Efficient facilitation of major infrastructure projects

Indonesia is the largest of the ASEAN economies, with an impressive political and economic track record over the past 10 years. The country is on target to meet the goals detailed in the Indonesian Economic Development Plan 2011–2025, and its complementary document, the Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI), which sets a goal of Indonesia having a GDP of more than US$4 trillion by 2025. The delivery of essential and innovative economic infrastructure to achieve these aspirations is reliant on significant private sector funding. However, there is already an estimated $41.2 billion backlog of infrastructure projects delaying growth. Available mechanisms to apply new land laws and processes to gain approval for funding and financing of projects are significantly delaying implementation. 

This project sought to reduce the bottleneck in initiating infrastructure projects. It did so by examining the processes for initiating large infrastructure projects in Indonesia and comparing these with the processes followed in Australia. The project considered results from online surveys and focus group discussions and interviews conducted with key senior port, industry and government personnel related to port planning and development. This research aimed to improve infrastructure project initiation by informing policies and stakeholders about growth potential. The focus of this project was port/city interfaces in Indonesia and Australia. Ports are important gateways to trade and serve as commercial hubs for urban cities. The research team investigated ports in Surabaya, Jakarta, Palu and Melbourne and established a number of key differences, synergies and opportunities between the ports.

Infrastructure projects are usually nationally significant investments that provide much-needed social and economic benefits. Decision makers are often faced with a challenging task to prioritise and allocate scarce financial resources. In the case of investments such as port projects, specific guidance on critical issues will help with decision making to ensure that value is delivered. 

Method

In this project, the team conducted both qualitative and quantitative research on surveys, focus group discussions and in-depth interviews to identify projects and initiatives critical to the competitiveness and survival of international ports in Australia and Indonesia. The project investigated investment decisions, port/city performance both in Indonesia and Australia, barriers to investment decisions in both countries, funding and financing decisions related to port infrastructure development, sustainability, the procurement process, and capacity building.

In this project, the team found that apart from financing mechanisms, it is also important to prioritise projects and initiatives that are critical to the competitiveness and survival of international ports in Australia and Indonesia.

Findings

There are various findings in the research. Firstly, there are never sufficient funds to meet the expectations associated with infrastructure development. Developed countries like Australia can readily raise the finance for such investments, provided the investment is underwritten by an AAA credit rated government, but balancing the level of debt with the ongoing cost of finance remains a challenge. Emerging nations such as Indonesia face additional challenges in raising finance due to sovereign risk, perceptions of governance and the depth of their in-country financial market. The options available to decision makers are important. Literature review and reflections from experts reveal that viable options for Australian and Indonesia include government-led investments, intercountry loans, public private partnerships, integrated industrial estates (or co-located industry port-zones), special tax zones and asset recycling. These options have been adopted with some degree of success in both countries.

The project observed that the asset sale model is an effective financing mechanism for port infrastructure development in Australia, with the asset lease being the most agreeable among other asset sale options. Some initial critical factors were found and these will be of use to Indonesia. The critical issues related to Australian port infrastructure decisions were enabling and directing investments towards land side and hinterland connectivity. 

The research in Australia found that the enabling effects of directing investment to land-side transport as a means of improving port operations is crucial. Transportation is a priority area where investment funds should be directed. Reduction of traffic bottlenecks in road and rail infrastructure near the ports also needs to be addressed. The importance of investment in rail and road connectivity as a way to improve port operations was identified. However, it is recognised that it is a challenge to use rail as the main mode of freight transportation to and from ports. Rail networks currently prioritise passenger trains over freight, which may lead to increased dwell times and increased costs due to the resulting disruption to the supply chain. A possible solution is the development of inland hubs co-located with industrial and warehouse areas. 

Financing options available for infrastructure projects in Indonesia differ from those in Australia. The study gained insights from Indonesian seaport stakeholders on the issues, barriers, and improvement of port infrastructure financing and the most effective financing vehicle for port infrastructure projects. It found that among the various financing options, Indonesian domestic banks syndication and public-private partnership (PPP) schemes with government support are the two most awaited financing vehicles. In reality, however, our research showed that domestic banks have limited capacity and PPP schemes are still ineffective. 

The Indonesian side of the study indicated that government policies for investment facilitation are supported, that document standardisation has been the most useful initiative of the government’s reform package to reduce high logistics and freight costs, and that corruption, bureaucracy, and policy instability are the most prominent government support problems. Port competitiveness is also an important factor for decision makers in Indonesia, as most container traffic is going to regional hubs such as Singapore. A model of Indonesian port competitiveness has been developed. It is revealed that productivity and speed of service are perceived as port and terminal competitive strengths, while perceived weaknesses included transport, road connectivity, management efficiency, customs clearance, energy infrastructure and operational improvements.