Infrastructure improvements: Transportation expansions will improve the flow of people and goods

As in other parts of Indonesia, poor infrastructure is a main cause of high transportation costs in East Java. Bottlenecks at ports and inadequate roads and railways make the cost of transporting goods in and out of the province higher than in other areas.

Indeed, in the first quarter of 2012, the cost in Indonesia of delivering goods by sea rose by some 18% compared to the same period in 2011, according to data from Statistics Indonesia (BPS).

UPSWING: To improve infrastructure link-ups, the East Java government is implementing several construction projects, including new ports, airports and railways, all in various stages of rollout. This is part of a larger national effort announced by the government in June 2012. A Rp1.5trn ($150m) freight transport programme called Pendulum of the Archipelago (Pendulum Nusantara) will create a single sea corridor for moving goods within Indonesia. The government will use six seaports – including Surabaya’s Tanjung Perak Port (TPP) – as gateways. Once operational, the scheme is expected to cut the cost of domestic logistics by up to half. The “pendulum” of the programme is a mother ship that will serve as a hub, travelling – or swinging – regularly through the six seaports. The schedule for smaller vessels will be built around the mother ship’s movements.

PORT ACTIVITY: The initial phase of the programme focuses on expanding existing ports to accommodate vessels carrying cargoes of up to 3000 twenty-foot equivalent units (TEUs). The scheme highlights the importance of TPP as the linchpin of East Java’s growth and as a maritime distribution centre for Eastern Indonesia. In the first half of 2012, throughput at TPP was 1.4m TEUs, putting it on track to exceed the 2.6m TEU total in 2011. As an indication of its importance, Surabaya has more shipping routes than Jakarta, and Indonesia’s three largest shipping lines – Tanto Intim, Meratus and Salam Pacific Indonesia – are all based in Surabaya.

Singapore and East Asia are the main international shipping lines for import/export out of TPP. From Singapore, the shipping lanes feed over to the EU and the US, and out to Japan and Korea. Indonesia’s domestic lanes include 29 routes operating out of TPP.

Despite being the country’s busiest port, TPP is held back by a shallow draught and limited dock capacity. The port cannot accommodate large vessels because the dock in the Surabaya West Access Channel (also known as APBS) is not deep enough. Furthermore, traffic can only flow in one direction at a time in the APBS, so ships must take turns to enter the port. The shallow draught also means vessels are sometimes unable to carry their full capacity. A 93,000-tonne capacity freight ship, for example, is able to load only 36,000 tonnes.

GETTING DEEPER: To rectify these shortcomings and meet the expected increased capacity, TPP is undergoing major restructuring. A new port is being built at Teluk Lamong, and to allow ships from TPP to access this new facility, Pelindo III – Tanjung Perak’s state-owned seaport operator – is deepening the Surabaya access channel. By 2013 depth will have increased from the current 9.5 metres to 13 metres, with a 16-metre draught dug in subsequent years.

Pelindo III is also planning to double the channel ‘s width from its current size of 100 metres. A liquid terminal is being built at TPP as well. This terminal will primarily receive new imports of crude palm oil and crude oil and gas, but it may also be used in the future to export gas from Papua New Guinea.

CRUISE CAPACITY: As part of the government’s plan to promote cruise tourism, TPP will also be home to a new 5000-passenger capacity terminal, Gapura Surya Nusantara, to be completed in 2014. The port in neighbouring Bali is being developed as a cruise tourism hub, and TPP will be one of the stopping points on such cruises. Gapura Surya Nusantara is part of the Master Plan for Acceleration and Expansion of Indonesia Economic Development 2011-25 (MP3EI) (see analysis).

Another project within the MP3EI is Pelindo III’s construction of the Lamong Bay Multipurpose Terminal west of TPP. The new terminal, known in Bahasa as Teluk Lamong, is expected to boost East Java’s position as a transport hub in Indonesia. “The opening of Teluk Lamong will support the flow of goods from Eastern Indonesia and reduce ship-waiting time at TPP,” Djarwo Surjanto, the managing director of Pelindo III, told OBG. Construction of the Teluk Lamong terminal is expected to be completed in 2013, with the terminal operational by 2014. Pelindo III estimates total investment for the terminal will be Rp1.3trn ($130m).

The East Java administration has also announced plans to build a container port at nearby Socah on Madura Island for Rp2.8trn ($280m), as part of the TPP expansion. Pelindo III is also planning to construct an industrial port located in Gresik, adjacent to 2500 ha of industrial land. The project will be enhanced by a planned new 500-ha town next to the port.

THE TRAIN TAKES THE STRAIN: Enhancing the nation’s transport infrastructure will also require new railway lines. The most prominent of these will be the 727-km Jakarta-Surabaya double track railway, which, when fully completed, will cut the travel time from Jakarta to Surabaya from 11 to 8.5 hours.

The line, scheduled for completion by the end of 2013 and operational by January 2014, is expected to shift freight transport from Java’s congested north coastline. According to the Ministry of Transportation, construction of the double track railway will cost in the region of Rp9.7trn ($970m).

IN THE AIR: New airports and airfields are also on the planning board for East Java. State airport operator Angkasa Pura (AP) I expects an expansion of Juanda International Airport to be finished by mid-2013. This facility, along with the nation’s other major airports, has been operating at over 100% capacity, according to the Transportation Ministry. AP I expanded Juanda’s Terminal 2 to boost annual passenger capacity by 71% to 12m, but it will still fall short of providing the necessary capacity for the estimated 14m passengers in 2012.

CITY LINKS: In October 2012, the East Java provincial government reaffirmed its commitment to execute a city-link aviation programme in concert with central government’s Ministry of Transportation. The programme is expected to improve and increase transportation between cities in the province, while at the same time relieving some of the burden that is currently on Juanda International Airport.

The programme will consist of at least six airports, with Juanda International Airport as the hub. However, in the future, passengers will be able to go directly to feeder airports, which is also expected to speed up transport of cargo such as agricultural goods.

In its preliminary stage, the City Link programme will involve the renovation or extension of three existing commercial airports – Juanda International Airport in Surabaya, Abdul Rachman Saleh in Malang and Blimbingsari in Banyuwangi – and the construction or development of three airfields: Bawean pioneering airfield in Gresik Regency, Trunojoyo pioneer airfield in Sumenep and Blimbingsari commercial airfield in Banyuwangi. Trunojoyo is an existing airfield, while Bawean is under construction. The central government has allocated funds to build and develop Trunojoyo and Blimbingsari airfields to enhance their facilities and infrastructures. For Bawean airfield, the central government’s funding allocation will go towards its construction.

GOING BEYOND: In addition to easing intra-East Java congestion, Blimbingsari and Abdul Rachman Saleh airports have launched routes to cities outside the province. East Java’s governor, H Soekarwo, told local media outlets in October 2012 that the inter-city aviation programme is attainable within one to two years, adding that the provincial government was supporting the programme with numerous facilities and infrastructure projects. The expectation was that the city link programme would be realised with the assistance of a multi-year allocation of the government budget.

With all these projects slated for completion in the next few years, East Java could thus soon be home to some of Indonesia’s, and South-east Asia’s, newest and most advanced infrastructure, with all the competitive advantages that this will confer. For investors too, the range of projects offers many opportunities, from hard infrastructure contracts to airport software to play for.