Indo Infra Report

8/11/2019 Indo Infra Report

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Q3 2010www.businessmonitor.com

INFRASTRUCTURE REPORT

INDONESIA

INCLUDES 5-YEAR FORECASTS TO 2014


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INDONESIAINFRASTRUCTURE

REPORT Q3 2010INCLUDING 5-YEAR INDUSTRY FORECASTS BY BMI

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Copy Deadline: May 2010


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Indonesia Infrastructure Report Q3 2010


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CONTENTS

Executive Summary ......................................................................................................................................... 6

SWOT Analysis ................................................................................................................................................. 8

Indonesia Infrastructure SWOT ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. .... 8

Indonesia Infrastructure Project Finance SWOT ............ ............. ............. ............. ............. ............. .............. ............. ............. ............. ............. .... 9

Indonesia Economic SWOT ...................... ............. ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. .. 9

Indonesia Political SWOT ............ ............ ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 10

Market Overview ............................................................................................................................................. 11

Indonesia ............. ............. ............. ............. ............. .............. ............. ............. ............ ............. ............. ............ ............. ............. ............. ............. ... 11

Industry Forecast Scenario ........................................................................................................................... 14

Table: Indonesia--Construction And Infrastructure Industry Data ...................................................................................................................... 14

Construction and Infrastructure Forecast Scenario ............ ............. ............. ............ ............. ............. ............. ............. ............. ............ ............. ...... 15

Transport Infrastructure ................................................................................................................................ 17

Table: Indonesia--Transport And Infrastructure Industry Data ............. ............ ............. ............ ............. .............. ............. ............. ............. ....... 17

Transport Infrastructure Forecast Scenario ............................................................................................................................................................. 19

Transport Infrastructure Overview ........................................................................................................................................................................... 20

Developing Roads ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ............. ............ ............. ............ 20

More Track Needs To Be Laid ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ..... 21

Tourists Boost Airport Sector .............................................................................................................................................................................. 22

Trade Mainly By Water ............. ............. ............. ............. ............. ............. ............ ............. .............. ............ ............. ............. ............. ............. ... 22

Major Projects New and Ongoing Projects ...................... ............. ............ ............. ............. ............. ............ ............. ............. ............ ............. ...... 22

Airports ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 22

Ports .................................................................................................................................................................................................................... 23

Roads And Bridges ................... ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ... 24

Railways ........... ............. ............. ............. ............. ............. ............. ............. .............. ............ ............. ............. ............ ............. ............. ............. . 26

Major Projects Table Transport ............ ............. ............ ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. . 28

Table: Indonesia Major Infrastructure Projects ............................................................................................................................................... 28

Energy and Utilities Infrastructure ............................................................................................................... 31

Table: Indonesia Energy & utilities And Infrastructure Industry Data ............................................................................................................. 31

Energy and Utilities Infrastructure Forecast Scenario ............................................................................................................................................. 32

Energy and Utilities Infrastructure Overview ........................................................................................................................................................... 33

Major Projects New and Ongoing Projects ...................... ............. ............ ............. ............. ............. ............ ............. ............. ............ ............. ...... 35

Power Plants and Transmission Grids ............. ............. .............. ............. ............. .............. ............ ............ ............. ............. ............. ............. ..... 35

Oil and Gas Pipelines .......................................................................................................................................................................................... 38

Water ................................................................................................................................................................................................................... 38

Major Projects Table- Energy and Utilities ........... ............. ............. ............ ............. ............. ............. ............ ............. ............. ............. ............ .. 40

Table: Indonesia Major Infrastructure Projects ............................................................................................................................................... 40

Business Environment .................................................................................................................................. 44

Indonesia Business Environment ................ ............. .............. ............. ............. ............. ............. ............ ............ ............. ............. ............. ............. ... 44

Limits Of Potential Returns................... ............ ............. ............. ............ ............. ............. ............. ............. ............. ............ ............. ............. ...... 44

Risk To Realisation Of Potential Returns ............. ............. ............. ............. ............. ............. .............. ............. ............. ............ ............. ............. . 44

Regional Overview ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ... 45

Asia Pacific Infrastructure Business Environment Ratings ............ ............. ............. .............. ............. ............. ............. ............ ............. ............. . 45


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Table: Regional Infrastructure Business Environment Ratings............................................................................................................................ 48

Project Finance Ratings ................................................................................................................................ 49

Indonesia Project Finance Ratings ............ ............. ............. ............. .............. ............. ............. ............. ............ ............. ............. ............. ............. ... 49

Design and Construction ....................... ............. ............. ............. ............. ............ ............. .............. ............ ............. ............. ............. ............. ... 49

Commissioning and Operating ............................................................................................................................................................................ 49

Overall Project Finance Rating ........................................................................................................................................................................... 49

Regional Overview ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ... 49

Project Finance Ratings: Outlook For Asia Pacific ............ ............. ............. ............. ............ ............. ............... ............ ............. ............. ............ 49

Table: Design and Construction Rating ............................................................................................................................................................... 52

Table: Commissioning and Operating Rating ...................................................................................................................................................... 53

Table: Overall Project Finance Rating ................................................................................................................................................................ 54

Macroeconomic Outlook ............................................................................................................................... 55

Table: Indonesia - Economic Activity .................................................................................................................................................................. 57

Political Outlook ............................................................................................................................................. 58

Domestic Politics ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............ 58

Regional Security ............. ............. ............. ............. .............. ............. ............. ............. ............ ............. ............. ............. ............ ............. ............ 59

Long Term Political Outlook ........................ ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............ .......... 60

Domestic Politics ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............ 63

Regional Politics ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 64

Long-Term Politics ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ .......... 68

Company Monitor ........................................................................................................................................... 72

PT Adhi Karya ..................................................................................................................................................................................................... 72

John Holland Group ........... ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ............. ............. ............ .......... 74

PT Wijaya Karya (WIKA) .................................................................................................................................................................................... 75

Global Overview ............................................................................................................................................. 77

Global Project Finance Ratings........................................................................................................................................................................... 77

Table: Design and Construction Rating ............................................................................................................................................................... 77

Table: Commissioning and Operating Rating ...................................................................................................................................................... 80

Table: Overall Project Finance Rating ................................................................................................................................................................ 83

Global Business Environment Ratings: China And India Break Into Top 10 ....................................................................................................... 85

Table: Global Infrastructure Business Environment Ratings, April 2010 ............................................................................................................ 86

Methodology ................................................................................................................................................... 89

New Infrastructure Data Sub-sectors: Methodology ........... ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ..... 89

Infrastructure Forecasts: Methodology .................. ............. ............. ............. ............. ............ .............. ............. ............. ............. ............ ............ 90

Sources ................................................................................................................................................................................................................ 92

Industry Forecasts .............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 92

Construction Industry .......................................................................................................................................................................................... 93

Data Methodology ..................... ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ............. ............. ....... 93

Construction ........................................................................................................................................................................................................ 93

Capital Investment ............................................................................................................................................................................................... 94

Construction Sector Employment ......................................................................................................................................................................... 94

Infrastructure Business Environment Ratings ............. ............. ............ ............. ............. ............ .............. ............ ............. ............. ............ ............. .. 95

Ratings Overview ............ ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ............ ............. ............. ............. . 95

Table: Infrastructure Business Environment Indicators ...................................................................................................................................... 96

Project Finance Ratings ........................................................................................................................................................................................... 97

Table: Design And Construction Phase ............................................................................................................................................................... 98


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Executive Summary

Infrastructure was in the spotlight in Indonesia as Jakarta was host to a major regional ministerial

conference hosted by the United Nations called Infrastructure Asia. In preparation for the conference and

to showcase Indonesias endorsement of the public private partnership (PPP) model, the National

Development and Planning Agency launched a prospectus of 100 projects, with an estimated value of

IND440trn (US$48.8bn). The agency will tender out these projects under PPP schemes between 2010 and

2014.

The governments endorsement in theory of the PPP model has lately produced more tangible results such

as changes in legislation to make the model more flexible and easier to implement. Indonesias appeal as

an infrastructure market lies in strong positive macro fundamentals. Indonesia is now the third largest

emerging economy in Asia after China and India. According to BMI forecasts GDP compound annual

real growth will be 5.8% between 2010 and 2015.

For the infrastructure sector, the lack of well developed infrastructure and the low base from where

investments are taking place leaves much scope for growth in greenfield investments in transport, energy

and utilities adding to the markets appeal for investors. In terms of scale, measured in industry value,

Indonesia is also amongst the largest markets globally. Revised and updated data from the Indonesian

statistics agency reveal a much stronger picture for infrastructure than was originally thought. In 2010, we

forecast that infrastructure industry value will account for 45% of total construction industry value, up

from our previous more moderate forecast of 33%. Accordingly infrastructure industry value forecasts

have increased. BMIforecasts infrastructure industry value in Indonesia to be IND311bn (US$34bn) in

2010 and this is forecast to rise to IND546bn (US$64bn) by 2014, representing real growth of 10.3%. The

infrastructure aspect of the stimulus plan, though slow to trickle in the system (according to the

governments own admission), did in the end work wonders for the industry value over 2009, with

construction industry value recording real growth of 27% over 2009. This is a direct result of heavy

government spending, the effects of which will continue to be felt in 2010. The removal of the stimulus

will result in much tamer growth rates in the medium term.

However, enormous challenges remain and thus Indonesia remains in BMIs view one of the riskiest

environments for infrastructure investments globally. Issues such as very high levels of corruption, low

absorption capacity and the heavy bureaucratic edifice are pertinent obstacles to the implementation of

PPPs in the country on the scale that the government is hoping for. BMIs Project Finance and

Infrastructure Business Environment ratings echo this view, with Indonesia having amongst the poorest

score in the Asia Pacific region.


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Therefore, because of the risks associated with Indonesias investment climate for infrastructure, we

believe that the growth we are forecasting will be primarily driven by government investments.

Expectations that the private sector will also invest in infrastructure have been taken into account in our

forecasts, though they do not provide the main support system for growth. For this reason we see much

upside potential for Indonesias infrastructure industry value, but it will be strictly predicated upon an

structural amelioration of the business environment; therefore, bar dramatic changes in policy, this

potential can be realised only in the long term.


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SWOT Analysis

Indonesia Infrastructure SWOT

Strengths There are a large number of major projects planned for the near future, particularlyin the transport and energy sectors.

The government is also planning an IDR90trn infrastructure investment programmeas part of an economic stimulus package.

There is strong political will to make PPPs and concessions a mainstream meansof procuring new infrastructure.

Weaknesses The countrys power sector is running a supply deficit and is managing its shortfallwith outages.

Most Indonesian contractors still operate equipment purchased before the 1997

monetary crisis, which falls woefully short on parameters of speed and quality ofwork.

Indonesia has an underdeveloped road system. Paved roads account for only 46%of the total roads in the nation, compared with 92% in China and 50% in India.

Opportunities International opportunities such as the reconstruction of Iraq and work inneighbouring South East Asian countries offer more room for growth for home-grown construction companies.

There are opportunities for international companies to compete with the fragmenteddomestic industry for major projects, particularly in the house building, energy andtransport sectors.

The government has opened up the market for PPPs, which may help to raise

funding.

Threats Earthquakes are a frequent occurrence in Indonesia, causing mass devastationand costing the government millions of dollars in reconstruction work.

The threat of terrorism in Indonesia may force foreign investors away from thenation.

The financial crisis may make it difficult for the government to raise the moneyneeded for its infrastructure projects.


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Indonesia Infrastructure Project Finance SWOT

Strengths Transport assets and electricity demand has showed resilience leading to an

upwards revision in demand risk scores.

Weaknesses Contract enforceability is dubious.

Corruption is high.

High foreign exchange risk.

Opportunities New state-owned infrastructure guarantee agency and amendments to thePPP/concessions legislation are steps towards addressing deep structuralproblems in Indonesias infrastructure market.

Threats Political risks remain high, with the rule of law in the country extremely fragile.

Indonesia Economic SWOT

Strengths Indonesia's strategic location between the Indian and Pacific Oceans and itsadjacency to major East-West trade routes make it an important economy in theregion.

Indonesia has a low cost and large supply of available labour resources.

Weaknesses Indonesia's economy is not growing fast enough to reduce joblessness. Althoughunemployment has been decreasing, the unemployment rate is still relatively high,at 7.9% in August 2009. Many are forced to work in the informal sector.

Indonesia's physical infrastructure is considered substandard. The archipelagicnature of the country makes it difficult to weave national infrastructure together.

Opportunities Indonesia could attract much-needed foreign investment by strengthening itsbusiness environment, particularly through reform of its unreliable legal system.

Indonesia stands to benefit from the rise of Islamic financing, having adopted newlegislation in early 2008 designed to tap into this rapidly expanding sphere.

Threats Production at Indonesia's ageing oil fields has been in decline since the mid-1990s.Thus, the country has become a net importer of crude oil in recent years, addingdownward pressure on its current account position. But the resumption of the Cepufield in late 2009 may change this.

Indonesia is perceived as one of Asia's riskier destinations. This leaves theeconomy vulnerable to sudden capital outflows at times of risk aversion, which canlead to sharp swings in the currency.


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Indonesia Political SWOT

Strengths Indonesia managed a successful transition to democracy in 2004. In addition, the

2009 parliamentary and presidential elections passed by peacefully, signalling theconsolidation of the democratic process.

The military's role in politics has gradually been reduced. The prospects of amilitary coup which seemed a real possibility in the late 1990s and early 2000s have diminished substantially.

Weaknesses Indonesia's domestic political scene is characterised by a proliferation of minorityparties, and formal and informal coalitions are necessary to govern and legislate.Moreover, the efficiency of state institutions is encumbered by bureaucracy andcorruption.

Indonesia's cultural and ethnic diversity saw the archipelago wracked by separatistrebellion and ethnic violence in the late 1990s and early 2000s, which took great

efforts to bring to heel. In the event of a new economic crisis, calls for regionalsecession could re-emerge.

Opportunities President Susilo Bambang Yudhoyono's Democratic Party had a strong showing inthe 2009 parliamentary elections. Coupled with a strong mandate following his re-election in the same year, the implementation of policies in the legislature shouldpotentially become less problematic.

Indonesia's status as the world's most populous Muslim country leaves it wellpositioned to speak out on global Islamic issues, and act as a bridge between theMiddle East and the Asia-Pacific region.

Threats Regional militant group Jemaah Islamiah (JI) poses a lingering threat to security in

Indonesia. JI is blamed for a series of attacks, including the Bali bombings ofOctober 2002 and other such incidents, including the Jakarta bombings of July2009.

The fact that Indonesia subsidises basic goods means that when the governmentraises prices, there is a risk of public unrest, or at least a political backlash.


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Market Overview

Indonesia

President Susilo Bambang Yudhoyono who was re-elected in July 2009 has claimed that

infrastructure projects will be among his major priorities over the next five years as the country seeks to

boost growth and reduce poverty.

The Jakarta Post reports that the World Bank and the ADB have pledged to contribute IDR2trn

(US$170mn) for infrastructure development, which will be placed in a new infrastructure fund. In

addition, the government has allocated IDR1trn (US$85mn) from the state budget.

The infrastructure fund is designed to provide an alternative source of finance to help investors access

loans for projects. The target pool of money for the fund is about US$1.7bn over the next five years, and

therefore the money acquired so far falls significantly short.

The National Development Planning Agency (Bappenas) has estimated that US$121.65bn will be needed

for Indonesia's infrastructure over the coming half decade. However, the government has only limited

resources with which to finance this investment, and it is estimated that it can cover only about 30% of

the amount required.

The latest measure announced (at time of writing) is the establishment of a guarantee fund for

infrastructure projects in the country. PT II is one of a number of measures the government is taking to

make investing in PPPs in Indonesia more attractive. Other measures include the creation of the Indonesia

Infrastructure Fund, designed to provide an alternative source of funding for infrastructure projects.

Measures related to land issues are also being implemented, as land clearance is one of the major barriers

to the country's investment climate.

In March 2009, Indonesia's National Development Planning Agency (Bappenas) reportedly opened up

eight major infrastructure projects in transport and utilities as PPPs. The government has admitted that it

cannot bear the burden of financing its long-term infrastructure programme (2010-2014), which consists

of 87 projects, solely though public funds and is thus seeking private sector participation.

According to the Jakarta Globe, the total value of the contracts the government is offering through these

eight projects is US$4.5bn. These eight projects are 'ready to go', which is defined as having completed

bidding documents, a dedicated team to handle the procurement and the government's backing in terms of

land acquisition and financing guarantees, the newspaper notes. It remains to be seen if this will tempt

potential investors, previously put off by the arduous land acquisition processes in an already difficult


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operating environment compounded by the financial crisis, uncertain demand for energy and transport

infrastructure, and the tightening liquidity.

The projects include: one power plant in Central Java, worth US$2bn; three toll roads with the first

linking Medan to Binjan valued at US$126mn, the second linking Medan to Being Tinggi valued at

US$476mn, and the third in West Java valued at US$395bn; two railways with the first in Kalimantan

Province (US$740mn) and the second between Soekarno Airport and Manggarai (US$700mn); a cruise

terminal; and a water treatment plant in Banfung valued at US$54mn. The overall value of the

government's infrastructure plan (2010-2014) is IDR1.43trn (US$124bn).

BMInotes that Indonesia has yet to prove itself as a reliable investment destination through a successful

track record. For instance, of the 90-odd projects that were highlighted as priorities in the January 2005

Infrastructure Summit in Jakarta the majority of which related to toll road and infrastructure projects

none have gone forward, which raises serious doubts about the viability of this new infrastructure plan.

Despite the fact that the government recognises that urgent action is needed, the regulations in place have

prevented a private sector response to the problem.

The state-owned fund PT Penjaminan Infrastruktur Indonesia(PT II) will be set up as a

commercially run company. It will act as an insurance company, providing compensation to investors for

losses incurred in the event that unfavourable policies are passed, or promised favourable ones are not.

The fund has been launched with initial capital of IDR1trn (US$107mn). Additional capital will be built

up over the coming years as the number of PPPs increase.

PT II has been set up to meet three objectives outlined by the government in the press release for the

fund's launch. The first is to reduce the cost of financing PPP projects. Indonesia is desperate to attract

private investors to infrastructure projects in the country; however, issues with regulatory frameworks and

difficulties in raising project financing are oft-cited barriers to entry. Currently the interest rate for project

financing from banks is around 15%, according to the chairman of the Indonesian Toll Road Association,

Fatchur Rochman, as cited by the Jakarta Post. Fatchur notes that if PT II led to around a 2-3% drop in

interest rates this would entice potential investors.

Regarding the stimulus plan, Indonesia's Coordinating Minister for Economic Affairs, Hatta Radjasa,

disclosed in November 2009 that that funds from the infrastructure stimulus plan have been slow to

trickle down into projects thus far this year.

Out of the INR73trn stimulus package, INR12.2trn was approved for infrastructure projects in the 2009

budget. The Ministry of Public Works was allocated the largest amount INR6.6trn and the Ministry of

Transport received INR2.2trn. The minister said that in the first nine months of the year, only 35% of the


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allocated funds had actually been disbursed, the Jakarta Post reports. The minister said that the absence of

clear guidelines and complicated administration processes are the chief reasons behind the delays.

Indonesia's heavy bureaucratic edifice and nebulous regulatory environment are deterring investments in

infrastructure in the country. The Jakarta Postnotes that only 85km of the 1,095km target for new toll

roads have been developed over the past five years. Red tape in Indonesia has also hindered the

absorption of funds from the stimulus plan.

An official from the state-owned Enterprises Ministry of Indonesia has said that the ministry will reduce

the number of government-owned construction firms from 14 to six in 2010, reports The Jakarta Post. He

added, that the ministry has been working to consolidate five companies Virama Karya, PT Indah

Karya, PT Yodya Karya, PT Bina Karyaand PT Indra Karya as part of the plan. The ministry is

aiming to encourage specialisation among its companies.


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Industry Forecast Scenario

Table: Indonesia--Construction And Infrastructure Industry Data

2007 2008e 2009f 2010f 2011f 2012f 2013f 2014f

Construction IndustryValue, IDRbn 305,200 419,642 554,982 687,817 799,384 929,734 1077835 1239924

Construction IndustryValue, US$bn 33.31 43.01 53.59 75.17 91.36 108.74 126.8 145.9

Construction Industry,Real Growth, % y-o-y 8.65 7.31 27.25 18.69 9.98 9.71 9.6 9.2

Construction Industry, %Of GDP 7.70 9.07 10.92 12.23 12.65 13.03 13.4 13.7

Total Capital Investment,IDRbn 889,853 1,096,308 1,190,514 1,315,667 1,495,681 1,706,004 1,944,967 2,206,500

Total Capital Investment,US$bn 97.11 112.36 114.96 143.79 170.93 199.53 228.82 259.6

Total Capital Investment,% Of GDP 22.50 23.69 23.43 23.40 23.66 23.91 24.16 24.4

Capital Investment PerCapita, US$ 419.24 479.26 484.51 599.13 704.15 813.01 922.20 1,035.3

Real Capital InvestmentGrowth, % y-o-y 9.54 11.69 3.42 5.00 7.00 7.00 7.20 7.2

Government CapitalInvestment, IDRbn 59,099 77,054 71,104 79,405 87,267 97,741 112,538 131,816

Government CapitalInvestment, US$bn 6.45 7.90 6.87 8.68 9.97 11.43 13.24 15.5

Government CapitalInvestment, % Of TotalSpending 7.80 7.82 7.76 7.84 7.90 7.97 8.05 8.1

Construction Sector

Employment, '000 4,801 5,363 5,547 5,825 6,234 6,671 7,152.3 7,668.2

Construction IndustryEmployment, % y-o-y 9.76 11.72 3.43 5.01 7.02 7.01 7.2 7.2

Total Workforce, '000 96,663 98,172 99,704 101,261 102,842 104,447 106,077 107,733

Construction IndustryEmployees As % Of TotalLabour Force 4.97 5.46 5.56 5.75 6.06 6.39 6.7 7.1

Infrastructure IndustryValue As % of TotalConstruction 45.67 45.67 45.99 45.24 44.80 44.42 44.10 43.84


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Table: Indonesia--Construction And Infrastructure Industry Data

2007 2008e 2009f 2010f 2011f 2012f 2013f 2014f

Infrastructure IndustryValue, IDRbn 139,388 191,655 255,254 311,177 358,147 413,024 475,374 543,613

Infrastructure IndustryValue, US$bn 15.21 19.64 24.65 34.01 40.93 48.31 55.93 63.95

Infrastructure IndustryValue Real Growth (%) 9.17 27.19 28.18 16.66 8.85 8.72 8.75 8.53

Infrastructure IndustryValue As % Of GDP 3.52 4.14 5.02 5.53 5.67 5.79 5.91 6.02

e/f = BMI estimate/forecast. Source: ILO, UNCTAD, Statistics Indonesia

Construction and Infrastructure Forecast Scenario

The re-election of Susilo Bambang

Yudhoyono as president should be

positive for infrastructure development.

Yudhoyomo has pledged to make

infrastructure his key focus over the next

four years as the government looks toboost economic growth, reduce

unemployment and eradicate extreme

poverty. Between 2009 and 2014,

IDR1,430trn (US$140bn) is expected to

be spent on infrastructure, with the

government providing IDR418.9trn

(US$41.2bn) of this total. However, the

low absorption capacity, hindered by red tape, makes this investment highly unlikely to be achieved.

Indicative of the problems in allocating capital efficiently to achieve the timely development of projects is

the admission by the government that after the first nine months of the year, only 35% of the IDR73trn

stimulus package had actually been disbursed.

Revised and updated data from the Indonesian statistics agency reveal a much stronger picture for

infrastructure than was originally thought. In 2010, we forecast that infrastructure industry value will

account for 45% of total construction industry value, up from our previous more moderate forecast of

33%. Accordingly infrastructure industry value forecasts have increased. BMIforecasts infrastructure

industry value in Indonesia to be IDR311bnbn (US$34bn) in 2010 and this is forecast to rise to IDR546bn

Marginal Decline

Construction Industry Value And Infrastructure Share

e/f = BMI estimate/forecast, Source: Statistics Indonesia, BMICalculation


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(US$64bn) by 2014, representing real growth of 10.3%. The infrastructure aspect of the stimulus plan,

though slow to trickle in the system according to the governments own admission, did at the end work

wonders for the industry value over 2009, with construction industry value recording real growth of 27%

over 2009. This is a direct result of heavy government spending, the effects of which will continue to be

felt in 2010. The removal of the stimulus will result in much tamer growth rates in the medium term.


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Transport Infrastructure

Table: Indonesia--Transport And Infrastructure Industry Data

2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f

Transport Infrastructure IndustryValue As % Of TotalInfrastructure 70.46 71.18 71.54 71.35 71.24 71.14 71.05 70.98

Transport Infrastructure IndustryValue, IDRbn 98,216 136,422 182,613 222,031 255,137 293,817 337,765 385,864

Transport Infrastructure IndustryValue, US$bn 10.72 13.98 17.63 24.27 29.16 34.36 39.74 45.40

Transport Infrastructure Industry

Value Real Growth (%) 4.89 28.59 28.86 16.34 8.67 8.56 8.61 8.41

Transport Infrastructure IndustryValue As Percent Of TotalConstruction (%) 32.18 32.51 32.90 32.28 31.92 31.60 31.34 31.12

Roads and BridgesInfrastructure Industry Value As% of Transport Infrastructure 33.40 43.40 49.01 51.44 52.90 54.20 55.30 56.23

Roads and BridgesInfrastructure Industry Value,IDRbn 32,804 59,207 89,490 114,213 134,977 159,236 186,800 216,967

Roads and BridgesInfrastructure Industry Value,US$bn 3.58 6.07 8.64 12.48 15.43 18.62 21.98 25.53

Roads and BridgesInfrastructure Industry ValueReal Growth (%) -7.54 70.18 46.15 22.38 11.93 11.37 10.96 10.32

Roads and BridgesInfrastructure Industry As % ofTotal Infrastructure 23.53 30.89 35.06 36.70 37.69 38.55 39.30 39.91

Roads and BridgesInfrastructure Industry As % of

Total Construction 10.75 14.11 16.12 16.61 16.89 17.13 17.33 17.50

Railways Infrastructure IndustryValue As % of TransportInfrastructure 34.30 26.80 22.32 19.89 18.43 17.14 16.03 15.11

Railways Infrastructure IndustryValue, IDRbn 33,688 36,561 40,758 44,159 47,016 50,354 54,146 58,297

Railways Infrastructure IndustryValue, US$bn 3.68 3.75 3.94 4.83 5.37 5.89 6.37 6.86

Railways Infrastructure IndustryValue Real Growth (%) -21.56 -1.78 6.48 3.10 0.22 0.50 1.18 1.84


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Table: Indonesia--Transport And Infrastructure Industry Data

2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f

Railways Infrastructure IndustryAs % of Total Infrastructure 24.17 19.08 15.97 14.19 13.13 12.19 11.39 10.72

Railways Infrastructure IndustryAs % of Total Construction 11.04 8.71 7.34 6.42 5.88 5.42 5.02 4.70

Airports Infrastructure IndustryValue As % of TransportInfrastructure 24.40 10.56 8.82 7.89 7.33 6.83 6.41 6.05

Airports Infrastructure IndustryValue, IDRbn 23,965 14,406 16,113 17,519 18,699 20,079 21,646 23,361

Airports Infrastructure IndustryValue, US$bn 2.62 1.48 1.56 1.91 2.14 2.35 2.55 2.75

Airports Infrastructure IndustryValue Real Growth (%) 149.69 -50.20 6.85 3.47 0.49 0.78 1.46 2.10

Airports Infrastructure IndustryAs % of Total Infrastructure 17.19 7.52 6.31 5.63 5.22 4.86 4.55 4.30

Airports Infrastructure IndustryAs % of Total Construction 7.85 3.43 2.90 2.55 2.34 2.16 2.01 1.88

Ports Harbours and WaterwaysInfrastructure Industry Value As% of Transport Infrastructure 7.92 19.20 19.85 20.78 21.34 21.83 22.26 22.61

Ports Harbours and WaterwaysInfrastructure Industry Value,IDRbn 7,779 26,193 36,251 46,140 54,445 64,148 75,173 87,239

Ports Harbours and WaterwaysInfrastructure Industry Value,US$bn 0.85 2.68 3.50 5.04 6.22 7.50 8.84 10.26

Ports Harbours and WaterwaysInfrastructure Industry ValueReal Growth (%) 23.21 226.42 33.40 22.03 11.75 11.22 10.84 10.22

Ports Harbours and Waterways

Infrastructure Industry As % ofTotal Infrastructure 5.58 13.67 14.20 14.83 15.20 15.53 15.81 16.05

Ports Harbours and WaterwaysInfrastructure Industry As % ofTotal Construction 2.55 6.24 6.53 6.71 6.81 6.90 6.97 7.04

e/f = BMI estimate/forecast, Source: Statistics Indonesia, BMI Calculation


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Transport Infrastructure Forecast Scenario

Transport infrastructure is forecast to

account for the majority of infrastructure

industry value to the end of our forecast

period in 2014, with a steady stake of

around 71%. Transport infrastructure

industry value forecasts have been

revised upwards in line with the upgrade

in BMIs entire outlook for Indonesias

construction and infrastructure sector.

Accordingly transport infrastructure

industry value is forecast to be IDR222

(US$24.3bn) in 2010 and rise to

IDR385bn (US$45bn) by 2014.

Major projects in freight railways and ports to boost export capacity will support growth in the coming

years. The ASEAN- China free trade agreement is also acting as a catalyst for development of the

countrys infrastructure. According to an official from Indonesia's State-Owned Enterprises Ministry,

cited in the Jakarta Globe, the total capital expenditure for ports and airports will be IDR10.3bn

(US$1.1bn) in 2010, up from IDR3.3bn (US$349mn). These will be disbursed for projects at 66 ports and

25 airports around the country. Approximately IDR6.2trn (US$662mn) has been earmarked for ports and

IDR4.1trn (US$438mn) for airports

Ports, harbours and waterways will account for an increasing share of transport infrastructure industry

value between 2009 and the end of our forecast period, 2014. In 2010, BMIis forecasting the ports,

harbours and waterways infrastructure industry value to be IDR46bn (US$5bn). This is set to register real

growth of 13.2% on average per year between 2010 and 2014. This increase in value aligns with various

investment plans for the countrys ports sector, including Indonesia's state-owned shipping line PT

Pelabuhan Indonesiaplans to invest US$500mn in expanding port infrastructure and the plans to re-develop Tanjun Priok into an international port hub and to to build a new terminal in Lamong Bay in

Surabaya.

Our forecasts suggest that airports will experience negative real growth every year and their share of total

transport infrastructure industry value will decline from 10.6% in 2008 to 6% in 2014. Though the

government has announced investments in airports in 2010, we refrain from revising our forecasts based

on the announcement alone, given the tendency of projects in Indonesia to be delayed. Airports are an

especially difficult area, as indicated by the delays with the expansion of the Ngurah Rai International

Airport.

Roads Dominate

Transport Infrastructure Value, By Industry, IDRbn



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We do see upside potential to our forecasts for railways infrastructure. Indonesia is the largest exporter of

thermal coal in the world, and in 2009, China received more than 15% of Indonesia's coal exports. Private

freight railways to carry coal to the ports in the Kalimantan region have already broken through, with the

first one in East Kalimantan expected to begin construction in the first quarter of 2010.

Transport Infrastructure Overview

President Susilo Bambang Yudhoyono has claimed that infrastructure projects will be among his major

priorities over the next five years as the country seeks to boost growth and reduce poverty. BMIbelieves

that with the global economy beginning to recover, foreign investment funds will once again start to flow

into Indonesia, and that the government should take advantage of this opportunity to secure financing for

key infrastructure projects. The Indonesian government has already been active in this area pledging to

improve the countrys roads, airports, power plants, bridges and irrigation system. According to theNational Development Planning Agency (Bappenas) the government will finance at least 29% of the total

IDR1,430trn (US$140bn) which is expected to be spent on infrastructure between 2009-2014. The

shortfall will be met by both local and foreign investors. Bappenas noted that the government is seeking

to attract IDR440trn (US$48.8bn) in private capital for 100 projects in transport and utilities infrastructure

to be implemented as public private partnerships (PPPs) between 2010 and 2014. Projects that will be

procured using a PPP model include: 18 toll roads, 12 port projects, seven air-transport projects, nine

railway projects.

As well as boosting economic growth, large-scale public works projects will also provide employment,

However, Indonesia has not been has severely impacted by the global financial crisis as other countries.

Unemployment stands at 8.1%, which is down from 9.3% in 2008.

Official statistics state that Indonesia has 391,009km of roads, 6,458km of railways, and 21,579km of

waterways. In addition, Indonesia has developed an extensive air transport network that encompasses 652

airports, meaning that all Indonesias islands are accessible by either sea or air, although safety remains a

key issue.

Developing Roads

The road network is best in Indonesias most developed islands such as Java, Sumatra and Bali, which are

also the main population centres. Indonesia has experienced very rapid growth of the total number of road

vehicles in circulation. Despite being given a high priority in government spending programmes, road

construction in Indonesia as a whole has progressed at a slower pace. The Jakarta Post reported in early

February 2009 that financial problems have become the main obstacle to the development of the East

Java highway. The East Java Public Works Agency said that cost estimates have risen by IDR900bn and


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that after six years of construction only 75km of the total 630km have opened to traffic. The troubles of

the three concessionaires involved in the project highlight the problems facing the plan.

A great deal more needs to be done as congestion is becoming a major problem, specifically in Jakarta,

where average speeds during rush hour are slower than 10kph. The problem will only increase, as more

vehicles are expected on the nations roads. The number of cars produced in the country should increase

to 556,908 in 2012, up from 380,376 currently. Low costs and relatively low penetration in terms of car

ownership on the part of the populace (barely 1% of people own a car) all bode well for future prospects.

However, increasing car ownership will put pressure on the nations roads. In the short term, Indonesias

economic stimulus package will provide financing to improve the road network, while the growth of the

mining sector will encourage foreign investors to improve communications. The country has a road

network of 391,009km in length, of which 216,714km is paved.

More Track Needs To Be Laid

The first railway tracks in Indonesia were laid by the Dutch in the 1860s and built up subsequently to

facilitate agricultural and mining commodity exports. Currently, the network is owned and operated by

the state-owned Indonesian railway public corporation, PT Kereta Api (Persero). Railways only make up

a small percentage of freight carried, approximately 8.5%. The countrys railway system stretches for

approximately 6,485km, of which just 125km is electrified. The system consists of three different gauge

measurements. In Q209, there has been development on the commuter lines in the greater Jakarta area,

with a particular focus on the light-railway system. Meanwhile, a new rail link is being planned

connecting the capital and the countrys international airport. There are also plans for a new railway line

in East Kalimantan, which is one of the largest provinces in Indonesia. The province is rich in mineral

and natural resources and has attracted a wealth of foreign and domestic investments. Ras Al Khaimah

Minerals and Metals Investment(RMMI) is hoping that through investments in both energy resources

and infrastructure in Indonesia, it can secure supplies and have more control over pricing, in order to meet

the increasing demand for power in the emirate.

Indonesia is currently the world's largest exporter of thermal coal and the second largest exporter of coal

in the world. According to BMIdata, coal reserves in 2009 are estimated at 4,328mn tonnes. The country

has stepped up coal production over recent years, with production increasing by 13% year-on-year (y-o-y)

on average between 2000 and 2008, according to the British Petroleums BP Statistical Review. This is

set to continue, with the estimated production of 241mn tonnes in 2009 rising to 808mn tonnes by 2020.

In order to support this rapid increase in production, the country needs to build up surrounding

infrastructure to transport the coal both for domestic use and to ports for export. Rail is seen as one of the

most efficient ways to transport coal. Currently, the coal produced in the area is transported by either road

or river; however, the roads are not of a high enough standard for this to be effective. The river is


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unusable during the dry season, according to the Jakarta Globe. Consequently, the country is working to

build up its rail network to transport the coal and therefore maximise production in the region.

Tourists Boost Airport Sector

The government has shown itself willing to contract out airport operations and services to private sector

companies. A number of state-owned enterprises are active in the aviation sector. Angkasa Pura II

operates a group of 10 airports in western Indonesia, including the international terminals at Jakarta, and

is also responsible for associated services such as air traffic control. Indonesia's airports have developed

to cater to the demands of the tourist sector. In 2008, the number of tourist arrivals was estimated at

6.98mn, and this is set to increase to 9.28mn by 2012. However, surrounding infrastructure is still

underdeveloped, hence government plans to build a rail link. It should be noted that Reuters cited a study

by Indonesia Railway Watch, a local independent body, which highlighted losses in revenues in railway

operators for short-distance journeys.

Trade Mainly By Water

Sea transport is of vital importance to Indonesia, an archipelago of many islands. A port sector has

developed for domestic trade and international imports and exports. The countrys major ports include

Banjarmasin, Belawan, Ciwandan, Kotabaru, Krueg Geukueh, Palembang, Panjang, Sungai Pakning,

Tanjung Perak and Tanjung Priok. Indonesia has also developed inland waterways spanning 21,579km. In

Kalimantan and Sumatra, the river system provides a key transport link to a large number ofcommunities, which are poorly served by roads and in the case of Sumatra by rail as well. However,

Indonesias ports are notoriously inefficient and corrupt. In February 2009, the Jakarta Globe reported

that the chairman of the Indonesia Competitiveness Development (Senada), which is funded by USAID,

described the countrys ports as among the least efficient in South East Asia both in terms of turnaround

times and unit costs. As a result of handling delays, the major shipping lines complain that they often

have to leave the port of Jakarta before being fully loaded.

Major Projects New and Ongoing Projects

Airports

Indonesia's Adisutjipto International Airport in Yogyakarta will be expanded to more than double its existing

size in order to cater for increasing passenger traffic. Traffic increased to 3.2mn passengers in 2009. The

airport's operator Angkasa Pura I, confirmed that the expanded airport would increase size to 18,000 square

metres (m2) up from 8,000m2. Several contractors have submitted their designs and the operator is the process

of floating a tender for the expansion project. The airport was renovated in 2006 to enhance its capacity to 1mn

passengers.


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Airports

Q1 2010 The Kuala Namu International Airport project, which is behind schedule and over budget, is to be

reviewed, according to a statement (in January 2010) from Indonesia's Transport Ministry. The review

has been touted in order to prevent further delays with the project already more than a year behindschedule and is likely to focus on the project's budget. Construction of the airport started in June

2006, with an initial completion target of October 2009. However, by the end of 2009 works were only

25% complete.

The expansion of Ngurah Rai International Airport (DPS) in Indonesia is scheduled to begin in

January 2010, reported Airport Technology. The long-delayed expansion project involves extension of

both international and domestic passenger terminals, car parks and other supporting facilities. The

US$15mn expansion project is expected to be completed within 30 months. The earlier plan to

expand the commercial zone of the airport to cover nearly 40% of the passenger terminals was

rejected because it could cause security problems at the airport. However, the revised design

involves a reduction of the size of the business site of 30% and a reduction of the public area of 10%.

Q4 2009 In late November 2009, the Indonesian Transport Ministry announced plans to build 31 regional

airports and upgrade three international airports Kuala Namu international airport, Lombok

international airport and Sultan Hasanuddin international airport in 2010. The government will invest

IDR802bn (US$84.49mn) in the construction of 2,750m runway at Lombok airport, IDR4.4trn

(US$463mn) in the construction of 3,750m twin runway at Kuala Namu airport, and is expected to

complete the 52,000m Sultan Hasanuddin airport by 2010. The 31 smaller airports will be financed

by local administrations.

Q3 2009 In September 2009, it was reported by the Jakarta Post that the Island of South Sulawesi would build

an airport to allow tourists to visit the Tana Toraja area. The airport will be developed as part of the

governments 2009-2014 tourism strategy and will be big enough to land a Boeing 707.

As reported by the Jakarta Post, in May 2009, the global economic downturn has begun to affect

expansion in the airport sector. The West Java Provincial administration has been forced to postpone

the development of the Kertajati, Majalengka international airport. Construction had been planned to

begin next year but there have been difficulties finding investors. Before the economic crisis, anumber of investors from the UK and Malaysia had displayed interest in the IDR25trn (US$2.5bn)

project. However, many of these have now withdrawn. The project had been originally planned

around the concept of an aero city, in which a small city would be built nearby to support the airport.

Ports

In March 2010, Indonesia's state-owned shipping line, PT Pelabuhan Indonesia(Pelindo) III, announced

plans to build a new terminal in Lamong Bay in Surabaya. The terminal is estimated to cost IDR1.3trn

(US$144mn). Work on the terminal is expected to start in August 2010. Once completed, the port's capacity


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will be increased to 3.5mn twenty-foot equivalent units (TEUs) from the current 1.5mn TEUs. President

director of Pelindo III, Djarwo Surjanto, has said that the project will be funded by the company's internal

budget.

Ports

Q4 2009 In November 2009, Indonesian state port authority, Pelindo II, released details of a major overhaul

planned for Indonesia's largest port Tanjung Priok, also known as the Port of Jakarta. The five-year

development plan, which is anticipated to start in 2010, will require investment of at least IDR6trn

(US$627mn). Pelindo is currently seeking investors for the project, according to Pelindo's president

director, Richard Lino, as quoted by the Jakarta Post. Plans include upgrading the infrastructure at

the port as well as improving the bureaucracy and administration.

Q3 2009 In August 2009, Indonesia's state-owned shipping line PT Pelabuhan Indonesia (Pelindo I)

announced that it is planning a US$500mn port infrastructure expansion venture. Financing has been

arranged with private shipping lines, multilateral organisations and local governments. Over the next

five years, US$500mn will be invested to expand and upgrade the existing infrastructure at ports in

Aceh, Batam, North Sumatra, Riau and Belawan. According to a report by the Jakarta Post, private

companies taking part in the financing include Maersk Lines and Regional Container Line. The two

multilaterals involved are the Islamic Development Bank, which has already approved an US$87mn

loan, and the Japan Bank for International Cooperation. Local governments also contributing to

financing are the Langkat Regency of North Sumatera, Sabang Regency, North Aceh Regency and

the Dumai Regency of Riau. Meanwhile, the director of commercial and business development of

Pelindo I told the Jakarta Postthat the ports of Belawan and Batam will see investments of US$83mnand US$100mn to expand their container handling capacity. The port of Dumai in Riau will receive an

investment of US$125mn to expand its liquid bulk capacity, in an effort to become a hub for crude

palm oil distribution. Expansion projects will also take place in the ports of Malayahati and Sabang in

Aceh and Perawang in Riau, where US$192mn has been earmarked for investments in cargo

handling terminals.

Roads And Bridges

In March 2010, Australia provided financing for the upgrade of a 31.5km-long stretch of the West Kalimantan

highway. The project is one of 20 road and bridge upgrading projects in nine provinces in eastern Indonesia

being funded by Australia with a concessional loan of AUD300mn (US$276mn) and a grant of AUD30mn

(US$27.6mn).

Roads

Q3 2009 In September 2009, Indonesian state toll road agency (BPJT), announced that it was raising tariffs

between 12.74-18.56%. The increased levies will be applied from October 2009 and will be

implemented on 14 major toll roads in the country. As well as increasing the cost for freight traffickers,


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Roads

there are also concerns that the hiked fees could cause inflationary pressures. However, BPJT has

made the decision based on projections of higher commodity prices in 2010 as the global economy

begins to display some semblance of recovery.

In August 2009, the pre-feasibility study for the proposed 30km suspension bridge connecting Java

and Sumatra in Indonesia was presented to the central government following two years of study. The

construction of the bridge is expected to cost IDR100trn (US$10.07bn). The bridge could be open to

traffic by 2020 if construction starts in 2012. The governor of Banten province, Ratu Atut Chosiyah,

said that according to the study the bridge could boost the province's economic growth by 2-8%, and

could boost the Lampung province by 4-11%. However, it is unlikely that the Indonesian government

could finance more than a third of the project's cost. According to the National Development Planning

Agency (Bappenas), the government will finance at least 29% of the total IDR1,430trn (US$140bn)

that is expected to be spent on infrastructure between 2009-2014.

In August 2009, PT Jasa Marga, the largest toll road operator in Indonesia, disclosed plans to sell its

minority stakes in 12 subsidiaries in an effort to finance future investments. Toll roads make up a tiny

fraction of Indonesia's road system, but the partially state-owned operator has a dominant position in

that market. The company's director, Frans Sunito, said that the divestments would take place in 2009

and 2010, and that the company is planning to divest all of its minority stakes (less than 20%) in the

12 subsidiaries where it is a minority stakeholder, according to a report in the Jakarta Globe. Yet this

is not considered a reaction to current economic circumstances. PT Jasa Maraga has not been

affected by the financial crisis as the entire Indonesian economy has shown resilience to external

financial shocks. According to Q109 results, revenues for Jasa Marga increased by 4.2% y-o-y to

reach IDR833bn (US$83mn), while net profit increased by 4% y-o-y, reaching IDR189bn

(US$18.7mn). The company is planning at least five new toll-road projects including the Bogor Ring

Road, which will extend for 11km; the Semarang- Solo road, which will extend for 76km; the Gempol-

Pasuruan road, which will extend for 32km; and the JORRII-Kunciran-Cengkareng road, which will

extend for 26.4km.

In August 2009, a new scheme was passed that would allow regional governments to tax vehicle

purchases and then spend the revenues on improving public roads. Under the bill, a new car owner

will pay 1-2% tax on his f irst purchase and between 2- 10% on any additional vehicles acquired. The

scheme is expected to be fully implemented by 2011. Of the total revenues generated, 70% will go to

the provinces, with the remainder going to cities and municipalities.

According to the Jakarta Post, in July 2009, the planned overpass connecting Tanjung Priok-Semper-

Plumpang-Cikunir will need some small design changes, as the project could threaten one of state-

owned oil and gas company Pertaminas major fuel depots. The design changes could involve

building a short tunnel that would act as a shield and would prevent material from lorries, or stones

thrown by cars, from landing on the fuel depot, which the road will pass over. The tunnel would also


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Roads

protect motorists from any potential gas leaks from the plant.

In July 2009 the Jakarta Post reported that the Association of Regional Development Banks is

planning to provide 70% of the money needed to build a proposed turnpike in the inner city of

Surabaya. The announcement should hopefully result in construction on the project commencing in

the near future, having been held in limbo for past six years. The total cost of the project is IDR1.8trn

(US$176.8mn), with the ARDB providing IDR1.2trn (US$117mn). The remainder will be provided by

private investors. The Surabaya municipality has claimed that the construction project is necessary as

the city is facing even worse daily traffic congestion than the capital, Jakarta. Under the initial plans, a

25km stretch of road was to be built at a cost of IDR5.3trn (US$530.6mn). However, this was deemed

too expensive and since then the scale of the development has been reduced, with the turnpike seen

as the first step in the project.

In July 2009, as reported by Xinhua, Indonesias public works minister has announced that the

section of the Trans-Asian road that runs through Indonesia will be completed by 2014. In total,

Indonesia will contribute 7,000km of the planned Asian mega-network. The Trans Eastern Sumatra

road will be 3,000km long, the Northern Java coastline road will be 1,000km, while the Trans South

Kalimantan road will be a further 3,000km. Meanwhile, in order to ensure the connectivity of the

network into Malaysia, a bridge is being planned that will cross the Malacca straits. The Trans Asian

road was first proposed by the United Nations in 1959, with the aim of improving the Asian economy.

Plans for the project were finally put in place in 2003. In total, the road will be 13,777km, starting in

Bali, Indonesia, and ending in Khosravi, Iran.

Railways

In March 2010, China Railway Group(CRG) was awarded a US$4.8bn contract to build and operate a coal

railway line in Southern Soumatra. The contract includes US$1.3bn for engineering, procurement and

construction of the 307km railway, as well as US$3.5bn for operating and maintaining the railway for 20 years.

The railway will transport coal from Indonesian coal producer PT Bukit Asam (PTBA)'s coal mine in Banko

Tengah, South Sumatra, to Srengseng in Lampung province. Once completed, which is due in 2014, it will

have the capacity to transport 27mn tons of coal per year.

Railways

Q4 2009 A joint venture (JV) from the United Arab Emirates has been cleared to invest US$1bn in the

construction of a railway in Indonesia's East Kalimantan. The project will be the first private rai lway in

Indonesia. The railway, which is being built by MEC Infrastructure, a joint venture formed of the Ras

Al Kaimah Investment Authority and UAE-based Trimex Group's MEC Holdings, is now ready for

construction, meaning all regulatory hurdles have been passed. The project has been in negotiations

for more than a year, having encountered difficulties that included trouble in securing a railway


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Railways

operating licence. The railway will stretch 130km and will link a coal mine in Muara Wahau to the

coast, where a US$250mn new port is being built by MEC Holdings.

Q3 2009 In September 2009, it was announced that Indonesias US$1.5bn Central Kalimantan Rail Project is

due to be tendered by the end of 2009 or early 2010. The Central Kalimantan rail project will run for

185km, linking Puruk Cahu and Bangkuang. It is planned to be awarded as a 30-year concession,

and according to Mining.com 11 countries have already expressed an interest in taking part in the

project. The project includes the construction of a single track of railway as well as construction of

stations, workshops and coal loading and unloading facilities. Estimated cost is US$700mn. Once the

project is completed, which is set for 2012, the railway will be capable of transporting 10mn tonnes of

coal per year, increasing to 20mn tonnes following the first 10 years of operation.

The number of automobiles and motorbikes in the country has tripled in the past eight years to reach

9.52mn, while road space has increased by just 1%. However, one of the great hopes for the easing

congestion the Mass Rapid Transport System has only recently entered the design phase and will

not be operational until 2016. The 14.5km rail l ine will carry 400,000 people per day by 2020 and will

cost a total of US$1.5bn. However, critics are calling for the project to be sped up in order to reduce

the congestion pressures on the city. So bad is traffic that many businessmen now prefer to travel

between meetings by helicopter.


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Major Projects Table Transport

Table: Indonesia Major Infrastructure Projects

ProjectProject Value,

US$mn Company name(s) Timeframe Status

Airport Construction

Lombok airportconcourse extension 85 na 2010 Announced

New terminal at AhmadYani Airport 44 PT Angkasa Pura II 2008+

Construction to startat the end of 2008

Kuala Namu airport 463 na na

Project 25%complete/under

review

Pondok Cabe airportrunway extension 100+ A3 2008+ Loan announced

Three new airports inKalimantan na na 2008+

Three years ofconstruction work

scheduled

Expansion of Nugrah Raiairport 15 na 2010- Project announced

Construction ofcommercial buildings atthe Soekarno Hattainternational airport,Jakarta 1,350 PT Angkasa Pura II na At planning stage

Construction of airport atSamarinda 110.7 na na Project announced

Adisutjipto InternationalAirport expansion na Angkasa Pura I 2010-

Tender forcontractor due

South Sulawesi newregional airport na na 2009-2014

Plans announced inSeptember 2009

Jawa Barat InternationalAirport, Kertajati 2500 na na

At planning stage/delayed

Port Construction

Port of Jakarta (Tanjung

Priok) expansion 627

PT Pelabuhan

Indonesia na Seeking investors

Port expansions at Aceh,Batam, North Sumatra,Riau and Belawan 500

PT PelabuhanIndonesia 2009+ Announced

Cruise Ship Port on Bali 3,320 na Q309Currently under

construction

Karimun Port dockyardand ferry terminal 370 Saipem 2008+

Construction underway

New container terminalsin Balikpapan andJayapura 87.2 na 2008+

Tenders to beoffered


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Development of theSabang port (Acehprovince) 900

Dublin PortCompany na Project announced

Indramayu InternationalSea Port at Cantigi 750 na 2007-2012

Construction willstart in 2007

Development ofIndonesias TelukLamong port (first stage) 200

InternationalContainer TerminalServices and Dubai

Ports World na To be started

Bontang Port 41

PT IndoTambangraya

Megah 2009- Under way

Lamong Bay port newcontainer terminal 144

PT PelabuhanIndonesia 2010-

Construction due tobegin in August

2010

Road and Bridge Construction

Java/SumatraSuspension Bridge 10700 na 2012-2020

Pre-feasibilitycompleted inAugust 2009

Toll Road, Java 1000 PT Adhi Karya Tbk 2008+ Project announced

Elevated roads in Jakarta 4,340PT Jakarta Toll

Road Development 2008+ Project announced

Surabaya Turnpike 177SurabayaMunipality 2009+

Funding beingsought

Semerang -Solo toll road 55PT Bank Negara

Indonesia 2008+Loan for project

announced

Darmaga-South SentalToll Road na PT Adhi Karya Tbk 2008+

First section to becompleted in 2009

2nd toll road Jakarta-Soekarno Hatta airport na Jasa Marga 2008-2010 Project announced

3 toll road projects inJava 810 Bakrie & Brothers na At planning stage

Construction of 3 tollroads in central Java 719 na -2009 At planning stage

Trans-Kalimantanhighway 439.92 na 2009

In the constructionphase

Toll road betweenCilincing in Jakarta andCibitung in West Java 250

PT MTD CTPExpressway 2007-

Construction to startafter the land

clearing process iscompleted

Construction of Manado-Mapanget road 8.3 na 2007 - 2009

Project approved inAugust 2007

86.5km project in

Lampung 41.7 na 2009- Project announced


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Pontianak-Tayan, WestKalimatran Highwayexpansion na na 2010-

Australian grant andloan secured for the

project

Railway Construction

Southern Sumatra freightrailway 4800

China RailwayGroup/PT Tamband

Batubara BukitAsam 2010-1014

Constructioncontract awarded

Jakarta Subway 1000 na 2019-2014Construction to

begin in 2009

Jakarta-Surabaya high-speed railway 6140 na 2008+

Project to be funded

by internationalinvestment

Jakarta Monorail na na naFeasibility study

underway

Jakarta- Soekarno HattaAirport Rail Link 555 Pt RaiLink 2007-2009

ConstructionUnderway

Central Kalimantan RailProject 700 na 2010- Tender due in 2010

Construction of cargotrain network in Java 150 na na At planning stage

East Kalimantan railproject 1000

Ras Al KhaimahMinerals and MetalsInvestment 2010-

Cleared to startconstruction

na=not available. Source: BMI


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Energy and Utilities Infrastructure

Table: Indonesia Energy & utilities And Infrastructure Industry Data

2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f

Energy and Utilities InfrastructureIndustry Value As % Of TotalInfrastructure 29.54 28.82 28.46 28.65 28.76 28.86 28.95 29.02

Energy And Utilities InfrastructureIndustry Value, IDRbn 41,172 55,233 72,641 89,147 103,010 119207 137,609 157,750

Energy and Utilities InfrastructureIndustry Value, US$bn 4.49 5.66 7.01 9.74 11.77 13.94 16.19 18.56

Energy and Utilities Infrastructure

Industry Value Real Growth (%) 20.86 23.84 26.52 17.47 9.31 9.12 9.09 8.81

Energy and Utilities InfrastructureIndustry Value As Percent Of TotalConstruction (%) 13.49 13.16 13.09 12.96 12.89 12.82 12.77 12.72

Power Plants and TransmissionGrids Infrastructure Industry Value As% Of Total Energy and Utilities 30.34 33.81 33.45 33.30 33.22 33.14 33.07 33.02

Power Plants and TransmissionGrids Infrastructure Industry Value,IDRbn 12,491 18,677 24,299 29,689 34,215 39,504 45,513 52,089

Power Plants and TransmissionGrids Infrastructure Industry Value,US$bn 1.36 1.91 2.35 3.24 3.91 4.62 5.35 6.13

Power Plants and TransmissionGrids Infrastructure Industry ValueReal Growth (%) 34.10 39.21 25.10 16.93 9.00 8.86 8.86 8.62

Power Plants and TransmissionGrids Infrastructure Industry As % ofTotal Infrastructure 8.96 9.74 9.52 9.54 9.55 9.56 9.57 9.58

Power Plants and TransmissionGrids Infrastructure Industry As % of

Total Construction 4.09 4.45 4.38 4.32 4.28 4.25 4.22 4.20

Oil and Gas Pipelines InfrastructureIndustry Value As % Of Total Energyand Utilities 6.84 8.96 9.34 9.52 9.63 9.73 9.81 9.87

Oil and Gas Pipelines InfrastructureIndustry Value, IDRbn 2817.8 4949.0 6783.6 8489.0 9921.3 11595 13496 15577

Oil and Gas Pipelines InfrastructureIndustry Value, US$bn 0.31 0.51 0.66 0.93 1.13 1.36 1.59 1.83

Oil and Gas Pipelines InfrastructureIndustry Value Real Growth (%) -0.57 65.32 32.07 19.89 10.63 10.27 10.05 9.59


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Table: Indonesia Energy & utilities And Infrastructure Industry Data

2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f

Oil and Gas Pipelines InfrastructureIndustry As % of Total Infrastructure 2.02 2.58 2.66 2.73 2.77 2.81 2.84 2.87

Oil and Gas Pipelines InfrastructureIndustry As % of Total Construction 0.92 1.18 1.22 1.23 1.24 1.25 1.25 1.26

Water Infrastructure Industry ValueAs % Of Total Energy and Utilities 62.82 57.23 57.21 57.17 57.15 57.13 57.12 57.11

Water Infrastructure Industry Value,IDRbn 25863 31608 41558 50969 58873 68108 78600 90083

Water Infrastructure Industry Value,

US$bn 2.82 3.24 4.01 5.57 6.73 7.97 9.25 10.60

Water Infrastructure Industry ValueReal Growth (%) 17.94 11.90 26.48 17.39 9.26 9.09 9.06 8.78

Water Infrastructure Industry As % ofTotal Infrastructure 18.55 16.49 16.28 16.38 16.44 16.49 16.53 16.57

Water Infrastructure Industry As % ofTotal Construction 8.47 7.53 7.49 7.41 7.36 7.33 7.29 7.27

e/f = BMI estimate/forecast, Source: Statistics Indonesia, BMI Calculation

Energy and Utilities Infrastructure Forecast Scenario

Between 2006 and 2015, it is estimated that about US$40bn needs to be invested in the power sector to

keep pace with demand. State-owned, PT Perushaan Listrik Negaga(PLN) has the herculean task of

increasing power generation by 20 gigawatts (GW) (once both phases of the programme are completed)

to meet demand.

For 2010 alone, the utility has earmarked IDR74trn (US$7.99bn) for capital expenditure (capex).

Financing remains the main obstacle to realisation. PLN's president director, Dahlan Iskan, said in late

January 2010 that the company only has IDR23trn (US$2.48bn) of the total available. The company will

consider raising loans or issuing bonds totalling around IDR51trn (US$5.51bn). PLN will use 55% of the

planned capex for new power plant projects. The remaining funds will be used for the construction of

electricity transmission systems and repair of sub-stations.


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The total value of the energy and utilities

infrastructure industry in the country will

experience average real growth of around

10.7% each year between 2010 and 2014.

Power plants and transmission grids will

contribute 33%, or IDR30bn (US$3.2bn)

to the utilities infrastructure value in

2010. According to our forecasts, their

contribution will remain steady to the end

of our forecast period in 2014.

Compound annual real growth for power

plants and transmission grids is forecast

to be 10.5% between 2010 and 2014.

This is reflected in the fact that PLNs

power expansion programme is already under way and will continue to at least 2012, and possibly carry

over to 2013 if delays occur. After 2015 we would expect to see a slightly steeper decrease in the

contribution power plants and grid infrastructure make to the total utilities infrastructure industry value.

Energy and Utilities Infrastructure Overview

Demand for power in Indonesia is currently outstripping supply. The nation has been hit by blackouts,

with the Indonesian state electricity utility PT Perushaan Listrik Negaga(PLN) managing the power

shortage through scheduled outages.

Indonesia passed a law on September 8 2009, to liberalise the electricity market in an effort to break the

dominant position of PLN, the state-owned utility, in the market. The development has been received

with cautious optimism by the industry and analysts, who see this as a step in the right direction in

channelling much-needed investments for new electricity infrastructure. The new law enables local

authorities in the country, to provide electricity to their region from private companies, bypassing PLN's

networks. This effectively ends PLN's monopoly over transmission, distribution and retail operations, as

well as breaking the dominant position the company has over the power generation market. According to

the Wall Street Journal, though the state-owned companies will have the right of first refusal to develop

new power generation projects, the local authorities will have the authority to approve new projects.

Private power producers will be allowed to propose tariffs reflecting the true cost of power generation.

This is a first step in liberalising the electricity market, and analysts hope that it will prove more resilient

than previous efforts. In 2002, there was an effort to liberalise the sector but the Constitutional Court

PLN's Capex Reflected In Our Forecasts

Energy And Utilities Infrastructure Value And Share OfInfrastructure Value



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revoked the parliament's decision, arguing that electricity infrastructure was strategic infrastructure, and

thus it was not appropriate to allow the private sector have any control over it.

It is hoped that an injection of private capital will reduce government subsidies for PLN, which were

expected to hit IDR47.5trn (US$5.2bn) in 2009.

Meanwhile, after a year of very difficult fundraising ventures PLN secured, in October 2009, two new

loan facilities and has now met almost 91% of the dollar-denominated funding requirements of its

expansion plans. The companys capital investment programme forms part of the Indonesian

government's 'crash programme' to boost electricity generation.

The first phase of the programme will add 10,000 megawatts (MW) in generating capacity through 35

new coal-fired power plants. This phase is behind schedule, with most of the plants still under

construction. The second phase will see the addition of a further 10,000MW of generating capacity

between 2010 and 2014. It is hoped that 4,000MW of this will come from IPPs. However, in order for

this to happen, Indonesia needs to make the sector more attractive to investors, improving policies and

renegotiating tariffs to reflect construction costs.

The first of these latest loan agreements was between PLN and the China Development Bankand the

Industrial and Commercial Bank of Chinafor US$763mn. These loans will finance the construction of

a 660MW coal-fired power plant in Central Java and a 224MW coal-fired power plant in West Sumatra.

The second loan agreement was between PLN and domestic banks Bank Mandiri, Bank Negara

Indonesiaand Bank Rakyat Indonesiafor US$329mn. These funds have been earmarked for the

construction of a 200MW coal-fired power plant in Lampung and a 400MW coal-fired power plant in

North Sumatra.

According to the Jakarta Globe, PLN has now secured US$3.8bn for seven power projects for the first

phase of the programme in Java and is thus hoping to complete these by 2010. Beyond Java,

US$974.7mn, equal to 84% of f

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