From Government of Indonesia

Jakarta Paves the Way on Works Projects

Indonesia’s efforts to get delayed infrastructure projects off the ground inched forward as foreign and local investors at the recent infrastructure conference were encouraged by a government pledge to offer financial backing for private investors in state-sponsored ventures, The Wall Street Journal reported on Monday (6/11/06).

“Whether that will translate into new tie-ups between private companies and Jakarta to improve Indonesia's decrepit toll roads, ports and power plants, investors say, will become clearer over the next few months, the Journal said.

"The foundations for future projects are potentially there," said Karin Finkelston, associate director for East Asia at the International Finance Corp, the World Bank’s private investment subsidiary.

At the recent Infrastructure Summit, the government set out a number of fresh initiatives, including financial guarantees, which it hopes will lure more foreign investment.

Indonesia's economy is unlikely to grow faster than this year’s projected rate of 5.6% unless infrastructure can be improved, frustrating Jakarta’s hopes of creating jobs and cutting poverty.
At the summit, President Susilo Bambang Yudhoyono appealed to foreign investors to help supply the $22 billion Indonesia needs to spend annually in the next few years to upgrade its infrastructure. "The government will provide only part of this funding," he said, "while the major portion will have to come from the private sector."

Officials highlighted 10 projects with a total value of $4.5 billion the government hopes will become models for private-public deals and pave the way for other investment. They include power plants, toll roads, water-supply projects, fiber-optic networks, a ferry terminal and a port.

Finance Minister Sri Mulyani Indrawati outlined a plan to earmark $450 million from Jakarta's 2006 and 2007 budgets to fund financial guarantees and offer other support for the projects. Investors have been demanding these guarantees, which are meant to cover the risk that state-owned companies like PT PLN, which runs the national electricity grid, could break contractual agreements or default on payments.

Also unveiled at the conference was a separate $300 million fund for government purchases of land for infrastructure projects. Poor land documentation in Indonesia has deterred foreign companies from investing in projects such as toll roads for fear of getting bogged down in legal disputes with property owners. While the moves drew praise, many investors say they want more detailed information about projects before they commit money.
"The government has shown strong determination to move forward," said Muhammad Fadzil Abdul Hamid, business development manager at Plus Expressways Bhd, a Malaysian toll-road operator.
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