Infrastructure Starts Moving

May 7, 2015, Kompas, Page 7, Section: Front Page News

Some 80 Percent of Project Packages have been Auctioned

JAKARTA, KOMPAS – Various infrastructure projects have begun to move in May because the projects’ advance payments can already be disbursed. Until yesterday, some 80 percent of project packages have been tendered out. Even so, the contractors are still waiting for land acquisition to commence the projects.

“Until now, some four percent of the [state] budget has been absorbed, or Rp 4.8 trillion. That is for routine expenditure and routine maintenance works. In May and June, this budget absorption will definitely improve since most of the projects have had their contracts signed,” said Secretary General of the Ministry of Public Works and People’s Housing (PUPR), Taufik Widjoyono, Wednesday (6 May), in Jakarta.

Ministry of PUPR is one of the ministries that get infrastructure funding allocations in this year’s budget. The step of the ministry is expected to raise the economic growth in the second and third quarters.

As reported earlier, economic growth in the first quarter is only 4.71 percent. The figure is far below the government’s target in Revised State Budget (APBN-P) 2015, which is set at 5.7 percent. Nevertheless, President Joko Widodo remained optimistic that growth this year could reach 5.4 percent, if infrastructure projects could be implemented soon.

The total infrastructure budget of the Ministry of PUPR amounts to Rp 94.57 trillion, which consists of multi-year projects valued at Rp 9.1 trillion and single-year projects of 2015 worth Rp 85.47 trillion. Of the 2015 fiscal year projects, some 80 percent, or Rp 68.36 trillion, have entered the auction process, with 50 percent of these have had their contracts signed. “Once a contract is signed, the down payment can be taken. The portion is 15 – 20 percent of the value of the project package,” said Taufik.

According to Taufik, the project auctions will be completed in May, so that the construction works can already be 100 percent running by June. Although there are just seven months left, he is optimistic that the projects will be achieved on target.

Land acquisition
President Joko Widodo, during a meeting with chief editors and economics editors at the State Palace, Jakarta, on Tuesday evening, called for state-owned enterprises (BUMNs) to commence projects even though the land acquisition processes have not finished. However, some BUMNs admit this is rather difficult to do if a project’s land acquisition process has not achieved more than 75 percent completion.

Corporate Secretary of PT Wijaya Karya (Persero) Tbk, Suradi, said that, as a contractor, his company would only dare to carry out construction works when the land has been fully acquired. “Project works can commence if there is handover of the land. If the land has not been handed over, it will be difficult for us in terms of legality,” he said.

Take the example of the project for Ciliwung River’s stream shortcut, some of whose lands have yet to be acquired. Works were already done, but eventually they had to stop. In this kind of situation, the contractors will submit an escalation or claims for equipments and human resources that cannot be utilised.

However, after Law No. 2/2012 on Land Acquisition for Public Purposes has become available, construction works have begun to apply the law. “One example is the Surabaya – Mojokerto toll road project, where currently land acquisition is being done simultaneously between land appraiser, clerk for the payment of land, and construction workers. In this way, the work can be faster,” said Suradi.

Corporate Secretary of PT Jasa Marga (Persero) Tbk, David Wijayatno, said that for the construction of a toll road, [the company] would dare carrying out construction works when the land acquisition process is already above 75 percent. “It would be rather risky if works are done but the land acquisition process has not reached 75 percent completion, because we would have no certainty of time when the works will be finished,” said David.

If the works get halted mid-way, it is feared there will be escalations in terms of time, cost, and certainly operational matters. “Law No. 2/2012 also states that tenders for project works can be held after the land acquisition has reached 75 percent completion,” he said.

Taufik Widjoyono explained that construction works can be carried out even though the land has not been acquired fully. However, usually, this is done if the land acquisition has reached 75 percent completion, or the land is owned by another BUMN. “In addition to already reaching 75 percent, the lands are also not separated. But of course, this is case by case,” he said.

Usually, Taufik said further, the types of project that could be done with such a mechanism are dams and highways. Currently, the construction of toll road infrastructures, both Trans-Java toll road and Trans-Sumatera toll road, is using such a mechanism. “That is the principle mechanism, and not an official regulation,” said Taufik.

Earlier, Minister of PUPR, Basuki Hadimuljono, said that auction processes are being accelerated. The heads of work units have been asked to refrain from delaying the auction processes. “In May through June, the budget can already be utilised,” said Basuki.

Basuki said that the infrastructure project budget has [started to be] disbursed since three weeks ago. He estimates that, by May, some 15 percent to 20 percent of the infrastructure budget will have been disbursed.

Steel industry
With regard to the variety of infrastructure projects, Chairman of the Indonesian Iron and Steel Industry Association, Irvan K Hakim, said that infrastructure projects are considered to have the potential to drive up demand for steel. However, according to Irvan, the role of demand from the private sector is greater than the demand generated by government procurement.

“The economy, when growing according to target, requires about Rp 6,000 trillion. Procurement from projects that are funded by the government is worth around Rp 1,600 trillion to Rp 4,400 trillion; this must rely on the private sector. In fact, the private sector is now facing its own challenges,” said Irvan.

The infrastructure packages being undertaken in the Ministry of Public Works and also the Ministry of Transportation are deemed to be helpful in terms of the uptake of steel. “But the important thing now is, well, the speed of execution, because it is already May now. With the processes of tender, procurement, construction, and so on, it should be analysed how much uptake there will be in this year,” said Irvan.

A number of solutions
A number of parties have suggested some solutions to the issue of economic slowdown.

Professor of the Faculty of Economics of Tanjungpura University, Pontianak, West Kalimantan, Eddy Suratman, explained that, in the medium and long term, the manufacturing industry should be shifted to the areas outside Java.

Chairman of the Board of Trustees of the Indonesian Footwear Association (Aprisindo), Haryanto, said that the government needs to stimulate investments in labour-intensive industries.

Rector of the Kwik Kian Gie School of Business, Anthony Gunawan, states that, in order to anticipate the continued sluggishness of the global economy, the government should provide economic stimuli, both monetary and fiscal. Bank Indonesia should soon lower interest rates in order to stimulate investments.

Head of the Investment Coordinating Board (BKPM), Franky Sibarani, said that, during the first quarter of 2015, investment realisation was Rp 124.6 trillion, up 16.9 percent from the same period in 2014. The number of employments created during the first quarter of 2015 reached 315,229 people, or 21.2 percent higher than the same period the previous year.

“Our challenge is to attract higher investments in the industrial sectors that are able to absorb larger workforce, such as the processing industry. Starting from today, we will enact Government Regulation No. 18/2015 regarding Income Tax Facilities for Investment in Certain Business Sectors or Certain Regions,” said Franky.

Vice President of PT Grandauto Dinamika, as the sole agent of Jaguar Land Rover Indonesia, Darwin Maspolim, said that, even though economic growth in the first quarter was not quite good, his company has continued to invest. B05/B08/MAS/AHA/MED/CAS/BEN/ARN/NAD/HEN/NDY/WHY)

A NUMBER OF INFRASTRUCTURE PROJECTS

Irrigation and Dam Construction
Construction of dams and weirs in 43 locations
Construction and improvement of irrigation networks covering 1 million – 1.5 million hectares of land
Railway Lines
Railway projects in Sulawesi
– Makassar to Parepare (145km)
– Bitung to Gorontalo (250km)
Railway projects in Papua
– Passenger train (Sorong – Manokwari – Nabire – Timika – Sarmi – Jayapura)
– Mining train (Manokawari – Jayapura Port)
Capacity improvement of existing lines in Java and Sumatera, as well as the construction of double track lines.
Ports 24 locations (improvement, expansion and new plans)
Airports 10 locations (new plans)
Traditional markets 5,000 locations (revitalisation of old markets and construction of new ones)
Roads and toll roads New roads: 4,770km (some of which realisation) Toll roads: 419.56km (from the plan for 1,000km) in Sumatera, Java, Kalimantan, Sulawesi and Papua.
Pipelines Development of pipeline network to transform energy consumption from oil fuel to gas fuel
Housing Construction of low-cost twin apartment towers (Rusunawa)
“Hydropower” Construction of hydroelectric plant (hydro power) of 6,080 MW capacity in Kayan, East Kalimantan.
Source: Research & Development (Litbang) of “Kompas”/STI/YOH. Processed from “Kompas” news reports.
INFOGRAPHICS: DICKY

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