Infrastructure to Indonesia
Trends and opportunities
Elected in November 2014, Indonesian President Joko ‘Jokowi’ Widodo is
strongly pushing for infrastructure development in the country.
Over-reliance on commodities and a lack of infrastructure development has
been blamed for the slowing economic growth in Indonesia. Some of the
ambitious infrastructure targets include building over 3,000 kilometres of
road, 3,000 kilometres of railway, 24 sea ports, 15 airports, and 35,000MW
new electricity generation capacity. Aside from this, improvements have
been slated for existing infrastructure.
To accelerate infrastructure development that has been lagging for nearly
20 years, a new committee has been formed: The Committee for Acceleration
of Priority Infrastructure Delivery (KPPIP). Staffed with professionals
recruited mostly from the private sector, KPPIP is tasked with ensuring 30
‘priority projects’ and one electricity program are completed (or at least
started) by 2019.
In terms of funding infrastructure, the state budget can only cover 30 per
cent. The global commodity slump has dented state revenue collection and
further slowed implementation. The Indonesian Government is strongly
pushing for private involvement in infrastructure development through PPP,
as well as increased borrowing from Multilateral Development Banks (MDBs).
Other bilateral donor agencies play a very important role in the market,
with projects prepared by technical assistance grants having a better
chance of securing investment and being implemented. A new initative that
is being piloted is to sell minority ownership ( less than 30 per cent) or concession
rights to infrastructure assets that have been awarded or operated by
State-Owned Enterprises (SOEs)
Another trend that is driving development in Indonesia is decentralisation
and urbanisation. Nearly two decades after the collapse of Suharto's New
Order regime, the world's most populous Muslim nation has evolved from a
highly centralised state to a democracy and one of the most decentralised
political systems in the world. With 30 cities having a population in
excess of 500,000 and growing, city services are stretched and pressures
are mounting on city governments to expand existing facilities or adopt
efficiency improvement measures. With the combined shortage of space and
electricity, waste-to-energy projects have become the top priority of both
central and city governments to prepare and undertake.
Multilateral development banks and donor agency projects which are open
for international competitive bidding.
Eastern Indonesia, which is largely unexplored and seeing increased focus
by both government and domestic players (with possible small scale energy
and infrastructure projects).
City governments looking to expand or upgrade existing facilities,
particularly in solid waste management and waste-to-energy.
Water, waste water management and flood monitoring / mitigation projects.
Local infrastructure services provider, such as architects, consultants,
engineering services firms which may want to address their lack of capacity
or experience in infrastructure design by cooperation with Australian
Asset recycling pilots focusing on assets owned by SOEs, e.g. toll roads
The government has stated that the national budget allocated for
infrastructure investment is only enough to cover approximately 30 per cent
of the total estimated need. Indonesia is highly dependent on private
sector or foreign fund investment for infrastructure projects. The main
competitors in infrastructure projects are:
- companies with exclusive access to tied overseas development assistance
private local players that bring their own funds to the project (either
through local source or foreign consortia)
local players that may not have professional qualification but submit
very low priced bids.
Tariffs, regulations and customs
For more information, visit
tariffs and regulations
Australian companies interested in establishing a legal entity in Indonesia
should first refer to Presidential Regulation Number 44 of 2016 (more
commonly known as
Negative Investment List
) to learn about businesses that are closed or conditionally open for
To assist potential foreign investors in setting up their office in
Indonesia, the government has assigned BKPM (Investment Coordination Body)
as the one-stop service provider for business license processing.
As having a local establishment is often required to participate in tenders
here, companies wishing to secure sustainable business in Indonesia should
consider establishing a representative office. Establishing a Foreign
Construction Representative Office (‘FCRO’) is a good starting option as
the process is relatively simple and capital requirement is low, as
compared to establishing a full-fledged branch office.
Aside from the business license obtained through BKPM, companies may need
other licenses and/or certifications from several ministries depending on
their business activities:
- construction services license from the Ministry of Public Works
import license from the Ministry of Trade
manufacturing license from the Ministry of Industry
SNI-compliant certification for various products from National Standards
Many of the companies operating in the infrastructure sector are
state-owned. Supplying to SOEs commonly require thorough compliance with
regulation and standards, which can take months to obtain. Supplying to
SOEs is usually done through a local partner.
Marketing your products and services
Infrastructure assets are commonly considered as having ‘national strategic
importance’. Construction and operation commonly fall under the negative
investment list as “conditionally open”, not allowing for 100 per cent
ownership. Foreign companies must find a local partner to establish joint
ventures. Most of the time, this local partner will be the State-Owned
Involving the private sector in infrastructure projects has proven to be
difficult due to the perceived high risk brought about by regulatory
uncertainty. To address this, the Indonesian Government is currently in the
intial stage of piloting asset recycling, i.e: selling minority ownership
and concession rights of existing infrastructure assets to the private
sector. This initiative is hoped to have the dual effect of encouraging
private participation and fresh funding for new developments.
Indonesia has a strong emphasis on building relationships. First-time
meetings rarely produce any real result, unless the Indonesian company
makes the initial approach. It is more likely that repeated meetings
(formal and informal) over a period of time is required before any real
business can be discussed. This period of time can range between several
months to several years.
Donor-funded projects often provide a good entry point into the market. As
payment is backed by donor entities and non-payment risk is significantly
lower. Project tenders are also commonly open and transparent. Donor-funded
projects also may allow value-for-money bids, allowing for the non-lowest
bidder to win projects on the basis of better value provided. Partnering
with a local company also improves the likelihood of understanding the
market conditions and winning projects.
For material suppliers, a staggered approach to the market would be
advisable. Initally appointing a number of possible agents and then
escalating to a sole distributor arrangement before entering into more
formal partnerships (joint ventures or acquisition).
For service providers, participating in donor-funded value chains provide a
good entry point. Further exploration of the market beyond donor-funded
projects would be best approached through establishment of a local entity
For infrastructure financiers, aside from connecting with asset-owning
SOEs, it is worthwhile to engage with financing SOEs, such as Sarana Multi
Infrastructure (SMI) or Indonesia Infrastructure Guarantee Fund (IIGF).
Leveraging their status as SOEs, these financing enterprises can provide
access to asset recycling schemes offered by other SOEs
Links and industry contacts
Badan Koordinasi Penanaman Modal (Indonesia Investment Coordinating Board)
Indonesian Chamber of Commerce and Industry/KADIN
Indonesia Infrastructure Initiative (IndII)
Committee for Acceleration of Priority Infrastructure Delivery (KPPIP)
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