JAKARTA When Indonesian President Joko Widodo opened a section of toll road east of Jakarta last November, it was meant to show that his ambitious infrastructure drive was cruising ahead.
But on Feb. 20, an early morning collapse at a construction site injured seven workers, triggering a public outcry and prompting the government to declare a temporary halt on building elevated roads and rail lines the same day.
At the center of the ensuing scrutiny is Waskita Karya, the state-owned contractor involved in seven of the 15 construction accidents over the past six months. The Jakarta-listed company was seen as one of the biggest beneficiaries of Widodo's infrastructure program, booking a surge in orders since he took office in October 2014 and emerging as the top state contractor by market capitalization.
Now the company is scrambling to correct its mistakes and restart halted projects, knowing that a failure to meet its tight deadlines will dent investor confidence and empower Widodo's opponents ahead of the 2019 presidential election.
"There may have been some minute factors such as wind speed that we neglected to pay attention to," Nyoman Wirya Adnyana, director of operations at Waskita, said at a press conference on Feb. 22. "The many accidents remind us all to more carefully implement the standard of operations." He announced measures the company intends to take to improve safety standards, such as stopping girder installation after 5 p.m. and reviewing late-night work shifts.
Syarif Burhanuddin, director general for construction supervision at the Ministry of Public Works and Housing, said the halt will last around two weeks. A committee established by the ministry, as well as independent consultants, are expected to review companies' management of construction sites, including their use of personnel and equipment. Having issued a warning to Waskita, the government is weighing a "sanction" on the company, which under existing regulations could include fines, at the least.
Adnyana insisted there will be "no additional cost" resulting from the suspension, brushing off concerns over further delays in Waskita's full pipeline of projects. It has been involved in the construction of about 1,300km of toll roads since Widodo took office, the majority of which are still being built. Many of them are turnkey contracts, meaning that any costs arising from a delay would likely be borne by the company. Having tapped state coffers and taken on massive debt financing, a significant slowdown in the pace of construction is not an option for the company.
Waskita was established in 1961 and took on such notable projects as the Soekarno-Hatta International Airport -- the main gateway to Jakarta -- in the 1980s and the central bank headquarters in the 1990s. But it was not until industry veteran M. Choliq became president in 2008 that the company started to transform into the big player it is today. He immediately uncovered accounting irregularities, revamped management and diversified into new businesses such as toll roads, eventually steering the company to a delayed initial public offering in late 2012.
Experience and a healthier balance sheet had primed Waskita for growth when Widodo launched his ambitious infrastructure program. In 2015, the company raised 5.3 trillion rupiah ($387 million) in equity from a rights issue, including 3.5 trillion rupiah from the government, and went on a shopping spree for toll road concessions held by private investors.
The company also racked up new orders by proposing turnkey contracts, which meant that it could kick-start projects without going through the lengthy bureaucratic process of receiving state funding. This dovetailed with Widodo's desire to see quick results. Waskita's total new contracts surged to 70 trillion rupiah in 2016 from 13.3 trillion rupiah in 2013, leaving most private-sector rivals in the dust.
At the same time, the turnkey business model meant that Waskita needed to finance projects on its own. Debt grew tenfold from 2013 to 66 trillion rupiah as of last September. Operating cash flow was a negative 7.8 trillion rupiah in 2016.
"You finish, you get the payment. [It's] not really in installments," said Anton Gunawan, chief economist at Bank Mandiri. "So the amount of account receivables is increasing. The risk is if the cash flow management is not good, it can have some impact, and [become a] burden to financiers, mostly banks."
At the moment, investors appear to see the moratorium on construction as a minor hurdle. Waskita shares have declined 8% since Feb. 19, the day before the accident, but are still up 15% from a year ago. Analysts expect the review to be over soon, with the possibility of a minor fine being imposed.
They also see the company's financial condition improving dramatically -- assuming that the projects are completed on time. Nomura forecasts operating cash flow this year to turn positive for the first time in three years thanks to payments on completed turnkey projects, including a light-rail transit system in South Sumatra.
Another source of funding is the sale of completed toll road projects. The company is reportedly considering the sale of 10 toll roads in Java by the end of the year. Nomura estimates that this move, either through tenders or a share offering in the operating unit, could generate 14 trillion rupiah based on "conservative calculations."
Waskita plans to open, at least partially, nine toll roads this year, including those it has minority ownership of, according to BCA Sekuritas. Some of this is supposed to happen before the start of the Idul Fitri holiday season in June, when millions of Indonesians travel to their hometowns. Massive traffic jams during the annual exodus are a source of persistent complaint among the public, so easing them would be a significant accomplishment for Widodo ahead of the April 2019 election.
Waskita already faces tight deadlines. Now, the moratorium on construction has raised the stakes further.
"Unless the government does checks and balances, the opposition will start to attack," said one stock analyst. "A few weeks [of delays] doesn't worry me ... but if it goes beyond two or three months, I will start screaming."
Nikkei staff writer Erwida Maulia in Jakarta contributed to this story.