Infrastructure in Indonesia: Update Trans-Sumatra Toll Road Development
Indonesian Minister for Public Works and Housing Basuki Hadimuljono doubts that construction of the Trans-Sumatra toll road will be completed by 2019. The minister already informed Indonesian President Joko Widodo about his concern. As usual, the main issue that forms a time-consuming matter in infrastructure projects in Indonesia is land acquisition. And while land prices on Sumatra are relatively cheap, the sheer size of land that needs to be purchased for this toll road makes it a challenging process. Regarding the Trans-Java toll road, on the contrary, Minister Hadimuljono says completion by 2018 is possible.
Groundbreaking of the Trans-Sumatra toll road was held in October 2014. The toll road will connect Banda Aceh in the northern tip of Sumatra - Indonesia's second-largest island - to Lampung on the southern tip, with a total length of more than 2,800 kilometers consisting of 24 sections that stretch across ten provinces. Originally, the toll road was slated to be completed by 2019. Although this target still stands, more and more people - including government officials - doubt that the target can be achieved.
Eight sections have been selected as 'priority sections' implying these sections are scheduled to be completed before 2019 (for example the Medan-Kuala Namu-Tebingtinggi or Palembang-Indralaya sections). However, two matters jeopardize these targets: (1) land acquisition and (2) funding.
Taufik Widjoyo, Secretary General at the Ministry for Public Works and Housing, confirmed that land acquisition is more difficult on the island of Sumatra compared to Java, even though the land prices are less expensive on Sumatra. This is due to the sheer size of land required to construct the 2,800-km Trans-Sumatra toll road is larger than that for the 498-km Trans-Java toll road. Still, optimistic voices say that the land acquisition process for the whole road will be completed in the first quarter of 2017. Meanwhile, the Trans-Java can rely on "bailout" funds from the ministry's Toll Road Regulatory Agency (BPJT), while the Trans-Sumatra toll road has much difficulty to collect the necessary funding because the toll road is regarded not financially viable, although in terms of the wider economy this toll road is an important asset to the country. Having a lack of commercial appeal implies that it is hard for state-owned company Hutama Karya - assigned to develop the Trans-Sumatra toll road - to collect the required funds from banks and other financial institutions.
Sigit Rusanto, Corporate Secretary at Hutama Karya, confirmed that generating funds to finance the Trans-Sumatra toll road project is a key problem for the company. He therefore hopes that banks and regional governments are more willing to invest in this project and thus support growth of the wider economy. Rusanto added that it would be best if the central government decides to offer guarantees to creditors in order to attract loans.
The whole Trans-Sumatra toll road project requires some IDR 331 trillion (approx. USD $25 billion) worth of investment. However, only IDR 5.07 trillion has been collected so far for the eight priority sections, consisting of a capital injection worth IDR 3.6 trillion from the central government's 2016 State Budget and two loans from Sarana Multi Infrastruktur; a IDR 481 billion loan for the Medan-Binjai section and a IDR 990 billion loan for the Palembang-Indralaya section.
In case the central government decides to add the province of Aceh as a priority section of the Trans-Sumatra toll road (implying the section needs to become online before 2019), then costs will rise further. During a recent visit to Aceh President Widodo expressed his support for this decision.
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).