Thursday, October 15, 2009

Editorial: That old song: Infrastructure in Indonesia

President-elect Susilo Bambang Yudhoyono’s decision to include basic infrastructure development as key programs of action for the first 100 days of his government is a strategic move given our huge infrastructure deficit.

Crumbling infrastructure, an acute lack of electricity, poor and inadequate road networks, and grossly inefficient seaports and airports have all long been among the strongest barriers to new investment and a primary cause of our economic inefficiency and uncompetitiveness on a global scale.

But we cannot avoid a feeling of déjà vu.

Notably, Yudhoyono also made basic infrastructure a key component of his first 100-day program, during his first presidential term. He went ahead with convening the first infrastructure summit and exhibition in mid-January 2005, despite the massive, devastating earthquake and tsunami that struck Aceh and Nias Island less than one month earlier, killing hundreds of thousands of people.

In early 2006, Yudhoyono launched a comprehensive infrastructure-reform package stipulating more than 150 policy measures, and convened the second infrastructure summit later that year. Among important measures already implemented were the establishment of a US$300 million infrastructure fund company and better regulatory frameworks for the management and sharing of risks and public-private partnership (PPP) in infrastructure provision.

Funding has always been one of the main problems in infrastructure development as it requires long-term investment, while tariffs charged by infrastructure providers or operators are subject to government regulations. Since most bank loans have short maturities, the government-sponsored fund not only could provide alternative financing, but also serve as a catalyst for other creditors and investors.

There have been clear-cut regulations to secure the financial sustainability of service provision, allowing investors to be more confident that infrastructure tariffs will be sufficient for them to repay their investments with a reasonable return but will not be so high that they harm consumer interest or make projects politically unacceptable.

But only a small number of the hundreds of infrastructure projects offered thus far have been taken up by investors, and many of them have been delayed either by protracted bidding procedures or land-acquisition problems.

Foremost among the barriers is land acquisition, the main reason being inordinately weak implementation of the 2005 regulation on land acquisition for public interests, which was hailed as a breakthrough in streamlining the process of land appropriation. This regulation stipulates in technical details the procedures and step-by-step processes for negotiations on land prices; land appraisal; deadlines for negotiations; and composition of land committees for price negotiations; as well as the role of the National Land Agency.

We don’t think the enactment of a law on land acquisition for basic infrastructures would be a good, feasible way out. Besides such legislation taking a long time to deliberate, it would be politically unacceptable to make such a law in isolation from the long-delayed overall land-ownership reforms.

If the government really is serious about wooing investment to accelerate infrastructure development, it needs only to act firmly in enforcing its 2005 regulation on land acquisition.

This regulation allows for the forceful acquisition of land, yet it is still based on market prices, and even mandates the President to revoke property rights of dissident landowners as a last-resort measure, if all negotiation and consultation avenues have been exhausted. The Jakarta Post

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