As a consequence of Indonesia’s geographical diversity, population distribution, and the relative disparity of economic development between Java and the other islands, the government successive medium-term development plans gave particular emphasis on transportation development and a transport system capable of satisfying demand in an efficient, safe, fast, reliable, and affordable manner. Transportation is seen as having a vital role in promoting domestic trade, particularly to and from the less developed areas.
Indonesia’s transportation system consists of land, sea and air transport. This chapter is concerned mainly on the road infrastructure under the responsibility of the Ministry of Public Works (MPW).
According to Law 38/2004 on Road, road provision is the responsibility of both local and central government. Central government is responsible for inter-urban arterial and collector roads, while the provincial government is responsible for inter-kabupaten collector and local roads, and the kabupaten (regency) government is responsible for intra-kabupaten local roads. Basic statistics: Table 1. Conditions of Road Networks in Indonesia1 Source : PJM 2005 and KMPU 2006 The Directorate General of Highways (DGH) under MPW is responsible for managing all national roads - these are defined to include toll roads and limited access high grade highways. Through reclassification the national road network has been increased from 26,000 km to 34,000 km, with 649 km of freeways/toll roads.
Some remote areas are still not connected to the road network. A national survey showed that roughly five percent of the population could not be reached by road, and an additional three percent lack any reliable connection to the road network. Overall the network is in poorer condition in the eastern region.
Congestion has increased, especially in Java and urban centers, but little capacity has been added. The JARNS study remains the most current source, projecting about 55% of the arterial network on Java being congested by 2010, and the need for about 2,000 km of toll road.
National roads are mostly in sound condition, provincial roads are less well maintained, and over half of the kabupaten roads is in poor condition creating a substantial need for rehabilitation and upgrading to the order of 7,000 km.
Substantial public expenditure will be needed to address the large backlog of construction and rehabilitation. Road expenditure in the national and regional development budget fell during the financial crisis in 1997/98. The APBN budget for roads in constant prices has risen to the level the crisis. Compared to the situation in 2004, the budget allocation has increased substantially to 13% in 2005 (16% is proposed for 2006). However, more allocation will be needed to address the large backlog, estimated at Rp 17 trillion in 2004.
Source: KKPPI, Sector Review 2006
Wednesday, 19 November 2008
Road Project Transactions, Indonesia
Current Transaction
In December 2004, six toll-road projects were tendered out in the first batch. Thirty-five consortia (20 foreign companies and 15 local companies) expressed interest in the PQ. Eighteen consortia attended the pre-bid conference and conducted site visits. Land acquisition cost is to be provided by the investor.
Under Batch 1, four toll roads elicited private interest; there were no bids for the other two.
In the second batch, 13 projects were tendered, including the 2 that did not elicit any bids under Batch I. The PQ result was announced on 20 January 2006; only four projects in Jabodetabek Toll Road Network have sufficient number of qualified bidder. Again there were no bids for the Medan–Binjai and Cileunyi–Sumedang toll roads.
There was little interest from overseas investors since the land for ROW (right of way) has not been acquired for any of the 13 toll roads tendered. The GOI consider this is as cross sector issues. Policy, regulatory, and institution framework for land acquisition is now being set up to improve marketability of the projects.
Another problem encountered was the biased nature of the concession agreement used, which investors regarded as not “bankable”. A more “bankable” and “investor friendly” template concession agreement conforming to international standards has been developed.
The toll roads under Batch III are now being offered and include important links in the Trans Java Road Network: Solo-Mantingan-Ngawi and Ngawi-Kertosono. The PQ submission has been closed in September 2006. These projects have been considered as economically feasible, but financially marginal and need government financial support to make them commercially viable.
Future Transaction
There are 18 toll road projects under preparation by BPJT. The government has decided to build the Suramadu Toll Bridge and the proposed access toll road to Tanjung Priok Port, but private sector is likely to have the opportunity to operate them.
Source: KKPPI, Sector Review 2006
In December 2004, six toll-road projects were tendered out in the first batch. Thirty-five consortia (20 foreign companies and 15 local companies) expressed interest in the PQ. Eighteen consortia attended the pre-bid conference and conducted site visits. Land acquisition cost is to be provided by the investor.
Under Batch 1, four toll roads elicited private interest; there were no bids for the other two.
In the second batch, 13 projects were tendered, including the 2 that did not elicit any bids under Batch I. The PQ result was announced on 20 January 2006; only four projects in Jabodetabek Toll Road Network have sufficient number of qualified bidder. Again there were no bids for the Medan–Binjai and Cileunyi–Sumedang toll roads.
There was little interest from overseas investors since the land for ROW (right of way) has not been acquired for any of the 13 toll roads tendered. The GOI consider this is as cross sector issues. Policy, regulatory, and institution framework for land acquisition is now being set up to improve marketability of the projects.
Another problem encountered was the biased nature of the concession agreement used, which investors regarded as not “bankable”. A more “bankable” and “investor friendly” template concession agreement conforming to international standards has been developed.
The toll roads under Batch III are now being offered and include important links in the Trans Java Road Network: Solo-Mantingan-Ngawi and Ngawi-Kertosono. The PQ submission has been closed in September 2006. These projects have been considered as economically feasible, but financially marginal and need government financial support to make them commercially viable.
Future Transaction
There are 18 toll road projects under preparation by BPJT. The government has decided to build the Suramadu Toll Bridge and the proposed access toll road to Tanjung Priok Port, but private sector is likely to have the opportunity to operate them.
Source: KKPPI, Sector Review 2006
PPP Model Projects in Indonesia
Two model projects have been proposed to be implemented under PPP:
1. Ketapang-Margagiri Ferry project: The ferry link connects Java and Sumatra, adding capacity to the existing overcrowded terminals. This project is under project preparation.
2. Lamong Bay port project is located near Tanjung Perak port, Surabaya. The capacity of Tanjung Perak port, the second largest in Indonesia, has reached maximum capacity.
Other Projects
Many projects that have been identified in the February 2006 Infrastructure Policy Package as potential PPP projects. It is undecided whether the proposed Bojonegara and Balikpapan port will be implemented under PPP.
The new Medan airport, expansion of Soekarno-Hatta airport passenger terminal, expansion of Soekarno-Hatta freight terminal, and the new Lombok airport have been proposed in the February 2006 Infrastructure Policy Package as potential PPP projects.
At this point in time, whether these projects will be implemented under PPP remain undecided.
Source: KKPPI, Sector Review 2006
1. Ketapang-Margagiri Ferry project: The ferry link connects Java and Sumatra, adding capacity to the existing overcrowded terminals. This project is under project preparation.
2. Lamong Bay port project is located near Tanjung Perak port, Surabaya. The capacity of Tanjung Perak port, the second largest in Indonesia, has reached maximum capacity.
Other Projects
Many projects that have been identified in the February 2006 Infrastructure Policy Package as potential PPP projects. It is undecided whether the proposed Bojonegara and Balikpapan port will be implemented under PPP.
The new Medan airport, expansion of Soekarno-Hatta airport passenger terminal, expansion of Soekarno-Hatta freight terminal, and the new Lombok airport have been proposed in the February 2006 Infrastructure Policy Package as potential PPP projects.
At this point in time, whether these projects will be implemented under PPP remain undecided.
Source: KKPPI, Sector Review 2006
Sea Transport in Indonesia: An Overview
Indonesia is a country with an immense potential in maritime development that is largely unrealised. There are over 2,133 ports in Indonesia: 977 general ports and 1,156 special ports.
The SOEs, the various Pelindos, between them operate 111 ports. Two of these ports have the potential to become international hubs, namely Tanjung Priok and Tanjung Perak. The government is planning another port in East Indonesia as another international hub (Bitung in North Sulawesi). The government has also stipulated 25 strategic ports as the main gateway for passenger and cargo traffic.
Table 2. General Sea Ports Source: MOT, Kepmen 53/2002 Not all ports designated as international have the facilities for full container operation.
Kepmen 44/2002 designated 20 international ports, but there are only 9 full container ports and 4 semi-container ports, most of them in Java and Sumatra1. A total of 471 1 MOT, Rencana Kerja 2006 ports should be decentralized to local government, but few are prepared to assume the responsibility for fear that this would put additional strain on their finances2.
While container traffic has increased significantly in the last five years, port capacity in Indonesia has not. Tanjung Priok and Tanjung Perak, the two largest ports, are only able to handle 3 and 1.5 millions TEU respectively, much below the capacity of international trans-shipment ports. The depth of Tanjung Perak basin is only 10 meter LWS, insufficient for ocean-going ships requiring 14-16 meter LWS. Congestion has increased in major ports, especially at container terminals, but little capacity has been added.
Law 21/1992 on Shipping and PP 70/1996 on Port are the governing legislation. The draft law, submitted to Parliament and expected to be passed in the first quarter of 2007, removes the current restriction that PSP can only be undertaken as a joint venture with a Pelindo. Removing this restriction is unlikely to lead to more PSP, unless there is unbundling of the Pelindos’ functions.
There are major PSPs under Pelindo II: the Jakarta International Container Terminal and the Koja Container Terminal.
In 1999, Pelindo III corporatized its container terminal operations. P&O Ports holds a 49% stake in the company. Since then the company has invested over US$60 million in new equipment and facilities.
Table 5. PSP under Pelindo II Source: Pelindo 2 (2006) Bojonegara port has been considered as a potential project. However, private interest in the proposed green-field port has been dampened by the fear that other ports in the vicinity would reduce the viability of Bojonegara.
Land is available at point of tender if the project is located within an existing port.
However, for a green-field port land should be acquired before the project is tendered out.
An assessment of the sector regulatory framework indicates certain important issues: At present, the Pelindos are responsible for project due diligence. However, they are not equipped to do so. Draft law assigns this responsibility to DGST.
As the landlord authority, the Pelindos set the tariff for port basic infrastructure.
This tariff affects the down-stream tariff on port services. It is important that any economic rent in the former is removed, to maximize the utilization of existing basic infrastructure.
On procurement, the current practice shows that it is conducted on the basis of Keppres 80/2003. Perpres 67/2005 must be used, as it is designed specifically for the procurement of the PPP concessionaire, and not on goods and services.
At present there is no specific regulatory body in the port sector. The regulator role is shared between the DGST and Pelindos, the latter determining, for example, the tariff on basic infrastructure.
Like the rail sector, the institutional arrangement is far from the ideal. The Pelindos perform a triple role: as a contracting agency, operator and regulator.
There are two possible arrangements based on the ideal arrangement. The first model assumes a new regulator, taking over the safety and technical regulation from the MOT and the commercial regulation from the Pelindos. The Pelindos retain their contracting role as the landlord/port authority in their designated region, but relinquish their operator role.
The other assumes that the contracting agency would be the landlord/port authority but this would not be the Pelindos, who would be one of the operators competing for PSP projects tendered by the landlord authority. The regulator would be a new entity, as proposed in the first model.
Both proposed arrangements are workable, not only for PSP provision of port services, but also for new i.e. green-field ports, such as Bojonegara. As the provision of port infrastructure is the responsibility of the government, it is assumed that a new port would be commissioned by the landlord/port authority on behalf of the government. It is further assumed that the port, once built, would be assigned to the port authority for management. This would correspond to current practice.
Source: KKPPI, Sector Review 2006
The SOEs, the various Pelindos, between them operate 111 ports. Two of these ports have the potential to become international hubs, namely Tanjung Priok and Tanjung Perak. The government is planning another port in East Indonesia as another international hub (Bitung in North Sulawesi). The government has also stipulated 25 strategic ports as the main gateway for passenger and cargo traffic.
Table 2. General Sea Ports Source: MOT, Kepmen 53/2002 Not all ports designated as international have the facilities for full container operation.
Kepmen 44/2002 designated 20 international ports, but there are only 9 full container ports and 4 semi-container ports, most of them in Java and Sumatra1. A total of 471 1 MOT, Rencana Kerja 2006 ports should be decentralized to local government, but few are prepared to assume the responsibility for fear that this would put additional strain on their finances2.
While container traffic has increased significantly in the last five years, port capacity in Indonesia has not. Tanjung Priok and Tanjung Perak, the two largest ports, are only able to handle 3 and 1.5 millions TEU respectively, much below the capacity of international trans-shipment ports. The depth of Tanjung Perak basin is only 10 meter LWS, insufficient for ocean-going ships requiring 14-16 meter LWS. Congestion has increased in major ports, especially at container terminals, but little capacity has been added.
Law 21/1992 on Shipping and PP 70/1996 on Port are the governing legislation. The draft law, submitted to Parliament and expected to be passed in the first quarter of 2007, removes the current restriction that PSP can only be undertaken as a joint venture with a Pelindo. Removing this restriction is unlikely to lead to more PSP, unless there is unbundling of the Pelindos’ functions.
There are major PSPs under Pelindo II: the Jakarta International Container Terminal and the Koja Container Terminal.
In 1999, Pelindo III corporatized its container terminal operations. P&O Ports holds a 49% stake in the company. Since then the company has invested over US$60 million in new equipment and facilities.
Table 5. PSP under Pelindo II Source: Pelindo 2 (2006) Bojonegara port has been considered as a potential project. However, private interest in the proposed green-field port has been dampened by the fear that other ports in the vicinity would reduce the viability of Bojonegara.
Land is available at point of tender if the project is located within an existing port.
However, for a green-field port land should be acquired before the project is tendered out.
An assessment of the sector regulatory framework indicates certain important issues: At present, the Pelindos are responsible for project due diligence. However, they are not equipped to do so. Draft law assigns this responsibility to DGST.
As the landlord authority, the Pelindos set the tariff for port basic infrastructure.
This tariff affects the down-stream tariff on port services. It is important that any economic rent in the former is removed, to maximize the utilization of existing basic infrastructure.
On procurement, the current practice shows that it is conducted on the basis of Keppres 80/2003. Perpres 67/2005 must be used, as it is designed specifically for the procurement of the PPP concessionaire, and not on goods and services.
At present there is no specific regulatory body in the port sector. The regulator role is shared between the DGST and Pelindos, the latter determining, for example, the tariff on basic infrastructure.
Like the rail sector, the institutional arrangement is far from the ideal. The Pelindos perform a triple role: as a contracting agency, operator and regulator.
There are two possible arrangements based on the ideal arrangement. The first model assumes a new regulator, taking over the safety and technical regulation from the MOT and the commercial regulation from the Pelindos. The Pelindos retain their contracting role as the landlord/port authority in their designated region, but relinquish their operator role.
The other assumes that the contracting agency would be the landlord/port authority but this would not be the Pelindos, who would be one of the operators competing for PSP projects tendered by the landlord authority. The regulator would be a new entity, as proposed in the first model.
Both proposed arrangements are workable, not only for PSP provision of port services, but also for new i.e. green-field ports, such as Bojonegara. As the provision of port infrastructure is the responsibility of the government, it is assumed that a new port would be commissioned by the landlord/port authority on behalf of the government. It is further assumed that the port, once built, would be assigned to the port authority for management. This would correspond to current practice.
Source: KKPPI, Sector Review 2006
Air Transport in Indonesia: An Overview
One hundred eighty seven airports are operated by the government and SOEs. The Angkasa Puras, the SOEs, hold the monopoly on airport services in their designated region.
Deregulation in the airline industry after the 1997 crisis allowed private airline companies to compete with state-owned companies. The greatest beneficiary of this has been the consumer, who has seen fares dropped in real terms and many more scheduled flights to more destinations. Although the economic prospect of the aviation industry in Indonesia looks bright, the industry is experiencing overcrowded airport terminals and inadequate air traffic control.
Law 15/1992 on Aviation and PP 70/2001 on Airport are the governing legislation. PSP on airport services is only allowed through a joint venture with an Angkasa Pura. The draft law, submitted to Parliament and expected to be passed in 2007, removes this restriction.
An assessment of the sector regulatory framework reveals the following issues: The Angkasa Puras are responsible for project due diligence. However, they do not have the capacity to do this. The draft law assigns this responsibility to DGAT.
On procurement, the current practice shows that it is conducted on the basis of Keppres 80/2003. Perpres 67/2005 must be used, as it is designed specifically for the procurement of the PPP concessionaire, and not on goods and services.
There is no specific regulatory body in the airport sector at present. The existing institutional arrangement is far from the ideal, as the Angkasa Puras hold the monopoly on the provision of airport services, are the contracting authority and regulator for and operator of such services.
There are two possible arrangements. One assumes a new regulatory institution, with the Angkasa Puras as the contracting agency, relinquishing their operator role. The other also assumes a new regulatory institution, a new landlord airport authority as the contracting agency, with the Angkasa Puras remaining as the operator.
Source: KKPPI, Sector Review 2006
Deregulation in the airline industry after the 1997 crisis allowed private airline companies to compete with state-owned companies. The greatest beneficiary of this has been the consumer, who has seen fares dropped in real terms and many more scheduled flights to more destinations. Although the economic prospect of the aviation industry in Indonesia looks bright, the industry is experiencing overcrowded airport terminals and inadequate air traffic control.
Law 15/1992 on Aviation and PP 70/2001 on Airport are the governing legislation. PSP on airport services is only allowed through a joint venture with an Angkasa Pura. The draft law, submitted to Parliament and expected to be passed in 2007, removes this restriction.
An assessment of the sector regulatory framework reveals the following issues: The Angkasa Puras are responsible for project due diligence. However, they do not have the capacity to do this. The draft law assigns this responsibility to DGAT.
On procurement, the current practice shows that it is conducted on the basis of Keppres 80/2003. Perpres 67/2005 must be used, as it is designed specifically for the procurement of the PPP concessionaire, and not on goods and services.
There is no specific regulatory body in the airport sector at present. The existing institutional arrangement is far from the ideal, as the Angkasa Puras hold the monopoly on the provision of airport services, are the contracting authority and regulator for and operator of such services.
There are two possible arrangements. One assumes a new regulatory institution, with the Angkasa Puras as the contracting agency, relinquishing their operator role. The other also assumes a new regulatory institution, a new landlord airport authority as the contracting agency, with the Angkasa Puras remaining as the operator.
Source: KKPPI, Sector Review 2006
Ferry Transport in Indonesia: An Overview
In Indonesia, Land Transport directorate general in MOT is responsible for road traffic and transportation, and ferry and inland waterways transport, and Road infrastructure is the responsibility of MPW. Bus terminal, car parks, vehicle testing centers, weightbridges, and automatic traffic control fall under land transport, and are the responsibility of local government. Road traffic and transport does not come under Perpres 67/2005).
However, ferry port infrastructure does.
Ferry and inland waterway transport covers berthing and terminal infrastructure. Seven ports have been designated as international ports (ferry links to Singapore, Malaysia, Only nine local governments have stated readiness to carry out the task the Philippines, East Timor and Australia), but only two operate as international ports.
Currently there are 172 ferry routes in Indonesia, many of them are subsidized as a form of pioneer service to remote places in the eastern region and outer islands.
Sector Framework The blueprint Cetak Biru Pembangunan Perhubungan tahun 2000 – 2024 defines the long-term policy for four transportation sub-sectors (airport, seaport, railways and land transport). The vision is to accomplish reliable and competitive transport services and to create a favorable environment for PSP in the provision of transport infrastructure and services.
Four missions are stated in the blue print. The first is at least to maintain the existing transportation infrastructure, as the quality had been declining since the crisis. The MOT realizes that the GOI must rely on the private provision of infrastructure.
The second is to reform institutions and enforce regulations. It seems that the MOT also recognizes that the current institution arrangement is not favorable for PSP. However, it is not clear from the blueprint what form the new institutional arrangement should be.
The third mission is to improve accessibility.
Intermodal transportation is required to access many places in Indonesia. Therefore, the MOT needs to better integrate transportation planning and programming between the various directorates-general.
The last mission is to improve transport operation and quality of service. The MOT recognizes that many operators (SOE and private) are not efficient. One way to improve efficiency is through fair competition and curtailing the SOEs’ monopoly.
In the RPJM, many PSP issues are addressed and form the basis for transport developments in the medium term. For example, it refers to the need for a re-alignment of the operator, owner, and regulatory function.
The RPJM recognizes that infrastructure required long term and enormous amount of investment. To attract private investor, full cost recovery on investment is a must. Through efficiency, an affordable tariff and full cost recovery might be achieved. Transparency in the cost structure, minimizing economic rent, and abolishing unnecessary fees should be part of the MOT policy to attract private sector investment.
The RPJM also states that the government needs to intervene as a regulator, as many forms of transport constitute a natural monopoly. The monopoly power enjoyed by operators permit them to charge economic rent, far in excess of the cost of provision.
This excess could act as a barrier to market entry and lead to fewer capital investments.
Clearly, PSP is a strong policy directive in the RPJM for the transport sector overall. The rationale for this is (a) a need for private finance, and (b) efficiency gains from better technology and management skills imported from the private sector. However, in order to achieve this goal, reform is needed. This calls for more competition, institutional realignment of certain functions, a freer basis for PSP than the current joint-venture model practiced.
The vehicle for reform is obviously the draft law for the rail, port and airport sectors already submitted to Parliament for deliberation. While removing the joint-venture restriction is a step in the right direction, more is required, such as unbundling the SOEs concerned by realigning their functions. A key to this process is the establishment of a functionally independent sector regulator.
The governing sector legislation for PSP ferry infrastructure is the same as for sea transport, Law 21/1992 on Shipping and PP 70/1996 on Port.
At present there is no regulatory body for the ferry sub-sector and no provision in the draft law for the establishment of one. Under a more competitive market, when ASDP and the UPTs are required to compete with the private sector in the provision of port services, a regulator separate from the port operator and contracting agency would be expected by the private investor to ensure transparency and level playing field, and minimize conflict of interest.
The current institutional arrangement does not correspond to the ideal, as the DGLT is the regulator, contracting agency and policy maker.
Source: KKPPI, Sector Review 2006
However, ferry port infrastructure does.
Ferry and inland waterway transport covers berthing and terminal infrastructure. Seven ports have been designated as international ports (ferry links to Singapore, Malaysia, Only nine local governments have stated readiness to carry out the task the Philippines, East Timor and Australia), but only two operate as international ports.
Currently there are 172 ferry routes in Indonesia, many of them are subsidized as a form of pioneer service to remote places in the eastern region and outer islands.
Sector Framework The blueprint Cetak Biru Pembangunan Perhubungan tahun 2000 – 2024 defines the long-term policy for four transportation sub-sectors (airport, seaport, railways and land transport). The vision is to accomplish reliable and competitive transport services and to create a favorable environment for PSP in the provision of transport infrastructure and services.
Four missions are stated in the blue print. The first is at least to maintain the existing transportation infrastructure, as the quality had been declining since the crisis. The MOT realizes that the GOI must rely on the private provision of infrastructure.
The second is to reform institutions and enforce regulations. It seems that the MOT also recognizes that the current institution arrangement is not favorable for PSP. However, it is not clear from the blueprint what form the new institutional arrangement should be.
The third mission is to improve accessibility.
Intermodal transportation is required to access many places in Indonesia. Therefore, the MOT needs to better integrate transportation planning and programming between the various directorates-general.
The last mission is to improve transport operation and quality of service. The MOT recognizes that many operators (SOE and private) are not efficient. One way to improve efficiency is through fair competition and curtailing the SOEs’ monopoly.
In the RPJM, many PSP issues are addressed and form the basis for transport developments in the medium term. For example, it refers to the need for a re-alignment of the operator, owner, and regulatory function.
The RPJM recognizes that infrastructure required long term and enormous amount of investment. To attract private investor, full cost recovery on investment is a must. Through efficiency, an affordable tariff and full cost recovery might be achieved. Transparency in the cost structure, minimizing economic rent, and abolishing unnecessary fees should be part of the MOT policy to attract private sector investment.
The RPJM also states that the government needs to intervene as a regulator, as many forms of transport constitute a natural monopoly. The monopoly power enjoyed by operators permit them to charge economic rent, far in excess of the cost of provision.
This excess could act as a barrier to market entry and lead to fewer capital investments.
Clearly, PSP is a strong policy directive in the RPJM for the transport sector overall. The rationale for this is (a) a need for private finance, and (b) efficiency gains from better technology and management skills imported from the private sector. However, in order to achieve this goal, reform is needed. This calls for more competition, institutional realignment of certain functions, a freer basis for PSP than the current joint-venture model practiced.
The vehicle for reform is obviously the draft law for the rail, port and airport sectors already submitted to Parliament for deliberation. While removing the joint-venture restriction is a step in the right direction, more is required, such as unbundling the SOEs concerned by realigning their functions. A key to this process is the establishment of a functionally independent sector regulator.
The governing sector legislation for PSP ferry infrastructure is the same as for sea transport, Law 21/1992 on Shipping and PP 70/1996 on Port.
At present there is no regulatory body for the ferry sub-sector and no provision in the draft law for the establishment of one. Under a more competitive market, when ASDP and the UPTs are required to compete with the private sector in the provision of port services, a regulator separate from the port operator and contracting agency would be expected by the private investor to ensure transparency and level playing field, and minimize conflict of interest.
The current institutional arrangement does not correspond to the ideal, as the DGLT is the regulator, contracting agency and policy maker.
Source: KKPPI, Sector Review 2006
Railways Sector in Indonesia: An Overview
Railways are found only on Java and Sumatra. The total rail network in Indonesia consists of 5,824 km, but only 4,337 km are operated. Java has a bigger network than Sumatra.
The major rail corridors in Java are Jakarta-Bandung, Jakarta-Semarang-Surabaya- Banyuwangi (known as the North Route) , Bandung-Kroya-Yogyakarta-Surabaya (known as the South Route) with the connector route Cirebon-Purwokerto-Kroya. Most of the railway system is single-track.
The government intends to improve the capacity and quality of the Jabotabek rail network, which comprises of nearly 266 km of double-track. Suburban and intercity trains use the Jabotabek network.
On Sumatra, there are three separate rail networks: Northern Sumatra, Western Sumatra and Southern Sumatra.
Rail transportation in Indonesia has declined during the last five years. Only 29 percent of the track is less than 10 years old, with more than 25 percent older than 70 years old.
The GOI realize that railways is the most energy efficient land transport available now, and does not require much land.
Law 13/1992 on Railways and PP 69/1998 are the governing legislation. The draft law, submitted to Parliament, is expected to be passed in 2007. Law 13/1992 underlines the policy of unbundling the rail business and management structure, whereby government is responsible for infrastructure development and maintenance, while KAI manages the rail services. PSP in the provision of rail services is possible, but under a joint venture with KAI3.
The implementation of the PSO-IMO-TAC policy framework has neither improved the efficiency, quality and safety of railway services nor the financial performance of KAI.
The problem is due in particular to the complexity of railway operations and the lack of reliable data on costs (for cost allocation purposes).4 The relationship between the government and KAI, the operator is, as follows: The government will provide an operating subsidy to KAI for PSO economy class train travel; The government will finance the maintenance and operation of the railway infrastructure i.e. pays KAI an IMO fee (Infrastructure Maintenance and Operation); KAI will pay a charge (TAC) to the government for the use of the railway infrastructure.
Although the financing scheme for PSO, IMO and TAC has been developed, its implementation has not been a success.
The PSO, IMO and TAC concepts need to be applied properly if the government intends to implement PSO (with KAI sub-contracting to the private sector) –the government’s PSO policy framework remains to be developed, which would set out the “rules of the game” for the private sector.
PSO implementation presupposes the existence of private companies that would compete for PSO contracts. This is unlikely to materialize if KAI is still designated as the sole railway operator (although PP 69/1998 does stipulate that operation is possible under a joint agreement with KAI). The draft law removes this restriction.
3 Article 6, Law 13/1992 on Railway.
4 The mechanism of institutions activities for PSO, IMO and TAC is: KAI submits a realisation report regarding the implementation of PSO and IMO proposals in every 3 month to DGLC. DGLC will evaluate the realisation report and will give approval. DGLC will submit application to MOF for PSO and IMO monies. Based on the application, MOF will issue an Authorisation Decision letter in which MOF instruct relevant official of MOF to transfer PSO and IMO fund to KAI. In practice, the funds will be transferred quarterly from MOF to KAI.
At a technical level, the lack of accurate data has led to no agreed basis for costing and cost allocation between KAI and the MOT.
The allocation of common cost needs to be agreed (rail infrastructure is used by freight, subsidized and non-subsidized transportation). Calculations by KAI are often disputed by the MOF. Insufficient payments, according to KAI, have prevented it to develop commercially, and over the years, it has built up a backlog of maintenance because of the lack of funds.
An assessment of the sector regulatory framework identifies the following issues: Tariff and its adjustment appear to be in line with Perpres 67/2005, as noneconomy class fares are based on market forces. According to the February 2006 Policy Package on Infrastructure, a regulation on tariffs is to be issued by the end of 2006. However, it is not clear whether TAC and IMO will form part of the new regulation. They should, as the determination of a “commercial” tariff for a PSP and PSO project is necessarily dependent on TAC and IMO5.
A government subsidy (PSO) is provided to KAI for economy class travel. Under the draft law, it is possible that a private company could provide a PSO service, and so be a recipient of fiscal support.
The draft law stipulates that procurement will be regulated through a future PP. There is a need to ensure that the PP will be consistent with the spirit of Perpres 67/2005.
No specific regulatory body exists in the rail sector. The regulatory role is shared between the MOT and KAI. The draft law does not refer to setting up a sector regulatory body. A functionally independent rail regulator is required.
The institutional arrangement is far from the ideal international best practice, as KAI performs a triple role: as operator, regulator and contracting agency. The draft law allows the private sector to provide and operate both rail infrastructure and services. This will be a significant improvement to the regulatory framework. However, more needs to be done, for example on the institutional front, if PSP in the sector is to materialize.
The MOT has established a P3 node to oversee PPP implementation in the sectors under its jurisdiction.
Source: KKPPI, Sector Review 2006
The major rail corridors in Java are Jakarta-Bandung, Jakarta-Semarang-Surabaya- Banyuwangi (known as the North Route) , Bandung-Kroya-Yogyakarta-Surabaya (known as the South Route) with the connector route Cirebon-Purwokerto-Kroya. Most of the railway system is single-track.
The government intends to improve the capacity and quality of the Jabotabek rail network, which comprises of nearly 266 km of double-track. Suburban and intercity trains use the Jabotabek network.
On Sumatra, there are three separate rail networks: Northern Sumatra, Western Sumatra and Southern Sumatra.
Rail transportation in Indonesia has declined during the last five years. Only 29 percent of the track is less than 10 years old, with more than 25 percent older than 70 years old.
The GOI realize that railways is the most energy efficient land transport available now, and does not require much land.
Law 13/1992 on Railways and PP 69/1998 are the governing legislation. The draft law, submitted to Parliament, is expected to be passed in 2007. Law 13/1992 underlines the policy of unbundling the rail business and management structure, whereby government is responsible for infrastructure development and maintenance, while KAI manages the rail services. PSP in the provision of rail services is possible, but under a joint venture with KAI3.
The implementation of the PSO-IMO-TAC policy framework has neither improved the efficiency, quality and safety of railway services nor the financial performance of KAI.
The problem is due in particular to the complexity of railway operations and the lack of reliable data on costs (for cost allocation purposes).4 The relationship between the government and KAI, the operator is, as follows: The government will provide an operating subsidy to KAI for PSO economy class train travel; The government will finance the maintenance and operation of the railway infrastructure i.e. pays KAI an IMO fee (Infrastructure Maintenance and Operation); KAI will pay a charge (TAC) to the government for the use of the railway infrastructure.
Although the financing scheme for PSO, IMO and TAC has been developed, its implementation has not been a success.
The PSO, IMO and TAC concepts need to be applied properly if the government intends to implement PSO (with KAI sub-contracting to the private sector) –the government’s PSO policy framework remains to be developed, which would set out the “rules of the game” for the private sector.
PSO implementation presupposes the existence of private companies that would compete for PSO contracts. This is unlikely to materialize if KAI is still designated as the sole railway operator (although PP 69/1998 does stipulate that operation is possible under a joint agreement with KAI). The draft law removes this restriction.
3 Article 6, Law 13/1992 on Railway.
4 The mechanism of institutions activities for PSO, IMO and TAC is: KAI submits a realisation report regarding the implementation of PSO and IMO proposals in every 3 month to DGLC. DGLC will evaluate the realisation report and will give approval. DGLC will submit application to MOF for PSO and IMO monies. Based on the application, MOF will issue an Authorisation Decision letter in which MOF instruct relevant official of MOF to transfer PSO and IMO fund to KAI. In practice, the funds will be transferred quarterly from MOF to KAI.
At a technical level, the lack of accurate data has led to no agreed basis for costing and cost allocation between KAI and the MOT.
The allocation of common cost needs to be agreed (rail infrastructure is used by freight, subsidized and non-subsidized transportation). Calculations by KAI are often disputed by the MOF. Insufficient payments, according to KAI, have prevented it to develop commercially, and over the years, it has built up a backlog of maintenance because of the lack of funds.
An assessment of the sector regulatory framework identifies the following issues: Tariff and its adjustment appear to be in line with Perpres 67/2005, as noneconomy class fares are based on market forces. According to the February 2006 Policy Package on Infrastructure, a regulation on tariffs is to be issued by the end of 2006. However, it is not clear whether TAC and IMO will form part of the new regulation. They should, as the determination of a “commercial” tariff for a PSP and PSO project is necessarily dependent on TAC and IMO5.
A government subsidy (PSO) is provided to KAI for economy class travel. Under the draft law, it is possible that a private company could provide a PSO service, and so be a recipient of fiscal support.
The draft law stipulates that procurement will be regulated through a future PP. There is a need to ensure that the PP will be consistent with the spirit of Perpres 67/2005.
No specific regulatory body exists in the rail sector. The regulatory role is shared between the MOT and KAI. The draft law does not refer to setting up a sector regulatory body. A functionally independent rail regulator is required.
The institutional arrangement is far from the ideal international best practice, as KAI performs a triple role: as operator, regulator and contracting agency. The draft law allows the private sector to provide and operate both rail infrastructure and services. This will be a significant improvement to the regulatory framework. However, more needs to be done, for example on the institutional front, if PSP in the sector is to materialize.
The MOT has established a P3 node to oversee PPP implementation in the sectors under its jurisdiction.
Source: KKPPI, Sector Review 2006
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