Infrastructure: Getting the most out of what Indonesia already has
The Jakarta Post
Indonesia is not alone in experiencing a major infrastructure gap because of its growing population, strong economic growth and rapidly expanding cities. To bridge the gap and improve their country's competitiveness, most governments, Indonesia's included, emphasize the construction of new infrastructure. But this strategy is not a silver-bullet solution given challenges such as public-budget constraints, land acquisition and public-private risks allocation.
Indonesia is, therefore, in a unique situation to complement the investment in new assets with the improvement in the utilization, efficiency and longevity of existing infrastructure; in other words, make the most of existing infrastructure by optimizing operations and maintenance (O&M). In operations, there is often a failure to maximize infrastructure utilization, or to meet adequate user quality standards, while incurring needlessly high costs, as well as environmental and social externalities.
Meanwhile, maintenance is often neglected, since there often a strong political bias toward new infrastructure projects. With a growing maintenance backlog, existing infrastructure deteriorates faster than necessary, shortening its useful life and incurring extra spending. As the old adage goes, a stitch in time saves nine.
The World Economic Forum's Strategic Infrastructure Initiative, in collaboration with the Boston Consulting Group (BCG), recently published a report titled Strategic Infrastructure: Steps to Operate and Maintain Infrastructure Efficiently and Effectively that outlines international best practices for operating and maintaining infrastructure.
Citing more than 200 real-life examples from various infrastructure sectors around the world, it presents a detailed discussion of actions that governments and operators of infrastructure can take. The report also provides governments and operators with a toolkit of 27 actionable best practices and critical success factors that are essential when undertaking O&M implementation and enabling strategies.
The report shows that O&M solutions do not have to be expensive and, thanks to innovation in technologies, traditional infrastructure can now be operated far more efficiently than when first built. O&M improvements can provide not only significant financial impact, but also social and environmental gains.
Indonesia can learn from two types of O&M best practice: First, best practices which apply for infrastructure operators to enhance O&M performance and, second, best practices which apply for policymakers to create the conditions for sustainable O&M.
The best practices for infrastructure operators can be categorized into three themes: (i) increasing the utility of infrastructure by maximizing asset utilization and enhancing quality for users; (ii) decreasing the total cost of infrastructure by reducing O&M costs and mitigating environmental and social impacts; and (iii) increasing the value of infrastructure by extending its lifetime and reinvesting with a whole life-cycle view.
One way of enhancing asset utilization is by ramping up resources during peak times. This method was used by Frankfurt Airport, which introduced an integrated system of real-time passenger flow forecasting and resource planning. The system forecasts passenger flow, identifies forthcoming bottlenecks, provides continuous updates to the Terminal Operations Center, and dynamically adjusts the required staff.
This approach increased capacity during peak times, and reduced passenger waiting time by 20 percent.
Another exciting possibility is using real-time and mobile applications to inform and interact with users at relatively low cost. One example is Puerto Valparaiso in Chile, which introduced an in-house information system to monitor cargo and enhance communication with all its stakeholders in the port's new logistics extension zone.
This resulted in a dramatic 70 percent reduction in the average time that trucks spent inside the port. Technology can also be used to reduce O&M costs; Dutch municipalities, for example, apply smart street-lighting, switching off or dimming lights when no one is walking in the street.
Infrastructure operators also need to make improvements to overheads. Organization structure of many operators remains the same, despite larger and more complex demands. Adopting shared services to centralize, standardize and automate support, if done properly, can reduce costs by up to 40 percent.
Preventive maintenance also important: it can add five to 10 years to the service life of a road surface. Conversely, postponing maintenance can lead to almost 30 percent higher total life-cycle costs.
Policymakers play a critical enabling role in making high-performance O&M sustainable. Three key enablers are: stable and sufficient funding; institutional and individual capabilities; and governance reform.
In terms of funding, ancillary businesses can contribute significantly in some sectors. Ancillary businesses in airports can generate between 20 and 50 percent of total revenue; in ports, between 10 and 20 percent; in railways, between 10 and 40 percent; and for highways, around 10 percent.
Infrastructure agencies need to build a strategy and develop capabilities specifically aimed at optimizing ancillary businesses, given that the required skills are different. Such high capabilities should then pay dividends by developing innovative business opportunities.
One example of this is in the Shanghai Metro in China. Virtual supermarkets were introduced in 70 stations, all equipped with large LED screens to advertise goods. These could then be used by shoppers to place orders and the goods delivered to their homes within two days.
Many government agencies can also improve their governance structures and procedures. Some are still subject to political influence and weighed down by bureaucracy, resulting into lack of independence, efficiency and accountability.
Corporatization, professionalization, collaboration among agencies and collaboration between private and public sectors, are among the best-practice governance improvements. Singapore's national water agency, PUB, for example, motivates staff through performance-based remuneration and career progression by moving from tenure-based fixed incremental pay rises to a system of performance-based or merit-based pay increases.
Not all the best practice examples can be applied to Indonesia, but clearly there are moves that we can use to improve on today's situation. Supplying the ideas is certainly not the biggest issue when it comes to implementation in Indonesia; instead these hurdles more often touch on the political will from the top and then execution discipline.
Well-designed O&M strategies and policies offer Indonesia a great opportunity to boost its infrastructure, strengthening its competitiveness and fostering socioeconomic progress and prosperity ' all without imposing major financial strictures elsewhere.
The writer is a partner and managing director at the Boston Consulting Group office in Indonesia.
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