Nadya Natahadibrata, Jakarta – The government's "very ambitious" targets for infrastructure investment will be challenged by an unstable regulatory climate for investment, lack of leadership and lack of coordination within government institutions, a recent report says.
Multinational professional services network PricewaterhouseCoopers (PwC), with research support from Oxford Economics, launched a report on Wednesday that said Indonesia may fall short of achieving its target but may still be able to realize 80 percent of the infrastructure investment target under President Joko "Jokowi" Widodo's leadership from 2015 to 2019.
Investment in roads will remain strong and may accelerate, thanks to a new law on land acquisition reviving stalled toll road concessions. The 35 gigawatt (GW) electricity procurement target is also achievable if state-owned electricity firm PLN and independent power producer (IPP) tenders can be accelerated and key public and private partnership (PPP) projects unblocked, according to the report.
But other sectors will not be as supportive of the target, with investments in mineral extraction, oil and gas, water, railways, ports and airports seen as underperforming.
"One thing that is important is stable investment climate. There's a big challenge in Indonesia – for example, people did not have confidence in the legal system," PwC technical adviser Julian Smith told reporters during the launch of the report.
Smith said that improving strategic leadership below the level of the President could accelerate investment and added that it was important to make sure a few pilot projects succeed and could be copied.
"President Jokowi is doing a great job with leadership but he hasn't got all the machinery of the government moving at the same speed as he is. So he needs the next level not only following orders but to display leadership and to be able to make difficult decisions," he added.
The government's infrastructure spending plan over the next five years totaled Rp 2.2 quadrillion (US$162 billion). That was part of the Rp 5.5 quadrillion of expected infrastructure spending during the same period, for projects including 2,650 kilometers of roads nationwide, 1,000 km of new toll roads, 15 new airports and 24 new seaports.
Investment in mineral extraction will be disrupted by low global commodities prices, combined with the impact of the export ban on unprocessed mineral ore, but new mineral smelters may be built and the government could boost the sector by giving financial incentives for on-shore value adding, according to the PwC report.
For the oil and gas sector, investment will be weak due to volatile global oil prices. However, better commercial and administrative regimes could encourage new oil and exploration, with state firms seen leading new gas distribution and oil refining infrastructure with international partners.
Meanwhile, a Constitutional Court ruling on water resources has also dented investor confidence in the sector and the outlook will remain grim unless it is reversed or mitigated.
As for the transportation sector, rail investment will be disrupted by PT KAI's poor historical record on capital expenditure, while ports investment will pick up due to strong political pressure to up logistics performance, although still not meeting the government's target, and airport investment will be burdened by the slow pace of state airport operators in investment.
Indonesian Chamber of Commerce and Industry (Kadin) chairman Suryo Bambang Sulisto said that the government must provide certainty for businesses that participate in infrastructure projects, which take many years to complete.
"Businesses that participate in the projects must have some guarantee that the rule will not be changed as some of the projects need long-term investment. And if the government wants businesses to participate, the rules of the game must be fair and transparent," Suryo said.
According to Smith, investors also have to believe that if they signed a contract with the government, even if the President was not reelected and a new president took office, the contracts would still be honored.
"The Japanese spent a lot of money preparing the [Cilamaya] project and then it took a long time to make a decision. The project was on, it was off, it was on, it was off and finally it was off. So it undermines people's confidence," Smith said, citing an example. "This happens with too many different projects."