Budget restrained, time to seek breakthroughs in funding

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 - Anggaran ditahan, saatnya cari terobosan pendanaan

25 November 2024 

By Heru Febrianto

Jakarta, ID – Amid the constraints of a limited state budget (APBN) for developing infrastructure projects, support from the private sector is needed to advance large-scale physical construction projects in Indonesia.

Following the directive of Indonesian President Prabowo Subianto, Finance Minister Sri Mulyani has reduced the infrastructure budget for government construction projects.

This was stated by Public Works Minister Dody Hanggodo following a meeting with National Development Planning (PPN) Minister/National Development Planning Agency (Bappenas) Head Rachmat Pambudy.

"All funds for infrastructure are currently on hold by the Finance Minister, in accordance with the directive from President Prabowo," Dody revealed to the media in Jakarta on Friday (22/11/2024).

The impact of this action is that the government is compelled to temporarily halt various large-scale physical construction projects.

"On several occasions, I have stated that large-scale physical construction projects, such as dams and others, must be temporarily halted," he emphasised.

This step is taken to realise the main programme of Prabowo’s administration, which focuses on self-sufficiency in food, energy, and water, amid the constraints of a limited state budget.

"With the limited budget, we must optimise our resources to make Prabowo’s Asta Cita successful in the food, energy and water sectors," Dody said.

The allocation of funds for various infrastructure projects will be put on hold until they become available again to fund construction. Ministers in the Red and White Cabinet will hold a meeting to discuss this matter.

“The ministers will convene under the leadership of the Bappenas Head. Without the Bappenas Head, we cannot proceed, as he will be responsible for developing the plans. Following this, the decision regarding the direction will be comprehensive,” Dody said.

Dody mentioned that PPN Minister/Bappenas Head Rachmat Pambudy has provided guidance on this matter. The state budget will be prioritised to fund programmes aimed at achieving self-sufficiency in food, energy and water.

He stated that infrastructure projects will resume once the state budget becomes available to fund the developments.

"When they are needed and when the budget is available, developments will continue. The most important thing is public welfare. If the people are prosperous, tax revenue will increase, and consequently, the budget will grow," he stated.

However, Dody mentioned that his agency will prepare several new funding schemes to support the resumption of various infrastructure projects.

"There will be [infrastructure projects]. However, constructing large-scale projects must be balanced with other targets. Our goals are not limited to self-sufficiency in food, water, and energy; there are other objectives that must also be pursued," he explained.

Accommodating the private sector

Meanwhile, Yayat Supriatna, an urban infrastructure observer from Universitas Trisakti, stated that the government's decision to pause infrastructure development during the administration of President Prabowo Subianto and Vice President Gibran Rakabuming Raka must take into account the involvement of the private sector. Consequently, innovative new funding schemes are necessary to finance infrastructure projects.

“Involving the private sector in planning infrastructure development must take into account the benefits for them. Private sector investment is driven by the potential for profit and a quick return on investment,” he said to Investor Daily.

Yayat noted that private investment in the infrastructure sector must be thoroughly planned. Indonesia has a history of various programmes involving the private sector and state-owned enterprises (SOEs). For instance, during President Susilo Bambang Yudhoyono's administration, there was the Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI). Similarly, under President Joko Widodo's administration, there was the Public-Private Partnership (PPP) programme through national strategic projects (PSNs).

“However, not all of these initiatives can be implemented. This means that careful planning is necessary, especially as the names and budgets of programmes often change with a new administration. Therefore, they must be evaluated,” he revealed.

The private sector will be hesitant to get involved in government-planned infrastructure projects because these projects are capital-intensive and risky. "Given their capital-intensive nature, the risks must be guaranteed by the government. Additionally, these projects take a long time to become profitable," he stated.

Yayat added that if the government is serious about involving the private sector, there needs to be a shift in mindset. "Allow the private sector the freedom to innovate and grow in this sector. The government simply needs to provide guarantees and ensure clear regulations," he suggested.

SOE support

In addition to the government budget, the involvement of SOEs is essential for the development of infrastructure projects. One of the SOEs that actively contributes to infrastructure development, particularly in the toll road sector, is PT Hutama Karya (Persero). After constructing the Trans-Sumatra Toll Road (JTTS), which spans 1,235 kilometres (km), Hutama Karya is committed to continuing with phase 2 of the JTTS segments.

The continuation of the JTTS construction is also supported by Coordinating Minister for Infrastructure and Regional Development, Agus Harimurti Yudhoyono (AHY), who stated that infrastructure development, such as toll roads, is crucial for accelerating economic growth, enhancing public welfare and strengthening connectivity among provinces.

“With the continuation of the Trans-Sumatra Toll Road development, we can significantly impact socio-economic growth across Sumatra,” AHY revealed recently.

Hutama Karya Corporate Secretary Executive Vice President Adjib Al Hakim stated that the project will not only reduce travel time between provinces but also create new economic opportunities. With the route's interconnection, logistics will become more efficient, and the distribution of rubber, palm oil and other commodities in Sumatra will be smoother.

“In addition, the toll road also facilitates the distribution of other agricultural products, allowing them to reach those in need more quickly. Products such as pempek from Palembang and tempoyak and kerutup ikan from Jambi are expected to reach wider markets and gain greater recognition,” Adjib explained.

The second phase of the JTTS is part of the ongoing toll road concession agreement (PPJT) that was signed on 30 September 2024. It includes the Palembang-Betung (Paltung) Toll Road, covering Section I (Palembang-Rengas) spanning 21.5 km, Section II (Rengas-Pangkalan Balai) spanning 33 km, and Section III (Pangkalan Balai-Betung) spanning 14.69 km.

In addition, Hutama Karya has also commenced construction of Betung (Sekayu Interchange)-Tempino-Jambi (Betejam) Toll Road. This includes Section 1B (Babat Supat-Tungkal Jaya) spanning 31.6 km and Section II (Tungkal Jaya Interchange-Bayung Lencir Interchange) spanning 54.32 km, under a concession agreement (PPJT) signed on 3 June 2024.

“This construction is part of Hutama Karya's commitment to completing the backbone that will connect the two provinces of South Sumatra and Jambi,” he added.

Adjib stated that the construction process for several segments was initiated using modern digital construction techniques to ensure that the process proceeds according to plan and schedule.

“The construction of these segments will be carried out in stages during the fourth quarter of 2024, taking into account environmental, social, and governance aspects. This approach ensures that the impact can be directly felt by the people,” Adjib said.

Next Article: National and toll road stability reaches 93.88%

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