CHALLENGES FACED BY THE PRESIDENT IN FIRST 100-DAY PROGRAM- November 2009

INDONESIAN COMMERCIAL NEWSLETTER

November 2009

FOCUS

CHALLENGES FACED BY THE PRESIDENT IN FIRST 100-DAY PROGRAM

President Susilo Bambang Yudhoyono has set targets he pledged to meet in the first 100 days of his new administration. The targets were announced in 45 programs to be carried out by his new cabinet he calls United Indonesian Cabinet II. The programs constitute an action program to boost national development.

Among the 45 program, 15 are categorized as priority programs, which are considered urgent that have to be fully implemented during the 100-day period. The 15 programs consist of seven about economic and business development. The other programs will not directly contribute to economic development as they are more general in nature.

The seven selected programs are as follows:

First : To increase power supplying capacity all over Indonesia

The government pledged that in the next five years, power supply will be increased to meet the growing requirement in the real, industrial and commercial, household, transport and other sectors.
In the 100-day period, a map will be made of areas in every province with power requirement and deficit. The power requirement in the next five years will be met by utilizing all energy sources not only coal.

Second : To increase food production and resilience

In the 100-day period, the government will work out a new master plan including phases to be carried out until 2014 to increase food resilience especially self sufficiency of foods not yet reached in the past five years such as for beef, soybean, sugar , etc.

Third : Revitalizing Fertilizer and Sugar Factories

In the 100-day period, the blue print of the revitalization program for fertilizer and sugar industry will be available.

Fourth: Improvement of land use and layout

The Central and Regional Administrations will sit together to discuss and unravel the complexity of problems in land use and layout.;
In the 100-day period, mechanism will be formulated to synchronize the law regulations on land uses and payout.

Fifth : Building Infrastructure

A blue print will be worked out for infrastructure development in the next five years including its funding;
The central government will closely cooperate with regional administrations and the business sector as there are many infrastructure projects to be carried out with the public private partnership scheme

Sixth: Increasing the entrepreneurship and development of small and medium enterprises (UMKM) through People's Business Credit (KUR) scheme

Starting 2010 , around Rp2 trillion will be set aside for KUR;
Increasing the entrepreneurship through working training center, by giving KUR and improvement of mechanism and regulations arranging institutions giving loans by developing synergy between state and private banks and other insurance agencies.

Seventh : Mobilization of Funding Sources outside APBN/APBD (state budget and regional budget) :

Mobilization of financing sources other than APBN/ APBD, both those planning to invest domestic and foreign capital; to be discussed with banks and non bank financial agencies responsible for financing development.

Expectation of the Community in the Electricity and Infrastructure Sectors

The seven programs constitute part of the working plan of the United Indonesia Cabinet II for the next five years.

Deficit in power supply has been a problem even from the first five year term of the Susilo administration. In 2006, the president launched the crash program in the electricity sector, building coal-fried power plants with a total capacity of 10,000 megawatts. The program is expected to be completed only in 2009 and 2010. Construction of some of the projects, however, have been delayed mainly because of financial difficulty. So far only some of the projects with a total capacity of 900MW have been completed. In 2010, more plants with a total capacity of 600 MW are expected to come on stream. That means, there are more than 8,000 MW to be completed. Work has not even started entirely for some of the projects as fund is not yet available.

For example, under the crash program PLN will build six power plants in Kalimantan. In South Kalimantan there are units III and IV of (PLTU) Asam-Asam in the regency of Tanah Laut and units I and II of PLTU Tanjung in the regency of Tabalong with a capacity of 2 x 65 MW. In Central Kalimantan, the projects include units I and II of PLTU Pulang Pisau with a capacity of 2 x 60 MW in the regency of Pulang Pisau.

Until now there is no report about the implementation of the projects. It is not known when PLTU Tanjung project is to be implemented. Earlier it was reported that a Chinese consortium won the contract to build the PLTU Pulang Pisau project with an investment of Rp 1.1 trillion but implementation has been hampered.

Similarly work in the construction of the PLTU Asam-Asam project, which is financed by a consortium of six Regional Development Banks (BPD) with an investment of Rp1.2 trillion has also been delayed. Completion is expected only in 2012 delayed from 2010 originally scheduled.

According to PLN, they still also seek to get the sources of fund for five power plant projects i.e. PLTU Tanjung Awar-Awar. PLTU Balai Karimun, PLTU Bengkalis, PLTU Riau, and PLTU Parit Baru.

Even if all goes as expected or all plans could be fully implemented as scheduled, the crash program for the10,000 MW power plants would be enough only to meet the domestic requirement until 2013. In 2014 power supply is expected to fall again short of fast growing requirement. The government, therefore, has another plan to launch a second phase of the program with the same total capacity of 10,000 MW immediately after the completion of the first phase.

The government and PLN have predicted the problem well ahead and have taken preparations to forestall the problem. The difficulty, however, is how the cash strapped government and debt ridden PLN to bring to reality the big plan.

In the first phase of the program, the difficulty has been in financing. Tenders have been completed for many projects but implementation was delayed, some even cancelled . Some financers withdrew after PLN or the government could not meet the requirements they demanded. The people want to know in the first 100-days of the new administration the formula to be used by the government to deal with the problem. The people want to be convinced that the same problem faced in the first phase would not come again in the second phase. The blackouts in Java recently has led to plan to replace the PLN president director. The leadership of PLN has been dismissed and replaced several times but the problem remain unsolved.

Shortage in power supply has caused big losses especially to the industry. The people, therefore, have been less concerned with the tariff but they are worried more on blackouts.

Almost the same problem is faced in the development of other infrastructure projects. The people are no longer interested in big infrastructure projects such as toll roads. In the five years of the first Susilo administration ending in 2009, the government announced an infrastructure development program involving the private sector but most of the plans did not work as they failed to attract investors. The cash strapped government could not alone carry out the program.

The delay in the implementation of the toll road projects has been caused not only by financial difficulty but also over land clearing. Owners mostly speculators raised the prices of their lands as they know the lands will be used for toll road projects. The speculators buy lands at cheap prices from individual owners and demand a much higher price from the contractors of toll road projects.

The government, therefore, has issued a new regulation. Contractors will build toll road projects over lands already provided by the government. The lands to be used for toll road projects will be frozen to prevent speculators from buying them. The effectiveness of this new regulation is yet to be seen.

Food resilience

The government has made progress in food resilience. Self sufficiency has been created in rice and corn supply, but the government still failed in meeting targets in other food sectors such as sugar and soybean.

Self sufficiency was regained in rice supply in 2008 followed with in corn supply. Self sufficiency in rice, however, has proved to be vulnerable. The country already created self sufficiency in rice in 1984 but the condition did not last too long when late in the 1990s, the country became one of the world's largest importers of the staple food product.

President Susilo has been favored by the people to lead the country for the second five year term as they saw he has done well so far. The people want him to carry on with the good performance in the next five years.

See list of contents>>