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Jakarta Post

Analysis: 1,000 km of toll roads: Opportunities and challenges

  • Mamay Sukaesih

    The Jakarta Post

Jakarta   /   Wed, January 20, 2016   /  05:42 pm
Analysis: 1,000 km of toll roads: Opportunities and challenges

The need for new toll roads in the country is still high. So far, the combined length of all toll roads in Indonesia lags far behind other countries. Over the past 37 years, from 1978 to 2015, only 950 kilometers (km) of toll roads have been built in Indonesia. For a comparison, Malaysia, South Korea, and China have built 3,000 km, 2,623 km and 65,056 km of toll roads, respectively.

Most of the toll roads in Indonesia were built during the New Order period (1978-1999), with an average of 26.3 km constructed per year. From 2011 to 2014, the government was able to construct toll roads on average at 15.7 km per year. High demand for toll roads can be inferred from the fast growth in vehicle ownership. The number of vehicles increased by 8 percent from 2013 to 2014, while the road length grew by a mere 0.01 percent, according to the Central Statistics Agency (BPS).

Some 130 km of toll roads were built in 2015, a little below the 135 km target set under the national mid-term development plan (RPJMN). This success was credited to full support from the central and local governments in land acquisition. New toll roads fully operational since last year are Gempol-Pandaan (13.6 km) and Cikopo-Palimanan (116.75 km). The Cikopo-Palimanan connection was completed after having been delayed for nine yeas and is now Indonesia'€™s longest toll road.

Based of RPJMN, 104 km of new toll roads are set to go into service in 2016. New connections to start operating in 2016 are Surabaya-Mojokerto (Krian-Mojokerto) Section 4 of 18.47 km, Pejagan-Pemalang Section 1 (Pejagan-Berebes Barat), Pejagan-Pemalang Section 2 (Brebes Barat-Brebes Timur) of 20.2 km, and Bawen-Salatiga of 17.57 km.

In the long run, based on the 2015-2019 RPJMN roadmap, the government plans to add 1000 km of toll roads. The addition comes mainly from the Trans-Sumatera, the Trans-Jawa, the Samarinda-Balikpapan and the Manado-Bitung toll roads. The National Development Planning Board (Bappenas) estimates that these new roads require investment of Rp128.7 trillion, or Rp118 billion per km.

The first 217.2 km of the Trans-Sumatera toll road are scheduled for completion in 2019, leaving 266.9 km to be built after 2019. The six sections of the Trans-Sumatera toll road to be operational by 2019 are Medan-Binjai (15.8 km) in 2018, Medan-Kualanamu-Tebing Tinggi (61.7 km) in 2017, Pekanbaru-Kandis-Dumai (46.2 km of the planned 135 km) in 2019, Palembang-Indralaya (22 km) in 2017, Kayu Agung-Palembang-Betung (33.5 km of the planned 111.69 km) in 2017 and Bakauheni-Tebanggi Besar (38 km of the planned 138 km) in 2019.

Historical data shows that average annual toll road construction was just 25.6 km in the past 37 years. This makes the target of 200 km every year, or 1,000 km in five years, look quite ambitious, considering that land acquisition is not easy. Note that delays in land acquisition lead to increased investment costs, or cost overrun. Therefore, the government must find effective and consistent strategies to solve problems regarding land acquisition, in particular by improving legal certainty in the process.

In addition to the land acquisition, the ever-increasing construction cost is another issue. It is one of the key issues, in fact, because construction and maintenance are the largest operational cost factors in toll road operations at 38.6 percent and 20.1 percent, respectively. Data show that wholesale prices of construction activities have been on the rise since 2013, though the trend slowed down in 2015.

Acceleration of land acquisition is an important catalyst in the development of toll roads. In 2015, the government implemented Law No. 2 of 2012 on Land Procurement, according to which land acquisition in the public interest is the government'€™s responsibility, executed by the Land Acquisition Committee. The law also regulates a deadline for land acquisition of 312 to a maximum of 552 working days. The land acquisition comprises four stages: planning, preparation, execution and delivery.

To support the implementation of the law, the government has issued Presidential Regulation No. 71 of 2012, which also addresses the technical mechanisms in land procurement, including the stages of procurement for communal land. The Presidential Regulation has been amended three times (by Regulation No. 40/ 2014, Regulation No. 99/ 2014 and Regulation No. 30/2015), reflecting the complexity of land acquisition in Indonesia. Regulation No. 40/2014 allows procurement of land for public interest projects of less than five hectares to be carried out by the institution needing the land. Regulation No. 99/2014 adds that the new regulations on land procurement can be applied to in-process land procurement projects that were 75 percent completed by Dec. 31, 2014. Furthermore, Regulation No. 30 /2015 states that funding for land procurement can be underwriteten by an enterprise that needs the land and that such procurement is authorized by an agreement. The funding by the enterpresie either is reimbursed by the government at the central or local level either from budget funds or is in the form of (an agreed) rate of return for the investment.

Postponement of toll-road tariff increases by the government also potentially reduces investment returns. Tariff adjustments, regulated in Regulation/No. 38/ 2004 and Regulation No. 43 /2013, are calculated based on the inflation rate every two years and are governed by a decree from the Ministry of Public Works and Public Housing based on the evaluation of the minimum service standards of the toll road. The ministry may postpone tariff increases if a toll road fails to comply with the standards.
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The writer is regional analyst at Bank Mandiri (Persero) Tbk.

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