Jakarta paving the way on works projects

WORLD / Wall Street Journal Exclusive

Jakarta paving the way on works projects

By TOM WRIGHT (WSJ)
Updated: 2006-11-06 14:48

http://online.wsj.com/public/article/SB116276780695713912-cbVoKRhv0cOFncx37
ZMDrWtZbKA_20061112.html?mod=regionallinks

JAKARTA, Indonesia -- Indonesia's efforts to get delayed infrastructure
projects off the ground inched forward as foreign and local investors at
a conference here were encouraged by a government pledge to offer
financial backing for private investors in state-sponsored ventures.

Whether that will translate into new tie-ups between private companies
and Jakarta to improve Indonesia's decrepit toll roads, ports and power
plants, investors say, will become clearer over the next few months.

"The foundations for future projects are potentially there," says Karin
Finkelston, associate director for East Asia at the International Finance
Corp., the World Bank arm for lending to the private sector. "The key now
is how this is implemented."

In January 2005, President Susilo Bambang Yudhoyono's government began an
effort to persuade skeptical foreign investors and international donors
to get involved in a number of major infrastructure projects. But the
plan foundered, largely because Jakarta refused to offer financial
safeguards that investors demanded to lower the risks of doing business
in Indonesia.

At an investment conference last week, the government set out a number of
fresh initiatives, including financial guarantees, that it hopes will
lure some of the foreign investment that is flowing to Asian rivals like
India and China. Indonesia is widely perceived as a difficult place to do
business because of Byzantine bureaucratic procedures, unclear
legislation on investment and corruption in its legal system.

Without a turnaround in stagnating investment levels, Indonesia's economy
is unlikely to grow at the rate of about 7% a year, which economists say
is needed to create enough jobs and reduce poverty. The country's
inflation-adjusted gross domestic product is forecast to expand 5.8% in
2006.

At the conference -- where hundreds of domestic and foreign businessmen
mixed with international donors and government officials -- Mr. Yudhoyono
appealed to foreign investors to help supply the $22 billion Indonesia
says it needs to spend annually in the next few years to upgrade its
infrastructure. "The government will provide only part of this funding,"
he said, "while the major portion will have to come from the private
sector."

Officials highlighted 10 projects with a total value of $4.5 billion the
government hopes will become models for private-public deals and pave the
way for other investment. They include power plants, toll roads,
water-supply projects, fiber-optic networks, a ferry terminal and a port.

Finance Minister Sri Mulyani Indrawati outlined a plan to earmark $450
million from Jakarta's 2006 and 2007 budgets to fund financial guarantees
and offer other support for the projects. Investors have been demanding
these guarantees, which are meant to cover the risk that state-owned
companies like PT Perusahaan Listrik Negara, which runs the national
electricity grid, could break contractual agreements or default on
payments.

Also unveiled at the conference was a separate $300 million fund for
government purchases of land for infrastructure projects. Poor land
documentation in Indonesia has deterred foreign companies from investing
in projects such as toll roads for fear of getting bogged down in legal
disputes with property owners. While the moves drew praise, many
investors say they want more detailed information about projects before
they commit money.

"The government has shown strong determination to move forward," says
Muhammad Fadzil Abdul Hamid, business-development manager at Plus
Expressways Bhd., a Malaysian toll-road operator, who attended the
conference. "But we still need concrete evidence," he adds, that
toll-road projects will proceed without legal wrangles involving land.

Investors say success will rest on the government quickly getting some
model projects up and running. "One or two projects would really open the
door" to further investment, Ms. Finkelston says. For now, she adds, it
remains unclear exactly how the tendering process will work.

Some projects, including two toll-road-extension plans, are closer to
being ready than others, the government says. At the conference, Ms. Sri
Mulyani admitted some projects have "not been prepared to the standards
expected by international investors and lenders." To improve the
situation, the finance minister said, the government has created a panel
to focus on preparing projects to international standards.

Lack of clear information on projects is a major problem facing private
investors, Lawrence Greenwood, a vice president of the Asian Development
Bank, told the conference. The government's lack of experience in
preparing, tendering and implementing projects is an additional worry, he
said.

Rivalry between the central and local governments -- which have won a
greater degree of autonomy from Jakarta in recent years -- also could
complicate efforts to get projects under way, investors say. Highlighting
this fear, regional governors and mayors organized a parallel investment
conference in Jakarta last week, but investor turnout was more modest.

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