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Bahana Securities

23 Oct 2019 | 17:12 WIB
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23 Oct 2019 | 17:12 WIB
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Infrastructure: Execution is key


At our recent Bahana Infrastructure Forum, our panelists shared a common view that the government is moving into the right direction on addressing Indonesia’s land acquisition issues, supported by the recent signing of Presidential Decree No.30/2015, which applies UU No.2/2012 (exhibit 1) on all land acquisitions in infrastructure construction for public interests while also allowing private investors to participate in the land acquisition process.

Going forward, Indonesia’s land acquisition law will provide a more accommodative and transparent compensation payments to land owners with stricter timetables to accelerate the land acquisition process.

Nevertheless, as the land-acquisition preparation and implementation process could take up to 500 days, we can only gauge the effectiveness of this new law in 2016-17. In addition, a lack of policy socialization by the government could mean resistance of uninformed land owners in selling their assets, potentially delaying project completions.

With the lack of infrastructure development having hindered Indonesia’s economic growth in the past, President Jokowi is embarking on his ambitious program, the National Mid Term Development Plan 2015-19 with IDR5,519tn total investment, including the construction of 65 dams and 1,000km of toll roads.

As these constructions are fully supported by the people and the Parliament, a hefty IDR290tn budget for infrastructure development has been allocated in the 2015 Revised State Budget, of which IDR119tn (initial budget IDR84tn) would be for the Ministry of Public Works and Public Housing. Indonesia’s construction players are also supportive of the government’s plan and have made some preparation to participate in the projects.

However, at this stage, Indonesia is forced to import materials, such as steel, asphalt and construction equipment (exhibit 2), as we are unable to supply all required materials for the upcoming infrastructure boom. Furthermore, it is unavoidable that a lack of qualified engineers coupled with the commencement of ASEAN Economic Community would open the floodgate for overseas workers to participate in Indonesia’s infrastructure projects.

The Public Works Ministry, a major client for Indonesian construction companies, stated that ytd tendered projects have reached a total of IDR59tn, out of the ministry’s initial 2015 budget of IDR84tn.

From the increased budget, note that there has been IDR30tn in additional tenders which are currently being prepared by the Ministry of Public Works. By project, the tenders mostly center around the Directorate General of Water Resource (water management) and the Directorate General of Bina Marga (road construction and maintenance).

In summary, while we are still optimistic on major increased of new orders coming from the government, we see possible delays in President Jokowi’s plan to complete all of the government’s tendering process in March. Given this and the uncertainties in land confiscation process within the land acquisition procedures, we advise our equity investors to remain NEUTRAL on the sector.

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