In the works: While foreign investment has been limited, it may now be set to rise

In 2010-11 and 2012 through September, little foreign direct investment (FDI) was committed to Indonesian infrastructure. But a good deal has been promised lately, and significantly it has been promised by countries known for their patience, ability to work through bureaucratic delays, and relative insensitivity to risk and guarantee issues. It is possible that more FDI will go towards building infrastructure in the coming years.

FEW COMPLETED: The numbers indicate that very few infrastructure projects involving FDI have been completed. According to the Indonesian Investment Coordinating Board’s (BKPM) statistics department, only one foreign investment was realised in the road and rail sector in 2011. The total was $2.2m, said BKPM, and the investing country was Malaysia. In the procurement and distribution of water category, three investments were made for a total of $13.6m and they came from Singapore ($10m), the Netherlands ($45,000) and other combined “joint countries” ($3.1m). In terms of electricity projects, 22 investments were made for a total of $991m in 2011. Singapore made nine investments totalling $109m, Hong Kong two for $19m, the British Virgin Islands one for $5.9m, and US investors one worth $333,000. In the “joint countries” category, there were six investments totalling $856.9m. To get a sense of how little FDI went toward infrastructure, it is instructive to consider telecommunications. A total of $3.7bn went into that sector by foreign investors in 2011.

In 2010 no foreign investments were made in roads and railroads. There was only one water-related investment, from Malaysia, and some $290m of electricity investments. The statistics indicate that 2012 will be just as slow. BKPM reports only one realised rail and road investment through September, from China and of an undisclosed amount, and less than half a billion dollars of FDI into electricity. BKPM has recorded only two water investments so far in 2012, totalling $16.4m.

RECORD FDI: Despite the slow progress in terms of realised FDI in the infrastructure sector, the numbers are likely to improve. Indonesian FDI overall hit an all-time record in the third quarter of 2012 — $5.9bn, up 22% year-on-year — indicating significant momentum and increased confidence on the part of investors outside the country. With the new Land Acquisition Law, the new mayor in Jakarta and the economic master plan, it may be easier to get projects completed, especially those involving foreign investment.

The types of projects on deck and the origins of the capital involved also suggest more FDI promises may result in actual investment. China tends to be relatively strategic and political in its thinking and is likely to go ahead with projects in the face of difficulties that might deter more purely financial investors.

The Japanese government has offered to provide financing for a $6.5bn 144-km high-speed rail lines between Jakarta and Bandung. The line may be extended from Bandung to Surabaya. Japan has also offered to support building the 30-km Rp100trn ($10bn) Sunda Straits Bridge between Sumatra and Java.

CHINESE INVESTMENTS: China, meanwhile, has offered to invest about $5bn in rail projects including coal lines in Central Kalimantan and South Sumatra, the Soekarno-Hatta International Airport express train and a railway from Solo to Jakarta. The Sumatra line is expected to run 300 km from Muara Enim to Lampung, cost $1.3bn and be supported by China Railways, China’s state-owned rail operator. China Railways will also invest in the 185-km, $2.3bn Cahu-Bangkuang line in Kalimantan. China Harbour, a subsidiary of Hong Kong-listed Chinese infrastructure company CCCC, is said to be investing in the airport link.

China Merchants Holdings, a Hong Kong-listed Mainland company, is said to be in talks with Pelindo II to construct a container and iron ore terminal at Tanjung Sawuh, Batam. The project is worth an estimated $2bn. Russian Railways, along with Russian state development bank Vnesheconombank, is planning to build a $2.4bn rail line on Borneo for the transportation of natural resources, in particular coal. The first phase will be 185 km, and an additional 60 km may be added later.