Tuesday, July 24, 2012

Java-Sumatra link may be a bridge too far

Straits Times: Tue, Jul 24

FINANCE Minister Agus Martowardojo's unprecedented refusal to sign off on a presidential decree allowing an influential businessman a central role in the $15billion Sunda Strait Bridge belies another question: Why go ahead with it at all when other infrastructure projects should get greater priority?

Issued last December, the decree gives a consortium consisting of Mr Tomy Winata's Artha Graha group and the Banten and Lampung provincial governments control over the feasibility and design phase of the planned 29km span linking Java and Sumatra.

As the unsolicited initiator of the project, the Graha Banten Lampung Sejahtera also stands to gain from customary entitlements in the bridge's construction, including the right to match the lowest tender and a 10per cent cost advantage over other bidders.

The preferential treatment Mr Winata is receiving raises new questions about what one leaked US embassy cable calls his 'specially close relationship' with President Susilo Bambang Yudhoyono and about why the rest of the Indonesian Cabinet seems to be on board as well.

Presidential hopeful and chief economic minister Hatta Rajasa and Public Works Minister Djoko Kirmanto, an engineer with no visible party affiliations, have publicly backed the plan, which critics say is proving to be a distraction from more pressing work.

Mr Martowardojo, ex-head of state-run Bank Mandiri, doesn't in fact object to private participation or even the project itself - only that it should follow the rules.

'No one can offer him support,' says one well-placed government source. 'He is standing alone. It's crazy.'

What the minister wants to avoid is a repeat of the debacle over the Jakarta monorail project, which was abandoned after private developers failed to overcome financial and legal problems and left the government with $88million in debt obligations.

Listed by Forbes as one of Indonesia's richest men, the low-profile, 54-year-old Mr Winata has parlayed connections he cultivated over the years with the military and police into a business empire built mainly on banking and real estate.

He and American company MGM Hospitality are joining forces to construct what will be the world's fifth-tallest building, a $2.5billion, 111-storey office tower in the heart of Jakarta's central business district.

There is no question who holds the whip-hand in the bridge consortium. Artha Graha owns 95per cent of the shares, with the rest held by Banten and Lampung, the cash-strapped administrations on each end where Mr Winata has reportedly bought up land.

Carrying a double electric-rail track and six car lanes, the bridge is part of a wider $31.5billion plan known as the Strategic Infrastructure and Regional Development of the Sunda Strait. Construction is slated to begin in 2014 and take seven years to complete.

Already in a well-publicised fight with businessman-politician Aburizal Bakrie over Newmont's mine divestment, the tough-minded Mr Martowardojo points to a troubling lack of transparency in giving exclusive rights to the consortium.

The government's public-private partnership scheme requires state guarantees, considering the significant financial risks involved. Experience with other mega projects around the world shows that revenue projections can often be far off the mark.

'The banks aren't going to lend to something designed by a university engineering team,' says one foreign consultant, pointing to the huge amount of expertise that went into South Korea's 21km Incheon Bridge, which opened in 2009.

Infrastructure experts estimate that even with an expected truck tariff of $76 for a one-way trip, the bridge payback period would be 50 years - compared to the 10-15 years private investors normally want for cost recovery and a return on investment.

That would mean the government having to weigh in with viability-gap financing to make the project attractive - and if that's the case, Mr Martowardojo quite reasonably wants the government to be in full control of the two-year feasibility study.

After all, another provision in the decree commits the state to bearing the $190 million cost of the study if the project doesn't go ahead. Previous regulations in 2005 and 2010 compelled the private sector to cover its own costs in such an eventuality.

Mr Martowardojo may well be mindful of the fact that whether they stem from good intentions or not, losses to the state often form the basis of corruption charges long after public officials have left office.

The idea for a Sunda Strait bridge was first put forward in the 1960s, then revived by then-Technology Minister B.J. Habibie during the waning days of the Suharto presidency, when grand high- tech ideas were in vogue.

Like the $26.5billion 'Chunnel', linking England and France, there is little doubt a Sunda Strait bridge would have huge symbolic value and accelerate development on the two islands housing 80per cent of Indonesia's population.

But the comparison ends there. Economists say the government would do better to prioritise basic infrastructure, such as roads, ports and utilities, which are so over-taxed they are endangering the country's booming growth rate.

With 2,700 trucks alone making the daily three-hour crossing between Merak on the north-west tip of Java to Bakauheni in southern Sumatra, the government will still have to upgrade both ports to cope with queues that on one day recently stretched for 12km.

Six years ago, it turned down a $632million proposal by Ireland's Dublin Port Authority to replace the existing fleet of small 'rust-buckets' with larger vehicular ferries, rebuild both terminals and streamline management and logistics systems.

Transport specialists say planners should also consider building roll-on, roll-off ferry facilities in the more northerly Sumatran ports of Pekanbaru and Palembang to take the pressure off the congested Merak-Bakauheni crossing.

Right now, they insist, a Sunda Strait Bridge is a bridge too far in the future.

Martin Koh | 86666 944 | R020968Z
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