Commentary: Time to Get to Work on Long-Awaited Infrastructure Development Projects


APRIL 13, 2015

Infrastructure continues to be a regular topic of discussion in the Indonesian media and among people generally.

Everyone is impatient to see things happening, projects awarded and underway, although there is a growing realization that the ambitious targets tabled at the start of the new administration are not achievable in a five-year time frame.

However, key projects must be got underway as a matter of urgency and a sound framework put in place to ensure continuity in the future.

The significant increase in budget awarded to public works is causing indigestion in terms of preparing projects to go out to tender.

In the past, it has always been an unwieldily slow process with annual budget expenditure tending to be rushed out toward the end of the year.

With the rush to accelerate project development along with the additional funding, the preparation and tender award system need to be streamlined since they currently cannot cope.

Disturbance in the water

Perhaps the most disturbing recent action was the annulment of the 2004 Water Law by the Constitutional Court, obviously without any real consultation with government.

This has thrown the sector into some disarray since the preceding 1974 law, which comes back into force, although hopefully only temporarily, was drawn up in the early days of Indonesia’s march to development, when life was dominantly rural, today’s industry was something for the future, and the population was less than half of what it is today.

The 1974 law had only 17 provisions and was aimed at ensuring food security for the conditions prevailing at that time.

The 2004 law, albeit still with anomalies to be resolved, did attempt, with its more than 80 provisions, to address the much more complex demands on the nation’s water resources and supply needs.

Today, the 55 percent of the population of 250 million dependent on an urban lifestyle, with attendant commerce and industry, is more than the total population of the early 1970s, when only a small fraction lived in cities and Jakarta had less than five million people.

It is thus very clear that the 1974 law is totally inadequate to deal with today’s requirements.

What was required was a sensible and quick approach to adjust the anomalies that affected the poor and not a poorly considered annulment.

A major problem over the years has been the time taken to put in place the implementing regulations that back up a new law.

It is now an issue of paramount importance that the government as quickly as possible put in place a presidential instruction in lieu of law (perppu) that allows the governance reform steps that have been taken to be consolidated and expanded.

It is also important that the position of the private sector, from which considerable funding is required to meet the stated new target date of 2019 for the Millennium Development Goals, is protected, otherwise today’s potentially dangerous conditions in the sector will only deteriorate.

For Jakarta itself, bringing to an end the significant reliance on pumped groundwater, especially for the key central area of the city, cannot be realized without finding credible alternative sources of supply.

This again raises the question of water storage to provide the piped surface water required to replace that currently abstracted from the groundwater.

Even that will be insufficient to meet the demand to support developments to the north of the city, which will have to be served through storage built as part of the protection works against seawater incursion arising from groundwater pumping-induced subsidence.

Roads, ports and airports

For the upcoming development of the ports sector, there is awareness that improving the road links into ports to be upgraded has to be seen as an essential parallel activity to ensure that the functioning of the improved ports is optimized, and not only for Tanjung Priok.

Much has to be done to improve the functioning of Soekarno-Hatta International Airport.

As the world’s eighth-busiest airport with more than 61 million passengers a year and double-digit growth, it is timely that a third runway be put in place and a fourth terminal built.

The airport will then be on the way to becoming one of the top three busiest in the world.

However, it is not sufficient just to undertake these two construction projects. The land connections to the airport are already creaking with long toll-road tailbacks at peak flight times.

There is a need to double the road capacity to the airport and expedite the construction of the proposed rail link to the city center, a plan that has been on the table for the past decade.

The high-priority air-rail link has been designated a PPP project, but the cost analysis shows that the return on investment for any private sector funding needs a complementary substantial input from the public side.

This has raised the idea of Viability Gap Funding (VGF), which is government-level support to allow a project to be built while providing sufficient comfort on return for the private funding input.

The VGF proposal has also been raised for some large water projects that have been stalled for similar reasons. Other variations to the funding mechanism are also being explored, but the air-rail link project is very much needed as quickly as possible just on economic grounds.

The above is just a snapshot of current issues and discussions. There remain many other projects that are also pressing, for which industry capacity is going to be sorely tested.

Scott Younger is the president commissioner of Glendale Partners and director of Nusantara Infrastructure.

The article first appeared in the April edition of GlobeAsia magazine.