Kalibaru port project to meet the growing demand-

The maritime sector forms the core of transportation solutions in Indonesia. About two-thirds of the entire country consists of water, which creates immense potential for water transport to flourish. As a result, seaports account for more than 90 per cent of international trade being carried out in Indonesia. This points to the need to have excellent efficiency measures to propel the growth of the sector and the economy. Tanjung Priok port is a port of prime importance in the country. However, the port suffers from extremely high capacity utilisation levels, deteriorating port performance, and congestion. Hence, the government has formulated plans to augment the port’s capacity significantly by developing Kalibaru port (New Priok port).

Traffic trends

The traffic level at Indonesian ports has been increasing at a significant pace. Indonesia Port Corporation (IPC)-controlled ports have recorded a compound annual growth rate (CAGR) of about 8 per cent over the five-year period from 2009 (107.18 million tonnes [mt]) to 2013 (145.13 mt). Tanjung Priok port, in particular, registered a CAGR of more than 10 per cent in container traffic volumes from 2009 to 2013. According to a study, the port ranked 22nd in the list of top container handling ports across the globe in 2013.

However, the port is in dire need of additional capacity as the capacity utilisation level at the end of 2013 was recorded at over 120 per cent. The port was designed initially to handle traffic volumes of 5 million twenty-foot equivalent units (TEUs). However, port traffic crossed the 5 million TEU mark in 2011 itself. As a result, the port has since been plagued by congestion and efficiency issues. The port’s problems assume significance because it caters to more than 70 per cent of the country’s exports. Currently, the port is capable of catering to vessels with a capacity of less than 6,000 TEUs.

Project description

The Kalibaru port project entails an extension of the existing Tanjung Priok port. It aims to significantly increase cargo handling capacity as well as improve efficiency. The project involves phase-wise expansion of the capacity. In Phase I, three container terminals with a combined capacity of 4.5 million TEUs will be built. In addition, two terminals to handle petroleum products with a capacity of 5 million cubic metres per year each will be developed. The combined cost of these terminals is estimated at $2.5 billion. With special emphasis on connectivity, the plans include the construction of a new 7 km long toll road, connecting the Marunda Logistics Park with the port. The estimated cost for the toll road is estimated at $178.5 million.

The contract for development and maintenance of the port was awarded to IPC II by the Indonesian government in early 2012 with a concession period of 70 years. According to the contract, IPC II has been provided with an option to renew the concession for another 25 years. The port operator received a presidential decree from the Indonesian government in April 2012, enabling the port operator to initiate the project.

The new terminal will be developed and operated by the project company, PT New Priok Container Terminal One (NPCT1). In December 2014, state-owned IPC II entered into an agreement with private companies – Japan-based Mitsui and Company Limited and Nippon Yusen Kabushiki Kaisha [NYK] Line, and Singapore-based PSA International – for participation in the construction and operation of a new container terminal at Tanjung Priok port. IPC II owns a controlling stake of 51 per cent in NPCT1, while the share of Mitsui, PSA, and NYK Line stands at 20 per cent, 19 per cent, and 10 per cent respectively. The terminal is scheduled for commissioning by mid-2015. The contract for works related to dredging and reclamation of land was awarded to Van Oord in December 2012, while in May 2013, Royal Haskoning DHV was awarded the contract to supervise the construction works. NPCT1 has awarded the contract for procurement of equipment to be deployed at the terminal to Mitsui Engineering and Shipbuilding Company Limited. The contract calls for delivery of eight ship-to-shore quay cranes and 20 rubber-tyred gantry cranes.

IPC II initiated construction work on the first terminal in January 2013 using internal resources and sourcing loans from banks. It secured loans worth $365 million from Bank Mandiri and Bank Negara Indonesia in August 2013. In addition, IPC II was in discussions with a consortium led by Deutsche Bank in August 2014 to secure loans worth $1.25 billion.

As part of the Phase II plan, the port will have four new container terminals with a combined capacity of 8 million TEUs. Upon commissioning, the terminals will more than triple the current container handling capacity of Tanjung Priok port. Phase II calls for a further investment of $1.5 billion for its materialisation.

Key issues

There are several issues hindering the growth of the sector. For instance, the port is a major port of call for several major shipping lines, including Maersk Line and CMA CGM. Despite this, the port has not been able to fully exploit its locational advantage. As per the World Economic Forum’s Global Competitiveness Report 2014-15, ports in Indonesia are ranked at 77th amongst 144 countries with a paltry score of 4.0/7.0 in terms of quality of infrastructure.

Higher capacity utilisation levels are likely to lead to deterioration in efficiency levels in the future. Although New Priok port will add significant capacity, traffic at Tanjung Priok port is projected to scale 10.3 million TEUs in 2017, thus resulting in capacity utilisation levels of over 100 per cent, even after Phase I of the project is commissioned. Phase II of the project is scheduled for commissioning only in 2023.

In terms of efficiency, the average turnaround time at the port attained a level of about 8.85 days in June 2014, which now, reportedly, stands at an estimated 5 days. The government aims to reduce this to 3 days.

Tariff determination at the port is a contentious issue as investors want tariffs to be determined by competitive market forces. However, the tariff is determined by the port authority, in consultation with the Ministry of Transportation, and is considered too low to generate investor interest.

Outlook

The Kalibaru port project will raise the container handling capacity of Tanjung Priok port to about 17.5 million TEUs at the end of 2023, making it the single largest port in the country. Further, activities like cold ironing, which involves providing shore-side electrical power to ships while the main and auxiliary engines of the ships are turned off, are likely to raise the significance of the project at a global level. The technique is aimed at reducing emissions, conserving energy, and protecting the environment.

However, the government has several issues to address if it is to attract players from the private sector. According to industry estimates, the Indonesian maritime sector needs investments worth $40 billion. With such large investment requirements, the involvement of the private sector becomes crucial.

The country requires maritime transformation with a focus on effective monitoring and coordination between various authorities. Measures such as an acceleration in the pre-customs processes by automating document submission to reduce the turnaround time are likely to significantly improve efficiency of port operations.