T

he construction sector is set to enjoy a more positive outlook in 2016 with a handful of delayed projects from last year expected to be carried over to this year, though funding remains the biggest concern in ensuring projects stay on track.

After struggling through 2015, with publicly listed state-run builders working hard to meet initial annual contract targets amid slow infrastructure spending, companies are set to see significant growth this year.

Wijaya Karya (Wika), for instance, is seeking around 20 percent growth in new contracts this year from its estimated Rp 25 trillion (US$1.79 billion) full-year contract in 2015, its corporate secretary Suradi Wongso said.

The company fell short of its initial goal of Rp 31.6 trillion last year, but Suradi said Wika was more optimistic this year about meeting its target, citing tenders of a number of delayed projects.

'€œThe year 2015 was challenging due to economic slowdown and bureaucratic changes, and tenders '€” especially for power plants '€” moved so slowly. Now it has started to advance and we have been involved in a number of power plant project tenders,'€ he said.

Pembangunan Perumahan (PP) has set a higher growth target than Wika, aiming to book around a 30 percent increase in new contracts to Rp 35 trillion from last year'€™s Rp 27 trillion.

PP corporate secretary Agus Samuel Kana agreed with Suradi, saying his company believed that this year would be better than last year with the government'€™s infrastructure projects expected to boost the firm'€™s performance.

'€œWe are looking to increase contributions of government-funded projects to our contracts from 20 percent in 2015 to 40 percent this year,'€ he said.

The construction sector has been in the spotlight of late after the Public Works and Public Housing Ministry, responsible for some of the most important infrastructure projects touted by President Joko '€œJokowi'€ Widodo'€™s administration, was allocated Rp 119.84 trillion in the 2015 state budget.

The government has pledged to provide 35,000 megawatts of power through state electricity firm PLN and independent power producers (IPP), to connect toll roads in Java and Sumatra and build dams and other utilities nationwide.

The ministry, however, had spent only 87.23 percent of its budget as of Dec. 22, still 6 percent short of its initial spending target of 93 percent by the end of the year.

Armando Marulitua from Danareksa Sekuritas said in a written statement that state-owned contractors would be the primary beneficiaries of the government'€™s accelerated infrastructure programs.

Danareksa forecast that publicly listed state-run builders'€™ total order books '€” comprising new and carried-over contracts '€” would hit Rp 208 trillion in 2018, a 24.55 percent increase compared to last year.

'€œWe remain overweight in the construction sector, as the sector benefits directly from the government'€™s accelerated infrastructure program. We have seen evidence of major progress on several infrastructure projects since Jokowi'€™s administration took office,'€ Armando said.

'€œThis encourages us to believe that the program will yield positive results, especially for the construction sector. This would consequently boost contractors'€™ order books and bolster their earnings with expected growth of 28 percent CAGR [compound annual growth rate] in FY15F-17F.'€

With a huge order-book backlog, Armando said revenue streams would be secured for at least the next two to three years, also impacting profitability.

Construction consultant BCI Asia, on the other hand, projected the overall construction market would face a slight decline this year on the back of economic slowdown, but emphasized a significant increase in civil works thanks to rampant power plant projects.

According to BCI Asia'€™s data, the total value of Indonesia'€™s construction starts was expected to reach Rp 393.78 trillion in 2015, an increase of 28.5 percent compared to 2014, but in 2016 was expected to decline slightly by 2 percent.

The expected decline was significantly affected by a projected downturn in the building sector, which is predicted to fall by around 15 percent next year to Rp 192.74 trillion.

Civil construction starts, however, are expected to increase a further 14 percent to Rp 201.04 trillion with the utilities sector the biggest contributor at 52 percent of the total figure.

'€œWe predict that the development of the civil sector will be the major driver of growth and within the civil sector, we see utilities dominating construction starts in 2016 particularly as there is a government commitment to prepare for electricity needs expected over the next five years,'€ BCI Asia country manager Agus Dinar said.

However, infrastructure, though also part of the civil sector, is expected to decline during 2016, even considering a large investment for the trans-Sumatra toll road.

Agus said the situation was partly due to expected funding restraints, citing difficulties in providing the Rp 5,500 trillion five-year infrastructure spending pledged by Jokowi.