Construction SOEs' strategy to obtain contracts

This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia - Siasat BUMN Karya Buru Kontrak

10 May 2021

 

State-owned contractors have the difficult task to pursue their new contract targets in the rest of the year. Moreover, in the first quarter of 2021, most construction SOEs (State-owned Enterprises) have yet to reach 10% of their new contract target.

However, construction SOE issuers are optimistic about the prospect in the second quarter of 2021 being better than the first three months of this year as there will be various infrastructure projects from the government and SOEs.

The Public Works and Public Housing Ministry recorded that there were 25 public-private partnership (PPP) projects that were ready to offer throughout 2021. With PPP projects in the outline business case (OBC) stage and the final business case (FBC) stage, there are a total of 57 construction packages with an estimated investment value of around Rp469.18 trillion.

Throughout the first quarter of 2021, only PT Wijaya Karya (Persero) Tbk has secured 10% of their new contract target, which reaches Rp4.6 trillion (11.47%) from the Rp40.12 trillion target. PT Pembangunan Perumahan (Persero) Tbk secured new contracts worth Rp2.5 trillion or 8.31% from their set target. PT Adhi Karya (Persero) Tbk secured new contracts worth Rp2.2 trillion at the end of May 2021 or 8.8% from the target. Moreover, PT Waskita Karya (Persero) Tbk secured new contracts worth Rp2.13 trillion per April 2021 or 8.19% from the set target.

Waskita Karya Corporate Secretary SVP, Ratna Ningrum, said to Bisnis last week that the company was optimistic about achieving this year’s Rp26 trillion new contract target. According to her, the tenders that the company are participating in are worth Rp15 trillion, which include government and SOE infrastructure projects. Waskita Karya is targeting 80% of new contracts this year to come from external projects, while the remaining 20% from investments.

Because of the company’s financial burden, Waskita Karya President Director, Destiawan Soewardjono, previously said that the company would be more selective in investing in projects this year. The company is targeting a minority ownership portion by synergising with other infrastructure investors.

PT Pembangunan Perumahan (Persero) Tbk (PTPP) is also ready to secure major project contracts in May and June. PTPP Corporate Secretary, Yuyus Juarsa, revealed that the company was participating in project tenders worth Rp8 trillion until the first quarter of 2021, and most of the tenders had yet to announce a winner.

PTPP is also optimistic about securing more new contracts in the second quarter of 2021 than last year. The National Economic Recovery (PEN) program that is implemented by the government is believed to be a catalyst for new contract growth in 2021.

“The company is currently participating in several tenders in building construction, infrastructure, and EPC (engineering, procurement, construction) segments,” Yuyus said.

Moreover, at the start of this year, PTPP has secured new contracts worth Rp1.35 trillion, while its subsidiaries have secured new contracts worth Rp1.15 trillion.

Several projects secured by PTPP from January to March 2021 include infrastructures in Mandalika area worth Rp342 billion, Banten RSUD (Regional General Hospital) worth Rp241 billion, Taman Ismail Marzuki worth Rp190 billion, Graha Waron RSIA (Maternity Hospital) in Surabaya worth Rp164 billion.

Adhi Karya Corporate Secretary, Farid Budiyanto, said that, this year, the company was dividing investment projects into two categories. “First, Adhi will conduct divestments by implementing a suitable exit strategy. Second, Adhi will make its portfolio of investment projects to be recurring income.”

Several projects that can boost the company’s recurring income are SPAM (drinking water supply system), water management, and waste management projects.

The company will also make costs more efficient internally by coordinating with various parties to accelerate payment for projects, such as Jabodebek LRT and Aceh-Sigli toll road.

Meanwhile, several analysts predict that the construction sector has the potential to recover in the second or the third quarter of this year, so the shares of several companies can be focused on by investors.

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