, condominiums, and industrial areas. Railway business in Japan has been successful in combining railway operation business with non-core businesses. Hence, railway companies in Japan can suppress the price of tickets by cross subsidizing it with income from other businesses such as hotel, retail shopping centers, as well as other business at the station. For instance, the hotel at Tokyo Station area is very attractive due to easy access to long distance and inner city railway networks. Moreover, it is also located in the center of the city so it is close to government institutions. Accessibility is crucial for a property. The property premise always states, location, location, and location. Alam

Sutera opened a toll road access at KM 15 of the Jakarta-Merak Toll Road. They immediately developed commercial areas.

profitable. Why? Because property development in those areas is quite prospective as the local industry is growing.

Without toll road access for instance, who would know Karawaci? Karawaci will still be a rural area in Tangerang, far from the Daendels access road which was built between Anyer-Jakarta. The Tangerang-Merak Toll Road has increased the value of land in Karawaci to a level that may have never been imagined before.

Who doesn’t know the batik industry in Pemalang District, Pekalongan District, and Pekalongan City? If investors establish batik industries near the toll gate, it will be like passing two or three islands with a single row.

But not all developers are willing to be patient like Alam Sutera, Lippo Karawaci, and Lippo Cikarang. PT Bakrieland Development Tbk. for example, oversees PT Bakrie Toll which plays a major role in building toll roads. Nevertheless, toll roads are not the most important thing but access roads to the property complex is.

EXPERIENCE

It will be better if Bakrie Group builds simple flats for batik industry workers. This is surely an opportunity. There is also another business opportunity to build onion and salted egg warehouses by the toll road that passes Brebes. In addition, there is an opportunity to develop a wood processing and fishery industrial zone in Kendal Regency. Not only industrial zones, a batik mall on a toll road rest area is estimated to be profitable since it could attract toll road users to rest and shop for batik.

Bakrie Toll has successfully constructed 34 km toll road from Kanci (Cirebon Regency) to Pejagan (Brebes Regency). The Kanci-Pejagan and Batang-Semarang Toll Road which stretch for 75 km and other toll sections are still under construction.

The story of a developer constructing a toll road is not new. The toll road from Pondok Aren to Serpong (7.5 km) was constructed by PT Bintaro Serpong Damai as access to Bintaro Jaya and Bumi Serpong Damai housing estate before the ownership was finally taken over by PT Nusantara Infrastructure Tbk.

Toll projects along the northern coast of Java are definitely considered

Hiramsyah Thaib, President Director of PT Bakrieland Development Tbk. stated

“When talking about land acquisition, our company is the expert. We are property players who are used to acquiring land anywhere. Never doubt us when we are assisting in toll road development in Indonesia.” Land acquisition, it is the responsibility of the government. However, if bottlenecks occur in land acquisition, it is certainly an added value when investors can “intervene” in acquiring the remaining land needed. The complexity of land acquisition is the most crucial matter and it could hinder development. In addition, there are no other issues because road construction technology has been mastered and it is easier to seek for funding. So apparently, Bakrieland with Bakrie Toll will move faster and faster. One of its goals is the completion of the CiawiLido Toll Road which is a part of the Sukabumi-Ciawi Toll Road because one of Bakrieland’s largest land bank is located in Lido. If it has been constructed, not only Lido will benefit from the toll road. Sukabumi residents who have been tortured by traffic jams in the Ciawi-Sukabumi segment will also gain benefit. Once again, it will be like passing two or three islands with a single row. (*)

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POTENTIAL PPP PROJECTS The construction of Medan-Kuala Namu-Tebing Tinggi Toll Road is included in the Master Plan for the Acceleration and Expansion of Indonesia’s

MEDAN–KUALA NAMU–TEBING TINGGI TOLL ROAD, Prioritized to Develop Trans Sumatera Economic Development (MP3EI) as a priority Public Private Partnership (PPP) project by the government. This inclusion is part of the government’s plan to enhancfe infrastructure development in North Sumatra, as well as an efforts to develop the western region of Indonesia within the economy and national transportation corridors.

A 60 km long toll road will be constructed. According to the plan, the work will be divided into two stages. In the first stage, the Medan-Lubuk Pakam-Kuala Namu segment will span for 22.4 km. In the second stage, Lubuk Pakam-Tebing Tinggi will stretch for 47.4 km. Construction will last for a year in 2014 so the toll road is predicted to be ready for operation in 2015. The Medan-Kuala Namu-Tebing Tinggi Toll Road is one of the five priority toll road infrastructure projects offered by the government to the private sector through the PPP scheme. The total investment of these five projects reaches IDR 18.35 trillion. A number of people consider that the construction of this toll road deserves to be prioritized. During their visit to Medan last year, members of Commission X of the House of Representatives supported the construction of this toll road in order to boost the local economy through by enhancing the local tourism. The consideration is North Sumatra is rich in tourism potential so supporting facilities like this toll road will encourage tourists to visit. From the economic aspect, the existence of the toll road will have implications for regional economic growth which is a strategic issue in the development of a country. Medan City as the capital of North Sumatra Province is located on the outskirts of the Malacca Strait shipping lane. Thus, having a strategic position. The city serves as a gateway for domestic and foreign trade. For Medan, trading activities become the economy motor of the city. This can be achieved if it is supported by good road facilities.

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The presence of uncongested toll roads will certainly increase the flow of goods and people. Distribution of agricultural products and local goods can be accommodated by the toll road. Furthermore, infrastructures in strategic centres like Lubuk Pakam, Perbaungan, Rampah River and Tebing Tinggi will grow, trigger and increase social welfare. This perspective can be found in Tanjung Morawa Sub District, Deli Serdang District. The construction of Belawan -MedanTanjung Morawa (Belmera) Toll Road delivered an incredible impact to Tanjung Morawa which is now growing rapidly as an industrial, trade and manufacturing area. This toll road will serve as an alternative route for vehicles from Medan to Tebing Tinggi and will connect with Belmera Toll Road which will in turn, shorten travel time. If the travelling time from Medan to Tebing Tinggi took 2-3 hours, it will only take 45 minutes with this toll road. The number of passing vehicles is estimated to reach 12,568 units per day. As another advantage, this toll road will become a major supporter of the development of Medan-Binjai-Deli Serdang (Mebidang) Metropolitan and Kuala Namu airport which will replace Polonia airport. There are currently non-toll road to Kuala Namu airport, but since they are inadequate- especially if the airport commences to operation in 2013- toll road access is required. The Medan-Kuala Namu Toll Road will also play a part in developing transportation facilities, to and from the airport. The Lubuk Pakam junction is inluded in the draft development plan. This junction consist of roads leading to Tanjung Morawa and roads leading to Kuala Namu. There are also interchanges

at several points, which are Tanjung Morawa, Lubuk Pakam, Perbaungan, Mengkudu Bay, Sei Rempah and Kuala Namu. As for its specifications, the toll road has 2x3 lanes, with a width of 3.6 m each, 3.0 m wide road shoulder and 5.1 m vertical free space.

NEEDS FOR LAND The Local Government of North Sumatra is very enthusiastic and proactive towards the presence of the toll road. This is in decated by land acquisition for the location of the toll road. According to data from the Directorate of Toll Road Implementation Region I, Directorate General of Highways of the Ministry of Public Works, the total amount of land required for Medan-Kuala Namu Toll Road is 197.94 hectares, while only 15.83 hectares of land (approx. 8%) has been acquired. Meanwhile, land for Lubuk Pakam-Tebin Tinggi Toll Road amounting to 243.59 hectares will be acquired. Besides those owned by people, land to be acquried is also owned by Plantation State Owned Enterprises (BUMNs) such as PT. Perkebunan Nusantara (PTPN) II, III, and IV. Previously, the investor who originally wanted to implement the toll road project was forced to retire as they were constrained by land acquisition problems. The government eventually took over and land acquisition became the responsibility of the local government but was funded by the State Budget. “We are optimist that the land acquisition process will be easier because the government could negotiate directly with the BUMNs,” said the Head of Regional Development Planning Agency (Bappeda) of North Sumatra Province Riadil Akhir Lubis. Proactive steps are also taken by agreeing on the establishment of a Working Group for the Implementation of the Acceleration of Compensation for Land for the Project. “The Working aims to accelerate the process of land acquisitionon land owned by the people, PTPN as well as the private sector that affected by the toll road project,” said Expert Staff for Land and Asset Affairs of the Local Government of North Sumatera, Alexius Purba. Land acquisition is targeted to be completed by 2012. The total investment required to build the Medan-Kuala NamuTebing Tinggi Toll Road reaches IDR 4.391 trillion. From the total investment value, the government will participate by constructing the Medan-Lubuk Pakam-Kualanamu Toll Road which is worth IDR 2.6 trillion as well as acquiring land costing to IDR 750 billion. As for the remaining toll roads, the IDR 1.75 trillion Kualanamu-Tebing Tinggi Toll Road will be constructed by the private sector through the PPP scheme with a concession period of 35 years.

PREPARATION AND ASSESSMENT Based on studies conducted by government and relevant parties, the toll road has an Economic Internal Rate of Return (EIRR) of about 22.02% and a Financial Internal Rate of Return (FIRR) of 11.26%. This financial aspect is predicted to constantly rise, especially after the Kuala Namu airport starts to operate as it will trigger the growth goods and people flowing in the area. The tender process of this toll road project has already started. There were three Chinese companies that passed the prequalification stage. These include CHEC and CSEC in cooperation with PT Hutama Karya; Shanghai Construction General Company with PT Pembangunan Perumahan; and Sinohydro Corporation Limited with PT. Waskita Karya. The winner is BUMN Hutama Karya that cooperates with two Chinese contractors CHEC and the CSEC. “The government and the winning companies are currently preparing an assessment on security and completeness of the administrative process,” said Director General of Highways Ministry of Public Works Djoko Murjanto. In the cooperation system of the project, he added, local contractors receive a share of 20% while the Chinese contractors, who are technically recommended by China, will receive a share of 80%. The Ministry of Public Works has submitted the Medan-Kuala Namu Toll Road project to receive the assurance of PT Penjaminan Infrastruktur Indonesia (PII). Hopefully the guarantee will be provided in late 2012 after the project feasibility study has been conducted. According to the Head of Toll Road Regulatory Agency (BPJT) Ahmad Ghani Gazali, the value of guarantee to be obtained is equivalent to the value of projects built with the PPP scheme. This guarantee will be in the form of cash like insurance which guarantees the financing of projects if there is any delay in payment. Gate, As a result, indication shows Approaching Ciperna Utama Toll Cirebon that the construction of Medan-Kuala Namu-Tebing Tinggi Toll Road is indicating that it will be realized. Preparatory step towards the realization of project shows significant progress. This is warmly welcomed by the whole community of North Sumatra since the construction of this toll road has long been awaited. (*)

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POTENTIAL PPP PROJECTS

JAKARTA IS READY TO CONSTRUCT

SIX TOLL ROAD SEGMENTS The Local Government of DKI Jakarta is in the midst of preparing a toll road segment construction plan to increase the capital’s road network. This plan aims to suppress the level of congestion which is becoming more concerning in Jakarta.

Data from the Directorate of Traffic states that the average number of motor vehicles in Jakarta increases up to 700900 thousand units per year. Up to December 2011, the number of motors vehicles in Jakarta is estimated to reach more than 12 million units and 70% of them include two wheeled motor vehicles. Consequently, many residents complain about traffic jams due to the increasing number of motor vehicles. This condition is worsening because the number of vehicles is not proportional with the ratio between land and road area. Currently, land area used for new roads is about 6.2% of the 650 km2 area in Jakarta. Ideally, the area ratio between road and land area is 14%. Of course, traffic congestion happens everywhere, especially on roads located at business centres. Busy hours include mornings and afternoons when residents go to and from work. Vehicles can only run for 20 km/hour. To suppress traffic jams, the Local Government of Jakarta has finally planned to gradually build six flyover toll roads in the city. In the first phase, two toll roads will be built. These include the Semanan-Sunter corridor which spans for 17.88 km with an investment value of IDR 9.76 trillion and the Sunter-Bekasi corridor which stretches for 11 km with an investment value of IDR 7.37 trillion.

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In the second stage, onther the two toll road corridors will be constructed. These comprise of the 11.38 km long Duri PuloKampung Melayu corridor with an investment value of IDR 5.96 trillion and the 9.64 km long Kampung Melayu-Kemayoran corridor with an investment value of IDR 6.95 trillion. In the third stage, the 8.27 long inner city corridor of Ulujami-Tanah Abang will be built with an investment value of IDR 4.25 trillion. This will be followed by toll road projects for the Pasar Minggu-Cassablanca Corridor which spans for 9.56 km with an investment value of IDR 5.71 trillion. Therefore, the total length of all toll roads is 67.74 km with a total investment value of IDR 41 trillion.

PRIORITY SCALE Jakarta Governor Fauzi Bowo stated that the construction of six toll roads will be conducted based on priority scale. Semanan and its surrounding areas in West Jakarta until Sunter in North Jakarta are famous for its dense traffic. These areas are in need of adequate roads with large capacity. “Therefore, the construction of the Semanan-Sunter toll roads is prioritized for immediate work and folowed by the Sunter-Bekasi Raya Toll Road,” he said. Another consideration why this segment is prioritized is because it acts as a long

Tanjung Priok Access Toll Road, NS Section (Yos Sudarso-Simpang Jampea)

distance inter city traffic connector, which connects are Semanan-Sunter and SunterBekasi Raya. The physical construction will commence in late 2011 and will be completed by the end of 2012.

The construction of the six toll roads has also been included in the 2011 Public Private Partnership (PPP) Book as potential infrastructure projects in accordance with the Master-Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3I) and 2010-2014 Mid-Term Development Plan (RPJM). In the preparation towards the implementation of those projects, the Local Government of DKI Jakarta formed a consortium of Local Owned Enterprises (BUMD) of DKI Jakarta called Jakarta Toll Road Development (JTRD). The consortium comprises PT Jakarta Propertindo and PT Pembangunan Jaya Group. The six toll roads will be capable of accommodating up to 864,000 vehicles per day. The Ministry of Public Works through the Toll Road Regulatory Agency (BPJT) is ready to conduct the tender pre-qualification for the construction of six segments at the Inner City Toll Roads (JTDK). Tender will be done with the right to match scheme. This means PT JTRD is given an opportunity to select the investor that offers the lowest cost because the source of funding comes entirely from the investor. The Local Government of DKI itself has expressed its readiness to finance and execute the projects, although its implementation must wait until the 2030 Regional Strategic Spatial Plan (RTRW) has been endorsed. According to Governor Fauzi Bowo, after the Regional Regulation and RTRW are endorsed, the Environmental Impact Assessment (AMDAL) will be conducted. He also affirmed that land acquisition is minimal since the toll roads are constructed above the roads or in the form of a flyover.

construction of the project goes according to plan, the Kemayoran-Kampung Melayu Toll Road, including Duri Pulo-Kampung Melayu Toll Road, will positively be able to operate in 2014. Vehicles can run with a speed of 80 km/hour so time required from Kemayoran to Kampung Melayu will be much shorter. The current time takes an average of 30-60 minutes due to traffic jams. If you use the toll road, the trip from Kampung Melayu to Kemayoran will only take 10-15 minutes. As for the Pasar Minggu-Casablanca Toll Road, construction will be carried out in 2013. Construction will last for a year, so it could start operating in 2014. According to estimations, the Financial Internal Rate of Return (FIRR) will reach 19.02%, while the Economic Internal Rate of Return (EIRR) will reach 21.68%. In addition to the JTDK development plan, non-toll road projects are also being implemented. The Kampung Melayu-Tanah Abang and Blok M-Antasari overpass are currently being constructed to tackle congestion. Other non-toll roads include Semanan-Pulo Gebang where land with an area of 5 hectares will be acquired. In the transportation sector, infrastructure projects that will be implemented among others apply the Macro Transportation Program which includes Transport Demand Management (TDM), busway corridor, Mass Rapid Transit (MRT) as well as road improvement programs. Some of those programs which are being implemented included the construction of busway corridors and preparation of MRT and Light Rail Transit (LRT/monorail). In the transportation sector, refinement also includes the Local Government of DKI’s plans to operate commuter trains serving the route of Jatinegara, Manggarai, Dukuh Atas, Tanah Abang, Angke, Kota, and back to Jatinegara. The Local government

“The six JTDK segments will also be used as a busway lane. The system which will be used is mixed traffic lane with other motor vehicles,” he emphasized. The implementation of the JTDK project is expected to start this year or next year at the latest.

COMPLETION For the Kemayoran-Kampung Melayu segments for example, project preparation including land acquisition, tender and work contract will continue until 2012. Subsequently, the construction phase will be implemented in 2013. If the

Tanjung Priok Access Toll Road, NS Section (Yos Sudarso-Simpang Jampea)

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POTENTIAL PPP PROJECTS

CISUMDAWU Toll Road (Cileunyi-Sumedang-Dawuan) One of the vital infrastructures that is currently being encouraged to be constructed is toll roads. Indonesia which is currently left behind in the toll road sector must encourage the government to accelerate the completion of the construction of toll roads.

In the toll road sector, you could say that China has become

the Centre of National Activities of Cirebon Metropolitan area.

a role model. The first toll road in China was opened in 1988 and is 18.5 km long. Now the toll road has reached 65,065 km long. After the United States, China’s toll roads have become the longest in the world. In 2020, the Government of China aiming to construct 85,000 km of toll roads.

The project aligns with the government’s plans to spread economic growth throughout West Java. If the toll road is completed, the toll road will connect Cirebon Port and Kertajati International Airport in Majalengka. Majalengka airport will also be constructed.

What about Indonesia? In the toll road sector, although Indonesia has had toll roads for more than 30 years, the construction of additional segments is very slow. Since Jagorawi toll road was opened in 1978, the length of toll roads in Indonesia has only reached approximately 758 km. This means that only an average of 20 km of toll roads is constructed annually.

The positive impact from the construction of this toll road is that Sumedang District will turn into a tourism area. While in fact, Sumedang Regency is now merely a rest area for people heading towards the northern part of Java Island. Therefore, the economy in Sumedang will flourish, especially within the production and trade centres.

Considering this issue, the government is committed to accelerate toll road construction. In 2010, the government managed to build 52 km of new toll roads and in 2014, the government is targeting to achieve an average of 125 km/year. Therefore, cooperation with the private sector becomes the success key for the government in order to achieve the set targets.

In addition, the immediate operation of this toll road, it will reduce the burden of Tanjakan Cadas Pangeran road in Sumedang District which is prone to landslides.

One of the projects which are currently being encouraged by the government is the Cisumdawu (Cileunyi-Sumedang-Dawuan) Toll Road. The toll road which is 60.11 km in length is in an effort made by the Central Government and the Government of West Java Province. Specifically, this project aims to develop the central and eastern part of West Java, especially to support

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To expedite the completion of the toll road segment, the government has undertaken acceleration measures in acquiring land for areas passed by the toll road. In accordance with Presidential Regulation of the Republic of Indonesia Number 13/2010, land for this project will be provided by the government. Moreover, the government also provides reserve funds for other expenses which have not been predicted yet.(*)

PPP PARTNER PROFILE

SUPPORTING ACCELERATED INFRASTRUCTURE DEVELOPMENT Infrastructures play an important role in developing a region. Areas that have complete infrastructures tend to be more developed than those with limited infrastructure. The availability of infrastructures enhances the people’s welfare and prosperity.

From the private sector’s (investor’s) point of view, investing in infrastructure is a risky. The private sector then demanded the government to guarantee their investment in case of harmful risks. Responding to these demands, the government finally established Indonesia Infrastructure Guarantee Fund (IIGF) in late 2009 as a guarantee provider for infrastructure development in Indonesia. “The presence of IIGF marks a new era for infrastructure in Indonesia. This momentum is essential to encourage the acceleration of infrastructure projects in the country,” said IIGF President Director Sinthya Roesli. Infrastructure projects that receive guarantee, among others include transportation, bridge/toll road, irrigation, drinking water, wastewater and waste management, telecommunication and information, electricity, and transmission and distribution of oil and gas. According to her, this institution has become the spearhead of infrastructure development in Indonesia as well as the financial instrument framework for supporting Public Private Partnership (PPP) programs.

Pondok Ranji Toll Gate, Jakarta Outer Ring Road (JORR)

“With the establishment of IIGF, there will be no more impediments in infrastructure development, especially those caused by worries and risks faced by the private sector or investor because everything has been guaranteed,” she added.

Sinthya Roesli, President Director Indonesia Infrastructure Guarantee Fund

According to Finance Minister Agus Martowardojo in a meeting with the Budget Committee of the House of Representatives, it was stated that IIGF could only guarantee infrastructure credit for up to 25% from its total capital. For projects above IDR 500 billion, IIGF can only guarantee 50%. In contrast, IIGF can provide up to 100% for projects worth under IDR 500 billion. The legal basis of IIGF is Presidential Regulation Number 78/2010 regarding Infrastructure Guarantee in Public Private Partnership Provided through Infrastructure Guarantee Fund. This presidential regulation is one of the key regulations that supplement Presidential Regulation Number 13 Year 2010 in lieu with Presidential Regulation Number 67 Year regarding PPP. In addition to the program acceleration aspect, the presence of IIGF also provides a positive impact to the development of infrastructure projects since it is able to create an attractive market conditions for the procurement of infrastructure under the PPP scheme. This is consistent with IIGF’s role that presents a positive contribution to the three stakeholders, namely, the government, private sector, and project implementers. IIGF’s contributions towards the government among others include reducing the state loans for infrastructures, reducing the burden of government budget for infrastructure projects as well as supporting economic development through the development of infrastructure projects. For investors, IIGF plays a role in enhancing transparency, clarity and certainty in the process of guarantee provision. Meanwhile, IIGF towards contributes to project implementers by creating a competitive climate in the tender process infrastructure projects. Furthermore, the establishment of IIGF at least shows the government’s willingness to delegate its authority to an official institution so supervisory functions for infrastructure development can be more focused and optimized. This is reflected in the purpose of the establishment of IIGF which are as follows: September 2011 Edition - SUSTAINING PARTNERSHIP

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PPP PARTNER PROFILE

> Maintaining the quality of projects implemented through the PPP scheme by evaluating the project, structure of guarantee and claim process; > Improving governance and implementation of guarantee funds; > Becoming a facilitator for infrastructure projects; > Protecting the government from the uncertainty of receivables. According Sinthya Roesli, IIGF is the only institution in charge of assessing and processing guarantee. In carrying out its Role of various institutions at each stage of the PPP project

public for the guaranteed projects,” she said. IIGF was established with an initial capital of IDR 2 trillion which derives from the state. Having the status as a State Owned Enterprise (BUMN), the company is 100% owned by the government. Furthermore, the company is also supported by multilateral institutions like the World Bank which provided a loan of IDR 1.5 trillion to assist with capital and funding. The government plans to gradually increase its capital in the future. This year, they have agreed to increase the state deposit until IDR 1.5 trillion. The provision of State Capital Participation (PMN) to IIGF is also expected to enhance the credibility of guarantee and the company’s financial ability. Currently, IIGF can provide guarantee for projects worth USD 2 billion. Funds come from the company’s capital, government assistance, and cooperation with the World Bank and relevant institutions. Co-guarantee with the World Bank was conducted mainly for infrastructure development projects that have a value exceeding IIGF’s capital.

Source: Data from Corporate Secretary PT PII, 2011

functions and duties, IIGF as the institution which represents the government acts as a mediator for investor who acts as the fund holder and project implementer when entering into an agreement for infrastructure development with the PPP scheme.

COMPENSATION In addition, she continued, IIGF also acts as a “policeman” to ensure projects are properly implemented by project implementers. IIGF is also entitled to seek compensation if necessary. Usually, compensation is applied to failed projects (abandoned projects) or those who work on infrastructure projects but delivers unlike what has been agreed in the contract. Her institution will strictly apply sanctions and demand compensation to the contracting agency that has proved to have made a violation. “Our objective is to make contractors discipline and responsible as stated in the work contract. Another objective is to maintain the availability of our funds because IIGF is accountable to the government and the

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“By the end of 2014, we estimate that IIGF’s capital will increase to IDR 5.5 trillion. With such capacity, the number of projects that can be guaranteed will grow,” said Sinthya again. Those infrastructure projects include infrastructure projects of local governments, central government ministries/agencies, and BUMNs. Despite being relatively new, IIGF’s role in infrastructure development should be appreciated. A number of hampered infrastructure projects in the country were able to proceed due to IIGF’s role. For instance, the Coal Fired Power Plant (PLTU) in Central Java which is worth IDR 30 trillion, or toll road projects, drinking water projects, and Soekarno Hatta Airport railway project with a total guarantee reaching up to IDR 52 trillion. Furthermore, there are many more infrastructure projects in Indonesia that can be implemented thanks to the presence of IIGF. In the future, IIGF will have an increasingly important role. Moreover, in the 2010-2014 Mid-Term National Development Plan (RJPMN), it was revealed that the government needs approximately IDR 1.429 trillion for infrastructure development. From that amount, the government or BUMNs are only capable of funding IDR 511 trillion which comes from the State Budget (APBN), while the remaining IDR 918 trillion is expected come from the private sector through the PPP scheme. (*)

PPP EDUCATION

TOLL ROAD PPP Reviewed Case By Case In 2012, it is suspected that the Directorate General of Bina Marga of the Ministry of Public Works is going to obtain an indicative limit amounting to IDR 30.86 trillion from the proposed IDR 33 trillion. Budget for one Directorate in the Public Works is actually larger than the budget of the Ministry of Transportation. However, it remains insufficient for building new roads throughout Indonesia.

The Director General of Bina Marga Murjanto Djoko admits that the budget limit with such a large value is merely enough for the construction and maintenance of national roads only. “It’s difficult to build networks for new national roads,” he said. The national road network in Indonesia does stretch for 36,000-38,000 km. From Sabang to Merauke, each year, the central government maintains tens of thousands of kilometers of national roads, so they don’t only maintain roads in Java. People in this country often only consider that funds of the Ministry of Public Work’s are only spent on the maintenance of the north coast of Java (Pantura). They don’t understand how vast Indonesia is. As if, in the eyes of some people, funds of IDR 20-30 trillion per year is spent only on Pantura.

Funding needs for roads are very large indeed. Calculation for the period of 2010-2014 indicate that a total of IDR 148,005 trillion is needed to develop roads. Those funds will be utilized to increase road capacity up to 19,370 km and construct additional lanes for 13,000 km. This includes the development and preservation of national roads, ie; roads at border regions, outer islands, the development and preservation of the national strategic road network, as well as access roads to ports or airports. What is more concerning is more local governments are trying to divert the status of local roads into national roads. The reason is, those roads are recommended to become a national strategic road corridor. This is not only conducted by “poor” regions but also by rich provinces such as East Kalimantan. How ironic.

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PPP EDUCATION

Where have local government funds gone to? In July 2011, the Minister of Finance Agus Martowardojo explained, Budget Revenue and Expenditure (APBD) is mainly used for personnel expenditure, to pay for the salaries of Civil Servants. Throughout 2010, budget allocation for personnel expenditure increased to IDR 198 trillion from the allocated IDR 123 trillion in 2009. However, spending of APBD in 2010 amounted to IDR 96 trillion which is lesser than the previous year of IDR 104 trillion. This means, there is less money for development, including for road infrastructure development. Actually, the state’s budget is relatively sufficient for building a toll road in Java from Jakarta to Surabaya. The estimated final cost is IDR 60 trillion. Nevertheless, would it be wise to charge toll road development to the state budget? Considering that the impact is that we could not developed other toll roads outside Java.

Anyway, there are still plenty of infrastructures to be built. So it is not only toll roads, but also electrical installations, ports, airports, telecommunications, railway networks, to drinking water treatment. One method in building infrastructure is combining the power of the government and private sector within the framework of Public Private Partnership (PPP). Why must it be PPP? Because PPP does not only allow the private sector to play a bigger role in the development, but it also possesses characteristics such as efficiency, competitiveness, and professionalism (studies taken from the Institute of Management, Faculty of Economics, University of Indonesia). What about the construction of toll roads with private sector intervention? First of all, in any part the world, it is the obligation of the government to construct infrastructure. This starts from the provision of drinking water, electricity, telecommunications, transportation, and of course national toll roads. Since government funds are always limited, the concept of toll roads is introduced into the road sector in particular. According to our regulations, toll roads are alternative national roads where its construction is handed over to the private sector so the government can utilize its funds for other sectors or areas. Hence, it must be understood that tariff payment from users is not only meant to provide profit to the private sector. Its main purpose is to return their investment.

CASE BY CASE A toll road which has high traffic will logically have sufficient funds for maintenance and reparation, as well as a return of investment

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In order to understand more about PPP in the toll road sector, the Director of PPP Development, National Development Planning Agency

Dr. Ir. Bastary Pandji Indra, MSP., Director of PPP Development, National Development Planning Agency (Bappenas)

(Bappenas), Dr. Ir. Bastary Pandji Indra, MSP., was interviewed to express his views. “In essence, responsibility should not be transferred from the government to the private sector,” said Bastary. He also explained that if in the beginning of the implementation of PPP the “Public” or government portion seems small, it will gradually increase in line with several evaluations. In the past, everything was done by the private sector, said Bastary. Even from the provision of land until the land acquisition process. No wonder that many people considers that PPP does not exist in the PPP in the toll road sector. On the other hand, the government feels that PPP exists because they assists with the issuanceof the licenses. As a result, with a very large “Private” portion, only toll roads in “fat” routes could be developed. For instance are the Jakarta-Tangerang, JakartaCikampek, Jakarta Inner City, and Jakarta Outer Ring Road Toll Roads. On the other hand, Bastary stated that even though inter city toll roads are

unprofitable, it is essential for regional economic development. So the principle is if infrastructure is built, the economy is expected to grow. In order to accelerate toll road development, the government portion is increased by analyzing one project at a time. The government’s role is given depending on the financial feasibility of the toll road project. Since the government is probihited to subsidize the minimum revenue of a toll road or give cash to toll road investors, it was decided that the government will assist by constructing certain toll roads. For example, in the Solo-NgawiKertosono Toll Road, from a total of 179 km, the government will construct 63 km. Despite PPP has been managed to be as “flexible” as possible, other problems may still arise. For example, the decision to share and construction sharing requires thorough understanding before it can finally be accepted. Bastary said that investors are reluctant to share construction because they are afraid that the quality of toll roads constructed by the government or by contractor supervised by the government will not be satisfactory. If the quality differs, private investors worry that it will burden them with maintenance, which of course needs a larger amount of funds,” said Bastary. For example, in the Solo-NgawiKertosono Toll Road case, the government actually wanted to emphasize on how the government is very flexible with toll road PPP Projects. Even though the regulations are constantly being revised, there is a large opportunity to evaluate toll road projects in each segment to determine the form of support.

IMPROVEMENT OF PPP Bastary also explained that there have been misunderstanding regading PPP. For example, Local Owned Enterprises (BUMD) often constrains the implementation PPP. “BUMDs may not necessarily be the right party to be involved in developing toll roads. However, BUMDs are sometimes asks to participate so they could obtain a share of profit,” said Bastary. Nevertheless, Bastary tries to understand the deficiencies in the preparation and implementation of PPP. Indonesia is 10 years left behind from Korea, Malaysia, and India in terms of PPP. In Korea for instance, Bastary said, it was proven that land acquisition is faster and less expensive if it is conducted by the government. “We are still in process and PPP will continue to evolve because this is time to grow. Because if it doesn’t, Indonesia will be left behind, lose the moment to pursue growth,” said Bastary. According to him, there are two main points in PPP the government is trying to solve, namely the financial problems and bottlenecks in land acquisition.

said Bastary. The Bill clarifies the process of land acquisition. Bastary said that the litigation until the decision process is also included in the Bill. “In the past, the disputed land must not be worked on until there is a court decision. That will change,” he said. In the past, there have already been rules on revolving loan funds in the form of Public Service Agency (BLU). In fact, land freezing was also regulated the speed of land acquisition is not yet as expected. According Bastary, the government continues to expedite the completion of regulations even though it must revise various regulations to make it more perfect. “We are actually saddened by this condition (toll road development).Neighboring with slower construction abilities are completing their construction much quicker than us,“ said Bastary.(*)

To solve the financial problems, Indonesia Infrastructure Fund (SMI) was established. Furthermore, the Indonesian Infrastructure Guarantee Fund (IIGF) was also established. Meanwhile, to solve bottlenecks in land acquisition, breakthroughs must be made. The current main issue that still stands is how to finalize the discussion of the Land Acquisition Bill for Infrastructure Development. “Bappenas participated in the discussion of the Land Acquisition Bill. In actual fact, this was initiated by Bappenas. The bill is drafted based on the experience of many issues in the provision of land for infrastructure,”

Soccer supporters climb on top of a bus, breaking the law of driving in toll roads. This picture was taken at Taman Mini toll gate.

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FIGURE

Achmad Gani Ghazali Akman Head of Toll Road Regulatory Agency (BPJT)

ACTIVELY TENDERING TOLL ROAD PROJECTS TO INVESTORS is in dire need of additional toll roads as far as 200 km in order to suppress the level of traffic congestion.

Congestion in toll roads is definitely annoying. Ideally, toll roads should be congestion free! Congestion often upsets Ahmad Gani Ghazali Akman “Looking at congestion in the toll roads makes me dizzy,” he said.

This expression may be a sign that the availability of toll roads is not yet adequate enough. Therefore, since his appointment as the Head of Toll Road Regulatory Agency (BPJT) of the Ministry of Public Works on 23rd July 2010, he immediately launched a program to increase the number of toll road segments. “I will encourage delayed toll road development so it could soon be realized. I will also tender government toll road projects so it could be implemented,” says Achmad Gani Ghazali Akman who is used to being called Gani. It is admitted that the current length of toll roads in Indonesia which reaches 758 km, is still incapable of accommodating the flow and movement of people or goods effectively. Jakarta itself, he says, is still

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It was recorded that there are 24 hampered (pending) toll road projects. These projects will be continued. One of the projects which will be continued is the Trans Java project which covers the segments of Jakarta-Probolinggo, as well as in areas of Jakarta such as Cengkareng-Tangerang, SerpongCinere, Cinere-Jagorawi, and JagorawiCikarang. “We plan to construct the 662 km Trans Java Toll Road in 2014. This is conducted in order to realize Indonesia’s targeted toll road development of 1.422 km in 2014” explained the graduate of Civil Engineering of Bandung Institute of Technology (ITB) and Master from the University of New South Wales, Sydney, Australia in 1989. Furthermore, his ministry along with Indonesia Investment Coordinating Board (BKPM) and the National Development Planning Agency (Bappenas) are actively performing sales and marketing programs by tendering toll road projects to the private sector or foreign investors such as in the Indonesia International Infrastructure Conference & Exhibition 2011 where investors are offered toll projects. It was understood that foreigners such as China, Korea and Taiwan are very interested in toll road infrastructure projects in Indonesia. Moreover,

government support through various policies and compensation for investors such as the establishment of Indonesia Infrastructure Guarantee Fund, PT Sarana Multi Infrastruktur (SMI), funding provision from the Public Service Agency (BLU), land capping and land acquisition have contributed in attracting these foreign investors. “We are optimistic because the number of investors and private sector investing in the toll road sector is growing. Toll road investment will be profitable wich is supported by the continuously growing social and economic dynamics of the society,“ said the man born in Bogor in 1961 who now has three children. On the other hand, he admitted that people are still complaining about the congestion on toll roads. Like the saying goes, ‘like water on a leaf’. Although many toll roads will be built, still, congestion will be inevitable. Why? “Because toll roads have not yet been fully associated with public transportation which complements one another,” said Gani. This means, modes of public transportation must be improved so private vehicle users will switch to public transportation. That way, the number of private vehicles on the roads will be reduced. Subsequently, roads in the form of flyovers will be built to suppress intersections that cause congestion. “If public transportation is well organized and function optimally, I believe that the problem of congestion on the toll roads could be suppressed,” he said.(*)

NEWS AT GLANCE

THE SECOND AMENDMENT TO PRESIDENTIAL REGULATION 67/2005 Presidential Regulation No. 67/2005 regarding Government the Cooperation between the Government and Business Enterprises in Infrastructure Development is the legal umbrella for infrastructure development under the Public Private Partnership (PPP) scheme. Over time, some amendments and changes are necessary. The first amendment was made by Presidential Regulation No. 13/2010. Several issues revised through this presidential regulation is related to tender process that allows direct appointments, and regulations regarding the transfer of shares and clarity of government support and guarantees provided to investors.

The second amendment to Presidential Regulation No. 67/2005 was done through Presidential Regulation No. 56/2011 dated 9th September 2011. Some amended provisions are as follows: 1. The preparation of a prioritization list for PPP projects in the PPP Book; 2. Allowing the participation of foreign legal entities as project initiators. But if this foreign legal entity wins the tender, it must establish a legal entity in Indonesia; 3. Government support can be provided in the form of financial contributions; 4. The existence of reimbursement mechanisms for Project Preparation Costs that can be charged to the tender winner.

This regulation was used as the basis for the construction of a Coal Fired Power Plant (PLTU) PPP Project in Central Java. This is the first large scale PPP Project which was based on Presidential Regulation No. 56/2011.(*)

The socialization of Presidential Regulation 67/2005 as amended by Presidential Regulation 13/2010.

HARMONIZATION OF LAWS AND REGULATIONS Private Partnership Development Directorate of the National Development Planning Agency (Bappenas).

Workshop on the Assessment on the Harmonization of Public Private Partnership Laws and Regulations in Infrastructure Provision.

Located at Arya Duta Hotel on 15th August 2011, a workshop on the Harmonization of Law and Regulation in Public Private Partnership (PPP) Studi in Infrastructure Provision was held. The forum highlighted PPP regulations regarding drinking water and electricity. The event was organized by the Public

Study outcomes were presented by a team from the Indonesian Center for Law and Policy Studies (PSHK) and assessment on the implementation PPP in the 2 x 1000 MW Coal Fired Power Plant (PLTU) Project in Central Java was presented by Binarto Bekti Maharjana from the State Electricity Company (PLN). The third assessment regarding PPP in the drinking water sector was presented by Adi Susetyo from the Drinking Water Company (PAM). The PSHK team presented an inventory of problems associated with the main PPP regulations and study outcomes of PPP regulations in the drinking water and electricity sector. The assessed main regulations include Presidential Regulation No. 13/2010, Government Regulation No. 50/2007, and

Government Regulation No. 6/2006. There are three issues which arise. Firstly, those related with the object of PPP projects itself which includes the assessment between Presidential Regulation No. 13/2010 and Government Regulation No. 50/2007. Secondly, those related to funding or support provided by the Government. Thirdly, the relation between Presidential Regulation No. 13/2010 and Government Regulation No. 6/2006 concerning the management of state and local owned enterprises. The next assessment is regarding PPP in the electricity sector with a case study on the PLTU in Central Java which became a model for PPP projects. Thanks to the good cooperation between sectors in the government, it is now headed to the stage of contract signing. This is a success story that has a long process because it started in 2008.(*)

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Bird’s eye view of Taman Mini Toll Road Segment. Jakarta, around 10.00 am on a weekday.