Indonesia’s ‘Trans-Java Toll Road’ Infrastructural Development Project (2011-2019)

With rapid socio-economic growth continuing throughout the 90s in Indonesia and especially Java, the island’s aging infrastructure and road network had been pushed to its limits. Road transport constitutes almost all freight and passenger transport in Java, meaning development and modernisation of its road network was essential. The Trans-Java Toll Road project aimed to do this by utilising a series of public-private partnerships (PPP) and both foreign and domestic investments, but it has been plagued throughout its development by nepotism, economic shocks, structural transformation and delays.

The Trans-Java Toll Road has been indirectly beset throughout much of its development by economic and political crises since its inception in the 1990s and was repeatedly shelved for years at a time. The project has faced dramatic transformations in its composition along this timeline, with its funding, management, design and structure all fundamentally changing. This analysis focuses on the project as envisioned in 2011 when the government amended terms and contracts with private partners.

The challenge

Throughout the 90s Java Island, the 5th largest island in Indonesia, was making a pronounced transition from an agricultural to a manufacturing industry and service based economy, resulting in the rapid socioeconomic growth and development of the region. In 1998 East Java, one of the six Indonesian provinces on Java Island, had a GDP of US$ 25 billion; one of the highest GDPs of Indonesia’s provinces. Between 1990-1995 the province’s growth rate remained above the national average, reaching GDP growth of 7.8% in real terms in 1995, with the building and construction sector maintaining double digit growth rates. [1]

Even with its traditionally agrarian focus, East Java had good infrastructure throughout the 90s: “roads were largely passable, phone calls connected relatively easily and power outages were rare”. [1] The region’s rapid economic growth, however, was making increasing demands on such infrastructure. [1] The highway and transport infrastructure, however, was not growing in response. Between 1978 and the late 2000s, Indonesia averaged 20 km a year of toll roads constructed. This contrasts heavily with Malaysia where the average was 280 km per year for the same period. [2]

During the 2000s, economic activities on Java Island continued booming, thanks in part to domestic and international enterprises. Socio-economic growth was particularly rapid in the southern and eastern regions of Java, increasing the demand for better transportation facilities, including road infrastructure. [3]

Compared with other Southeast Asian countries, Indonesia had a low density of road networks. Java Island accommodates the highest population density and economic activity in Indonesia and the use of its road network has been increasing at a greater rate than the expansion of its road network. The result is a rapid increase in crowding on the roads. By 2007 the congestion level of trunk roads has reached the critical limit in terms of physical capacity and network function. The road condition across Java was far from satisfactory, with only small sections served by toll roads and most parts marked as bad roads. [3]

The initiative

The Trans-Java Toll Road proposed a modern, efficient and economically sustainable highway running from East to West Java, and connecting major cities. Finance would be predominantly sought from private investment, and construction, operation and maintenance though public-private partnerships (PPPs).

A version of the Road has existed since as far back as the 1660s. This first incarnation was known as the Pantura Road and connected the Banten province in western  Java with Banyuwangi in eastern Java with a 1400 km road along the northern edge of the island. [3]

In 1978, the Indonesia Highway Corporation had been founded (known in Indonesian as PT Jasa Marga) as a state-owned corporation whose business involved the construction, management and maintenance of toll roads. [3] [4] In the 1980s the Indonesian government had introduced build-operate-transfer schemes with private partners to fund further road development. [3] Under such schemes, the government grants a concession to a private entity to design, build, own and operate an asset over an extended period allowing them to recoup costs. After the period has expired, the asset reverts back to public ownership.

In the 1990s the government envisioned a modern, toll-funded highway stretching across Java Island from East to West, connecting major cities and regions across the island with a faster, safer, reliable transport infrastructure. This vision became the Trans-Java Toll Road project. [5]

The Project commenced in 1995, with an ambition to create one continuous toll road of 1167 km. Unfortunately the project hit several metaphorical roadblocks following a chain of national and international economic crises. The project was postponed between 1998 and 2005 after the 1997 Asian Financial Crisis lead to economic austerity in the region. Then in the late 2000s, the government reawoke the infrastructure project, determining that 9 existing toll roads were to be connected by 9 new section of toll roads to create the continuous Road. [5] [6] These roads were to be funded by build-operate-transfer schemes and PPPs, with investment coming from both domestically and internationally.

The 9 proposed new toll road segments to be constructed were:

Segments Length (km) Investors
Cikampek – Palimanan 116.75 PT Lintas Marga Sedaya
Pejagan – Pemalang 57.5 PT Pejagan Pemalang Toll Road
Pemalang – Batang  39 PT Pemalang Batang Tol Road
Batang – Semarang  75 PT Marga Setiapuritama
Semarang – Solo  75.7 PT Jasa Marga
Solo – Ngawi  90.1 PT Thiess Contractor Indonesia
Ngawi – Kertosono  87.02 PT Thiess Contractor Indonesia
Kertosono – Mojokerto  40.5 PT Marga Hanurata Intrinsic
Surabaya – Mojokerto  36.27 PT Marga Nujyasumo Agung

[6]

The Road would also form part of the international Asian Highway 2 project, which aims to connect 14,000 km of highways across 32 Asian and European countries, from Denpasar to Iran. [5]

Indonesia’s President Joko Widodo assumed office in 2014 with a platform primarily focussed on infrastructure projects including restarting dormant and delayed programs to build highways. President Joko Widodo’s plan to invest about US$360 billion in infrastructure projects during his five-year presidency became known as ‘Jokonomics.’ [7] Under his stewardship, the Trans-Java Toll Road project has picked up steam once again and is now within sight of completion.

The public impact

Construction and commencement of the operation of the Trans-Java Toll Road happened in small sections, so the impact was gradually felt. The public impact include direct effects such as shortened travel time and improvement in traffic safety, but also regional effects such as improving nationwide development.

Many of the 9 new sections of the Trans-Java Toll Road were broken down into smaller subsections. These have been constructed piecemeal and commenced operating independently with connections to existing non-toll roads while the remaining length of the section is completed.

The Mojokerto-Kertosono toll road, for example, began construction in 2011 and proceeded in stages while the Indonesian government completed the acquisition of the land. The first section was 14 km, and was completed in 2014. Sections 3 to 5 began operating at the end of 2016, but it was not until September 2017 that the 20 km section 2 was inaugurated, and the full 40.5 km section of the Road opened for use. [8] [9]

At the beginning of 2017, President Widodo and the government committed to full completion of the Road by the end of 2019. At the time, the government estimated 50% of the road was completed with 516 km in operation. [10]

In early 2019 the Road was officially declared open. Though many sections had already been open and operating, connecting existing roadways, the government claimed the road was now connecting Indonesia’s two biggest cities; Jakarta in the West and Surabaya in the East. Several issues, however, remained unresolved. Notably, the central section connecting Semarang to Surakarta still used smaller local roads, creating anticipated bottlenecks. [11]

The public impact of the toll roads can be split into two categories of direct and indirect effect. Direct effects are those benefits which road users directly receive by using the road, such as savings in travel time and cost, while the indirect effects are mostly represented as regional and national development effects. [3]

Direct Effects:

  • Savings in Travel Time;
  • Savings in Vehicle Operating Costs;
  • Improvement in Traffic Safety;
  • More Comfortable and Safe Driving;
  • Decreasing Congestion on ordinary, non-toll roads;
  • Improvement in Punctuality;
  • Betterment of the Environment (with better energy efficient use of vehicles); and
  • Promotion of Mobility (through inter-urban, long-distance bus services). [3]

Regional Effects:

  • Betterment of nationwide development, in particular at the local and rural level by redistributing industrial, manufacturing and  commercial activities that are excessively clustered in metropolitan areas.
  • Improvement in living conditions, as the road results in widening life and employment opportunities, including region-wide services such as medical care and education as well as more efficient disaster recovery systems. [3]

Jakarta experiences an annual exodus of its residents during Eid at the end of Ramadan, as many of its residents return to their village roots to celebrate the religious holiday. This represented a true test of the public impact of the Road. In 2019, Eid fell in late May and it was reported that traffic along conventional roads had dropped drastically compared with previous years. This 75.09% decline in traffic has been attributed to the completion of the Road with many Jakartans utilising the toll road because of faster journey times. [12]

One of the purposes of the Road was to stimulate as much investment as possible, by easing the connectivity between regions and reducing logistics costs. President Joko Widodo insists that as tourism has been boosted by the Road, the culinary, arts and crafts, as well as lodging businesses will grow more vibrant by the domino effect. [13]

Written by Glynn Sullings

What did and didn't work

All cases in our Public Impact Observatory have been evaluated for performance against the elements of our Public Impact Fundamentals.

Legitimacy

Public Confidence N/A

Insufficient data and reporting on public opinion available over the Trans-Java Toll Road to be able to make analysis.

Stakeholder Engagement Good

As part of the resurrection of the Trans-Java Toll Road project, the Indonesian government’s Ministry of Public Works imposed more stringent contractual terms over the private, concessions partners who were engaged to construct the final 9 sections of the Road (as well as 15 other toll road projects across Indonesia that are not part of the Trans-Java Toll Road). [6] Some of these PPPs had been tendered as far back as 1992 (as with Batang - Semarang toll road project) while others had been tendered in the mid 2000s (as with the Palimanan - Cikampek toll road project). [6] [17] By April 2011, after much discussion and negotiation, all partners had signed and agreed to the new terms in the amendment of the Toll Road Agreement. [6] [2] Arman D. Panjaitan, Managing Director of one of the Project’s private partners, expressed that: “the clauses in the [PPP agreement] should not be difficult to implement by the investors. In addition, commitment to implement the PPP from all the parties involved is required, so that the projects can be carried out and completed on time.” [6]

The 2011 amended Toll Road Agreement contained 5 key clauses:

  1. Private partners were to submit a guarantee of execution 1% of total value of the investment, no later than 1 month after signing;
  2. Once 75% of land acquisition was completed, private partners were required to provide one third of the total equity value;
  3. Within 6 months of signing, private partners were required to submit a verification of a Credit Agreement;
  4. 2 months after submission of the Credit Agreement, bank loans could be disbursed; and
  5. Private partners were to meet the physical construction progress in accordance with the government’s construction timeline. [2]

In addition, the 2011 amended Toll Road Agreement included an agreement by the private partners to bear 100% of the increased investment costs, after estimates for required investments rose from IDR 77 Trillion (approximately US$ 5.5 Billion [18]) to IDR 111 Trillion (approximately US$ 8 Billion [18]). Importantly, it also included and automatic contract termination where the private partners were not able to fulfil the contract. [2]

Land acquisition was a significant part of the Project and undertaken by the government directly. The powers for such acquisitions for public purposes date back to 1824 and colonial rule under which the British government enacted legislation to allow the acquisition of immovable property at a fair and reasonable price, for the construction of roads, canals and other public purposes.  These powers were strengthened by antecedent legislation, notably by the Presidential Regulation No.56 of 2006. The legislative system overrules any rights and interests of the land owners and occupiers to object to compulsory acquisition. [19]

Some academics have argued that the government “seems to oversimplify the problem of farmers losing their land with the dream that they can transfer to other, better economic sectors with money from the acquisition of their land”. [20] When the Anyer-Panarukan road was constructed many farmers who lost land under forced acquisition, failed to enter into other enterprises or economic sectors. They mostly become laborers or migrated to the informal sector in cities in Java, especially Jakarta, primarily to industrial neighbourhoods that are synonymous with poverty such as Cilegon, Tangerang, Tuban and Gresik. [20]

Political Commitment Strong

The Indonesian government and its executive branches have had a strong commitment to the Trans-Java Toll Road since the 1990s. PPPs with foreign and domestic investment emerged as the concordant method of enacting this highway project as well as other public infrastructure project, with no notable dissent among political interests.

The government’s interest in developing public infrastructure projects using private investment took off in the early 1990s. By 1997 (the start of the Asian Financial Crisis) US$2.1 billion had been invested into transport infrastructure, most of which consisted of highways. [16]

Around this time the Ministry of State Development and Planning undertook a review of various PPP infrastructure projects that had been created by various parts of the government. The review concluded that proper competition had not been addressed in tendering, and instead the projects were procured through non-transparent, unsolicited processes of corruption, collusion and nepotism. [16]

To combat this poor governance, the government introduced the regulation Kepres 7/1998 to define the government’s policy on PPP and how to monitor such projects. It set out broad principles of transparency and competitive bidding, and set out to protect the interests of the public and the investors in PPP projects. [16]

Since this time the government has recognised that PPP in toll road projects (not just the Trans-Java Toll Road) is essential. Such projects have unfortunately been regularly stalled by a series of economic shocks to Indonesia, Asia and the world over the past 3 decades. [16]

In response however, the government has also regularly reaffirmed its commitment to the Project and other PPP infrastructure projects by implementing regulations and legislation to bolster the PPP system by creating a legal and regulatory framework that encourages the private sector. The government’s PPP Regulations introduced in November 2005, for instance, set out a cross-sector regulatory framework to promote infrastructure investment in an open, fair and competitive system. In 2006, the Presidential Decree on land Acquisition No. 36/2006 brought land acquisition policy closer in line with international norms. [16] In July 2011, the government enacted the Land Acquisition Law in July 2011 to enable and facilitate the completion of the Project as well as other toll road projects. [6] The consistent legislation on facilitating and easing PPP infrastructure projects to continue in the face of economic hurdles, is a testament to the government’s political commitment to such projects (including the Trans-Java Toll Road) over decades of different administrations. 

Policy

Clear Objectives Strong

The Trans-Java Toll Road aims to create a faster, more reliable connection across Java Island from east to west, Merak to Banyuwangi, while also connecting Indonesia’s two most populous cities, Jakarta to Surabaya. The Indonesian government hoped the Road would spread the development of residential and industrial areas away from Jakarta, and that the cost reduction in goods logistics will encourage economic activity across Java Island. [3] [5]

A 2007 report by the Japan International Cooperation Agency (JICA) summed up the overall objective and main purpose of the Road:

 “The overall objective is to create a high-quality, high capacity route between the western and eastern ends of Java, connecting the major cities and provincial capitals and promoting the flow of long distance traffic through the economic heart of Java and Indonesia” and “The main purpose is to provide an efficient road transport network in Java Island in order to promote its rapid socioeconomic development.” [3]

More specifically, the main objectives of implementing the sections of the Road are to:

  • improve accessibility and capacity of road networks for the movement of people and freight on this important transport corridor;
  • Promote national and regional socioeconomic development in corridor-impact areas and cities along the road in aastern parts of Java island;
  • Increase productivity with repression of distributional cost and giving access to regional and international markets; and
  • Provide an efficient road transport network in Java Island to promote its rapid socioeconomic development. [3]

The Road was declared as part of phase 1 of Indonesia’s National Long‐Term Development Plan 2005-2025. The Plan is a continuation and renewal of earlier stages of development planning in Indonesia that had been delayed or suspended. The 20 year plan, aimed to achieve the development goals as mandated in the Preamble to the Constitution of 1945, and included “conducting institutional restructuring while simultaneously keeping the nation in pace with other nations”. [3]

Evidence Strong

Prior to the Trans-Java Toll Road project being regenerated in 2011, the Indoneisan government had many studies carried out to assess the effectiveness, need, practicability, and economics involved in continuing the Project. From this available evidence, the need for the completion of the Project was clear for Java’s continued economic growth and international competitiveness. The best way to do so was seen as continuing the PPPs, though with tighter with more onerous requirements for private partners to meet their obligations.

In 2001, the Java Arterial Road Network (JARNS) study was undertaken. It was a comprehensive study on the development of Java’s roads was undertaken to help provide a plan for road development on the island in the next 20 years, and where its staged development priorities should lie. “The JARNS study found that inter-urban traffic volumes in Java are generally too low to achieve financially viable roads based on traditional build-operate-transfer schemes for private sector financing.”  It concluded that there was a need for toll roads and that these would require a high degree of private sector participation. [3]

Toll roads were already existent in Java, and had proven themselves to be an effective and financially viable  method of developing infrastructure. The first toll road in Java was opened in 1978, linking Jakarta with its suburbs. It stretched 46 km and was funded through offshore loans and a public issuance of bonds. By 2006, 649.12 km of toll roads were in operation in Indonesia, of which 165 km were managed by private operators. [3]

Ahead of restarting the Project in the late 2000s, the Indonesian government requested that the Japanese government conduct a study of using PPPs to finance and construct the Road. This study focussed on a 219 km section of the Road between Yogyakarta-Kertosono (central to east Java). The study was undertaken by JICA, and their report produced. [3]

The objectives of the JICA report were to:

  1. propose a financially viable PPP scheme for the section of the Road; and
  2. transfer a set of PPP related knowledge and know how to the relevant parties involved.

During the planning stages for the renewed Project in the late 2000s, PPP were not a brand new concept for Indonesia, nor for Java. The JARNS study noted that “previous toll road projects in Indonesia have been implemented by government finance, foregin funds, Jasa Marga fund and [build-operate-transfer] schemes.” [3]

Despite this, the 2007 JICA report took a different overall view, declaring the PPP financing for infrastructure was still a fledgling concept in Indonesia, stating that “the approach of financing PPP schemes in financing toll road projects is currently applied in different countries. In Indonesia, however, it is still a new financing mechanism.” The study concluded that the PPP approach to financing the Proect is intended to act as a pilot project in Indonesia, opening the way for more private sector participation in financing public infrastructure projects. [3]

Feasibility Good

The Trans-Java Toll Road requires billions of dollars of financing. The evidence had concluded this could only come from private, national and international investment and PPP, a return for which would be generated by build-operate-transfer concessions from the tolls on the highways. In order to attract and facilitate this investment, the Indonesian government overhauled the legal and regulatory framework involved in the Project and other infrastructure projects.

The RPJM estimated IDR 25 Trillion (approximately US$ 1.8 Billion [18]) would be needed for maintaining and upgrading existing road infrastructure across Indonesia, but only an expected fund of IDR 15 Trillion (approximately US$ 1.1 Billion [18]) was predicted to be available. The expansion of the road infrastructure by developing 1,600 km of road network, two thirds of which would comprise the Road, was predicted to need a budget of IDR 89 Trillion (approximately US$ 6.3 Billion [18]). “To overcome this financing gap, the funding scheme included the involvement of the public sector together with both domestic and foreign private sector.” [3]

More recent estimates stated that the Project required an investment of IDR 8.98 Trillion (approximately US$ 637 Million) for the cost of land acquisition, and a further IDR 54.15 Trillion (approximately US$ 3.8 Billion [18]) for the construction of the 9 new sections. [5]

The urgency of, and insufficiency of public funds for, road development on Java necessitated the government to adopt a toll road system. The JICA report concluded that with financial uncertainty in Indonesia, new and stable sources of funding would be needed to complete the Project, through PPP schemes. [3]

As such funding for construction of parts of the Road under concession comes from private partners under build-operate-transfer schemes. The Mojokerto-Kertosono’s estimated IDR 3.9 Trillion (approximately US$ 273 Million [18]) construction costs, for instance, all come from the Indonesian Astra International Group.

In order to attract private sector investment, the government took several steps in the late 2000s, including:

  • Strengthening the institutional and regulatory framework for toll roads;
  • Establishing the Indonesian Toll Road Authority to be responsible for regulations on toll roads;
  • Formulating appropriate structures for the automatic adjustment of toll rates;
  • Applying a transparent and competitive process;
  • Establishing clear and sound policies to determine proper conditions under which government support should be extended; and
  • Formulating a road master plan. [3]

The government introduced Road Law No. 38/2004 and Government Regulation No. 15/2005 which set out their policy on the development of toll roads. For all toll road developments that indicate positive economic viability and:

  1. No financial viability, the government will finance/construct the toll road and practice contract management of the operation;
  2. Marginal financial viability, they will be financed and constructed through a partnership scheme; and
  3. Good financial viability, they will be offered to private developers through an open and transparent investment tender process. [3]

For the Semarang - Solo section, for example, 51% of the IDR 7.641 trillion investment required came from the private partner (PT Jasa Marga) with the remaining 49% came from the Central Java provincial government and will be offered as an investment opportunity to other investors and third parties. [21]

To cope with the problem of land speculation that caused project-cost inflation, the government developed regulations to ban the use of land designated for toll road projects, for other  purposes. Such land cannot be sold except to the government for slightly higher than market value. [3]

On the face of it, theses measures introduced by the government were effective in attracting private investment to develop the sections of the Road. The Cikopo–Palimanan Toll Road, for example, was constructed by PT Lintas Marga Sedaya, with backing from 8 national and international banks for the project.

Action

Management Good

Each section of the Trans-Java Toll Road has been constructed and operated by different private partners. The Indonesian government exercises their management of the PPPs and enforcement of contractual terms and legal regulations through the Indonesian Toll Road Authority (BPJT).

The 9 new sections of the Road have been constructed entirely through concession agreements. The 40.5 km Mojokerto-Kertosono toll road, for example, is being constructed by a subsidiary of Astra International. [8] Construction of the Road sections, as well as maintenance and operation once completed, falls to these private partners. The length of their involvement varies with the different concessions agreements. PT Lintas Marga Sedaya, for example, has a 35 -year agreement with the government to operate the Cikampek - Palimanan section. [22

Importantly though, the Indonesian government still bears the responsibility of acquiring the land for the road in such BOT agreements. [6]

Road Law No. 38/2004 and Government Regulation No. 15/2005 created the BPJT and gave it a mandate of:

  1. Implementing regulations;
  2. Supervising toll road operators; and
  3. Project preparation and supervising the tender and implementation process for toll road PPPs. [3]

Through the early stages of the Project’s development, PT Jasa Marga was heavily involved in the management of the project on behalf of the government. At the beginning of 2006, when the Project was being developed, PT Jasa Marga operated around 650 km of toll roads, representing 74.5% of all the toll roads in Indonesia at the time. With the creation of the BPJT, PT Jasa Marga’s role became one of simply a toll road operator and in 2007 it seperated from being an arm of the government and became a public company through an IPO. [3] [4] PT Jasa Marga won the concession to construct the Semarang – Solo section of the Road, and now functions as any other private company.

Measurement Good

Measurement of the Trans-Java Toll Road project has continued throughout its lifetime, with the key performance indicators being the rate of construction and the meeting of timelines. Since the 2011 amendments to the PPP Agreements, the feedback from these measurements has not resulted in any replacements of private partners by the Indonesian government, despite delays.

Measurements of key data continued throughout the project, especially the progress of construction. A joint study by civil engineering lecturers at the University of Coventry (UK) and the University of Diponegoro (Indonesia) analysed such data to find that a major reason for delays in certain sections was down to, firstly, land-acquisition not being completed and, secondly, inefficient decision making by project managers and involved organisations. [21]

In 2006 the government’s Ministry of Public Works released their Environmental and Social Assessment Management Plan (ESAMP) for the Project. The ESAMP set out procedures that all sections of the Road must include in their planning and construction, and in particular assigned monitoring responsibilities to government bodies:

  • Environmental Screening, standardising operating procedures on:
    • Environmental Impact Assessments;
    • Environmental Management and Monitoring Procedures Reports; and
    • Land Acquisition and Resettlement Action Plans (LARAP).
  • Stakeholder Consultations, ensuring:
    • All affected stakeholders are informed at the earliest opportunity of any road proposals within the area;
    • Families directly affected are consulted and appropriate surveys carried out to determine potential impacts;
    • Transparency of consultations; and
    • Involvement of NGOs and other groups.
  • Acquisition and Compensation for Land and Buildings
    • For all land and buildings required for the Road construction, persons affected will be compensated on open market value or replacement value; and
    • All families displaced by the Road will have the opportunity to be resettled by the government.
  • Monitoring: a system of regular monitoring of all the processes and activities involved the ESAMP put in place for each Road section being constructed.
  • Action Plan: Bapedala environmental institution holds responsibility for implementing a range of activities associated with the ESAMP. [23]

Alignment Fair

The 2011 amendments to the Trans-Java Toll Road PPP agreements assigned responsibility for any project overspend to the private investors. With investors only receiving a return once their sections of the Road were completed, there was a strong alignment of interests from both public and private to complete the project efficiently and within the timeframes established.

Misalignment arose over the acquisition of land however, which was the responsibility of the Indonesian government. Vice minister of Public Works, Hermanto Dardak, admitted that “the slow process of land acquisitions have been the main obstacle for the toll road construction to commence.” [6]