Infrastructurein 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 competitiveness1. Insufficient infrastructure has put more cost to the final production which make price higher for the same product produce by other region2. 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? Logistics Performance Index 2010 Ranking and Scores for Indonesia and APEC Economies 5 4.5 4 3.5 ASEAN 6 Average 3LPI Score Lower Middle 2.5 Income Chinese Taipei (20) Average United States (15) New Zealand (21) Philippines (44) HK, China (13) 2 Indonesia (75) Malaysia (29) Australia (18) Singapore (2) Vietnam (53) Thailand (35) Canada (14) Mexico (50) Russia (94) PNG (124) Korea (23) China (27) Chile (49) Peru (67) Japan (7) 1.5 1 0.5 0 Source: Logistics Performance Index 2010, World Bank APEC Economy and LPI Global Ranking Note: No Data for Brunei 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.
Where Indonesia stand? Indonesias Ranking in the LPI 210 compared with ASEAN 6 and Lower Income Countries Timeliness Tracking & tracing APEC Ave Logistics competence Lower Middle IncomeInternational shipments ASEAN 6 Indonesia Infrastructure Customs 0 1 2 3 4 5 Quoted from: Herliana, L & Parsons, D. (2010) Score
Where Indonesia stand? 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 16.67, 5% 66.67, 20% Ports83.33, 25% Airports Roads Rail Warehousing/transloading facilities 83.33, 25% 83.33, 25%
Quality of Indonesia’s transport- related infrastructure 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.
Quality of Indonesia’s transport- related infrastructure Indonesias Score in Related-Transport Infrastructure (GCI 2011-2012) ElectricityAir Transport APEC Average Seaport ASEAN 6 Indonesia Railroads Roads 0 1 2 3 4 5 6 Scores
Quality of Indonesia’s transport- related infrastructure Vietnam (90)Philippines (105) India (89) Indonesia (76) China (44) Brunei (56) Thailand (42) Malaysia (26) Singapore (3) 0 1 2 3 4 5 6 7 Scores Source, GCI 2011-2012
Quality of Indonesia’s transport- related infrastructure 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 - IndonesiaBusiness Support Desk