The Indonesian government will speed up construction of the 2,700 kilometers-long Trans-Sumatra toll road by revising Presidential Regulation No 100/2014 on Toll Road Construction in Sumatra and by accelerating the land acquisition process. The Trans-Sumatra toll road will become the main highway on Sumatra that connects Banda Aceh in the north to Bandar Lampung in the south through 24 sections stretching across ten provinces. President Joko Widodo said that construction of the highway is to start in April 2015.
President Widodo regards the Trans-Sumatra toll road as one of the key infrastructure projects that will have a multiplier effect on the economy of Indonesia. Currently, the country is plagued by high logistics costs due to the lack of quality and quantity of infrastructure hence seriously reducing companies’ competitiveness. The toll road is estimated to cost a total of IDR 300 trillion (USD $23.1 billion).
Land acquisition and (lack of) funding are generally the main obstacles to infrastructure development in Southeast Asia’s largest economy. In 2005 and 2008, the Indonesian government had already tendered parts of the Trans-Sumatra toll road to the private sector. However, due to the high costs involved in combination with the low internal rate of return (IRR) the private sector showed no interest in the project. Moreover, the land acquisition process creates great uncertainty about the progress of infrastructure projects in Indonesia despite having Law No. 2 of 2012 and Presidential Regulation No. 71 of 2012 for land acquisition for public facilities (which both aim to accelerate the land acquisition process by dealing with the revocation of land rights to serve public interest, and putting time limits on each procedural phase). To overcome this situation the Indonesian government reserved IDR 3 trillion (USD $231 million) in the 2015 State Budget for land acquisition in the context of the Trans-Sumatra toll road (however total land acquisition costs are estimated at IDR 15 trillion). Meanwhile, state-owned construction company Hutama Karya, which previously had already been appointed to construct four sections of the toll road, is now expected to construct all sections (and therefore Presidential Regulation No 100/2014 needs to be revised). However, Public Works and Housing Minister Basuki Hadimuljono stated that due to the size of the project other state-owned enterprises and regional governments are welcome to participate in the construction of the project. The Minister added that the first section that will be ready for use is a 2 kilometers-long part of the 16 kilometers-long Medan-Binjai section. This part is expected to be completed in 2016. The whole Trans-Sumatra toll road, however, is estimated to be completed by 2025.
Resource-rich Sumatra is the second-largest island of Indonesia in terms of geographic size (after Kalimantan) and also the second-largest island in terms of population size (after Java). The island is rich in palm oil, coffee, rubber, coal, tin and oil & gas. Sumatra has been designated as a "center for production and processing of natural resources and energy reserve" in the first economic corridor of the Masterplan for Acceleration and Expansion of Indonesia's Economic Development (MP3EI).