Toll roads an essential part of Indonesia's economic expansion

Although Indonesia’s network of toll roads remains limited compared to some of its neighbours’, the country is set to launch construction of 1000 km of new toll roads over the next five years as part of an ambitious infrastructure development programme that envisions over 2500 km of new highways.

Long underdeveloped and overburdened, the country’s network of toll roads will improve dramatically under this development agenda, with private sector investment in the sector set to soar following a host of economic reforms unveiled in late 2015 and early 2016. The sector is now open to foreign investment, leaving the country well-positioned to deliver critical new infrastructure on time.

Five-Year Plan 

The government’s National Medium Term Development Plan (2015-19) envisions construction of a series of roads. There will be a total of 2650 km of highway, including 1000 km of toll roads, such as the ambitious Trans-Java and Trans-Sumatra toll roads, connecting urban centres on the country’s most populous islands, reducing costly congestion, and offering a mechanism to earn a critical return on equity investment.

The toll road plan was re-iterated by President Joko Widodo in March 2016, when he announced Indonesia’s toll road network is only 840 km long, compared to 60,000 km in China, which builds an additional 4000-5000 km of new toll roads annually.

At a ground-breaking ceremony for Section IV of the Surabaya-Mojokerto toll road in East Java, an 18.47-km stretch along a planned highway linking Merak in West Java to Banyuwangi in East Java, the president told the press he had instructed the Ministry of Public Works to build 1000 km of new toll roads within five years. Although construction on the section of highway being visited had been delayed 21 years as a result of land procurement issues, the government’s recent move to fully enact the 2012 Land Acquisition Act should alleviate these challenges beginning in late 2016, paving the way for new investment and timely project delivery (see Construction chapter).

Reforms To Improve Delivery 

The government is also moving to further improve private sector participation in the development of new toll roads projects, with public-private partnerships identified as a critical framework for delivery of new transport projects. Direct private investment opportunities in new roads projects are also now on offer to foreign investors, after the Widodo administration began launching a series of economic stimulus packages in September 2015, aimed at improving the investment climate and boosting private funding to infrastructure projects. Its 10th package, unveiled in February 2016, included revisions to the country’s “negative investment” list, opening 35 industrial sectors to foreign investment, including toll-road operations.

Toll Road Projects In 2016 

In May 2016 the government announced it is planning to offer 10 toll-road projects covering a total of 521 km to investors before the end of the year. Worth a total of Rp109.58trn ($8bn), the infrastructure projects will enhance both inter- and intra-island connectivity, further reducing logistics and transport costs, and improving the country’s overall investment climate. Some of the major projects on offer include an 83.9-km road linking Serang to Panimbang, with an estimated budget of Rp11.38trn ($830.7m); a 107-km stretch connecting Cileunyi to Banjar, at an estimated cost of Rp15.23trn ($1.1bn); and a 48.3-km road linking Kemal to Teluk Baga Balraja, worth Rp18.74trn ($1.4bn). Other key projects on offer include a 64-km highway between Jakarta and Cikampek, worth Rp17.77trn ($1.3bn); a 58.5-km road running through Cisumdawu, worth Rp10.03trn ($732.2m); and a 31.7-km section linking Semanan to Balaraja, worth Rp11.31trn ($825.6m).

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The Report: Indonesia 2017

Transport & Logistics chapter from The Report: Indonesia 2017

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