The fiasco revolving around the preparation to construct the ambitious Sunda Strait Bridge (SSB) and its economic zones has not only highlighted the government’s lack of capacity in drafting regulations but also cracks within the Cabinet. The Jakarta Post’s Hans David Tampubolon explores the issue.

It is supposed to be among President Susilo Bambang Yudhoyono’s legacies when he ends his term in 2014, but it appears to be Yudhoyono’s very own decision that prevents the SSB project from smoothly taking off.

The decree Yudhoyono issued late last year for the construction of the project, which entitled a consortium led by tycoon Tomy Winata to preferential treatment in handling the project, has resulted in confusion due to several legal flaws.

Apparently aware of the future risks the project posed to the state budget and the legal uncertainties for the engaged private sector, Finance Minister Agus Martowardojo insisted on revising the decree and urged all stakeholders to comply with the rule of law.

However, his proposal was not greeted warmly by fellow ministers, particularly Coordinating Economic Minister Hatta Rajasa, whose daughter is married to Yudhoyono’s youngest son.

Agus’ insistence on halting progress on the project until the legal flaws are settled has been perceived by fellow ministers as an act of disobedience toward the President.

“Pak Agus is so rigid on the legal side that it makes it almost impossible to see progress in the project,” complained one economic minister.

But the Finance Ministry has plenty of reasons to worry over what the future may hold for the project, which is estimated to cost more than US$10 billion.

State budget funds would be used to guarantee the project, and given the strategic function of the bridge, the government would need to have authority in determining the toll tariff in order to avoid the public being held hostage by the private sector.

While Agus refused to comment on the issue, the ministry’s fiscal agency interim head Bambang Brodjonegoro said the confusion over the decree made it difficult for the ministry to progress further.

Bambang explained that the distinctive nature of the SSB project, based on the decree, had made it hard to determine what legal basis to use should the project require the government’s guarantee and involvement.

“As of now, there is growing confusion because the project is not considered to be fully in line with the public-private partnership [PPP] scheme,” he said.

The National Development Planning Agency (Bappenas) listed the project as a PPP, which entitled the government to take a role in its development and guarantee mechanisms.

Unlike other presidential decrees, the one governing the SSB project does not reference any related laws or regulations to justify its issue in regulating the project.

It only stated that the decree is based on Article 4 of the 1945 Constitution, which denotes the President as the highest authority in the country.

The decree also demanded the involvement of the government, but at the same time, provides almost unlimited authority for the private sector to operate.

“If for some reason, the project needs a guarantee, then which legal basis should we use? The decree needs to be revised to have solid legal standing on guarantees,” said Bambang.

Without the guarantee, it will be difficult for financial institutions to finance the project with a construction timeframe that may stretch for more than 15 years and with a return on investment achievable in 50 years.

Bambang also said that based on the decree, the project could not entirely be categorized as a PPP, which are regulated under a different presidential decree.

“Infrastructure projects can be guaranteed by the government based on the presidential decree on infrastructure project guarantees. But the project would have to follow the decree on PPP,” he said.

In a letter sent to Public Works Minister Djoko Kirmanto, Agus suggested the SSB project become a genuine PPP project, paving the way for the government to fund the project’s feasibility study and hold a fair, open tender.

The proposal, therefore, terminates preferential treatment given to Tomy’s consortium, which initiated the project, during the tender process.

According to the letter, should the consortium fail to win the tender, the government would compensate the private sector for the funds it spent in initiating the project.

The proposal, which would potentially cut Tomy out of the loop, has somehow irked fellow ministers who already have close ties with the 54-year-old tycoon, said a source at the Cabinet Secretariat.

The consortium consists of companies controlled by Tomy’s Artha Graha Network and the governments of Lampung and Banten provinces as minority shareholders.

In response to the proposal, Hatta said every input would be thoroughly considered. “Basically, all related stakeholders have agreed from the start for the project’s feasibility study to be funded without using the state budget,” Hatta said.

In a coordinating meeting on the project last week, Agus was left to defend his argument alone, while other fellow ministers preferred to keep the current decree intact and proceed with the project despite its risks.

The opposing ministers claimed a revision to the decree would tarnish the President’s image as it could send bad signals to investors, according to an official who attended the meeting.

Hatta decided to form a team consisting of several ministers to conduct a final review and reach a decision on how to resolve the deadlock over Agus’ proposal by next week.

Yudyohono’s refusal to be drawn into the development of a final solution has further muddied the waters surrounding the project’s future direction.

Wisnu Tjandra, the vice president director of Tomy’s Artha Graha Group, said the consortium would comply with whatever decision the government made, but in the meantime, would continue to do their job in line with the stipulations of the current decree. “In line with the presidential decree, we plan to conduct a feasibility study and complete the basic design of the project. This might be different from the finance minister’s opinion,” he said.

The bridge is not only considered a symbol of national pride, but also a strategic facility to help alleviate logistical bottlenecks currently plaguing the crossing between Java and Sumatra. Ports at the two points have become overcrowded to the point that trucks hoping to cross by ferry are forced to queue for more than 10 kilometers on either side of the strait.

Indonesian Institute of Sciences (LIPI) economist Latif Adam said the SSB fiasco had once again highlighted the lack of capacity of government officials in issuing regulations.

“Most of the time, they [state officials] formulate a regulation without considering whether it will contradict other regulations,” Latif said.

“I believe the finance minister’s move to revise the decree must be supported and be appreciated by all parties because he is trying to provide legal certainties for the project,” he added.

Latif said a failure to revise the decree would trigger growing mistrust from private investors considering participation in PPP projects.

“Therefore, I advise all ministries to work together to make the SSB project a good example of a PPP,” he said.

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