Indonesia infrastructure Update: Plans for Toll Road from Jakarta to Surabaya

Indonesia is characterized by weak infrastructure, both in terms of quantity and quality as well as in terms of soft and hard infrastructure. As a result of weak infrastructure, Indonesia's logistics costs rise steeply, thus reducing the country's competitiveness and attractiveness of the investment climate. Since the start of the Reformation period (after the fall of Suharto in 1998), the Indonesian government has more or less ignored the state of its infrastructure, while traffic has increased because of a quickly expanding economy. The country's recent gross domestic product (GDP) figures have shown strong growth. Between 2007 and 2013, Indonesia's GDP grew between 5.5 and 6.5 percent (with the exception of 2009 when growth fell to a 'disappointing' 4.6 percent amid the global financial crisis). The quickly expanding economy implies more trade and services, more traffic, more (foreign and domestic) investments and other sorts of economic activity, which all need to be absorbed by the country's infrastructure. It has caused grave traffic problems within cities (for example in Jakarta and Surabaya) but also between cities or between islands, and has also impacted on international (trade) traffic (for example Indonesian harbours or airports that are operating at overcapacity). In fact, would Indonesia have had decent infrastructure, GDP growth rates could have touched 8 to 9 percent in recent years.

Although it took time, the government of Indonesia did eventually realize that it needed to tackle the country's infrastructure problem. The main issue of course, as usual, is money. The government needs private sector participation to fund development of the country's infrastructure and is therefore trying to promote public-private partnership (PPP) projects (within its Masterplan for Acceleration and Expansion of Indonesia's Economic Development, abbreviated MP3EI). However, up to this day there have not been any major breakthroughs yet. Therefore, the importance of (partly) state-owned enterprises (SOEs) within the development of Indonesia's infrastructure has been raised. Recent infrastructure projects, such as the new Bali Toll Road, the Jakarta Flyover or a series of airport renovations have all involved state-owned enterprises (and regional government departments).

For the Jakarta-Surabaya toll road, 19 state-owned enterprises signed a memorandum of understanding in early October 2013 in which they acknowledge their participation in the project. These companies are:

             Participating State-Owned Companies
Pelindo II Brantas Abipraya
Pelindo III Hutama Karya
Jasa Marga Bank Mandiri
Adhi Karya Bank Rakyat Indonesia
Waskita Karya Bank Tabungan Negara
Wijaya Karya Taspen
Istaka Karya Jamsostek
Nindya Karya Krakatau Steel
Pembangunan Perumahan Semen Indonesia
Bank Negara Indonesia  

The feasibility study is expected to take at least six months time before its results can be presented to the government. Therefore, it is highly unlikely that the groundbreaking of the project (which is valued at IDR 150 trillion or about USD $13.3 billion) can be conducted in 2014.

The Jakarta-Surabaya toll road will connect the Tanjung Priok harbour in Jakarta to the Tanjung Perak harbour in Surabaya. It is also planned to be extended from Jakarta to Merak on the western tip of Java as Merak is an important trade route to Sumatra. Currently, a kilometers-long queue of trucks waiting to cross over to Sumatra by ferry is a daily phenomenon around the Merak harbour in Banten (West Java) as there is no road connection yet. The government aims to establish a road and railway connection between Merak and Sumatra through the Sunda Strait Bridge. However, before this grand project is able to materialize many bottlenecks need to be overcome.