Linking up: Connectivity plans are coming to fruition in East Java

East Java is the principal gateway to eastern Indonesia, and its transport and logistics network is crucial to the development of the province. With the Surabaya port of Tanjung Perak currently the country’s second-busiest seaport, the completion of the new multipurpose terminal, Teluk Lamong, is highly anticipated and should help to reduce dwell times.

Increasing Capacity

The existing port of Tanjung Perak has been consistently operating over its general cargo capacity of 3.57m tonnes per year, with volumes reaching more than 7m tonnes in 2012. The first phase of the new Teluk Lamong terminal, which began construction in 2010, will encompass a 500-sq-metre international yard, 450-sq-metre domestic yard, a 10-ha dry bulk yard and a 15. 86-ha container storage yard. The second phase of the project is planned to start in 2016 and is set to include development of a further 50 ha.

In addition to the marked capacity increases, stateowned operator Pelindo III has made good on its aspirations to use environmentally friendly technology in the project, purchasing electrically powered loading and unloading equipment from Finlandbased manufacturer Konecranes.

Pelindo III and construction company Adhi Karya have plans to begin work before the end of 2014 on a Rp2.5trn ($250m) automated container transporter, which will directly connect Tanjung Perak and the new terminal to maximise efficiency. It is hoped that improved connectivity between the two will contribute towards realising the goals of the Master Plan for the Acceleration and Expansion of Indonesia Economic Development (MP3EI) and help mitigate Indonesia’s high logistics costs, which are currently estimated at around 24% of GDP, according to a recent World Bank report.

Upon beginning operations in 2014, Teluk Lamong will become Indonesia’s largest international shipping terminal. Pelindo III plans to secure adequate power supply for the terminal by collaborating with state engineering company Rekayasa Industri in the construction of a 50-MW gas-powered electricity plant to serve the multipurpose terminal.

New Contender

While Tanjung Perak’s expansion remains a major topic of conversation in the sector given the new terminal’s upcoming opening, set for June 2014, the development of a 3000-ha site in Gresik by chemicals and petroleum distributor AKR Corporindo is also attracting significant attention. Expected to eventually become the country’s largest integrated port and industrial estate, the development represents a significant step forward in easing the logistics bottlenecks of both East Java and eastern Indonesia more broadly.

At an estimated cost of around Rp9trn ($900m) and developed in joint partnership with state entity Pelindo III, the Java Integrated Industrial and Ports Estate (JIIPE) will feature a 400-ha deep-sea port with a maximum vessel capacity of 18,000 twentyfoot equivalent units, as well as 1800 ha of industrial land and an 800-ha residential estate.

Furthermore, as the only private firm with a licence to distribute subsidised fuel, AKR Corporindo was given the right to distribute 267,892 kilolitres in 2013 and will likely use the JIIPE to greatly improve its capability to meet increasing private sector quotas.

Most importantly though, the developers have specifically chosen the site to circumvent infrastructural issues, such as the limited maximum channel depth at Tanjung Perak (due to a pre-existing underwater electricity cable) and the poor road infrastructure surrounding Tanjung Priok.

Around one-third of the 3000-ha JIIPE site had been secured as of the beginning of 2014, although further development is likely to run into difficulties with land acquisition. The entire project is expected to be completed by 2023.

Port Support

While its inclusion within the MP3EI has accelerated port expansion, the same cannot be said of East Java’s surrounding shipyards, which are not included under the direct infrastructural ambit of the economic acceleration programme. Thus, little attention has been paid to the likely parallel expansion of the shipbuilding industry. Though the government has made efforts to increase exports in recent years, its regulation of April 2013, which implemented a 10% export tax, has hindered the ability of domestic shipbuilders to compete internationally. In addition, high borrowing costs, an import duty of up to 15% on raw materials and components, and a support industry whose products are unable to meet domestic certification requirements mean that Indonesia’s ship production costs exceed those of regional competitors like China and Vietnam. As a result, domestic shipbuilders are unlikely to meet the government’s goals for developing high deadweight tonnage (DWT) vessels by 2015.

Yance Gunawan, president director of Dumas Tanjung Perak Shipyard, also highlighted the favourable tariffs and preferential tender treatment applied to some areas of the country, such as Batam in the Riau Islands, telling OBG, “Domestic shipyards in East Java have been questioning whether Batam is still part of Indonesia because it is subject to none of the taxes or challenges that we are.”

Batam currently possesses the only shipbuilding firms that are capable of producing much-needed 70,000-DWT vessels, while East Java’s capacity remains at 50,000 DWT. Although regulation and local conditions have dampened export prospects, it is not all bad news for shipbuilders in East Java. The need for more than 1000 new coastal ferries to transport passengers and cargo between the country’s many islands has bolstered demand for local producers to some extent.

Airport Capacity

Where air travel is concerned, Surabaya’s Juanda International Airport is the province’s main hub. Located around 20 km south of Surabaya, the airport handled some 16m passengers in 2013, double its capacity. A second terminal planned under the MP3EI opened in February 2014 to accommodate the increasing number of passengers. The new terminal at Indonesia’s second-busiest airport (after Jakarta’s Soekarno-Hatta International Airport based on passenger and aircraft movements) cost around Rp946bn ($94.6m) to build and has the capacity to handle 6m passengers per year. It is dedicated to Garuda Indonesia, Air Asia, Mandala Airlines and all international flights.

However, with a single runway of just 3000 metres accommodating 378 flights per day on average, many commentators, including the Indonesian Tourism Board, have highlighted expansion of the runway as key priority. The airport’s operator, Angkasa Pura I, has confirmed that it will construct a second runway, which it will develop in tandem with Terminal 3 to help accommodate the growing traffic.

Trikora Harjo, the general manager of Angkasa Pura I Juanda, told OBG that with Terminal 2 becoming fully operational in early 2014, a new, 3600-metre runway and accompanying Terminal 3 would be next on the agenda. The eventual aim is for the airport to be able to accommodate a total of 40m passengers per year. Land acquisition for Terminal 3 will begin in 2014 and construction is expected to commence in 2015. Harjo also confirmed that, in light of a lack of domestic human resources expertise in the field, Juanda has been cooperating with South Korean’s Incheon International Airport on the construction and servicing of the new terminal, the same South Korean partner used for the new Bali and Jakarta airport expansions.

Railway Progress

While East Java continues to take steps to enhance its transport infrastructure, the expanding network is struggling to keep pace with the ever-increasing flow of both people and cargo. However, projects are under way to address this issue, including the Trans-Java double-track railway, which will connect Jakarta to Surabaya as part of the MP3EI. According to data from the Ministry of Transport, from 2011 through 2025 the country requires a total of Rp320trn ($32bn) in investment to develop railway services on Indonesia’s five main islands of Sumatra, Java, Kalimantan, Sulawesi and Papua.

At a cost of some Rp9.8trn ($980m), the 727-km railway line is set to cut intercity travel time from 13 hours currently to only 8.5 hours, with completed track capacity allowing increased traffic from 64 to 200 trains per day. Travel times have been lengthy as the railway connecting Cirebon and Surabaya is a single-track line. While the railway project was previously scheduled to start operations in November 2013, E E Mangindaan, the Indonesian minister of transport, told local media in February 2014, “We are currently conducting the finishing process of the construction. We will officially open the double track in March this year.” The completion of the project has been delayed mainly due to land acquisition issues. While by no means the final piece of the infrastructure puzzle, the new double-track railway will do much to ease congestion on local roads.

Share

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Indonesia 2014

Economy chapter from The Report: Indonesia 2014

Cover of The Report: Indonesia 2014

The Report

This article is from the Economy chapter of The Report: Indonesia 2014. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart