Destination for investment: Prospects are good for private sector developers

 

For both foreign and domestic investors, opportunities abound in East Java, ranging from oil and gas to industrial processing and geothermal energy. However, among these, a report issued by the Indonesian Investment Coordinating Board (BKPM) in 2011 on opportunities in East Java highlighted four particularly high-profile projects for private sector investment.

STARS OF THE SHOW: The first opportunity is a build-operate-transfer (BOT) project for the 22-km GresikKrian toll road, which will form part of the provincial road from Bunder (Gresik Regency) to Legundi (Krian Regency), and is part of the connector road network system that bypasses Surabaya. With industrial areas in this region set to grow rapidly, the construction of a toll road anticipates the subsequent rise in traffic volumes. The cost of construction and equipment for the road is expected to be around $163m, and the cost of land acquisition is forecast to reach $87m.

Next among the BKPM’s highlighted projects is the development, operation and management of a geothermal power plant. This will run on energy from Lamongan Mountain in District Tiris, some 20 km from Probolinggo. Preliminary surveys are being carried out by the Department of Energy and Mineral Resources of East Java Province, with Mount Lamongan’s geothermal potential estimated to be around 147 MW. The department expects that geothermal energy in East Java will eventually generate 1206.5 MW of energy, or nearly 5% of the country’s geothermal potential.

Third on the list is a BOT project for a double track railway station at Juanda International Airport. This 110-km rapid transport system will connect the city of Surabaya to Juanda International Airport and Tanjung Perak Port. Construction cost for the double track railway is expected to reach $163m, and the fast train procurement could cost up to $1.5m per unit. The cost of land acquisition is estimated at $26m.

SEAWEED: The fourth project is in the development of East Java’s seaweed processing and cultivation industry. This would include operating and managing the Carrageenan Builders Industrial Complex in Banyuwangi and Sumenep. The estimated investment cost for this project is $2m. Goals for the complex include increasing the number of seaweed products to meet market demand, improving the quality of seaweed production, expanding the number of export destinations for seaweed and increasing East Java’s seaweed exports.

Indonesia’s five current major export markets for seaweed are China (27,696 tonnes per year), the EU (7674 tonnes), Vietnam (6099 tonnes), South Korea (4203 tonnes), the Philippines (3109 tonnes), and the US (3035 tonnes). Indeed, after the Philippines, Indonesia is the world’s second-largest producer of tropical seaweed. Indonesian seaweed production is expected to reach 10m tonnes in 2014, with East Java one of the country’s leading seaweed trading centres. In 2009 exports of dried seaweed from Tanjung Perak Port reached 63,772 tonnes, valued at over $58m.

GOOD PROSPECTS: Investors in these and other projects will also be able to take advantage of several additional benefits. According to a survey conducted by Indonesia’s Regional Autonomy Implementation Monitoring Committee in 2011, which looked at 245 cities and regencies around the country, East Java is home to 11 of the nation’s top 20 cities and regencies in terms of local economic governance. The province has a history of good labour relations, while labour market costs remain comparatively low. According to Statistics Indonesia, in 2011 the average monthly wage for a blue-collar worker in the province was about $150, while the official monthly minimum wage that year was Rp705,000 ($75). However, in 2012 there was no minimum wage set in the province.

Furthermore, the provincial government has set up several industrial zones aimed at channelling investors into new areas. The Badan Penanaman Modal Jawa Timur will also assist investors. Amongst its facilities is an integrated licensing service for permits. This guarantees that foreign entities applying for investment permits will now be issued them within just 17 days.

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The Report: Indonesia 2013

East Java chapter from The Report: Indonesia 2013

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