1. By: Dr. Rizal Yaya CA Department of Accounting Universitas Muhammadiyah Yogyakarta

2. Presentation Overview What does Indonesian Infrastructure look like? How is compared to other ASEAN Countries? What are the Government plans and actions? Are there Financial and non-financial obstacles? What risks are increasing? Are there any social problems?

3. What does it look like?

6. Dwelling time in Tanjung Priok Harbour January 2011 to November 2012 ( in Days) Source: Jakarta International Container Terminal, in World Bank Dunia, Indonesian Logistics Status, 2013 What does it look like?

7. Comparison with other ASEAN Countries CountriesGDP (USD Billion) GDP per capita (USD) Infrastructure Competitiveness Rank out of 140 Score (1-7) Singapore308.156,31926.5 Malaysia326.910,804245.5 Thailand373.85445444.6 Indonesia888.63,534624.2 Vietnam186.82,053763.8 Philippines284.92,865903.4 Laos11.71,693983.2 Myanmar62.81,2211342.1 Source: World Economic Forum Report 2015-2016

8. Logistics Performance Index – ASEAN comparison Source: World Bank (2013) Indonesian logistics status

9. Geographical and Development Challenges 99 JAWA ''Industry and services" JAWA BALI & NUSA TENGGARA '‘Gateway of tourism and food development” BALI & NUSA TENGGARA '‘Gateway of tourism and food development” SULAWESI “Centre of production and processing agriculture, plantation, fishery and nickel'' SULAWESI SUMATERA “Centre of production and processing crops and energy resources" SUMATERA KALIMANTAN "Centre of production and processing crops and energy resources " KALIMANTAN PAPUA & MALUKU “Centre of food, fishery, energy, and mining” PAPUA & MALUKU “Centre of food, fishery, energy, and mining”

10. Investment needed in the six corridors 2011-2025 (SBY administration’s plan) Source: Coordinating Ministry of Economics

11. Jokowi administration plan Infrastructure priority: Regional Connectivity 24 harbours 15 airports 1.000 kilometres toll road 2.650 kilometres provincial road 49 reservoirs Electric Power Supply 35.000 megawatt Mass transportation in 23 big cities, including 3,258 kilometres railway in Java, Sumatera, Sulawesi, and Kalimantan. Source: Kompas, 28 September 2015

12. Priority infrastructure projects (2016-2019) Balikpapan-Samarinda Toll Road National Capital Integrated Coastal Development (Phase A) Manado-Bitung Toll RoadWaste Processing System Jakarta Serang-Panimban Toll Road Development plan Water Supply System Semarang Trans Sumatra Toll RoadHigh Voltage Direct Current Soekarno-Hatta RailwayElectricity Transmission Sumatra North-South Line Jakarta MRTCentral-West Java Electricity Transmission Makassar-Parepare RailwayBatang Power Plant Kuala Tanjung PortElectric Steam Power Plant Indramayu Bitung PortElectric Steam Power Plant South Sumatra Karangkates Hydroelectric Power PlantBontang Oil Refinery Kesamben Hydroelectric Power Plant Revitalization Refinery Development Masterplan Lodoyo Hydroelectric Power PlantWest Java Port (northern coast) Inland Waterways Cikarang-Bekasi-SeaTuban Oil Refinery LRT South SumatraPalapa Ring Broadband LRT JakartaEast Kalimantan Railway

13. Financial Plans In total, all the 30 projects together will require IDR 5,519 trillion (approx. US $415 billion) worth of investment. However, the Indonesian government (including state- owned enterprises and regional governments) can only come up with IDR 1,400 trillion, or 26 percent of the required funds. The remainder therefore needs to be covered by the private sector ie. Public Private Partnerships

14. Things that have been done by Jokowi’s administration Reducing energy subsidies at his early period to secure funds available for infrastructure development Significantly raising allocations to infrastructure development in the 2015 and 2016 State Budgets Easing the process for tenders involving key infrastructure projects Speeding up the land clearing process Injecting capital into state-owned construction firms.

15. Funds Allocated to Infrastructure Spending in the Government's State Budget

16. Signals of the rise of infrastructure The number of new contracts won by Indonesian publicly-listed (and partially state-controlled) construction companies has increased significantly in the first nine months of 2015 (compared to contracts won in the same period last year).

17. Signals of the rise of infrastructure New Contracts Listed Government-Controlled Construction Companies Company Credit Rating New Contracts 9M-2015 New Contracts 9M-2014 YoY Growth Wijaya KaryaidA+ (stable)IDR 12.5 trillion IDR 11.6 trillion 7.8% Adhi KaryaidA (negative) IDR 10.6 trillion IDR 4.9 trillion 116.3% Waskita KaryaidA (stable)IDR 16 trillion IDR 11.6 trillion 38% Pembangunan Perumahan idA (stable)IDR 17 trillion IDR 12 trillion 41.3%

18. Signals of the rise of infrastructure Infrastructure Projects (as a percentage of targeted projects per May 2015)

19. Financial obstacles Weak tax collection. Tax revenue in 2015 is most likely to fall below the government target This implies the government has less funds to spend (as the budget deficit is already becoming close to the legal limit at 3 percent of gross domestic product). Tax Revenue Indonesia Source: Directorate General of Taxes 9M-20159M-2014 YoY Growth Target 2015 Tax Revenue IDR 686.3 trillion IDR 688.1 trillion -0.3% IDR 1,294.3 trillion

20. Financial obstacles So far this year, realization of government revenue in Indonesia (up to 8 May 2016) has reached IDR 419.2 trillion (approx. USD $32 billion), roughly 23 percent of the full-year revenue target in 2016 (IDR 1,822.5 trillion). This result is weaker compared to last year when the government collected IDR 476.3 trillion in the period 1 January - 15 May 2015, or 27 percent of the full-year target.

21. Financial obstacles Private sector involvement has not been optimal. The government hopes that the private sector will account for 30 percent of the country's infrastructure needs. However, so far the private sector has only contributed 15 percent to the nation's infrastructure development. Big infrastructure projects are usually not the first choice of investors as these projects require large capital and usually take a longer time before profits start to roll in.

22. Non-financial Obstacles The difficulty of land acquisition In order to smoothen this hurdle, the government issued Law No.2/2012 on Land Procurement for Development in the Public Interest (known as the 'Land Acquisition Act') in 2012, putting time limits on each procedural phase and by ensuring safeguards for land-right holders. However, in reality problems remained, causing the persistent delay of infrastructure projects as locals still refuse to give up their land. The dilemma is whether or not to respect the rights of individuals at the expense of the benefit for the larger community.

23. Gov’t solution – More loans Deputy Minister for Development Funding Affairs of the National Development Planning Agency (Bappenas), said the government is set to issue IDR 13.7 trillion worth of Islamic bonds (sukuk) in 2016 to help finance next year's infrastructure projects. The government will also seek foreign loans and inject capital into state-owned companies to fund the projects.

24. Govt solution – Tax Amnesty Target (in IDR trillion) Per 1 Aug. '16 (in IDR trillion) State Income 165.0 0.098 Declaration of Funds 4,000.0 3.87 Repatriation of Funds 1,000.0 0.58

25. Gov’t solution – Expenditure cut Recently, the new Finance Minister Sri Mulyani decides to cut government spending and transfer funds to the regions as much as Rp133,8 trillion excluding infrastructure spending.

26. Emerging Risks 1. Financial Risk: increased debt of state-owned companies up to three-fold while it requires time to generate profit. 2. Foreign exchange risk: especially in electricity infrastructure projects where of capital expenditure is spent using foreign currencies and these projects are usually costly. 3. Political risk: infrastructure projects, due to their long- term nature (+25 years), are more susceptible to political risks. A new government or a shift in the political situation in the country can undermine previously agreed contracts 4. Corruption risks: there were 139 corruption cases (45 persen) with reaching Rp 832,3 billion state loss.

27. Are there any social problems? YES!

28. Problems for Society Compensation received by affected people does not cover their loss. Several violence and physical and psychological intimidation had taken place in the process of land acquisition (Kompas 2015) ie Waduk Jatigede, Toll road Brebes-Cipali. Ecological damages on the environment where the projects undertaken, and affect the sustainability of the life of surrounding people.