Indonesia Infrastructure Report Q4 2013 - New Market Report

From: Fast Market Research, Inc.
Published: Tue Aug 20 2013

As expected, Q113 data on Indonesia's construction sector had supported our view that there is limited scope for construction growth in 2013 and 2014 to outperform its 2012 level. Furthermore, the downside risks we had previously highlighted - namely a deepening deficit (brought on by ballooning subsidies), rising inflation, bottlenecks in project execution and the 2014 presidential elections - are starting to manifest and could adversely affect near-term construction activity. As such, we have revise down our construction growth forecasts in 2013 and 2014, with growth reaching 7.4% in 2013 (previously 7.5%) and 6.9% (previously 7.4%) in 2014.

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The key factors that will facilitate growth are:

* In May 2013, MRT Jakarta, the city-owned corporate entity in charge of developing Jakarta's first mass rapid transit (MRT) project, awarded two underground construction packages to a consortium consisting of Japanese companies Shimizu, Obayashi and Indonesian companies Wijaya Karya and Jaya Konstruksi. MRT Jakarta also awarded another underground package to a consortium consisting of Japanese company Sumitomo Mitsu and Indonesian company Hutama Karya.
* In May 2013, a senior official in the Indonesian government announced that the land acquisition deadline for the coal-fired power plant in Batang, Central Java would be delayed till October 2013. Construction on the project was supposed to have commenced in October 2012, but has yet to start due to land acquisition issues. The 2,000MW plant is the first and largest public-private partnership (PPP) project awarded by Indonesia so far, with a price tag of nearly US$4bn - the other seven PPP projects awarded so far have been toll roads. The project had been awarded in October 2011 to Bhimasena Power Indonesia - a consortium comprising of Japan's J-Power and Itochu, as well as Indonesia's Adaro Power - and commercial operations were originally planned for 2017.
* In May 2013, Chinese state-owned utility firm China Power Investment (CPI) unveiled a plan to invest US$17bn to develop 7,000MW of hydropower projects in the North Kalimantan region of Indonesia. The project will be constructed in stages along the Kayan River, and CPI said that it hopes to commence construction in 2014. The project is expected to take seven years to be completed, and CPI has already received preliminary approval from Indonesian Energy and Mineral Resources Minister Jero Wacik.

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