Cookies on Pinsent Masons website

This website uses cookies to allow us to see how the site is used. The cookies cannot identify you. If you continue to use this site we will assume that you are happy with this

If you want to use the sites without cookies or would like to know more, you can do that here.

Indonesia seeks foreign investors for port expansion

Indonesia is seeking US$7 billion in foreign investment to upgrade its ports as part of a five-year, Rp5,519.4 trillion (US$429 million) plan to improve its ports network, FinanceAsia said06 Mar 2015

The plan involves modernising existing ports and building new ones in the country, which is southeast Asia's largest economy and the largest archipelago in the world. It is being led by the Indonesian government, but the government has said that it will need $7 billion in foreign investment, FinanceAsia said.

Indonesia's ports are in need of upgrade, the report said; Indonesia ranks only 53rd on the World Bank logistics performance index, below Thailand and Vietnam.

"Port infrastructure needs to be upgraded progressively across the board in order to support the shipping network," Jason Chiang, director at Drewy Maritime Research told FinanceAsia. "This will allow the shipping lines to upsize their vessels in order to realise economies of scale."

The plan, called the "Sea Toll Road" or "Ocean Highway" by new Indonesian president Joko Widodo, aims to create a coordinated network of ports to improve how international traffic is handled and to streamline local trade.

Increased shipping is increasing already-poor "dwell times" – an industry term for the time between a container being unloaded and it leaving the port. Dwell times at Jakarta's Tanjung Priok port increased from 4.8 days in 2010 to 6.4 days in 2013, the report said, citing the World Bank.

International cargo ships can currently only use ports in Jakarta and Surabaya. For second-tier ports, shipping companies have to use trans-shipping facilities in Singapore and Malaysia, FinanceAsia said.

These ports also often lack suitable roads and other forms of access.

"Infrastructure access in and out of ports is one of the main problems. Channel and road access in some ports are still inadequate and create difficulties for exporters/ importers as well as shipping lines," Jakob Friis Sorenson, president director of Maersk Indonesia told FinanceAsia.

"The new government has been focusing on developing new ports in rural areas, especially in the eastern part of Indonesia, and they have been actively promoting the idea to foreign investors in a bid to get this started," Sorenson said.

Indonesia's four state-owned port operators will manage much of the work, and have been looking for investors, FinanceAsia said.

Capacity expansion at the most strategic ports is likely to be financed in special purpose vehicles, or on the balance sheets of the state-owned port operators, Gavin Munro, head of infrastructure finance for Asia-Pacific at Societe Generale corporate and investment banking told FinanceAsia.

"There will be strong appetite for well-structured US dollar financed funding for essential infrastructure assets from international project finance banks and key regional players," Munro said.

The Indonesian government is also introducing an online system, Inaportnet, to allow traders to request clearance and permits at the country's four largest ports from September this year, AsiaOne reported

Tanjung Priok has used the system since last year. It is expected to reduce dwell time to 4.7 days within three months, AsiaOne said.