Delayed Pet Project Belies Optimism Widodo Can Fix Indonesia

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Indonesian Economy Minister Sofyan Djalil
Indonesia's Coordinating Minister for Economic Affairs Sofyan Djalil. Photographer: Romeo Gacad/AFP via Getty Images

On a visit to Tokyo in March, Indonesian President Joko Widodo told businessmen he aimed to begin a long-delayed $4 billion power project the following month.

It’s now June, and his government is still saying the project will start soon.

“I check day by day, and ask ‘what is the problem?’” Coordinating Minister for Economic Affairs Sofyan Djalil said in an interview Tuesday, after telling an investment forum in Singapore he hoped work on the Batang plant would start this month. “Now we are chasing all the details, and the devil’s within the details.”

The delays to the 2,000-megawatt coal-fired station in central Java belie the government’s optimism that it can unclog the state and private investment needed to revive growth this year. The power plant has become a test case of Widodo’s ability to cut through the red-tape, corruption, land disputes, conflicting laws and government inertia that have stymied infrastructure development in Southeast Asia’s largest economy.

“Infrastructure is the only story that is playing this year, they have nothing else,” said Mixo Das, an equity strategist for Nomura Holdings Inc. in Singapore. “It’s logical that growth will pick up in the third quarter because government projects will get tendered and they will start doing stuff. That might be the case, but unless we actually see that happening, the markets won’t believe it.”

Growth Risk

Breaking ground at Batang and on other projects has become even more vital after economic growth in the first quarter slid to 4.7 percent, the slowest pace in more than five years. With exports falling and little room for monetary policy easing, the country needs increased government and private spending.

The Batang station, a venture between Japan’s Electric Power Development Co., Itochu Corp. and a unit of Indonesia’s PT Adaro Energy, would be the first large-scale project to be carried out under a 2005 presidential regulation that was designed to get private companies to help build infrastructure.

Construction was supposed to begin in 2012 and has been held up by local opposition, environmental assessments and the unwillingness of villagers to sell land.

Some dredging work began on a proposed access road to the site more than a month ago, said Roidi, who heads a group of villagers opposed to the project. Seventy farmers have yet to sell their land, he said on Wednesday.

Djalil said at the forum on Tuesday he hoped the project would begin this month once the land clearance issues were resolved. The president, a former furniture exporter known for his hands-on approach when he was Jakarta governor, said in late March he had been handling the Batang case himself for four months and its problems had been solved.

Big Disconnect

The economic minister said meetings in Jakarta this week at Vice President Jusuf Kalla’s office would discuss Batang and the Japanese-funded Asahan 3 hydro-electric power plant in North Sumatra. He said the Asahan plant had been stalled since 2012 due to disagreements between the local and national governments and the state electricity company.

Financing and contractors have been arranged for Asahan, but the forestry minister has to give his permission, Djalil said. “I texted the minister, he says he will do it in one week,” he said.

Getting a project started isn’t enough, he warned.

“Our leaders like to have ground breakings, but ground breaking doesn’t mean anything,” he said. “Between high political decisions to build infrastructure and realization there is a very big disconnect.”

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