Indonesia Infrastructure – Overview and Opportunities

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ACFS welcomed speakers from Mandiri Investasi to discuss infrastructure development in Indonesia, a major policy focus by the Indonesian Government. In 2015, public spending for infrastructure will increase by 40-50%, as Government seeks to address the growing infrastructure gap and attract both domestic and international private investors to stem the gap widening further.

For an emerging economy such as Indonesia, which is projected to become the fourth largest in the world by 2050, investing in infrastructure is vital for economic prosperity. In the ASEAN region, Indonesia has one of the highest percentages of population without electricity, with the Government committing to renewable energy to reduce dependence on fossil fuels and forge a more sustainable energy source.  Over the last 10 years, the electricity sector in Indonesia has been the main focus for infrastructure development, aided by new electricity laws in 2009.

It is estimated that over the next decade, annual infrastructure spending in Indonesia is expected to grow by around $165 billion. The key growth sectors are utilities and transport, roads, airports, seaports and rail. Developments in sea-toll and seaports are viewed as providing greater connectivity between the east and west of Indonesia. The air transportation sector is undergoing major change with expansions in existing airports and development of new airport plans as means to address issues of over capacity – this was fuelled by changes in regulation in 2009 allowing private and foreign ownership of airports.

Recent reforms to fuel pricing in Indonesia saw an injection of capital by Government into infrastructure development, however the Government recognises the need to encourage further private investment. Key challenges persist for private sector involvement, as the preference is for sectors with less project risk, such as electricity and airport sector. The complexities with managing and mitigating key risks associated with infrastructure projects are compounded with Government concessions and guarantees differing by sector. Along with the continual political constraints particularly the need to jump through different levels of Government are perceived as the major hurdles for greater private financing and operation of infrastructure in Indonesia.

Indonesia recognises it needs investment but funding infrastructure remains a major barrier. There are encouraging signs with a sound but underused Public Private Partnership framework and alternative financing methods such as asset recycling and leasing arrangements are considered promising ways to procure infrastructure projects.

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