The Indonesian government has announced plans to overhaul their unreliable transport system. The ambitious plans will cost more than 800 million rupiah, or US$110 billion, to upgrade Indonesia’s railways, roads, airports and seaports. The current state of the transport infrastructure threatens to choke growth, with prices rising and waiting times extending.

“The [Indonesian] government recognizes that lagging infrastructure, underdeveloped inter-island connectivity, and an inefficient logistics system are among key constraints on achieving its target of higher growth, faster poverty reduction, and lower inflation,” according to a recent report by the Asian Development Bank.

With an expected growth rate of well over 6 percent in the coming years, and a middle class that is expected to triple to 150 million by 2014, it is crucial that Indonesia revamps it transportation infrastructure.

It can take up to three hours to travel the 30 kilometers distance from the airport to the port of Tanjung Priok due to the poor state of the roadways. Similarly, it costs more than US$600 to ship a container from Jakarta to Padang, double the price of what it would cost to send it from Singapore to Jakarta.

Railway conditions are also increasingly debilitating, with a single delay often leading to a long series of hold-ups.

“We have had road-biased development, and 90 percent of goods and people are carried by road. We’ve neglected the development of railways,” commented Vice-Minister Bambang Susantono in an interview with the Straits Times.

The development of sea-ports will also be important. Work on a new deep-water port on an island between Batam and Bintan is currently set to begin next year. This port will not only become a major trans-shipment center for Indonesia, but it also has the potential to rival Singapore’s deep water port to become an important shipping center in Southeast Asia.

“We are trying to ease the load off roads and shift it to railways, and also to short-sea shipping where ferries can carry out roll-on, roll-off operations,” says Susantono.

This will allow trucks and other vehicles to easily drive on and off ferries, enabling cheap and efficient transportation of goods. This is especially important for Indonesia which has to connect a nation of islands.

Previous investment by the Indonesian government has focused around the capital Jakarta and Java, thus the majority of new investments will be focused on reinvigorating less-densely populated areas, such as in eastern Indonesia. In conjunction with the investment provided by the government, Indonesia will also seek private investment to fund an expensive high-speed rail network, and other larger projects.

The project is currently on schedule and has been showing signs of promise, such as an Indian conglomerate partnering with a state-owned enterprise to develop a new international airport in Yogyakarta.

Investors, however, have been wary to commit due to delays created when parties disagree over loan terms, or because of land disputes. However, the Indonesian government is guaranteeing project risk, which will go a long way to reassure wary investors.

www.2point6billion.com

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