In its bid to enhance connectivity across the Indonesian archipelago, the government of Indonesia is eager to boost toll road development. Enhanced connectivity is key to curtail the nation's high logistics costs hence improving the competitiveness of domestic businesses while also making the investment climate more attractive. Besides business interests, enhanced infrastructure development is also important from a social point of view (for example, people's access to healthcare is improved). In this column we take a look at the developments of the Balikpapan-Samarinda toll road on the island of Kalimantan.
On Tuesday (23/03), Indonesian President Joko Widodo visited Balikpapan to see the latest developments of the Balikpapan-Samarinda toll road project that is currently under construction. This toll road is part of the government's target to build 1,000 kilometers of additional toll roads in the 2015-2019 period (other key toll road projects include the Trans-Sumatra, Trans-Java and Manado-Bitung). Currently, Indonesia's toll road network stretches for 950 kilometers. In other words, the government wants to (nearly) double the length of the nation's toll road network in the next few years, an ambitious target that may not be achieved due to Indonesia's notorious land acquisition troubles.
The Balikpapan-Samarinda toll road, which is designed to stretch for 99 kilometers not far from the coastal line between the cities Balikpapan and Samarinda (the capital city of East Kalimantan), is estimated to require IDR 13.1 trillion (approx. USD $985 million) worth of investment. The project is divided into five sections. Construction of one of the sections will be fully funded by the central government's state budget (APBN) and the regional state budget (APBN-D). Another section will be financed through a loan from China. The remaining three sections will be tendered to the private sector, probably in April or May 2016, depending on the progress of land acquisition. Widodo said the land acquisition process for the whole toll road is now completed for about 85 percent.
Reportedly, four private parties are interested to participate in the tender for the Balikpapn-Samarinda toll road. Three of these parties are consortiums: (1) Jasa Marga, Wijaya Karya, Pembangunan Perumahan, and Bangun Tjipta Sarana, (2) Citra Marga Nusaphala, Kaltim Bina Sarana Konstruksi, Brantas Abipraya, and Istaka Karya, and (3) Naza Engineering & Construction and Daya Mulia Turangga. The other party that is interested to join the tender is Waskita Toll Road.
The whole Balikpapan-Samarinda toll road project is expected to be completed by 2018. The road, which should cut travel time between both cities to about one hour (from nearly three hours currently) is part of the nation's Trans-Kalimantan highway development program.
The Balikpapan-Samarinda toll road is one of the many infrastructure projects in Indonesia that has been plagued by land acquisition trouble. Initially construction of this toll road took off in 2010. However, construction was halted for a period of five years as developers failed to purchase all required land. Usually land owners ask for extremely high prices when their land is envisaged to become used for a infrastructure project. Many infrastructure projects have been scrapped or delayed due to conflicts over compensation, which subsequently discourages (foreign) investment in infrastructure projects in Indonesia. After all, investors need certainty about forecasts for adequate returns, especially when it involves costly investments. The Indonesian parliament did pass the Land Acquisition Act in 2011 (a law that was designed to speed up the land acquisition process). However, lack of political will seems to be reason behind why this law remains largely unused.
President Widodo acknowledged that land acquisition turmoil is the key bottleneck that causes problems for infrastructure projects in Indonesia and therefore said it requires breakthroughs to successfully deal with the land acquisition process. He did not specify how the land acquisition process was sped up exactly in the Balikpapan-Samarinda toll road project but for sure involvement of the Indonesian government seems to be the key. Another project, the USD $4 billion controversial Batang power plant project in Central Java, also only managed to acquire the remaining necessary land after the central government actively supported the development. Widodo visited the groundbreaking ceremony for this power project in August 2015 even though some 20 hectares of land within the total concession area was still withheld by local farmers. Widodo's presence was a clear sign that he chooses wider economic and social benefits of infrastructure development over the preference of a limited number of local residents (trying to maintain their ancestral land). In the Batang power plant case the government used the land acquisition law to speed up the process. This was a very interesting test case. In February 2016 Indonesia's Supreme Court ruled in favor of the investors (Indonesian coal miner Adaro Energy, Japan's Electric Power Development Company/J-Power and Itochu).
It was earlier reported that the Indonesian government will allow full (100 percent) foreign ownership of operations of toll roads in the country (up from a maximum of 95 percent currently). However, besides above-mentioned land acquisition turmoil, another reason why (particularly foreign) investors are hesitant to invest in Indonesia's toll road sector is uncertainty about the nation's toll road tariffs.