Indonesia : Trans Sumatra Toll Road Risk Monitoring

Transport / Transport policies and institutional development

Indonesia, as an archipelago of more than 16,000 islands, relies heavily on transport connections to link its islands and regions together. It is the world's 7th largest economy in terms of purchasing power parity. Indonesia has maintained a robust economic expansion with average annual growth rates of 5%, contributing to a reduction in the poverty rate from 11.1% in 2015 to 9.2% in 2019. Chronic underinvestment in transport infrastructure remains one of Indonesia's development constraints, which has not been overcome since the 1997/1998 Asian financial crisis. Indonesia invested 4.6% of gross domestic product (GDP) in infrastructure in 2017, short of the estimated 6% of GDP required to meet infrastructure investment needs adjusted to climate risks. The 2019 World Economic Forum Global Competitiveness Report ranked Indonesia 72 in infrastructure, 109 in road connectivity, 60 in quality of roads, and 56 in quality of air transport, placing it below Malaysia and Thailand overall. The infrastructure gap remains large and the quality of infrastructure is inadequate to support a modern economy.

The second largest island after Java, Sumatra has contributed 21% to Indonesia's GDP (2019) on the back of natural resources and commodities. The government is planning to increase the value of the regional economy by developing industry-focused economic centers across the island of Sumatra. A developed road network is vital to improving the connectivity among the economic activity centers and enhancing their economic distribution. Toll road development in Sumatra aims to improve access of transportation and distribution of goods, provide economic benefits to the community and regions of Sumatra, and ensure economic stability and growth in the island of Sumatra.

The Trans Sumatra toll road system, stretching across Sumatra Island from the northern tip of Banda Aceh to the southern tip of Bakauheni, is one of the national priority projects that have been developed since 2015 through government assignment to a state-owned enterprise, PT Hutama Karya. As of 2020, out of the 2,765 kilometers (km) of total target for the system, 364 km has been completed, 792 km is either in construction or design phase, while 1,609 km is without funding allocation. Taking into account the low economic viability of the project and limited funding sources, the government through the Ministry of Finance (MOF) has provided various forms of fiscal incentives to facilitate PT Hutama Karya to obtain financing while maintaining the financial health of the corporation. These incentives include providing additional capital injection and government credit guarantees for loans and bonds issued. In 2020 the value of MOF's guarantee commitments has reached Rp54.9 trillion ($3.6 billion equivalent) to support the construction of six segments of Trans Sumatra toll roads totalling 496 km.

Based on the MOF regulations, the Directorate General of Budget Financing and Risk Management (DGBFRM) of the MOF should monitor on a quarterly basis and evaluate the implementation of the risk mitigation plan that has been prepared by PT Hutama Karya. The monitoring scope includes project implementation, financing, and financial obligations settlement. DGBFRM, through the Directorate of State Financial Risk Management (DSFRM), should also submit reports periodically and risk mitigation recommendations to the MOF to prevent the risk of default. Pursuant to the MOF Regulations, PT Hutama Karya has been reporting project progress and risk mitigation plan to the MOF on a quarterly basis.

The DSFRM has developed some risk monitoring models particularly related to infrastructure development such as the infrastructure state-owned enterprises risk monitoring dashboard, contagion risk model, macro-stress test model, and Indonesia Infrastructure Guarantee Fund monitoring model. A new tool needs to be developed to monitor the risks of Trans Sumatra toll road system by considering the specific characteristics of the toll road project and fit into the overall monitoring scheme of the MOF.

To monitor the risk of toll road projects, the DSFRM needs to understand the types of risks and to a develop framework, as well as model and monitoring system. However, due to limited knowledge in understanding the characteristics of toll road projects, the DSFRM needs advisory from technical experts to assist in the development of risk monitoring for the Trans Sumatra toll road system. By developing this framework, the key risks at each stage in the construction, operation, and maintenance of the toll road project will be comprehensively assessed and monitored.

Integrated transport system and connectivity strengthened in Sumatra

Knowledge and capacity of financing, designing, constructing, and managing of Trans Sumatra toll road system improved

Knowledge on sustainable toll road financing strengthened

A financial risk monitoring model developed

Institutional capacity strengthened