Luhut Panjaitan, Coordinating Minister for Maritime Affairs: Interview

Interview: Luhut Panjaitan

What steps are being taken to capitalise on Indonesia’s strategic location for maritime logistics?

LUHUT PANJAITAN: Particular progress has been made in the development and modernisation of sea ports, many of which are linked to the private sector. This has been one of the government’s key objectives since 2014, when Rp243trn ($17.2bn) was allocated to updating port facilities to make them more competitive.

We are increasingly relying on the private sector to finance and develop infrastructure projects, such as the new airport at Bintan – the first Indonesian airport completed by the private sector. Along with easing of the licensing process upon the launch of the online single submission system, these developments send a positive signal to potential foreign investors.

Another priority is to establish integrated industrial estates in remote areas. For example, Morowali Industrial Park. The park is set to become one of the top-five industrial estates in the world for value-added processing of nickel into stainless or carbon steel, as well as lithium batteries. Additionally, we aim to have completed production of a new processing facility for lithium batteries before 2024.

What are the best financing solutions and mechanisms for the expansion of Indonesian ports?

PANJAITAN: State-owned enterprises (SOEs) no longer rely solely on conventional loans. Taking the Jakarta light rail transit (LRT) as an example, the state budget equity in this vast infrastructure project is only 20% and the remaining funds were raised through a consortium of banks. The financing of the LRT is a model for other infrastructure projects, as we cannot solely rely on state budget financing. After meetings in Bali in 2018 the IMF and the World Bank announced that a global infrastructure fund would be created and the first target would be Indonesia, because of its human capital and infrastructure drive, as well as promising medium-term economic growth prospects.

How can Indonesia ensure the local workforce benefits from the Belt and Road Initiative (BRI)?

PANJAITAN: The BRI is more of a business-to-business initiative than a government-to-business one. However, Chinese companies have to comply with local regulations, such as using high-quality technology and employing Indonesian labour as much as possible. In the first four years of operation these companies are permitted to bring in Chinese labour, but are obliged to train our local workforce in specific areas of need. Sino-Indonesian infrastructure projects such as this facilitate the transfer of knowledge and technology, as can also be seen in Morowali Industrial Park.

Which regions are particularly poised to benefit from Indonesia becoming a maritime centre?

PANJAITAN: Logistics infrastructure is being built across Indonesia, and the government has opted to decrease the price gap between Java and remote areas by some 15-20%. The increased focus on the maritime sector will also strengthen local industries in remote areas, such as cement production in Papua and Sulawesi. Projects no longer need to be Jakarta-centric.

Although projects in remote areas are largely driven by SOEs, there is scope for smaller players to collaborate with larger ones. For example, there are many different components in the lithium batteries industry, and the majority are produced by small and medium-sized enterprises (SMEs). However, smaller companies are still expected to comply with foreign regulations. Industrial parks offer a level playing field for large corporations and SMEs to be part of the same ecosystem, enabling the transfer of knowledge.

This also applies to the steel industry. Indonesian steel production is currently at 7.5m tonnes per year but we hope to increase this to 50m tonnes. The modernisation of ports and development of industrial parks will allow Indonesia to produce more steel at a reduced cost, enabling it to reach production targets.

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The Report: Indonesia 2019

Infrastructure & Transport chapter from The Report: Indonesia 2019

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