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Toll road investors ask full government support

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.

Investor Daily: Investor jalan tol minta dukungan penuh pemerintah

4 November 2019

By: Thresa Sandra Desfika and Tri Murti

Jakarta – The toll road construction target, which is 2,500-3,000 km of toll roads in the second term of President Joko Widodo (Jokowi) administration, is believed to be possible if the government at least provides the three kinds of support that are requested by toll road investors. The support includes simplification of land procurement process to facilitate toll road enterprises (BUJT), full support from the government for toll segments that lack funding, as well as legal certainty.

“So, I think that the construction target of 2,500-3,000 km of toll roads is not impossible. However, there are conditions that must be fulfilled,” the toll road player who is also the former President Director of Indonesian Toll Road Association (ATI) Fatchur Rochman said to Investor Daily in Jakarta on Saturday (2/11).

Regarding land acquisition, Fatchur admitted that, despite current improvements, reorganisations were still required, especially for the bridging funds from BUJTs.

Until now, BUJTs have to pay for land acquisitions first, while it should have been the responsibility of the government. However, reimbursements from the government through the State Asset Management Agency (LMAN) cannot be discharged quickly, thus burdening BUJTs.

“BUJTs were asked to pay for [land acquisitions] first, but reimbursements are still slow, it cannot be quick, even though the bridging fund is used by the government, namely by the land acquisition team of the ATR/BPN (Agricultural Affairs and Spatial Layout/National Land Agency) Ministry and the PUPR (Public Works and Public Housing) Ministry.

They pay the public by following the procedure, but it turns out that LMAN has a regulation of their own, so, before the reimbursement, there is a checking process that takes a long time. If the bridging fund is reimbursed quickly, the fund can be used for other land acquisitions,” he said.

BUJTs are also losing money as compensation from the reimbursement is less than the cost of securing a loan from a bank. The bridging fund compensation from the government is less than the bank’s credit cost that must be paid for by the BUJT.

“BUJTs do not need higher compensation, but at least do not hurt [the BUJT]. Compensations are seldom, but they are usually seen as an investment as they are converted to [add to] the concession period. This is not what is needed, as a toll road concession period is already long enough,” he said.

For toll segments that lack funding, Fatchur asked for the government to provide a full support for the toll road investors. Until now, the government has been supporting the feasibility of a toll project by building a part of a segment, but it is not enough for investors as there is a risk that the construction schedule of the government will be different than the investor’s schedule. Besides that, there is a concern that the government’s toll road quality will be below their standards.

“If the government is serious about providing a full support, the investors are better off given cash, so that there is no concern over schedule or toll road quality. So, let investors work on the toll segments alone, but give them cash,” he said.

There is a Legal Certainty

To increase the interest of investors in the toll road project sector, Fatchur reminded the government to uphold legal certainty, which is toll road tariff. He mentioned that the toll road tariff that was in line with the toll road concession agreement (PPJT), which was Rp1,500 per km, must be realised, and it could not be lowered. The investors are powerless if they are forced to lower the tariff as they have built the project on top of government land.

Legal certainty on toll road tariff is crucial when a finished toll road project is on sale for domestic or foreign investors. Legal certainty will be a main consideration of investors before purchasing a toll road project.

“Foreign investors will not take risks, [rather than] struggling during construction, they prefer purchasing a finished project. However, when [investors are] purchasing [a project], they do not want to purchase a toll road that has modifiable tariff. To maintain the trust of foreign investors, legal certainty must be maintained,” he said.

If a finished toll road project can be sold, the profit can be used to build new projects, and this is in line with President Joko Widodo’s directions. He also mentioned that selling toll road projects to second, third, or so investors was a normal occurrence in other countries, as a toll road concession period is very long.

“Toll road is a long-term business [that spans] 20 to 30 years. Trust is required, that is crucial. When investors need a loan from the bank, [investors] can go public to look for funding, or when a toll road is sold, the legal certainty will play a role,” he said.

Fatchur hopes that the government will side with toll road investors as this investment is very beneficial to the country. Different with mining projects that leaves the government with barren or damaged lands when the concession period is over, toll road investors can provide the government projects that are still operational in 100 or 200 years.

“Roads can last hundreds of years. See the roads made by Daendels, they are hundreds of years old and they are still useable. There are some damages, but they can be repaired,” he said.

Rp300 Trillion Investment

In the next five years, toll road construction will continue with a target of 2,500-3,000 km, and an investment of around Rp250 trillion to Rp375 trillion. Hence, there will be a total of 4,700-5,200 km of toll roads operational in 2024. Meanwhile, with the addition of 1,500 km of operational toll roads from 2015 to 2019, the total toll road length in Indonesia will reach 2,200 km by the end of this year.

The government will use the public-private partnership (PPP) scheme to build toll roads. The PUPR Ministry, through the Toll Road Regulatory Agency (BPJT), admitted the importance of investor’s trust in infrastructure construction, especially in the toll road sector. “In my opinion, the most important thing is the investor’s trust. Confidence in [making an] investment is growing in the toll road sector. The government has made various instruments, including the financing structure and the instrument for licensing, that are expected to boost investment in toll road construction, that increased during President Joko Widodo’s second term,” Head of BPJT of the PUPR Ministry Danang Parikesit said recently.

 

 

Toll Road Length in Indonesia

Toll roads operational in 1978-2014

795 km

Toll roads operational in 2015-June 2019

985 km

Toll roads operational in 2015-2019

1,500 km

Addition of operational toll roads in 2020-2024

2,500-3,000 km

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