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Politics

Infrastructure controversies weigh on Widodo's growth strategy

CIPAKU, Indonesia -- It might have been just another arcadian Saturday morning on Aug. 1 in Cipaku, a farming village 240km east of Jakarta.

The recently completed Jatigede Dam in West Java (Photo by Simon Roughneen)

     The dawn euphony filled the air: a chorus of songbirds, crowing roosters and dogs offering up their first soft barks of the day. Shortly after, as the sun rose and as the first wan sunlight filtered a few beams through the tree-shaded village in West Java, drowsy parents swept doorways and ushered sprucely uniformed children out the gate ahead of the 7 a.m. start of school.

     That same day -- if government plans had gone ahead -- the newly completed 110-meter high Jatigede Dam, just 3km away, would have shut its floodgates, blocking the Cimanuk river and submerging Cipaku's 1,200 homes under water 50 meters deep.

     But Aug. 1 came and went and the Cimanuk was left to flow as usual, marking yet another delay in the dam's opening that Public Works and Housing Minister Basuki Hadimuljono attributed to "administrative glitches.''

     Even so, the government is determined that the reservoir will be filled and has set Aug. 31 as the next deadline.

Teak logs in Cipaku, where locals are felling trees and selling the logs before the area is inundated by the Jatigede reservoir (Photo by Simon Roughneen)

     Village chief Didin Nurhadi has lived for more than two decades in a teak-walled house in Cipaku, and says he does not want to move.

     "The government wants to just solve this problem with money," Nurhadi said, lamenting that locals have not been offered relocation to a site that provides the same lush farmland as around Cipaku.

     With locals refusing to budge and compensation claims yet to be settled, Cipaku's rice paddies and teak forests were safe -- for the time being.

     A winding three-hour drive from the West Java capital Bandung, Jatigede is Indonesia's second-largest dam, costing $227 million to build and funded by a loan from the Export-Import Bank of China, a Chinese state-owned lender. According to Sinohydro, the state-owned Chinese engineering company that built Jatigede, 48.9 sq. km of land will be flooded by the project.

     First proposed in the early 1960s, the Jatigede dam is among 65 dams scheduled to be built by 2019, when the current government's term ends. The dams -- needed for irrigation and electricity generation -- are part of President Joko Widodo's ambitious infrastructure plans which include the construction of 5,000km of railways and 3,600km of roads.

     Also planned are dozens of new, mostly coal-fired, power plants, adding 35,000 megawatts to the current 53,000MW-capacity national grid, in a country where almost a quarter of the population does not have uninterrupted access to electricity.

Containers at Jakarta's Tanjung Priok port, where President Joko Widodo has complained about laggard transit times -- another of Indonesia's infrastructure difficultes (Photo by Simon Roughneen)

     The infrastructure costs could amount to $450 billion, around half of Indonesia's 2014 gross domestic product. Yet it's an outlay deemed critical to boosting the long-term prospects of Asia's sixth-largest economy and to sustaining foreign investment estimated by the United Nations to regularly top that of wealthier but smaller neighbors such as Malaysia and Thailand.

     Economists have long described Indonesia's potential as being undermined by a vortex of red tape, corruption and poor infrastructure which, if overcome, could see the country attain growth rates exceeding the government's 7% a year target.

     "Indonesia remains a high-cost economy, due to corruption, and because infrastructure has not improved, while labor costs are high compared to competitors such as Vietnam and Bangladesh," said Gustav Papanek, emeritus professor of economics at Boston University, who has studied Indonesia's economy since 1962.

     Corruption, bureaucracy and infrastructure hurdles are sometimes inextricably linked. Research by the Indonesian Chamber of Commerce and Industry suggests that 87% of contracts for construction project are awarded before tendering is finished, while officials at Indonesia's trade ministry are under police investigation over soliciting payments for expediting "dwell time," the waiting period for containers to be processed through Jakarta's Tanjung Priok port. At nearly six days, dwell time is double, sometimes triple, that of other major ports in Southeast Asia, rousing the ire of President Widodo.

A sign protesting Batang coal plant stands on the road leading to the plant's proposed location (Photo by Simon Roughneen)

     Widodo, also known by his nickname Jokowi, is implementing a string of policies to free up cash for infrastructure spending and attract foreign investors. He has cut a lavish fuel subsidy and plans to increase tax revenue. He's also established a "one-stop" facility for investors seeking to navigate Indonesia's sometimes daunting bureaucratic labyrinth. But although the government wants foreign investment for infrastructure work, it has also introduced several protectionist measures, such as increased tariffs on imports and restrictions on employing foreigners.

     Indonesia's economy depends on commodity exports and domestic consumption, but as prices for commodities have fallen, growth has slipped from the 5-6% annual average during the decade-long presidency of Susilo Bambang Yudhoyono, who stepped down in 2014.

     "Before the commodity boom, the rate of growth was 5% or less, and nothing happened since to suggest that would change once the commodity boom ended,'' Papanek told the NAR. ''That has proven to be the case."

     Indonesia's gross domestic product rose 4.67% in the quarter to June 30 from a year earlier, the least in almost six years and well below Widodo's 7% target, while the rupiah has dropped to a 17-year low against the U.S. dollar.

     Despite the slowdown, in late July Widodo told business executives in Singapore that Indonesia could double the size of its economy in a decade if his government pushes through more changes and improves infrastructure.

     "Indonesia can no longer delay fundamental reform of its economy. There is no gain without pain," Widodo was quoted as saying on the Indonesian Foreign Ministry's Twitter account.

     The president's apparent determination to take unpopular decisions is causing anger 220km further east of Cipaku, in Batang Regency on the pristine Central Java coast.

Abdul Hakim, a Batang fisherman who opposes the coal plant, speaks after he returns from lobbying Japanese lawmakers in Tokyo. (Photo by Simon Roughneen)

     There, on Aug. 6, as speeches from a wedding celebration rang out over Roban, a fishing village of 1,500 people, guests vented their anger about a proposed 2,000-MW coal-fired power plant -- Southeast Asia's biggest -- to be built 1km away.

     Construction has been delayed for almost four years due to opposition from local residents like fisherman Abdul Hakim and from environmental campaigners -- delays that the Indonesian government wants to put an end to. Seventy-one families are still refusing to give up their land, though a majority in the locality have agreed to move.

     Hakim, one of the most vocal opponents, had just returned from Japan, where he and two farmers from a nearby village met with parliamentarians and representatives from the Japan Bank for International Cooperation (JBIC), a state lender and a key financial backer for the $4 billion plant. They asked JBIC to withdraw from the planned project by PT Bhimasena Power Indonesia, a collaboration involving Japanese utility J-Power, Japanese trading house Itochu and Indonesia's Adaro Power.

     The bank's representatives said they would "think about it," according to Hakim, who said he and his neighbors filed the objection as they believe JBIC violated its own investment rules in supporting the plant, and "because our voice is no longer heard by our own government."

     JBIC's office in Jakarta did not respond to requests for comment on its involvement in the project.

     The villagers' journey to Japan followed a state visit in March by Widodo, who told a business forum in Tokyo that "the problem regarding the Batang power plant has already been solved. Development will resume next month."

     But that deadline came and went and construction still has not started.

     Getting the power plant built and operating could become a test for Indonesia's ability to get big projects finished, even after substantial delays. The government has already passed laws making it easier to acquire land for large projects.

     Suprato, a fisherman like Hakim, said that offers to landowners of 100,000 rupiah ($7.38) per sq. meter of land cannot make up for the loss of their livelihoods. He said that fishermen will also lose out on the income generated from catching and selling the squid, crab and prawn that swim the turquoise waters of the Java Sea.

     "The compensation is not the same as what we will lose, and the pollution from the coal will go to the sea. My catch will be affected," Suprato said.

     Arif Firyanto, a climate and energy campaigner with Greenpeace Indonesia, accompanied the Batang residents to Japan. Firyanto told the NAR that Greenpeace has taken on the Batang plant as it would add to the country's greenhouse gas emissions -- the world's third biggest after the U.S. and China -- would pollute the surrounding waters.

     "We are involved not only because this is a land issue but because it is a coal issue, a dirty power issue," Firyanto said by phone from Jakarta.

     But in the nearby Central Java city of Pekalongan, there is support for the plant among local residents. "It will mean jobs and will be better for local economy,'' said Kurnia, a shop owner. "And there will be electricity for the country."

     If Indonesia builds more coal-burning power plants, the government risks the ire of environmentalists. But it seems unlikely to back down on Batang, given the importance of coal and the need to boost electricity generation.

     Indonesia is the world's biggest coal exporter, but a fall in global coal prices has caused turmoil for miners. According to the Indonesian Coal Mining Association, around three quarters of Indonesia's coal mining companies have temporarily stopped production, so getting Batang going would boost the coal sector and Indonesia's growing electricity needs.

     Supriatna Suhala, executive director of the association, told the NAR that reduced coal consumption by China, partly caused by Beijing's policy to increase the use of cleaner sources of energy such as natural gas, hydropower, and nuclear power, has reduced demand for Indonesia's coal.

     As well as generating 110MW of electricity, the Jatigede dam's almost 1 billion cu.-meter capacity means it can irrigate 90,000 hectares of land. With drought currently hitting 102 districts in Indonesia and the dry season projected to last until November, according to the Indonesia National Disaster Mitigation Agency, pressure may grow for more dams to irrigate parched rice-growing regions and to give Indonesia's infrastructure a needed boost.

     The latest World Economic Forum global competitiveness report ranked Indonesia 72 out of 144 economies for the quality of overall infrastructure and listed the lack of infrastructure as the fifth most-problematic factor for doing business in the country.

Activists at the grave of an ancient Sundanese king, which will be underwater once the Jatigede dam reservoir is flooded (Photo by Simon Roughneen)

     Whatever the broader economic rationalization for the dams and power plants Indonesia needs, opposition to Jatigede and Batang is likely to simmer and the example set by opponents of both projects could be emulated elsewhere as the government pushes forward with more infrastructure construction.

     Taufan Suranto has been campaigning against Jatigede since 2001, contending that the area to be submerged around the dam is of cultural significance for the Sundanese, who make up around 15% of Indonesia's 250 million population.

     "This area is kabuyutan -- a very Sundanese word, meaning holy land, sacred ground," Suranto told the NAR. He said that ancient Sundanese kings were buried on the proposed reservoir site and suggested a last-ditch, culturally driven campaign against the Jatigede dam could be mounted.

     In Batang, Abdul Hakim recalled pledges made by Widodo, then governor of Jakarta, during his successful 2014 presidential election campaign. One such promise was to redistribute nine million hectares of land to small farmers -- a piece of campaigning that to Hakim jars with the president's zeal to get locals to cede their land to facilitate the Batang power plant.

     "All bar 10 people in this village voted for Jokowi, but now we are very disappointed after what he promised about caring for the villages," Hakim said.

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