There has been rapid development of toll roads in Indonesia in the recent past. The country built about 1,500 km of new toll roads during the period of 2015 to 2019. The Trans-Java toll road, one of the most important toll road projects in Indonesia, was fully operationalised in January 2019. In the current year, the toll roads to be inaugurated include the 14 km Banda Aceh-Sigli road, the 131 km Pekanbaru-Dumai road, the 21 km Manado road and the 33 km Balikpapan-Samarinda road. Besides, part of the Makassar toll road, the Cibitung-Cilincing, and Kriyan toll roads in East Java are expected to be opened by the end of 2020.
Key projects
Among the largest projects is the $24 billion trans-Sumatra toll road project, which is divided into numerous phases, some of which have already been completed. The project is being developed by state-owned construction company PT Hutama Karya. Currently, the Indonesian government is prioritising work on the toll road project. Three sections of the route are expected to benefit from new funding sources. Funding worth $725.8 million is being sourced from the Indonesian government to pay for the work. The three sections to benefit run between Pekanbaru and Dumai, Simpang Indralaya and Muara Enim, and Pekanburu and Pangkalan. These stretches measure 131 km, 119 km and 95 km respectively. In all, the trans-Sumatra toll road spans about 2,765 km, connecting Lampung on Sumatra’s southern tip and Aceh in the north.
Other major projects include the $3.7 billion Cileunyi-Garut-Tasikmalaya toll road in West Java and the $1.1 billion Semarang-Demak toll road in Central Java. PP Semarang Demak, a consortium of PT Pembangunan Perumahan, PT Wijaya Karya and Misi Mulia Metrical Demak, is executing the construction of the 27 km toll road connecting Semarang and the neighbouring town of Demak in Central Java. The project will be developed in two sections – the 10.69 km section connecting Semarang to Sayung in Demak and the 16.31 km section connecting Sayung to Demak Regency. The toll road will be a part of the Java toll road network that will span across the island from Semarang extending to Kudus, Pati, Rembang, Lasem and Tuban to eventually reach Surabaya.
Diligent bidding
Indonesia has been actively seeking bids for the toll road projects to provide the much-needed infrastructure boost to the country. In November 2019, the Indonesian Ministry of Public Works and Public Housing offered four toll roads worth IDR 112.96 trillion ($8.06 billion), spanning a total length of 424.27 km. The government will prioritise the private sector rather than state-owned companies for the offered toll roads. The four toll roads offered are 93.14 km Solo-Yogyakarta-NYIA Kulon Progo toll road to be constructed at a cost of IDR 28.58 trillion, the 76.36 km Yogyakarta-Bawen toll road worth IDR 17.38 trillion, the 206.65 km Tasikmalaya-Cilacap Gedebage toll road costing IDR 57.59 trillion, and the 48.12 km Makasar-Maros-Sungguminasa-Takalar toll road, which is expected to be constructed at a cost of IDR 9.41 trillion.
Currently, Indonesia is planning to develop six major infrastructure projects worth IDR 80.84 trillion under the public-private-partnership (PPP) model. The Ministry of Public Works and Public Housing is evaluating the projects at present. The projects include the 32.39 km Semanan-Balaraja toll road worth IDR 15.59 trillion, the 21.5 km Cikunir-Ulujami elevated toll road worth IDR 21.57 trillion, the 61.5 km South Sentul-West Karawang toll road worth IDR 15.38 trillion, the 37.7 km Patimban access toll road worth IDR 7.53 trillion, the 21.03 km Semarang Harbour toll road worth IDR 12.05 trillion, and the Batam-Bintan Bridge worth IDR 8.78 trillion. All project tenders are expected to be opened for bids by December 2020. The six infrastructure projects offered are expected to be welcomed by investors as the projects have great investment prospects, and the public have been waiting for their construction. For example, the Patimban access toll road will be connected with the Cikopo-Palimanan toll road and Patimban port, which will be the main cargo port for car exports.
Funding strategies adopted to build toll roads
The Ministry of Public Works and Public Housing has targeted the construction of about 3,000 km of new roads and 2,500 km of toll roads by 2024. Besides, toll roads spanning about 4,480 km are planned to be constructed by 2030. However, financing infrastructure projects is considered to be one of the biggest challenges in toll road development in Indonesia. This is because the ability of the state budget for 2020-24 is projected to be able to meet only about 30 per cent or about IDR 623 trillion of the total budget of IDR 2,058 trillion needed for infrastructure in the country.
In a step to close the 70 per cent non-state funding gap of about IDR 1,435 trillion, the ministry is pushing for innovation in infrastructure development financing through PPP. Through this scheme, the government provides various facilities including viability gap funding in the form of state budget funding support for the construction of a part of toll road construction so as to increase the financial viability of a toll road section. Overall, the ministry plans to auction nine toll roads in 2020, of which six projects are proposals or initiatives from business entities. The projects, spanning over 461 km, will involve a total investment of IDR 135.6 trillion.
Covid-19 impact and outlook
According to the Indonesian Toll Road Association, the Covid-19 outbreak has lowered traffic on toll roads. Besides, under-construction toll road projects are likely to be delayed on account of the pandemic.
Overall, in the short term, the economic impact of the Covid-19 pandemic is expected to limit the country’s ability to fund infrastructure projects. The country’s GDP growth is likely to fall, hurt by a triple whammy of falling private consumption, shrinking external sector and the collapse in oil prices. Besides, the short-term weakness of the Indonesian rupiah will also expose investors to a higher degree of foreign exchange risk as dollar-denominated payments and debt become more costly to service. Further, with the virus spreading globally, general business confidence has dipped, which is expected to slow the pace of foreign direct investment (FDI) inflows into the Indonesian infrastructure market from countries like China, Japan and Saudi Arabia. The expected fall in investments in the short term will further complicate Indonesia’s toll and national highway expansion plans as it has become increasingly reliant on FDI.
Land acquisition has been another hurdle in the timely completion of road projects in the country. Attempts to implement reforms in the country’s land acquisition law have been met with strong resistance from the opposition, and in some cases, members of the public. These issues, further complicated by Indonesia’s complex bureaucracy, are expected to pose downside risks to the timely implementation of toll and national road projects, given that such projects require large areas of land.
Going forward, the government needs to address the various challenges facing infrastructure development in the country. Appropriate modifications need to be made in land acquisition norms and higher private participation should be sought for the construction of toll roads to meet funding requirements.
