Infrastructure to Indonesia

Trends and opportunities

The market

After being re-elected in 2019, Indonesian President Joko ‘Jokowi’ Widodo is continuing his strong push 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 kilometers of road, 3,000 kilometers 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 strategic projects’ and one electricity program are completed (or at least started) by 2019. As of 2018, 62 projects have been completed and further 17 projects expected to finish by 2019. The push will continue despite the Covid-19 pandemic, with the pipeline now consisting 223 priority projects.(Source: Fitch Solutions, Indonesia Infrastructure Report Q4 2020 – fee based access. Accessed by August 2020)

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 initiative 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 firms.
  • Asset recycling pilots focusing on assets owned by SOEs, e.g. toll roads under construction.

Competitive environment

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 investment.

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.

Industry standards

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 Body.

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

Market entry

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 Enterprises.

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 initial 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.

Distribution channels

For material suppliers, a staggered approach to the market would be advisable. Initially 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 (representative office).

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

Please note: This list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only. The content is for information and carries no warranty; as such, the addressee must exercise their own discretion in its use. Australia’s anti-bribery laws apply overseas and Austrade will not provide business related services to any party who breaches the law and will report credible evidence of any breach. For further information, please see foreign bribery information and awareness pack.

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