infrastructure in indonesia lena 2

Infrastructure

in Indonesia

Lena Herliana

KADIN BSD

What is Infrastructure?

Physical: transport (roads, rail, harbors, airport), power (electricity, fuels), water (sanitation, irrigation), telecommunication and Informatics (fiber optics)

Social: health, education, housing

Why business concern on

infrastructure? Put cost on production: 1. Illegal fee are still around; recent straight at Merak by trucking drivers because of

tipping money for entering the port more smoothly (Kompas Newspaper, 29 May) 2. Logistics cost account for 30 percent, higher than other Asean countries (India less

than 15 percent, Thailand less than 20 percent) (WB report) Put cost on competitiveness 1. Insufficient infrastructure has put more cost to the final production which make price

higher for the same product produce by other region 2. The results of poor connectivity are evident in many other price differentials and

transport problems. World Bank research in Indonesia in 2010 also reveals that: Example: The price of a bag of cement in certain parts of Papua is 20 times that in

Java. The price of a gallon of water in Medan is double that in Jakarta. Oranges from China are cheaper than oranges from Pontianak (Kalimatan). High domestic transport costs are the main reason.

Put in danger on the business life of cycle Unsecured energy supply has made business to do many strategy to keep comply

with the contract arrangement, which somehow find energy substitute is costly

What business wants?

Low logistics cost Clear rules of games and regulations (incl. Clear mechanism)

1. To do business 2. To deal with labors 3. To deal with justice

Political stability Continues supply of energy (including other production inputs) To have adequate distribution infrastructure for such energy Availability and competitive raw materials Supported by reliable hinterland infrastructure and right pricing Market

1. Export led orientation: To facilitate the market to the nontraditional one, such as by: bilateral agreement, FTA, CEPA, etc

2. Domestic led orientation: To raise the purchasing power of people 3. Domestic empowerment: access to education

Where Indonesia stand? S

ingap

ore

(2)

Japan

(7)

HK

, C

hin

a (

13)

Canad

a (

14)

United S

tate

s (

15)

Austr

alia

(18)

Chin

ese T

aip

ei (2

0)

New

Zeala

nd (

21)

Kore

a (

23)

Chin

a (

27)

Mala

ysia

(29)

Thaila

nd (

35)

Phili

ppin

es (

44)

Chile

(49)

Mexic

o (

50)

Vie

tna

m (

53)

Peru

(67)

Indo

nesia

(75)

Russia

(94)

PN

G (

124)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

LP

I S

co

re

Logistics Performance Index 2010

Ranking and Scores for Indonesia and APEC Economies

ASEAN 6

Average

Lower Middle

Income

Average

Source: Logistics Performance Index 2010, World Bank

Note: No Data for BruneiAPEC Economy and LPI Global Ranking

Quoted from: Herliana, L & Parsons, D. (2010)

Where Indonesia stand?

In the global performance: Indonesia ranks 75th out of 155 economies in the LPI 2010.

While Indonesia’s ranking remains above the average performance of the group of lower middle income economies of which it is a part, its ranking did fall from 43 in the 2007 LPI. This is explained by relatively faster improvements and reforms in other economies since 2007.

In the six ASEAN economies: Indonesia’s ranking is currently the lowest

In the APEC: Indonesia ranks ahead of Russia and Papua New Guinea.


0 1 2 3 4 5

Score

Customs

Infrastructure

International shipments

Logistics competence

Tracking & tracing

Timeliness

Indonesia's Ranking in the LPI 210

compared with ASEAN 6 and Lower Income Countries

APEC Ave

Lower Middle Income

ASEAN 6

Indonesia

Quoted from: Herliana, L & Parsons, D. (2010)


The graph shows the scores of Indonesia against APEC, ASEAN 6 and lower middle income economies against six components that make up the LPI.

Indonesia performs relatively better in timeliness, tracking and tracing and international shipments and relatively worse in logistics competence, customs and infrastructure, even though it equals or is above the average of lower middle income economies.

Quality of Indonesia’s transport-

related infrastructure

Respondents evaluating the quality of transport infrastructure as low/very low (%)

Sources: LPI, 2010

83.33, 25%

83.33, 25%

83.33, 25%

16.67, 5%66.67, 20% Ports

Airports

Roads

Rail

Warehousing/transloading facilities



The business respondents to the surveys, associated with the LPI 2010 scores and rankings, show a particular concern about the quality of transport-related infrastructure. Two-thirds of respondents evaluated the quality of port infrastructure as low or very low and more than 83% considered that road, rail and airport infrastructure was low or very low.



Indonesia's Score in Related-Transport Infrastructure

(GCI 2011-2012)

0 1 2 3 4 5 6

Roads

Railroads

Seaport

Air Transport

Electricity

Scores

APEC Average

ASEAN 6

Indonesia



0 1 2 3 4 5 6 7

Singapore (3)

Malaysia (26)

Thailand (42)

Brunei (56)

China (44)

Indonesia (76)

India (89)

Philippines (105)

Vietnam (90)

ScoresSource, GCI 2011-2012



Based on GCI 2011-2012, Indonesia related infrastructure quality did below the average of ASEAN 6 and APEC countries

However, when compared to selected Asian countries, Indonesia is well a head of Phillipines, Vietnam and India.

Domestic

Some Hurdles

Unclear regulations with unclear implementing rules (somehow overlapping) Law on land acquisition

It has been set by law No. 2/2012. However, the implementing regulations not yet been set up Clear time for land lease

Whether it will apply for the current project or for the new one (grandfather clause)

Some projects in MP3EI are under responsibility of Government. However, under the PPP Book, its responsibilty being taken over by private institutions

Some studied indicate regulatory capacity is weak

Domestic

Some Hurdles

Lack of public consultations

Short notice of public consultations – (mostly one day before)

Lack participations of public in general (Civil Society)

Public is always being justified as only business people

Domestic

Some Hurdles Lack of transparency all the documents presented

before hands being classified as confidential no chance for further analyzes. These documents will give impact for the nations sake We have now the Law on Keterbukaan Informasi Publik No.

14/2008 (on Public Information Transparency), which public (business) is have a right to access all draft of regulations: all government agencies at the national and regional levels must provide information to members of the public on request, and that as part of the implementation, they have to appoint an official to handle such requests

However, not every citizen is aware of this right, nor there is clear mechanism on doing so.

Most agencies are reluctant to supply infomation

Domestic

Some Hurdles

The government priority vis a vis development priority political interest

drives the economy

Island country but priority is toll road (including bridge)

It should be driven into integrated land transport system with the port development [Herliana, L. (Bisnis Indonesia 2010)]

Domestic

Some Hurdles

Lack of coordination (somehow overlapping)

For logistics, the government has issued about 4 documents: MP3EI, PPP Book, PPP Book of Transport Ministry, Logistics Blueprint

Domestic

Some Hurdles

Have the money (fund), but no strategic on implementation

What will be the best level of investment in infrastructure

Is it 10% of GDP allocated for infrastructure enough? Best experience somehow misleading (recent level is around 3%)

Which are the most priority somehow, the “none”

priority one in government list are the most urgent thing to be handled to drive the whole economy

cost and benefits analysis

Is it quality project worth financing (bankable)?

Domestic

Some Hurdles

Re arrange the orientation of state enterprise not only for profit, but also to responsible for basic infrastructure (confirm by the Constitutional Law) guaranteed by the state Infrastructure needs to be made more pro poor (why

should people pay for things that are no use to them)

Pressures for SoE to perform competitively

Put in dream for private sector involvement Difficult, prospects are not really good

Two big problems: History is not good

Current investment climates are not good

Domestic

Some Hurdles

Political cost being burden to economic cost

Some reform being postponed due to unclear political interest

Fuel price hike looking only from the supply

side, not equally looking from the demand side

Projects nominated by promoters

Domestic

Some Hurdles

Lack of commitment and political will for the nation sake

Some policies are no longer under the ministry after the reshuffle

Domestic

Some Hurdles

Access to infrastructure

Two key aspects of access

Physical access (can we get the stuff)

Minimum prices (often too high)

Consumers in Asia resent proper pricing partly because the products are unsatisfactory – utilities fail to meet the needs of ordinary people

Business see projection on long term, cost for today will be refinanced by more better long-term business performance

Gas price hike is acceptable as long as the government provide long and secure supply for the business production

International and Regional

Agreement

Regional/international Agreements being set with standard template Different sector will need different treatment because of different pace of movement

International/regional context matters to a significant degree as a driver of reform, both in its competitive and cooperative dimensions

Under ASEAN, logistics will be liberalize up to 2013, other services within 2015

In 2009 APEC adopted a supply chain connectivity (SC) framework

What Next (Need) to Do?

Clear rules and regulations (Incl. Clear mechanism)

Regional/International agreement should be set with justifying approach

Readiness of the sector; be prepared for improvement

Consistency with the Higher Law, Constitutional Law hindered

from judicial review (annulment)

Develop Comm Strategy

Dissiminate progress & initiatives on regular basis

Keep the public informed about new developments

More to TAP (Tranparent, Accountable & Participatory) approach

What Next (Need) to Do?

Understandable

Some “jargon” words misleading “supply chain”, “connectivity”, “masterplan”

Study shows that 1 km additional road will trigger economic growth. However, they do not state clearly that this also trigger vehicles growth which later turn into making traffic jams

Some feasibility study for local project funded by international fund are written in English community will block the project

Development priority trigger the economic growth,

income equity & sustainable for environment

Strategic in implementations

Coordination, Commitment & Political will of the GoI

Thank You

Lena Herliana

KADIN - Indonesia

Business Support Desk

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