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Indonesian Infrastructure Development: Building the Road to the Future

By making infrastructure development one of the defining planks of his presidency, Joko Widido strives to inject new momentum into Indonesia’s stuttering economy.

Public spending in Indonesia rose by 7.3 percent in quarter four of 2015, as a direct response to the  commencement of President Joko Widodo’s ambitious infrastructure development program, which strives not only to keep a lid on unemployment and prop up demand for raw materials, but to simultaneously to boost investor confidence and buttress Indonesia’s growth rate amidst rising competition from within the Association of South East Asian Nations (ASEAN).

Such news has been warmly welcomed by many in the business community who view the Widodo presidency as an important catalyst to rectifying decades of infrastructural neglect and underinvestment when infrastructure spending as a proportion of GDP fluctuated between a mere 3 and 6 percent, well below that of neighbouring Thailand, Malaysia, and Vietnam.

Indonesian Infrastructure Spending

The shortfall to make up remains considerable. “We only possess 840 kilometres of toll roads, whereas China adds an additional 4000 to 5000 kilometre every year!” acknowledges Widodo. Even more so in the realm of energy, where a lack of supporting infrastructure from pipelines to grid networks is preventing the country from tapping vast hydrocarbons deposits in the far-flung eastern regions. Dwi Soetjipto, CEO of Indonesia’s national oil champion, Pertamina, forecasts that “as much as 100 billion USD will need to be pumped into the new build and upgrade of energy infrastructure” so as to stave off energy crisis and successfully anticipate the 4th most populous nation’s skyrocketing energy demand.

Realizing the imminent severity of this issue, Pertamina have already established a midstream master plan to secure the supply of refined oil products and started proactively courting outside investment for the construction of hardware such as new refineries. Pertamina’s refinery director Rachmad Hardadi, says the plan aims to “raise the company’s own refining capacity to 1.9 million BOE/D by 2019,” though admits that even this will not be enough to make Indonesia self-sufficient for refined products. “Our plans when fulfilled will narrow the gap to estimated consumption of refined products by 2025 to 600000 BOE/D,” he calculates.

Click here to read more articles and interviews from Indonesia, and to download the latest free oil and gas report on the country.

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