Mandiri Sekuritas Infrastructure sector: Springboard for the next level of growth

According to Global Competitiveness Report 2009-2010, Indonesia ranks the 96th among 133 developing countries in infrastructure competitiveness far below Thailand in the 41st, Malaysia the 27th and C! hina the 66th. Based on data at Bappenas, the budget for infrastructure which considered as ideal is 5%-6% of the GDP while currently Indonesia's infrastructure budget is around 3.25% of GDP. The budget ratio is expected to rise to 5% in 2014. Bappenas estimated Rp1,429tn (US$159bn) will be required within 2010-2014 of which government can only absorb 31%, with the rest to be financed through Public Private Partnership (PPP) programs. Undeniably potentials for construction companies such as Wijaya Karya (WIKA), Adhi Karya (ADHI) are huge, and so does the requirement of ! basic mate rials such as cement from Indocement (INTP), Semen Gresik (SMGR), and Holcim (SMCB).

Old story, is it any different now. There are signs of improvements. President has set up Special Team to Fast Track Reform Program headed by Kuntoro Mangkusubroto. Decrees has been issued, notably Government Regulation 15/2010 on the implementation of spatial management, Regulation 13/2010 on Cooperation between Government and Private for infrastructure procurements, Regulation 10/2010 regarding procedures for changing the allocation and function of forest areas, and Regulation 24/ 2010 regarding the use of forest area. The new regulations was made to break regulatory overlapping regarding the use of forestry areas for mining and infrastructure projects such as geothermal power plants, and roads.

Establishment of government sponsored companies. Government together with World Bank and Asia Development Bank is setting up SMI (Sarana Multi Infrastruktur) which with private sectors will finance high risk infrastructure projects, PII (Penjaminan Infrastruktur Indonesia) to guarantee sovereign risk of the project, and IIF (Indonesia Infrastructure Finance), a subsidiary of SMI to finance infrastructure projects.

What next. Government currently is preparing draft law for land clearing, which is now in interdepartmental consolidation. The new law will strengthen Presidential Regulation 65/2006 on Land procurement for development of public usage. Government expects the new law to be passed within 2010.