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Financing, land acquisition issues hamper strategic toll road projects

Jakarta Post - July 9, 2020

Mardika Parama and Marchio Irfan Gorbiano, Jakarta – A lack of financing and the country's age-old issues with land acquisition have delayed the development of the government's strategic toll road projects, namely the 2,800-km trans-Sumatra toll road and the 62 km Cileunyi-Sumedang-Dawuan (Cisumdawu) toll road in West Java.

President Joko "Jokowi" Widodo said on Tuesday that no permanent solutions had been found to resolve the reoccurring issues that have hampered the projects, especially delays in land acquisition in the Cisumdawu project.

"I still see many reoccurring technical and administrative issues with no permanent solution. We haven't created a simple and concise regulation that offers a real solution to these issues," he said during a limited meeting on National Strategic Projects (PSN) at the Merdeka Palace.

He said the land acquisition issues included delays in repayments for land acquisition costs, likely referring to repayments to PT Citra Karya Jabar Tol (CKJT), a subsidiary of publicly listed toll road operator PT Citra Marga Nusaphala Persada (CMNP), which is in charge of several sections of the project.

Land acquisition has long been an obstacle for the country's toll road projects, along with administrative challenges, high costs of land clearance and difficult terrain.

Previously, three state-owned construction companies, PT Waskita Karya, PT Hutama Karya and PT Wijaya Karya, stated that they were seeking repayments from the government for Rp 5.6 trillion (US$390.4 million) in accumulated land acquisition expenses for infrastructure projects.

The opening of the Cisumdawu toll road, which will connect the West Java capital of Bandung and the newly built Kertajati International Airport in Majalengka, has been the delayed from the end of this year to September 2021 because of land problems. The completion of the Rp 8.41 trillion toll road project is highly anticipated, as it is expected to cut travel time from Bandung to the airport to less than an hour from around 2.5 hours at present.

The government is building the toll road in cooperation with CKJT. Of the toll road's six sections, the government is in charge of building sections 1 and 2, spanning 29 km, while CKJT is responsible for the remaining 32.8 km.

Public Works and Housing Minister Basuki Hadimuljono confirmed there had been land clearance issues, concerning land prices and regulations, but said the Agrarian and Spatial Planning Ministry was tasked with resolving the issues.

"The government-built section is 81.6 percent complete, while the land clearance is 91.23 percent complete," Basuki said after the meeting with the President.

He added that CKJT had also started to build the sixth section on land owned by state-owned forestry company Perhutani, with construction 5 percent complete.

Meanwhile, Basuki also said the trans-Sumatra project had suffered from funding issues, as the government has only secured Rp 113 trillion of the Rp 500 trillion required for the project.

A large chunk of the funding, Rp 72.2 trillion, has come from the banking industry's commitment, while Rp 21.6 trillion and Rp 19.6 trillion has come from government support and a state capital injection (PMN) for Hutama Karya, the state-owned construction firm in charge of a large part of the project, respectively. The government support includes a loan from the Japan International Cooperation Agency (JICA) for the construction of Padang-Pekanbaru tunnel.

"Even for the backbone toll roads, which span 1,970 km between Bakauheni [in Lampung] and Aceh, we still need Rp 191 trillion of the Rp 266 trillion required," he said, referring to one section of the toll road.

The government is currently mulling the issuance of government-backed long-term bonds to finance the project.

The World Bank has urged the government to improve its public-private partnership (PPP) financing schemes to attract more private capital that could help cover the government's budget shortage for infrastructure projects, including toll road project.

World Bank transportation specialist Elena Chesheva said on June 25 that the government should continue consolidating small toll-road contracts into larger ones valued at more than Rp 30 billion to attract bigger firms.

She also urged the government to decrease its reliance on state-owned enterprises (SOEs) to execute toll and national road projects and allow private companies to build economically viable projects.

Source: https://www.thejakartapost.com/news/2020/07/09/financing-land-acquisition-issues-hamper-strategic-toll-road-projects.html