Indonesia’s vast size stretching over 5,000 kilometres across the equator and being made up of over 17,000 islands has made the development of an efficient national transport network a challenge. Java, as the most populated island faces huge congestion around its sea ports with the need for expansion and modernisation, while the road network has failed to keep pace with car purchases in the main urban centres pressing the need for public transportation. The more recently developed economic activity on islands such as Sulawesi and Kalimantan bring with a very different set of challenges. Overall, the overburdened existing transport facilities for sea and land are contributing to high logistical costs, bottlenecks and making the country uncompetitive. Investment to expand and upgrade existing infrastructure as well as establish new facilities to promote more even national development is how the government is proceeding under the National Long Term Transport Sector Plan. The achievement of these goals will require extensive private sector input within the Public Private Partnership (PPP) scheme (see Public Private Partnerships) and major efforts on behalf of the government to clear the way on issues such as land acquisition.
The development of the transport network is being carried out in several phases under the National Long Term Transport Sector Plan (RPJP) 2005-2025 as well as being part of the Master Plan for ASEAN Connectivity to 2015. The second phase from 2010-2014 is currently underway which focuses on infrastructure development and expanding road capacity. The third phase from 2015-2019 will see greater integration of infrastructure around the country while the final phase will complete the incorporation of transport networks for regional connectivity including remote regions. Balancing the immediate needs of provinces and regions in terms of funding and facilitating coordination between local governments that determine their own spatial planning is a major challenge to achieving the nationwide vision.
Source: WEF Global Competitiveness Report 2010-2011
Indonesia’s road network takes on the bulk for land transportation of both people and goods, at 90% and 70% respectively making it the main focus of transport budget spending. The length of the national road network has grown from 391,009 km in 2005 to 476,337 km in 2009 (Statistics Indonesia). While the length of state, district, provincial and toll roads have been increasing, it has failed to keep up with the number of automotives on the road. From 2001 to 2009, road length increased by an average of around 2% while private vehicle ownership has increased by 11-13% (University of Gadjah Mada). The failure to keep up with this growth is most apparent in Jakarta where gridlocked traffic jams at all hours of the day cost the economy $5.2 billion USD in 2010 according to the Jakarta Transportation Agency. It has been estimated by Jakarta’s traffic police that the city will grind to a halt by 2014 at the current pace of road expansion. A similar story will be seen throughout the country’s urban centres as incomes continue to rise and the need for private vehicles increases with the lack of public transport. Increasing spending on not only new roads but the upkeep of existing roads is vital to ease the bottlenecks that are potentially hampering further economic growth. Damaged roads as a result of heavy rainfall and flooding are a major concern as overburdened and unmaintained highways have collapsed causing injury and further adding to the congestion. Budget constraints have made funding inadequate to achieve both maintenance and expansion therefore increasing the need to push forward with privately funded toll roads and alternative transport methods.
Indonesia opened its first toll road route in 1978 from Jakarta to Bogor and currently has over 700 km of toll roads in operation (Ministry of Public Works). Toll roads became open to competition from the private sector in 2004 under Law No. 38/2004 when SOE Jasa Marga shifted from regulator to operator and went public in 2007. The company remains the dominant player in the sector, operating 14 toll roads and with plans to acquire a further 200 km of road up to 2014. Various toll roads are being offered under the PPP scheme as part of the government plan to construct over 800 km of new toll roads by 2014 with Trans-Java connectivity as a priority. Of the 27 priority infrastructure projects under PPP, 18 of these are toll roads. Many of these projects are facing issues with land acquisition that are placing them well behind target. The long awaited changes to the law on land acquisition (see Land Acquisition Law) is needed for these projects to progress. The success of existing toll roads will continue in light of the slow development of state funded roads and thus remains an attractive investment opportunity despite the lengthy process in terms of construction and payback.
Indonesia’s railways are operated under SOEs PT Kereta Api Indonesia (PT KAI) which previously held the monopoly over the sector until 2007. Law No. 23/2007 signalled a shift in attitude towards the nation’s railways to be part of national development by making the sector more competitive in terms of service and pricing. The railway tracks themselves remain under state ownership with state and private companies paying a fee to use the rail lines. PT KAI Commuter Jabodetabek, a subsidiary of PT KAI, operates transport routes and executive trains for passenger routes around the Greater Jakarta area. For industry, around 90% of manufactured goods and natural resources such as coal are transported on the railways in Java and Sumatra. Currently, only these two islands have railway links for both cargo and passenger transport while the Ministry of Transport has plans to develop lines over Kalimantan and Sulawesi.
To help reduce the burden on roads, further development of the nationwide railway network must be a priority in order to provide affordable public transportation as well as facilitate the efficient movement of goods. The growth has been slower compared to that of toll roads which is the opposite trend to what has been witnessed in other emerging markets such as China that have invested heavily in high speed rail links. Under the National Railway Masterplan, 2010-2030, Indonesia’s railways will gradually be moved towards greater commercialisation. There are currently nine railway projects being offered as PPP projects by BAPPENAS, including the rail link from Soekarno Hatta International Airport to Jakarta and the coal railway line in Kalimantan. The Ministry of Transport is also moving ahead with ways to attract investors into specialised industrial railways such as for CPO transport by preparing to speed up approvals through e-licensing.
A much needed Mass Rapid Transportation system for Jakarta has been in discussion since the 1990s but has failed to materialise. In 2004, a consortium of companies began to construct a privately owned and managed monorail but it later fell apart due to funding issues. The relics of the previous attempt in the form of unfinished columns can be seen around Jakarta. The cause has once again been revived in 2011 with the agreement of a loan from the Japanese International Cooperation Agency and a tender issued for the estimated $1.8 billion USD scheme. Made up of two lines, it will be 110 km in total lenght. The first line is the North – South line to be completed in 2 phases beginning construction in 2012, with the first section operational by 2016 and the second by 2018. A second line covering an East–West route is undergoing feasibility studies with the aim to begin construction in 2024. It will have both above and underground sections and is projected to be able to carry 420,000 passengers a day by the third year of operation. It will be a very positive step forward in Jakarta’s public transport infrastructure; its immediate impact on commuter volumes will however be limited considering that millions of commuters come into the city daily.
Global Business Guide Indonesia - 2012
Contribution to GDP: 6% (2011)
Existing Road Network: 477,000 km (2010)
Existing Railway Network: 4,800 km
Number of Airports: 187 (local and international)
Number of Commercial Sea Ports: 111
Main Government Bodies: Ministry of Transport, BAPPENAS, Ministry of Public Works, Ministry of State Owned Enterprises through Directorate General of Highways, the Indonesian Toll Road Authority.