Indonesia President Joko Widodo is planning an unprecedented $70 billion splurge on toll roads to help connect the most strung-out country on the planet.
It’s almost the equivalent of laying bitumen from New York to San Francisco.
By 2024, Indonesia’s fee-charging highways will stretch for 5,400 kilometers (3,355 miles), almost triple the length of the current network, Danang Parikesit, head of the country’s toll-road regulator, said in an interview.
The government wants to make it easier to haul food and fuel across the world’s largest archipelago. But there’s already concern about how 1,000 trillion rupiah ($70 billion) of highways will be funded. Analysts fret that the funding burden will strain Indonesia’s banking system and the balance sheets of local construction companies.
The government can’t foot the whole bill itself and is seeking other sources of capital such as bank loans and private funding, Parikesit said in an interview. “Infrastructure will grow rapidly and faster than before,” he said.
Toll road operator PT Jasa Marga rallied as much as 5.6% in Jakarta to the highest intraday price since April 30. State-owned construction companies also gained. PT Wijaya Karya climbed as much as 2.5%, PT PP 2.7% and Adhi Karya 1.5%.
The roads rollout is central to the government’s ambitious plans for more than $400 billion of building projects to modernize Indonesia under Jokowi, as Widodo is known, when he begins his second term in October.
The extensive sprawl of Indonesia, a nation dispersed across 17,000 islands, is a logistical nightmare and can send the cost of everyday items soaring and hampering development in tough-to-access locations. So the only way to generate faster economic growth is through connectivity, Indonesia Planning Minister Bambang Brodjonegoro said last month.
More than half the new toll roads will be rolled out on Sumatra to connect the two ends of the enormous island. Parikesit, who’s also a professor in civil engineering, said advanced construction techniques will be required in some locations — to hold up a road bridge 100 meters above the ground or to build several kilometers of tunnels.
In addition to the highways, the regulator is also studying the possibility of building a bridge from peninsular Malaysia to Sumatra, and a bridge connecting Singapore to Bintan island, Parikesit said.
The work could boost revenue for state-owned construction companies such as PT Waskita Karya, PT Adhi Karya and PT Wijaya Karya. Lenders such as PT Bank Mandiri, PT Bank Rakyat Indonesia and PT Bank Negara Indonesia might also be asked to help funds the projects.
“Such ambitious projects could boost businesses for construction companies and related stocks, particularly the state-owned ones,” said Jeffrosenberg Tan, head of investment strategy at PT Sinarmas Sekuritas. “However, that might put more pressure on the liquidity of the banking sector.”