Asia Prospects


Citilink connects Bandung and Lombok

Low-cost carrier, Citilink Indonesia, launched a new route on Thursday connecting Bandung, West Java, to the holiday destination, Lombok, West Nusa Tenggara.

“This Bandung–Lombok route has huge potential and we are aiming to capture the business and travel markets,” Citilink corporate communications vice president Benny ButarButar said in Bandung, as quoted by Antara news agency.

Benny said the carrier would offer two daily flights with an Airbus A320-200 plane, that had the capacity to carry 180 passengers.

“Bandung is a strategic hub for commercial airlines at the moment, and we are optimistic our passenger load factor on this route will reach 80 percent,” he added.

Besides Lombok, Citilink connects Husein Sastranegara Airport with Kualanamu International Airport in North Sumatra, and Ngurah Rai International Airport in Bali.

He also said the new flight service provided easier and more comfortable access for Bandung residents who wished to visit Lombok, as they no longer needed to fly from Jakarta. (***)

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Govt bets big on infrastructure development

President Joko “Jokowi” Widodo is using the revised 2015 state budget to fix what, according to analysts, is Indonesia’s Achilles heel — infrastructure, which is responsible for the economy performing below its full potential.

The President, benefitting from his bold move to fully scrap Premium fuel subsidies, will allot the biggest fiscal savings to the Public Works and Public Housing Ministry, the Transportation Ministry and the Agriculture Ministry, which will get an additional Rp 32 trillion, Rp 20 trillion and Rp 16.9 trillion, respectively.

The funds will then be used to build growth-generating infrastructure projects promoting connectivity in the archipelago. The construction of toll roads is to be quadrupled from 260 kilometers in the last five years, to 1,000 km by 2019, while railways will be extended from 5,434 km to 8,692 km.

In the energy sector, Jokowi plans to build new power plants with a combined capacity of 35,000 megawatts. As part of his maritime focus, the number of seaports — also under the watch of the Transportation Ministry — will be increased from the existing 278 to 450 within five years.

In the agriculture sector, there will be 49 new dams built within five years in order to improve farmers’ access to water, in a bid to reach Jokowi’s goal of becoming self-sufficient in rice in three years.

“When we finish building [the dams], we will have a lot of rice — so overabundant that we might be worried about what to do with the excess rice,” Jokowi said. “I have checked myself and found that for the past 30 years, water irrigation projects have not improved at all.”

Given the huge amount of money allocated, the President said he wishes to see swift progress in infrastructure development — even promising to the public that he will fire ministers failing to meet the targets.

“Many said to me: ‘Pak, please give targets that are realistic,’” Jokowi recalled. “But why should I give small targets? The ministers then could just slack off.”

The Jokowi administration expects that the economy will benefit from infrastructure development, as the President has set a target for Indonesia to expand by 5.7 percent this year, before taking off to 7 percent within the next five years.

Gundy Cahyadi, an economist at DBS Bank, acknowledged that infrastructure was the basis of everything else, and that existing infrastructure bottlenecks had driven various production costs to rise significantly right across the country.

However, he said that upcoming infrastructure projects would potentially pose a series of challenges to the government ranging from funding, to profitability of the projects themselves. “Would the private sector be willing to construct roads in Papua?” he asked.

The government will need to address other issues as well, such as those related to land acquisition and project feasibility, to ensure that the realization will go as expected.

“The main risks of this infrastructure overhaul will depend on the will of the government. How serious are they and how willing are they to work hard to achieve the target?” Gundy wrote in an email.

Other economists also said that Jokowi might face obstacles in achieving his objectives. In addition to the problems that can arise when building infrastructure, there are financing issues as well as the issues related to funding and other bureaucratic reforms.

“They [the ministries] are simply not capable of handling spending increases of the magnitude envisaged in the budget,” said Taimur Baig, the chief Asia economist with Deutsche Bank.

“In the past, both central and local government bodies have struggled to spend their allocated sums due to delays in bidding, procurement and account preparation,” he noted.

Poor human capital and supply-side bottlenecks had also caused spending to grow slowly, according to Baig.

Separately, UOB economist, Ho Woei Chen, lauded the government for starting the infrastructure revamp. However, she said that more clarity was needed regarding the government’s plans to start a land bank and to expedite projects and procurements.

“There might be some issues in the early stage, but things are expected to improve,” said Ho.

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AirAsia X hopes to fly to Melbourne next month

Long-haul budget carrier Indonesia AirAsia Extra, a subsidiary of Malaysia-based AirAsia Group, is expecting to launch a new route between Bali and Melbourne next month, pending approval from Australia’s Civil Aviation Safety Authority (CASA).

The carrier was to launch the flights in December but had to postpone after its application to CASA was refused.

Indonesia AirAsia Extra CEO Dendy Kurniawan said on Monday that the Australian regulator would announce its decision by the end of this month.

He went on to say that the airline had received a positive response from the Australian authority and that the service was expected to begin operations in March.

“We’ve received a positive response from CASA, so I am confident that we’ll be able to fly the route,” he told reporters attending the AirAsia ASEAN Pass launching event in Bangkok.

As previously reported, Indonesia AirAsia Extra, or Air Asia X, has advertised and sold tickets for the route since October last year, with the inaugural flight initially scheduled for Dec. 26.

On Dec. 25, the airline informed passengers that the flights had been canceled as the airline had failed to receive regulatory approval in time.

Passengers, who had mostly booked flights for year-end holidays, were routed through Kuala Lumpur, increasing their journey time from six to 13 hours.

Some passengers were also offered refunds and credit shell, a credit account that can be used to buy tickets for other flights.

At that time, Dendy insisted it was common practice to advertise and sell tickets for routes that had not yet secured regulatory approval.

On Jan. 19, the airline saw an Airbus A330-330 make the inaugural flight serving the Denpasar-Taipei route.

Dendy said the airline had intended to kick off operations on the Taipei route next month, but had received the go-ahead from Taiwan sooner than expected.

“We were planning to make our Denpasar-Melbourne route our inaugural flight, followed by Denpasar-Taipei,” Dendy said. “But we received the permit from Taipei first. We will officially launch the route by the end of March, by which time we will be flying the route four times a week,” he continued.

The airline currently operates two Airbus A330s, with its hub in Denpasar.

The airline is also planning to launch new routes from Indonesia to Jeddah, Saudi Arabia, during the second quarter of this year. Dendy revealed that the airline was also looking for the opportunity to fly to Japan, South Korea, China and New Zealand.

Indonesia AirAsia Extra is the third affiliate of AirAsia X, which focuses on mid- and long-haul flights with routes longer than four hours, following the launch of Malaysia AirAsia X in 2007 and Thailand AirAsia X last year.

VP wants regional info centers to help investors

Vice President Jusuf Kalla has asked the Investment Coordinating Board (BKPM) to prepare special desks that will provide comprehensive investment-related information at a regional level.

Speaking during his visit to the board’s office on Tuesday, Kalla said such desks would be especially helpful for foreign investors, offering such basic information as potential locations to build facilities and find business partners; this would, in turn, assist the flow of direct investment into many untapped regions across the archipelago.

“The IT [information technology] system has worked well, but we must be better linked to [the eastern] regions,” he said.

Kalla also pointed out that greater access to information on the economic potential of specific regions would help diversify business partnerships between investors and regional businesspeople.

Spreading investment across the archipelago is one of the board’s concerns as most investments are concentrated in the most densely populated island of Java, which is often times more attractive to investors as a result of the infrastructure and sheer number of laborers.

Java received 56.9 percent of overall direct investments, totaling to Rp 463.1 trillion (US$35.84 billion), last year.

The board wants investments in areas outside Java to increase to 45.64 percent from 43.1 percent last year.

Overall investments from both domestic and foreign investors are expected to hit Rp 519.5 trillion this year.

BKPM chief Franky Sibarani vowed to implement the vice president’s request immediately, saying that he would soon discuss the move with regional leaders.

“In terms of infrastructure, we can be ready in just one month. But we have to ensure the preparedness of the leaders, as it will be related to personnel that will be assigned here,” he said.

According to Franky, the “regional desks” will have a dual function – promotion and coordination. With respect to promotion, the desks will provide some of the details needed by investors, such as feasible locations for investment, regional characteristics and available human resources. In the later phase, they are also expected to handle processes pertaining to business permit applications.

When executed, the establishment of the regional desks will add to a series of reforms that the board is currently carrying out to improve its ability to lure investment, which is the second biggest contributor to economic growth in the country after domestic consumption.

President Joko “Jokowi” Widodo has recently launched One-Stop Integrated Services (PTSP) for investment at the national level to assist investments coming into Indonesia. BKPM is now connecting the system with similar services at the regional level, with a target of full integration by 2016.

In terms of integrating the central PTSP with its regional counterparts this year, the investment authority aims to finalize 144 integrated service centers in 24 provinces, 94 regencies, 20 cities, five special economic zones (KEK), and one free trade zone and free port (KPBPB).

According to data from the investment board, of the 514 regencies and cities that exist in the country, there are currently 459 that have already established a PTSP. At the provincial level, all 34 provinces now have their own integrated services centers for investing.

In addition, BKPM has also planned to revive 99 stalled investment projects worth a total of Rp 477 trillion across 25 provinces.

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Jokowi: One-Stop Investment Service Nearly Ready

Bogor. President Joko Widodo has assured the public and would-be investors that the government’s planned one-stop investment licensing service, which forms part of his administration’s efforts to ease the process of securing business permits, will become operational this year.

“I think more than 80 percent of regions [in Indonesia] are already capable of running the licensing service. There may be setbacks here and there, but they should all be settled this year,” Joko said on Friday.

He added that officials in charge were still working out a few kinks in the system before setting up offices around the country to implement and monitor the program.

Last month Joko unveiled the one-stop investment licensing service, which he hopes will be a milestone in smoothing investment procedures for existing and prospective companies.

The government aims to bolster economic growth by between 5.6 percent to 5.8 percent this year.

Indonesia saw its economy expand by only 5.02 percent in 2014, the slowest pace in five years. Growth reached 5.58 percent in 2013.

Investments account for 31 percent of the economy, the second largest contributor after domestic consumption.

A similar initiative was launched during President Susilo Bambang Yudhoyono’s term in office, but poor coordination among ministries, local governments and other state bodies limited the services to several basic permits.

During his presidential campaign last year Joko promised to improve the system, which was aimed at pleasing the business community.

Twenty-one ministries and government bodies have each delegated licensing representatives, or liaison officers, to the Indonesian Investment Coordinating Board (BKPM) headquarters.
The BKPM rolled out a trial run of the service with 66 liaison officers on Jan. 15.

Indonesia rose three places to rank 114th on the World Bank’s Doing Business 2015 index, which measures business regulations and competitiveness in 189 economies worldwide.

The country still lags behind many of its Southeast Asian neighbors, including Vietnam, which landed in 78th place on the World Bank index, and Malaysia, which took the number-18 spot.