Ir. Hermanto Dardak, Vice-Minister of Public Works: Interview

Interview: Ir. Hermanto Dardak

What are the main infrastructure priorities of the Ministry of Public Works for 2012-14?

IR. HERMANTO DARDAK: In particular, road is key in making the country competitive. A World Economic Forum study on the quality of road infrastructure ranked Indonesia 95th in 2009, 84th in 2010 and 83rd in 2011. There is a need to further modernise infrastructure.

Our first priority is to improve road and rail connections between Surabaya and Jakarta. Around 80% of Indonesian economic activity takes place in North Java, and as Surabaya is the country’s second-biggest economic centre, connecting the two is the main aim of our development programme up to 2014. Our second priority is connecting Jakarta to Medan, Sumatra’s development centre. To implement Sumatra’s corridor we need to improve the capacity of national and city roads, and create new bypass roads in the developed areas. We have also started to construct a toll road expressway. We will encourage coordination with local governments to push the development of provincial and local roads, and to connect them to the national road network, particularly in the planned special economic zones.

For these and other infrastructure projects, financing needs from 2010-14 were estimated at Rp1924trn ($192bn), of which the government can provide Rp560trn ($56bn). Other potential sources of funding are state-owned enterprises, private companies and regional government funding, which are projected to contribute Rp1041trn ($104bn) between them. There remains a financing gap of Rp323trn ($32bn). Finally, we are also determined to construct the 30-km Sunda Strait Bridge, which will connect the islands of Java and Sumatra, along with developing the Sunda Strait areas. This is a strategic project for the government.

How will land ownership issues be overcome?

DARDAK: The government is committed to maintaining an investment-friendly environment, and is exploring all options to further encourage private participation in infrastructure. Issues of land availability remain the biggest issue holding back development. Past initiatives put in place concerning land availability include the Land Revolving Fund and the Land Capping Fund. The first is a land acquisition fund set up to provide bridging finance for toll road investors. The government has allocated Rp1.4trn ($140m) of its budget to financing 23 sections of toll road. Investors will have to repay the bridging loan and these funds will be used to finance other bridging loans. The Land Capping Fund is a guarantee against the risk of excess costs in land acquisition: more than 110% of the agreed land acquisition costs or more than 100% plus 2% of investment costs. The fund is expected to support around Rp81.6trn ($8.2bn) of investment across 28 infrastructure projects. In late 2011 the government enacted a land acquisition regulation for public goods, and is now in the process of turning it into a presidential decree. This regulation breaks the project into three stages; planning, ascertaining routes for the public services and land acquisition itself.

What plans are there in the pipeline to improve infrastructure in metropolitan areas?

DARDAK: The needs are pressing in metropolitan areas. For instance, road infrastructure of Jakarta is suitable for a population of 1m. One problem is that as the city develops southward, it is affecting an area set aside for water preservation. Previously, the government developed road infrastructure to the west and east. Now the plan is to create a ring road with a radial pattern to improve spatial structure. We will invite private sector involvement, as this can ensure the financial viability of such projects. We now have a ring road running from Cawang-Semanggi-Pluit-Priok-Cawang and the second ring road is expected to be completed by 2014. Similar projects will take place in Surabaya, Medan and Bandung.