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INDONESIAN COMMERCIAL NEWSLETTER
January 2010

PROSPECTS AND OPPORTUNITY OF INVESTMENT IN INFRASTRUCTURE  2010


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Development of  infrastructure is an important and vital aspect  in the efforts to accelerate the country's economic development. Infrastructure is one of the main driving motor for the country's economic growth. Economic development needs the support of various types of infrastructure such as transport, telecommunication, sanitation, and energy facilities. Transport infrastructure is the backbone of the process of production and it will facilitate the mobility of the people and distribution of commodities and exports. Other facilities and infrastructure such as telecommunication, electricity and water are also important elements in the process of production of economic sectors such as trade, industry and agriculture.

The government has set the country's economic growth target at 7% in 2012. In order to meet the target, there should be adequate infrastructure. The National Development Planning Board (Bappenas) said around Rp1,400  trillion would be needed for  infrastructure  development in  2010-2014.

Competitiveness of infrastructure  weak

Inadequate budget set aside for  the development  of  infrastructure resulted in  Indonesia to continue to be less competitive in infrastructure in this region. According to Global Competitiveness Report 2009-2010, Indonesia ranks the 96th among 133  developing countries in infrastructure competitiveness far below Thailand in the  41st, Malaysia  the 27th  and  China  the 66th.  See the following table.

According to data at a Bappenas, the budget for  infrastructure  considered idea is 5%-6% of the GDP and currently Indonesia's infrastructure  budget is around  3.25% of GDP. The budget ratio is expected to rise  to 5% in 2014.

Priority in development program in  first 100-days of new government.

The government has given serious attention to improving the condition of infrastructure in the country in the first 100 days of its administration as it is strategically important to support economic development. The government has outlined a 10-poit strategy in infrastructure development as follows:

"        Improvement of the environment health  through  development  drinking water facilities  in 1,379 locations for low income people  and development  sanitation  in 61 locations.
"        Technical auditing to restore the functions of dams, dykes and irrigation systems   holistically  and in integrated system.
"        Improvement of capacity  of cross roads in Sumatra and  Sulawesi totaling  695 kilometer, as part of development of the cross roads of Sumatra, Java, Bali, West Nusa Tenggara, East Nusa Tenggara, Kalimantan, Sulawesi, and  Papua totaling 19,370 km  in 5 years.
"        Setting up of a team to prepare infrastructure connecting Java with Sumatra  to carry out feasibility study
"        Completion of flood control canal  in Jakarta.
"        Increase the occupancy rate of low cost apartment buildings already built and to be built from 40% to 80% in 100 days.
"        Completion of  establishing telephone connections to 25,000 villages in  32 provinces  
"        The launch of local information technology and communications  and at the same time strengthening the program of Indonesia Go Open Source- IGOS.
"        Improvement of  transport service for backward  and isolated communities.
"        Improvement of fishing port facilities and  infrastructure with drinking water facility  and ice factory by the government.

Challenges in  infrastructure, 2010

One big problem yet to be solved in  the infrastructure sector is shortage in power supply. The reserved margin is still below normal. Some areas even have suffered deficit. In 2008, there were 7 systems having a total deficit of (243 MW). Another problem is inefficiency  in consumption  and in the use of electric equipment by consumers.
A challenge in the development of electricity sector is the utilization of  alternative sources of energy, which are easily available locally especially primary energy potentials. Also a big  problem is limited financial capacity and difficulty in land clearing.

The challenges in the development of  transport sector in 2010  include lack of discipline among the users and providers of transport facilities such as overloading of vessels or other vehicles with cargoes and passengers. In addition, traffic jams is getting worse from year to year, imbalance  in the provision  and demand for transport capacity.

In energy sector the main problems include capacity of oil refinery being below requirement, low capacity of oil and gas transmission and distribution pipelines, low utilization of primary energy sources outside oil  such as natural gas, geothermal,  and coal and renewable energy sources  (solar, water, wind and biomass) The state, therefore, continues to be burdened with huge energy subsidy.

Development   of infrastructure,  2010

In the government's working plan (RKP) for 2010, the government  underlines the policy of development of  facilities  and  infrastructure  in :

"        Increasing infrastructure service in line with  Minimum Service Standard (SPM) through :  (1) rehabilitation, operation and  maintenance of facilities  and  infrastructure  in line with requirement   to guarantee the sustainability of public service; (2) increasing accessibility  of coverage  of facilities  and  infrastructure  services  in isolated and  frontier areas and islands;  (3) increasing the availability of facilities  and  infrastructure  for poor  communities both in urban and rural areas, isolated, interior and  frontier areas and islands.
"        Supporting improvement of the competitiveness of  real sector , through : (1) expansion of the capacity of facilities  and  infrastructure  in areas facing bottlenecks; (2) expansion of the capacity  of facilities  and  infrastructure  especially areas where demand for facilities  and  infrastructure  grow fast; (3)  improvement of the compatibility  of facilities  and  infrastructure in supporting  development of the sectors of industry, agriculture, trade both domestic and international trade  (4) resetting  regulations  and agencies to create a favorable condition for business competition in facilities  and  infrastructure ; (5) optimization of limited resources sources  for development of  facilities  and  infrastructure ; (6) increasing  and  developing information and communication  technology
"        Promoting cooperation between the government  and  the private sector  (KPS), through : (1) improvement of KPS related regulations  and implementation guidelines; (2) the forming of KPS management institution, , KPS center and  KPS knot  in the center and regions; (3) increasing the capability and capacity  of contract providing body  in preparing KPS projects  in the center and regions. through the forming of KPS knots; (4) operation of non bank financial agencies  supporting development  of  infrastructure  (Guarantee Fund and   Infrastructure Fund); (5) operation of  policy and guidelines of operation  about land procurement  for the acceleration of development  of  infrastructure to be built under KPS, including  increasing the capacity of land procurement fund; (7) creation of cooperation between the government  and  the private sector  in infrastructure projects  including  toll road,  port , airport, railway, drinking water supply  and waste  treatment projects.



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