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Wednesday, February 08, 2006

Protracted uncertainty leaves ports high and dry

Indonesia looks set to remain dependent on port facilities in neighboring countries for the foreseeable future, with a lack of certainty in the legal and planning spheres having resulted in the halting of a number of major port development projects.

The government's promises to local and overseas investors during the Infrastructure Summit a year ago to immediately address the uncertainty problem in the investment arena to date remain nothing more than promises.
Projects involving the construction of a new port at Bojonegara, Banten, the expansion of Tanjung Priok Port in Jakarta and the expansion of Tanjung Perak Port in East Java were all introduced to investors during the summit, but to date remain firmly stuck on the drawing board.

Poor infrastructure planning coupled with disputes between the central and local governments over who gets to run the ports are currently the main causes of uncertainty in the port sector. Ironically, funding no longer seems to be a problem.

Poor planning is reflected by the recent instruction from the Transportation Ministry to put the first phase of the Bojonegara port project on hold due, despite the fact that a number of investors had expressed interest.
Transportation Minister Hatta Radjasa told The Jakarta Post in a recent interview that the project had to be halted by the government as a number of potential investors had made their involvement in the project contingent on a government guarantee that no similar port projects would be undertaken in the vicinity, except in the case of insufficient port capacity in the future.

The would-be investors included Singapore's PSA, Hong Kong's Hutchison Port Holdings, and Australia's P&O Ports. "The investors were concerned that the existence of similar ports in the vicinity would reduce the utilization of Bojonegara, and thus the feasibility of their investments. The government will need to study this problem further," said Hatta.

Although initial construction at Bojonegara was started in 2003, the ministry nevertheless permitted the Jakarta administration and state port operator PT Pelindo II to commence construction of the Jakarta New Port (JNP), part of the Tanjung Priok expansion program, in 2004.

The JNP is located about 150 kilometers east of Bojonegara. Meanwhile, about 50 kilometers west of Bojonegara, there are two other ports capable of providing international services -- Cigading Port, operated by state-owned steel producer PT Krakatau Steel, and Ciwandan Port, managed by Pelindo II.
"The aim of Bojonegara Port is to alleviate congestion at Tanjung Priok Port, and to provide direct-call services. The government wants to ensure that once completed, part of the containers from Jakarta will go to this port," said Hatta.
It remains far from clear why the Transportation Ministry did not anticipate this problem earlier, long before the project was offered to investors.

The fate of Bojonegoro Port will be decided by the Office of the Coordinating Minister for the Economy before the project is offered again during the upcoming second Infrastructure Summit in March.

The uncertainty has inflicted potential losses on Pelindo II, which is charged with operating Bojonegara Port, of around Rp 170 billion (US$18.2 million) arising out of land acquisition and the construction of a 300-meter berthing facility.

Four state firms, Pelindo I, II, III and IV, have a monopoly on the management of ports handling international traffic across the country. Any investor willing to build an international port must work together with the relevant Pelindo company.

Investment in the port sector is also suffering as a result of uncertainty arising out of disputes between the central and local administrations, with each claiming the right to manage ports.

The local administrations base their arguments on the Autonomy Law, which appears to run contrary to other legislation that gives the Pelindo companies the sole right to manage international ports in Indonesia.
The proposed expansion of Tanjung Perak Port into Lamong Bay in the eastern part of Surabaya, which was offered to investors last year, is a prime example of such a dispute.

The expansion, which is supported by the central government and Surabaya municipality, is opposed by the East Java administration, which insists that the new port be built on Madura island for environmental reasons.
There are no signs that the dispute will be resolved any time soon. As a result, the project remains firmly stalled.

Indonesia, Southeast Asia's largest economy, has long dreamt of having its own international-class seaports -- large enough to function as hub ports -- unlike the present situation in which most of the products shipped in or out of the nation have to be pooled first in much larger ports in Singapore and Malaysia.
This situation has not only made shipping costs more expensive, but has also made the country heavily dependent on foreign vessels, leaving the underdeveloped local shipping industry to stagnate.

The Transportation Ministry has estimated that 80 percent of the country's exports and imports go via Singapore or Malaysia, causing potential losses of more than US$2 billion per annum to local businesses.
The government says it is aware of the problem, but no concrete measures have been taken to date.

Indonesian National Shipowners Association (INSA) chairman Oentoro Surya said the business community was concerned about the protracted uncertainty surrounding port development, which hampered local shipping companies from expanding.

"What makes local players reluctant to go global is partly the fact that there are no ports that are able to handle direct shipments. The country's exporters are therefore at the mercy of port operators in Singapore and Malaysia," said Oentoro.

Rendi Akhmad Witular,
The Jakarta Post, Jakarta

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