I

t is high time that Indonesia’s toll road projects were rolled out, particularly given the 2001-2010 domestic toll road development compound annual growth rate of just 3.3 percent. This reflects the perennial hurdle of land acquisition.

Despite the lack of progress, there has been some progress with the completion of three new domestic routes, on top of the new 5.4-kilometer Suramadu Bridge, since 2009. They include: First, the Bogor Ring Road (3.8 kilometers) in West Java. Second, JORR W1 (9.9 kilometers) in Jakarta and third, Kanci – Pajagan (35 kilometers) in Central Java. The completed sections brought year-to-date domestic toll road length to 742 kilometers, up moderately by 7.9 percent from 688 kilometers in 2008.

Going forward, out of the total 26 toll road (1,079 kilometers) plan, only two routes: Semarang–Bawean (11.3 kilometers) and Surabaya–Mojokerto Section I (2.3 kilometers), owned by Jasa Marga (JSMR), will operate in 2010-2011, bringing the total domestic length to 756 kilometers by end of 2011.

Apart from JSMR’s biggest role in the domestic toll road progress, we also see that Bakrie Toll Road (BTR), a subsidiary of Bakrieland Development, has gained a role in the development of Trans Java sections such as Pejagan–Pemalang (58 kilometers) which would connect with existing route of Kanci–Pajagan (35 kilometers), Batang–Semarang (75 kilometers) and the non-Trans Java route of Ciawi–Sukabumi (54 kilometers). It is worth noting that BTR has received government financing amounting to Rp 800 billion (US$7.2 million) for the Trans Java land acquisition projects and Rp 400 billion ($3.6 million) for the Ciawi–Sukabumi project. Assuming that land acquisition processes are completed within one or two years, BTR expects official operations to start in 2013.

With this, coupled with the expected completion of several other concessions, we estimate a 2011-2014 additional length realization of 413 kilometers, translating into a base case compound annual growth rate of 11 percent.

On the flip side, in a pessimistic scenario of no government intervention to expedite the development of toll roads through additional new policy-making that would eliminate risks in land acquisition, we believe that road development will continue to progress at a snail’s pace.

It is worth pointing out that the key determinable factor in toll road development is timely deliverance in land clearing. We are of the view that the existing government policies such as land capping and the availability of a government revolving fund facility from the Public Service Agency (BLU) to initially fund land acquisition costs remains insufficient to ensure timely execution. This is due mainly to the the absence of clear procedural steps in field execution, namely timeline and land pricing limitations.

In response, the government at the beginning of the year started constructing a draft to impose a new law that would iron out the hurdle of land acquisitions. Note that this plan is on the government’s list of top programs, as part of its prioritization agenda to accelerate domestic infrastructure. In general, the new law would give more clarity in the execution process and insulate investors from the risk of time-consuming negotiations.

Therefore, we believe that the government’s commitment to develop around 800 kilometers (some 50 percent more than our conservative estimate) of toll roads from 2010-2014 will hinge on the government’s realization of the need to impose this new land acquisition law.