Looking to expand its regional transport influence, Indonesia enhances its port network

Indonesia is currently in the process of strengthening its port system, with plans to upgrade and expand its existing network, in addition to building a host of new facilities across the archipelago. Port upgrades and construction will be critical for a number of long-term development goals, including the country’s transformation into a “global maritime axis” under the “Sea Toll Road” strategy, launched by President Joko Widodo in 2014. This strategy includes upgrades to 24 existing ports, as well as a massive modernisation at Jakarta’s Tanjung Priok Port, which should enable it to capture a larger share of global sea trade, in addition to reducing Indonesia’s high “dwell times” – the amount of time that passes between a container being unloaded from a vessel and its leaving the port.

New projects are also on the horizon, most notably a deepwater port in Kijing, and while anticipated private sector participation in ports projects remains constrained by state-imposed limits on foreign ownership, reforms at the country’s network of port management companies have highlighted the bond markets and public-private partnerships (PPPs) as potential high-value finance channels, which should enable the timely development of critical maritime transport upgrades in the coming years.

Congestion 

Currently, congestion is the most significant problem facing Indonesia’s ports, with shippers often frustrated by delays and long dwell times. Tanjung Priok is Indonesia’s largest port, handling more than half of total imports and exports out of North Jakarta, followed by Tanjung Perak in Surabaya, although both have suffered from congestion in recent years in the wake of rapid shipping growth. For example, although Tanjung Priok was designed with a maximum shipping capacity of 5m twenty-foot equivalent units (TEUs), as of 2012 it was handling 7.2m TEUs annually, according to a February 2015 report published by FinanceAsia.

According to the World Bank, import container dwell times rose from an average of 4.8 days in 2010 to 6.4 days in 2013, and while productivity improvements have had some impact – the Tanjung Priok Port Authority reported that average dwell times were at 4.7 days in early 2016, (down from 5.59 days in June 2015) – dwell times remain high by regional standards, driving transportation costs to an estimated 23% of GDP in 2015.

International cargo is also restricted to Jakarta and Surabaya, with the US Agency for International Development reporting that almost all non-bulk trade, including containers, is trans-shipped through Singapore and Malaysia because Indonesia does not have its own trans-shipment port capable of accommodating direct calls from large trans-oceanic vessels. The smaller size and limited infrastructure at secondary ports compounds the problems of congestion and long dwell times, The World Bank reported in 2013 that it is often cheaper for Indonesian traders to import from China rather than from within their own country. Faty Khusumo, managing director of Indonesia-based shipping and logistics company Temas Line, told OBG that the main area in which the government can be more helpful is port productivity. “Currently, port productivity is not at par, particularly regarding international trade targets,” Khusumo told OBG.

Ports Vision 

Since his July 2014 election, Widodo has promised to upgrade the country’s existing port infrastructure under a maritime development agenda, which envisions transforming the country into a global maritime axis, through improvements to inter- and intra-island connectivity, as well as further expanding international sea connectivity. As part of the overarching Sea Toll Road strategy, the global maritime axis plan seeks to capture a significant share of international shipping traffic. Similar to the previous administration’s East-West Pendulum programme, the Sea Toll Road strategy aims to connect six major seaports as the main centres for national maritime trade, managing all under an integrated system. The six ports highlighted for development under the strategy are Belawan, in Medan on Sumatra; Batam near the border of Singapore; Tanjung Priok; Tanjung Perak; South Sulawesi’s Makassar; and Papua’s Sorong port. The strategy also seeks to develop 24 of the country’s myriad seaports, including the renovation of 11 large and feeder ports, which will allow them to improve domestic connectivity between East and West Indonesia, while the remaining 13 ports will benefit from enhancements to cargo-handling facilities. The government has also targeted bringing transport costs down to 19.2% of GDP by 2019.

Financing 

Ports developer Pelabuhan Indonesia (Pelindo) II, which is a state-owned enterprise (SOE) responsible for 12 ports across 10 cities, including Tanjung Priok, is one of four Pelindos tasked with overseeing ports development across the archipelago. The largest of all four port authorities, Pelindo II has announced it plans to invest Rp50trn ($3.7bn) in port projects, with planned near-term developments including the New Priok Port and two greenfield developments: the Rp3trn ($219m) Sorong port, which will offer capacity of 15m tonnes annually on completion, as well as a planned new port on West Java, which will complement existing operations in Jakarta and surrounding areas.

In order to fund these plans, Pelindo II became the first SOE to issue a global bond in May 2015. The bond was divided into two series, with the first series valued at $1.1bn with a 4.25% rate and a 10-year maturity.

The second series was valued at $500m with 5.375% rate, and will mature in 2045. Pelindo I also plans to access the bond markets, as well as forming partnerships with other SOEs to finance its own $2.7bn port expansion programme. The group has already allocated Rp3.2trn ($233.6m) in capital expenditure for the programme, of which Rp1.2trn ($87.6m) will be sourced from bank loans.

According to FinanceAsia, future major capacity expansions are expected to be financed by special purpose vehicles, with the country predicting strong demand for well-structured, US dollar-denominated funding. The private sector will also be involved, with a consortium composed of Mitsui, Nippon Yusen Kaisha and PSA International slated to run a new terminal at the Tanjung Priok expansion. The Rothschild Group has also been engaged to seek investors for two additional planned terminals. However, this could prove difficult – although the government had reformed its negative investment list in February 2016 to loosen restrictions on foreign investment in transport projects, foreign ownership has been capped at 49%, which could serve to dampen interest from international investors.

New Priok Port

One of the largest port projects currently under development is the New Priok Port, an extension of Tanjung Priok. Also known as the Kalibaru port, New Priok will offer significant improvements to Indonesia’s existing logistics chain once fully operational in 2023. The project, under development by Pelindo II, will more than triple the annual capacity of the existing port, and will be developed in three phases. Upon completion of phase three, the port’s annual capacity will rise from 5m to 18m TEUs annually. It will also be able to facilitate Triple-E class container ships with capacity of up to 18,000 TEUs, in a 300-metre two-way sea lane.

The first phase of the port project includes construction of a new container terminal and related equipment, as well as construction of a new petroleum product terminal spread across 195 ha of land in North Jakarta. The $1.38bn first phase will be built by Japan’s Mitsui Group, with construction supervisor Van Oord reporting that dredging work for the first container terminal finished in November 2013, followed by dredging work for moorings at container Terminals 2 and 3 in the beginning of 2015.