Infrastructure failings clip the wings of Indonesian airport

May 21, 2013

The state-of-the-art $527-million Kuala Namu International Airport rises elegantly out of degraded plantation and swamp land 18 miles from the rapidly expanding city of Medan, the biggest on the resource-rich island of Sumatra.

But because of the failure to build a planned toll road, Indonesia’s first world-class airport can be reached only by a tortuous route through narrow lanes that pass village after village, with schoolchildren cycling idly into the oncoming traffic and farmers drying rice along the roadside.

“It’s a beautiful building in the middle of nowhere,” conceded Kuntoro Mangkusubroto, who is responsible for monitoring key infrastructure projects as the head of President Susilo Bambang Yudhoyono’s delivery unit, shaking his head mournfully. “There was no joined-up thinking on the toll road, airport and train system.”

The airport was meant to be a showcase, reassuring foreign investors and Indonesians frustrated by decades of underinvestment in roads, airports and power plants that Indonesia is finally getting its act together and building the infrastructure needed to sustain the country’s decade-long boom.

Indonesia’s gross domestic product has expanded at an annual average pace of nearly 6 percent over the past five years, but economists say the country could grow at 7 or 8 percent a year if the government can increase infrastructure investment. Nearly half of the country’s 240 million people still live on less than $2 a day, many of them outside Java, and improved transport links are vital in reducing poverty.

As such, Kuala Namu was also meant to turbocharge economic growth in the palm oil-producing heartlands of North Sumatra by improving connections between Medan, a prosperous city of 2 million people, and Malaysia and Singapore, as well as the rest of Indonesia.

Instead, it has become a potent symbol of the poor planning, land acquisition problems and lack of coordination that have undermined the drive for progress with many other crucial infrastructure developments across Indonesia.

Kuala Namu will be the first terminal in Indonesia to have an integrated rail connection to the city, but the trains will have the capacity to transport only about 20 percent of the airport users.

Executives with Indonesia’s airline industry, one of the fastest-growing in the world, say that even though Medan’s existing airport is vastly over capacity, they do not want to move unless Kuala Namu has proper road access, as well.

The airport, where construction began in 2006, is 90 percent complete and is expected to be finished by late summer. But work on the vital toll road, part of the government’s much-vaunted master plan to accelerate economic development, has yet to start because the land acquisition process is taking longer than expected as officials struggle to agree on a compensation package with residents.

As he showed off Kuala Namu’s fully automated baggage-handling system, Bambang Hermanto, a senior official at Angkasa Pura II, the state-owned airport operator, said he hopes the road might be finished by the end of 2014 but added pointedly, “It’s not my responsibility.”

The $122-million road will eventually be built by state-owned Chinese contractors and funded by a soft loan from the state-owned Export-Import Bank of China.

Angkasa Pura II and the Transport Ministry were responsible for acquiring the land for the airport, but the land acquisition process for the toll road is being overseen by the Ministry of Public Works and the various local governments through whose territory it passes.

This lack of clear jurisdiction is a frequent problem faced by investors in one of the world’s most decentralized states.

Indonesia attracted a record $102 million worth of foreign direct investment last year, a figure that is forecast to increase this year. But much of that is focused on the sale of goods and services to the large domestic market rather than infrastructure, where red tape and graft have deterred foreign investors.

“Ministries don’t talk to each other, and planning based on foreign loans cannot be integrated easily,” Mangkusubroto said.

Even the man personally assigned by the president to get Indonesia’s ambitious infrastructure plans moving is limited in his powers to intervene.

“We’re in a passive mode,” he explained. “If the local government seeks assistance, I can jump in, but if it doesn’t, then we are limited to remote monitoring.”

That is cold comfort to private-sector investors such as Adaro Energy, an Indonesian coal company, and Japan’s J-Power and Itochu, which have seen their $4 billion landmark project to build one of Asia’s biggest coal-fired power stations in central Java delayed by land acquisition problems.

Or to the people of Jakarta, who saw construction of a major flyover in the center of the traffic-ridden capital grind to a halt recently after Joko Widodo, the reformist new governor, uncovered evidence of possible budgetary issues related to the previous administration.

Ferry Susilo, who owns a small soup stand next to the stalled flyover, said that sales have dropped by about a third since the work started two years ago because of the dust, noise and increased traffic jams, and he voiced frustration about the latest delays.

“But what can we do about it?” he said. “Nothing. We just hope the project can be finished soon.”

It is a sentiment shared by one of the senior construction managers at Kuala Namu who is proud that the airport has been designed and built by Indonesian companies but fears for the future.

“We’ve built a great airport but if it’s not used properly, how can we maintain it?” he said. “And if the land transport is still not good, how can we attract visitors?”

— Financial Times

Taufan Hidayat in Jakarta contributed to this report.

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