BMI Indonesia Infrastructure Report Q1 2018

Q1 2018
www.bmiresearch.com
INDONESIA
INFRASTRUCTURE REPORT
INCLUDES 10-YEAR FORECASTS TO 2026
Published by:BMI Research

Indonesia Infrastructure Report Q1 2018
INCLUDES 10-YEAR FORECASTS TO 2026
Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: October 2017
ISSN: 1752-5411
BMI Research © 2017 Business Monitor International Ltd

2 Broadgate Circle All rights reserved.
London
EC2M 2QS All information contained in this publication is
United Kingdom copyrighted in the name of Business Monitor
Tel: +44 (0) 20 7248 0468 International Ltd, and as such no part of this
Fax: +44 (0) 20 7248 0467 publication may be reproduced, repackaged,
Email: subs@bmiresearch.com redistributed, resold in whole or in any part, or used
Web: http://www.bmiresearch.com in any form or by any means graphic, electronic or
mechanical, including photocopying, recording,
taping, or by information storage or retrieval, or by
any other means, without the express written consent
of the publisher.
DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.
CONTENTS
BMI Industry View ............................................................................................................... 7

Table: Five-Year Forecast Scenario (Indonesia 2017-2022) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table: Infrastructure Risk Reward Index (Indonesia 2017-2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SWOT .................................................................................................................................... 9
Infrastructure SWOT .................................................................................................................................. 9
Industry Forecast .............................................................................................................. 11

Construction and Infrastructure Forecast Scenario ........................................................................................ 11
Latest Updates ....................................................................................................................................... 11
Table: Construction And Infrastructure Industry Data (Indonesia 2017-2026) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Structural Trends ................................................................................................................................... 11
Transport Infrastructure - Outlook And Overview .......................................................................................... 17
Latest Updates ....................................................................................................................................... 17
Table: Transport Infrastructure Industry Forecasts (2017-2026) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table: Competitiveness Of Indonesia's Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Indonesia - Major Transport Infrastructure Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Energy And Utilities Infrastructure - Outlook And Overview ............................................................................ 30
Latest Updates ....................................................................................................................................... 30
Table: Energy And Utilities Infrastructure Data (Indonesia 2016-2026) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Table: Indonesia - Major Energy & Utilities Projects By Value, USDmn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Residential/Non-Residential Building - Outlook And Overview ......................................................................... 43
Latest Updates ....................................................................................................................................... 43
Table: Residential and Non-Residential Building Industry Forecasts (Indonesia 2017-2026) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Table: Indonesia - Major Construction and Social Infrastructure Projects by Value, USDmn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Infrastructure Risk/Reward Index ................................................................................... 49

Indonesia - Infrastructure Risk/Reward Index ............................................................................................... 49
Asia Infrastructure RRI: Frontier Markets Offer High Rewards And High Risks .................................................. 51
Market Overview ............................................................................................................... 59

Competitive Landscape ............................................................................................................................. 59
Table: Indonesia - Companies With The Most Ongoing Infrastructure Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Table: Major Company Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Company Profile ................................................................................................................ 67

Adhi Karya ............................................................................................................................................. 67
Jasa Marga ............................................................................................................................................ 70
Wijaya Karya .......................................................................................................................................... 73
Methodology ...................................................................................................................... 76
© Business Monitor International Ltd Page 4

Infrastructure Forecast Methodology .......................................................................................................... 76

Industry Forecast Methodology ................................................................................................................ 76
Sector-Specific Methodology .................................................................................................................... 77
Infrastructure Risk/Reward Index ............................................................................................................... 81

BMI Industry View
BMI View: Indonesia's construction market is one of the largest and fastest growing in Asia, with
significant growth potential coming from government infrastructure plans and private interest in industrial
and commercial real estate. We forecast that the industry will grow by 6.8% in real terms in 2018, which
represents an acceleration compared to earlier years.
Forecast & Industry Developments
■ We have an optimistic outlook for Indonesia's construction and infrastructure industry, and expect real
growth in the industry to reach 6.8% in 2018 and average 7.0% over the 2018-2026 period. Drivers of
this forecast include the government's ambitious infrastructure development plans and healthy levels of
foreign investment across the infrastructure and construction sectors.
■ The transport sector will remain a primary focus of public infrastructure development plans, as Indonesia
tackles its uncompetitive logistics situation. There is a strong pipeline of road, rail and port projects
planned to be implemented over the next decade aimed at reducing transport costs and times in the
archipelago nation.
■ In August and September, state-owned toll-road operator Jasa Marga and power utility PLN launched
infrastructure asset-backed securities on the Indonesian Stock Exchange. The development reflects the
challenging finances facing the implementation of infrastructure projects, and the unique solutions
companies have come up with to circumvent them.
■ In August, the government allocated USD30.72bn to fund infrastructure in the country as part of its 2018
budget, to be divided between the Ministry of Public Works and Housing and the Ministry of
Transportation.
Table: Five-Year Forecast Scenario (Indonesia 2017-2022)
2017f 2018f 2019f 2020f 2021f 2022f
Construction industry 1,415,397.64 1,580,053.99 1,766,730.15 1,978,926.52 2,217,742.96 2,479,944.18

value, IDRbn
Construction Industry 6.12 6.83 6.81 7.01 7.32 7.32
Value, Real Growth, % y-
o-y
Construction Industry 10.5 10.6 10.7 10.8 10.9 11.0
Value, % of GDP
f = BMI forecast. Source: Statistics Indonesia, BMI

Risk/Reward Index
■ We have overhauled our Infrastructure Risk/Reward Index (RRI) methodology to more accurately
capture the different elements that impact the overall investment attractiveness of a country's
infrastructure sector. We have increased the number and variety of indicators that make up the final index
score and we have re-assessed the weightings of the Reward and Risk indicators to ensure the most
accurate reflection of the Risk/Reward environment is reflected through our matrix.
■ Indonesia's score of 58.8 out of 100 is slightly above the regional average of 56.9. Although the country
has a large and robust growing construction sector, its overall score is dragged down by a poor project
environment beset with corruption and bureaucratic hurdles.
Table: Infrastructure Risk Reward Index (Indonesia 2017-2017)
Risk/Reward Index Rewards Industry Rewards Country Rewards Risks Industry Risks Country Risks
58.8 69.5 77.9 56.9 42.6 27.1 58.2
Scores out of 100, Higher score = more attractive market. Source: BMI

SWOT
Infrastructure SWOT
Indonesia Infrastructure Industry SWOT
Strengths ■
Indonesia is home to the fifth-largest construction industry in Asia, meaning that even
moderate growth rates will generate a high volume of activity.
■
The country has large infrastructure deficits across all sectors, which supports
investment in large and small infrastructure development initiatives.
■
Rising population and urbanisation trends are placing pressure on existing facilities
and generating demand for residential and commercial real estate.
Weaknesses ■
Construction and infrastructure sector is dominated by state-owned enterprises and
well-connected conglomerates, placing newcomers at a substantial competitive
disadvantage.
■
Transport and logistics situation is poor, especially in rural regions and smaller
islands, posing difficulties to investment and construction.
■
Challenging business environment characterised by entrenched corruption, inefficient
bureaucracy, lack of transparency and inadequate rule of law.
Opportunities ■
Government has plans to implement hundreds of infrastructure projects, worth
IDR5,500trn (USD423bn) in total, before 2025 to close the country's expansive
infrastructure deficit.
■
The government is improving public-private partnership (PPP) regulations and
expanding access to financing, including starting a new infrastructure guarantee
agency.
■
New maritime axis doctrine will generate projects and opportunities in the ports
sector.
Threats ■
High inflation in the construction sector, due to rising costs for cement, could make
projects economically unfeasible.

Indonesia Infrastructure Industry SWOT - Continued
■
Efforts to streamline and accelerate the tendering process could increase the risk of
lack of transparency and corruption.
■
Limited fiscal room in Indonesia's budget for Jokowi's infrastructure plans increases
risk that projects will be delayed by financing difficulties.

Industry Forecast
Construction and Infrastructure Forecast Scenario
BMI View: Indonesia's construction industry will grow by 6.8% in real terms in 2018 and at an annual
average of 7.0% between 2018 and 2026. Growth rates will gradually accelerate in the market as the
country's operating environment improves and greater amounts of financing become available for large-
scale projects.
Latest Updates
■ Growth in Indonesia's construction industry will gradually accelerate over the next 10 years, as the
country's operating environment improves and planned infrastructure projects reach the construction
stages. We forecast that the construction industry will grow by 6.8% in real terms in 2018 at an annual
average of 7.0% between 2018 and 2026.
■ Jakarta will continue to be the largest destination for infrastructure investments. Although Indonesia's
underdeveloped rural regions have sizable infrastructure needs, their poor operating environments are a
deterrent to investors and contractors.
■ In August, the government allocated USD30.72bn to fund infrastructure in the country as part of its 2018
budget, to be divided between the Ministry of Public Works and Housing and the Ministry of
Transportation. The allocation funds projects such as the construction of 856km of roads, 25km of toll
roads and bridges, and the maintenance of 46,000km of national roads.
Table: Construction And Infrastructure Industry Data (Indonesia 2017-2026)
2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
Construction Industry Value, Real Growth, % 6.12 6.83 6.81 7.01 7.32 7.32 7.02 7.02 7.01 7.01
y-o-y
Construction Industry Value, % of GDP 10.5 10.6 10.7 10.8 10.9 11.0 11.1 11.2 11.2 11.3
Infrastructure industry value real growth, % y- 4.8 5.3 5.5 5.8 5.9 6.3 6.3 6.3 6.3 6.3
o-y
f=BMI forecast. Source: Statistics Indonesia, BMI
Structural Trends
We have an optimistic outlook for Indonesia's construction industry and expect real growth to hit 6.8% in
2018 - a rate on par with other emerging markets in the region. Growth in the construction and
infrastructure sectors will continue to be supported by urbanisation and industrialisation trends, and as
President Joko Widodo pursues his IDR5,500 infrastructure spending plan over the next 10 years. Although

these rates represent a substantial volume of activity, they are held back by Indonesia's poor project risk and
operating environment. The country's large pipeline of projects will face substantial challenges including a
prolonged land-acquisition process and financial constraints.
Gradual Acceleration
Indonesia - Construction Industry Growth and Value Forecasts
4,000,000 9
3,500,000 8.5
3,000,000 8
2,500,000 7.5
2,000,000 7
1,500,000 6.5
1,000,000 6
500,000 5.5
0 5
2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
Construction industry value, IDRbn (LHS)
Construction Industry Value, Real Growth, % y-o-y (RHS)
f = BMI forecast. Source: Statistics Indonesia, BMI
Bulk Of Activity Remains Focused On Java, Sumatra
Construction and investment activity in Indonesia will remain overwhelmingly focused on the islands of
Java, which is home to the largest population and most industrialized economy in the archipelago nation.
Official data shows that Java was home to more than 63% of total construction activity in 2015, higher than
its share of economic growth - Java contributed 53% of Indonesia's GDP that year. Not only is the island
home to the greatest demand for transport and utility services, it also presents the fewest geographical
challenges to project implementation. At the same time, we note that this also reflects the formidable
challenges facing President Joko Widodo's government as it attempts to use infrastructure to spur economic
development across the country's nearly 1,000 inhabited islands.

Java and Infrastructure Lead Construction Activity

Indonesia - Value of Construction Completed by Region and Type, 2015
Source: Statistics Indonesia, BMI
In aggregate terms, Java and Sumatra are home to the greatest demand for improved infrastructure facilities,
which is helping to drive both public and private investment focus on the regions. Inadequate road and rail
networks across the islands have prompted the government to launch ongoing projects to build a Trans-Java
Toll Road, Trans-Sumatra Toll Road and a Trans-Sumatra Railway, as well as initiatives to upgrade existing
railways across Java. Growing energy demands by industries and urban populations have prompted the
construction of several new power plants and major transmission lines.
We note that the Greater Jakarta Region, in particular, has a much larger share of construction activity than
overall GDP. While this reflects the presence of a number of major infrastructure projects such as the MRT,
toll-road networks and port upgrades, this is also in line with the city being a focus for residential and
commercial real estate development.

Jakarta Construction Outpaces GDP Share

Indonesia - Construction and GDP Share by Province, 2015
Source: Statistics Indonesia, BMI
2018: Slow But Steady Growth
We expect the construction and infrastructure industries to show real growth of 6.8% and 5.3% in 2018,
respectively. PUPR's continuing efforts to implement more than IDR5,500 (USD423bn) worth of projects
will provide a steady stream of activity in 2018 to sustain the sector, but we do not expect a significant
acceleration yet as the short-term business environment remains largely unchanged. As of January, seven of
the 35 'priority projects' remain delayed or at risk based on our analysis. The year will mark the halfway
point of Jokowi's first term, and we expect the government will further increase efforts to streamline and
advance projects timelines - for example, in August 2016 it said it would shorten tender processes for toll
road projects from 12 to five months so construction can start sooner.
Financing will continue to remain a challenge as the government seeks to involve more private and
international investors. A recent Fitch Ratings report also said that the government has yet to generate
enough interest in public-private partnerships to be able to meet project goals that it may not be able to

directly fund. As the government reaches more accurate estimates of tax revenues, it may gradually scale
back annual goals and push a number of target-completion dates past 2019.
An additional, albeit limited, support for our positive forecast will come as the first projects emerge from
the reformed land-acquisition process, which was implemented by Jokowi in 2015, and as the Committee
for Acceleration of Priority Infrastructure Delivery (KPPIP) further streamlines the bureaucratic burden for
the highest-value projects. The amendments to the 2012 Land Acquisition Law allow private parties to fund
land-purchase costs outright, enable courts to settle land disputes, and set time limits on how long the
process. Remaining gaps in regulation will continue to deter more risk-adverse companies from entering the
Indonesian market, but we expect the law to nevertheless help existing projects stay closer to schedule than
in the past (see 'Land Reforms Slow To Improve Project Timeline', October 12). Though we believe KPPIP's
goal allowing ground-breaking for the top 30 'priority projects' to proceed by 2018 is realistic, we note that
the committee will have limited influence over the great number of smaller - but equally essential - projects.
Lagging Financing and Construction Scores

Indonesia - Project Risk Index Components
100
75
50
25
0
Project Risk Financing Operation Construction
Index
Indonesia Regional Average (APAC)
Scores out of 100. Higher score = lower risk. Source: BMI Project Risk Index

2019-2020: Gradual Reform And Acceleration
We expect real growth in the construction industry to approach 7.0% toward 2020 as institutional reforms
and rising project momentum help accelerate timelines. Elevated efforts to improve these issues will be
made as the government strives to meet several 2019 deadlines and as Jokowi's accomplishments come
under scrutiny ahead of the election. Our core view assumes a stable political outlook, as Jokowi's rising
approval rate and success in forming a majority coalition indicates that the policy focus on infrastructure
development will not change. Given Indonesia's strategic location and large population, we also expect a
number of new transport and industrial projects related to China's One Belt One Road (OBOR) initiative,
which will complement Jokowi's vision for a "maritime axis" in Indonesia. In January, the China-led Asian
Infrastructure Investment Bank (AIIB) announced it will finance three transport and power projects in
Indonesia with a combined value of USD9.6bn.
The Indonesian government has already downsized some of its 2019 development goals in light of poor
existing progress. In November, State-owned power utility PLN reduced its target for 35,000MW of new
capacity by 2019 to 19,000MW - previous plans called for adding 19,000MW of capacity in 2019 alone.
Other major projects like the China-funded Jakarta-Bandung High-Speed Rail, the Trans Sumatra Railway,
and the New Priok Port are also due for completion by 2019, all of which we highlight as having an
insignificant risk of being delayed into the next decade. While we do not expect all of these projects to
actually be finished by that time, continued progress will provide strong support for the construction
industry.
Although a lack of policy continuity in Indonesia has been a deterrent to investors, particularly in the highly
regulated sectors related to infrastructure, we do not foresee a significant shift from the current
government's policy objectives in the medium term. Recent market-friendly reforms like streamlining the
land-acquisition process, allowing private companies in the power sector and relaxing regulation on foreign
ownership will continue to encourage investment in Indonesia. Jokowi's approval rating has resurged in
2016, and the current presence of a majority coalition government will allow him to push through further
reforms that can benefit infrastructure developments (see 'Consolidation Of Political Position A Positive
For Policy Enactment', June 29). Even if the 2019 elections result in a new government, strong public
support for current policies is a reason why we do not expect the focus on infrastructure development to
significantly change.

2021-2026: Elevated Growth
■ Although former President Suliso Bambang Yudhoyono's goal for Indonesia to become a developed
country by 2025 may have been too ambitious, we believe that the country's construction industry will
maintain strong sustained growth through the tail end of our forecast given the scale and strategic
importance infrastructure projects. As current transport and utility projects come online, they will also
drive growth for general economic development in previously less-accessible regions of the country. The
long-term strength of the industry, however, will be more reliant on institutional reforms that improve the
country's business environment rather than project initiatives. In addition to further market liberalisation,
the Jokowi government will need to address endemic corruption and bureaucratic inefficiencies -
especially in the water sector, which has been an underperformer in recent years - to attract greater
participation from private investors.
Transport Infrastructure - Outlook And Overview
BMI View: Indonesia's transport infrastructure sector is on track to expand at a brisk pace over our
2018-2026 forecast period, but individual projects will continue to struggle with operational, financial and
bureaucratic challenges such as land acquisition and financing. Indonesia's disparate geography means
there is significant scope for growth across all transport segments.
Latest Updates
■ We forecast that Indonesia's transport infrastructure sector will grow by 5.7% in real terms in 2018 and at
an annual average of 6.2% between 2018 and 2026. Over this period, the roads segment will lead growth,
driven by a sizable expressway and rural road development project pipeline.
■ In October, Transport Minister Budi Karya Sumadi said that the Indonesian government aimed to finish
the first phase of the Jakarta-Semarang-Surabaya semi-fast railway by 2019, with the entire project
completed by 2021. The USD4.5bn project involves upgrading the existing rail line to support faster
speeds.
■ In September, Dubai-based DP World said that it would not renew its operating contract for the Terminal
Petikemas Surabaya (TPS) port when it expires in 2019, citing that the offered renewal terms did not
meet their "threshold for continued investment." We note that this reflects the persistent business risks
that exists in Indonesia, despite the market's numerous opportunities.
■ A steady improvement in the quality of Indonesia's transport infrastructure stock is reflected in the
country's rising rankings in the World Economic Forum's Global Competitiveness Index. In the latest
2017/18 report, Indonesia's transport infrastructure was ranked 52nd in the world, up from 60th the
previous year and 90th in 2010/11.

Table: Transport Infrastructure Industry Forecasts (2017-2026)
2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
Transport 4.9 5.7 5.7 6.0 5.9 6.5 6.6 6.6 6.6 6.5
infrastructure industry
value real growth, %
y-o-y
Roads and Bridges 6.4 6.3 6.4 6.8 6.7 7.6 7.5 7.5 7.4 7.3
Infrastructure Industry
Value Real Growth, %
y-o-y
Railways infrastructure 2.4 5.5 5.5 5.5 5.6 5.6 6.1 6.6 6.6 6.7
industry value real
growth, % y-o-Y
Airports infrastructure 3.3 3.9 3.7 4.1 4.0 4.0 3.9 3.8 3.8 3.7
industry value real
growth, % y-o-y
Ports, Harbours and 4.8 5.4 5.6 5.7 5.3 5.4 5.4 5.0 5.1 5.2
Waterways
Infrastructure Industry
Value Real Growth, %
y-o-y
e/f = BMI estimate/forecast. Source: BMI
Structural Trends
2018-2026: Upgrading Transport To Improve Logistics
Investment in transport infrastructure is essential for alleviating the logistical bottlenecks currently
impeding Indonesia's growth potential. Logistics costs took up a staggering 26% of GDP in 2016, rendering
exports uncompetitive and domestic shipping prohibitively expensive - anecdotes say that it is often faster
to import oranges from China than to transport them from one region of the country to another. To help
address Indonesia's laggard logistics situation, the 2017 State Budget has allocated IDR337trn for
infrastructure projects, with the majority of spending in the transport sectors.
Development plans encompass all subsectors and range from networks of highways and railways on the
main islands of Java, Sumatra and Sulawesi to a rural airport construction programme to a national "sea toll
road" ferry system connecting hundreds of inhabited islands. Although issues like funding shortages and
prolonged land-acquisition processes will prevent all of the planned projects from being completed on
schedule, we note that even realizing part of Indonesia's ambitious plans will represent a significant boost to
the transport infrastructure sector.

Table: Competitiveness Of Indonesia's Infrastructure
Rank/139 Rank/142 Rank/144 Rank/148 Rank/144 Rank/140 Rank/138 Rank/137 in

in 2010/11 in 2011/12 in 2012/13 in 2013/14 in 2014/15 in 2015/16 in 2016/17 2017/18
Quality of Roads 84 83 90 78 72 80 75 64
Quality of Railroad 56 52 51 44 41 43 39 30
Infrastructure
Quality of Port 96 103 104 89 77 82 75 72
Infrastructure
Quality of Air 69 80 89 68 64 66 62 51
Transport
Infrastructure
Quality of Overall 90 82 92 82 56 62 60 52
Infrastructure
Source: World Economic Forum Global Competitiveness Report
Reducing Bureaucratic Burden
Large public works projects in Indonesia have historically faced challenges from the country's lack of
institutional capacity, bureaucratic burden and limited government financing. Slow land acquisition and a
bureaucratic permit system have led to project delays and cost overruns in past projects, resulting in the
transport sector trailing wider economic growth in recent years. We believe Jokowi will continue to face
various challenges in meeting his targets on these fronts, despite attempts to improve bureaucratic processes
and seek alternative financing methods.
A potential upside is the government's amendment of a land acquisition bill in 2015, the Presidential Decree
No. 30 of 2015. The new legislation, which builds on the previous government's Law No. 2 of 2012 on
Land Procurement aims to simplify and accelerate the process by granting the power to force landowners to
sell - with fair compensation based on market value and the social impact from relocation- for public
projects, allowing private financers to pay for land, enabling projects to begin construction before having
acquired all of the land, and placing a time limit on delays. Given that the process still typically takes at
least two years, we should see whether or not the new legislation will have a significant positive impact on
infrastructure projects in 2017 (see 'Land Reforms Slow To Improve Project Timelines,' October 12, 2016).

Growth Across All Sectors

Indonesia - Transport Infrastructure Real Growth by Sector, % y-o-y
2
2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
Roads and Bridges Railways Airports
Ports, Harbours and Waterways
e/f = BMI estimate/forecast. Source: National sources, BMI
Roads: Expanding Connectivity, Reducing Congestion
Road projects will be the main growth driver in Indonesia's transport infrastructure sector over the
2018-2027 period, with sizable amounts of public and private investment going into toll expressways and
urban highways. The country's existing road networks vary greatly in terms of quality - while expressways
in industrialised regions like Java are fairly well-developed, underdeveloped roads in less-populated regions
continue to be an impediment to economic growth. To address shortcomings in the national road network
and increase the country's logistics capacity, the Indonesian government has set a goal of doubling the
country's toll road network from the current 950km to more than 1,850km by 2019, with a focus on the
islands of Java and Sumatra. Although we note that many of these projects are likely to be delayed, the
initiative has helped lift our forecast for the roads infrastructure sector, in which we expect real growth rates
to average 7% annually between 2018 and 2028.
Long-distance tolled expressways form the bulk of President Joko Widodo's roadbuilding plans - of the 102
transport projects designated National Strategic Projects by Jokowi in 2015, more than half are toll and non-

toll roads. Most projects fall under two initiatives - the Trans-Java Toll Road and the Trans-Sumatra Toll
Road - both of which are actually networks of highways linking major cities and industrial centres on the
respective islands:
■ Trans Java Toll Road: The 653km project, split into several sections, is aimed at improving transport
links between the northwestern and the eastern regions of Java. Three sections totalling 172km from
Jakarta to Semarang are expected to open by mid-2017, while the entire project is expected to be
complete by 2018 - a goal we believe is too optimistic due to existing and potential project delays.
Several sections have been stalled due to slow land acquisition, and delays have been severe enough to
affect contractors' financial positions - in 2012, the Bakrie Group was forced to stop work on five
sections of the road due to a lack of funds and sold its stake to MNC Group-owned MNC Toll Road. In
late 2015, following further delays, MNC sold its remaining stakes to state-owned construction firm
Waskita Karya.
• Trans-Sumatra Toll Road: The 2,700km IDR360trn (USD27.7bn) project will connect major cities on
the island of Sumatra between Aceh in the north and Lampung in the south. Consisting of 24 sections
across 10 provinces, the road has a target completion date of 2019. We regard this as too ambitious, as
while the land prices on Sumatra are lower than on Java, the project's sheer size, high cost and low
internal rate of return will pose challenges to financing and execution. Still, we believe the government
will provide strong support for the project due to its role as an economic backbone for the island. In
November 2015, state-owned construction company Hutama Karya signed a IDR1.24trn (USD95mn)
loan agreement with infrastructure financing firm PT Sarana Multi Infrastruktur to build the 22km
Palembang-Indralaya segment of the Trans Sumatra toll road.
While land acquisition delays have bogged down progress - and resulted in some private companies exiting
PPP arrangements - we expect roadwork to move ahead more quickly in the near future following recent
reforms of the land-acquisition process. The government's 2017 PPP Report showed 11 toll roads had been
tendered by July 2016 with a further five listed as under preparation.

Roads To Dominate
Indonesia - Transport Infrastructure Value By Sector, IDRbn
750,000
500,000
250,000
0
2016e 2017f 2018f 2019f 2020f 2021f
Roads and Bridges Railways Airports
Ports, Harbours and Waterways
e/f = BMI estimate/forecast. Source: National Sources, BMI

Over the long term, investment and construction activity within the roads infrastructure sector will be
sustained as Indonesia's vehicles fleet and road traffic levels continue to grow in line with its economic
development. Our Autos team forecasts that the number of passenger cars in Indonesia will grow by 32%
between 2017 and 2021, while the number of commercial vehicles will grow by 29% over the same period.
Within developed regions such as Java, this growth will further worsen traffic congestion, limiting the
efficiency of logistics and supply chains in Indonesia; investment in higher-capacity roads will be necessary
to unlock greater industrial development, while the tolled nature of expressways in Indonesia also means
that investors will also have greater potential for returns. Congestion in Jakarta alone is estimated to cost
USD3bn per year in lost productivity.
Road Vehicle Fleet Size Surging

Indonesia - Passenger and Commercial Vehicle Fleets
40,000,000
30,000,000
20,000,000
10,000,000
0
2016e 2017f 2018f 2019f 2020f 2021f
Passenger car fleet, units Commercial vehicle fleet, units
f=BMI forecast. Source: Badan Pusak Statistik, BMI
Railways: Sizeable Development Plans, But Hurdles Remain
While Indonesia's railway industry remains a distant second in terms of value compared to the roads
industry, the government has sizeable development plans focused on improving inland freight logistics,
intercity passenger rail and urban transit. However, policy continuity and land acquisition hurdles faced by

high-profile projects in Java highlight the risks to implementation of these plans. We forecast growth in
Indonesia's railways sector to accelerate in the coming decade on the back of vast development plans in
Sumatra and Sulawesi, although we note our outlook is tempered by challenges faced by current projects
which will continue to affect the sector without reform progress.
Rail projects will remain magnets for international investment, with both China and Japan likely to remain
heavily involved in the segment. Chinese banks and companies are financing and building a number of key
projects including the USD2bn Tanjung Enim-Bandar Lampung railway line in southern Sumatra and the
USD5bn Jakarta-Bandung High-Speed Railway, while Indonesia offered Japan a USD3bn contract to
upgrade the existing Jakarta-Surabaya Railway in October 2016. Japanese companies and organisations are
also involved in building the Jakarta MRT, the first metro system in the country.
We believe that ongoing and upcoming railway projects will benefit from an improved land acquisition
process. Some of the key projects underpinning our forecasts for growth in the rail subsector are:
■ The Trans Sulawesi Railway Project is a 1,600km mixed-traffic network on the island launched by the
Ministry of Transportation and six provincial governments in January 2013. Construction on an initial
IDR900bn 143km segment began in August 2014 with a scheduled opening year of 2018. Like other rail
projects, the rest of the network has been delayed by land acquisition issues.
■ The Trans Sumatra Railway Project is a 2,168km IDR IDR65trn (USD5bn) network planned to
connect Bandar Lampung in the south of the island and Bandar Aceh in the north with other cities, ports,
and airports by 2025. The Ministry of Transportation has said that it will prioritize the feasibility study
and land acquisition process for the initial Pekanbaru-Dumai section in Riau, which will run parallel to
sections of the Trans-Sumatra toll road. We expect development of the railroad will be aided by the
recent land acquisition legislation.
■ The Jakarta-Bandung High-Speed Railway is the 144km IDR66.3trn (USD5.1bn) first phase of a
planned high-speed railway connecting Jakarta and Surabaya, Indonesia's two largest cities. As of April
2017, construction on the project remains stalled by incomplete land acquisition and disputes between
Chinese and Indonesian partners, placing the 2019 target completion date in doubt. The four-station,
250km/h railway will cut travel time between the two cities from three hours to 40 minutes. The project is
largely financed by Chinese banks and being built by a joint venture between China Railway Group and
an Indonesian consortium comprising SOEs Wijaya Karya, Kereta Api Indonesia, Jasa Marga and
Perkebunan Nusantara VIII, which holds a 60% stake.
■ The Jakarta MRT is a 110km, IDR22trn (USD1.7bn) metro system aimed at reducing traffic in the
capital. As of October 2016, 55% of the 15.2km first phase of the North-South Line has been complete
and operations are expected to start in 2019. Construction on the first phases of the 87km East-West
Corridor started in January 2016. The project is financed by a USD743mn development loan from the
Japan International Cooperation Agency and being built by two consortia: the first consisting of
Japanese firms Shimizu and Obayashi and Indonesian firms Wijaya Karya and Jaya Konstruksi; and
the second, Japanese firm Sumitomo Mitsu and Indonesian firm Hutama Karya. The project had been
subject to numerous delays relating to permits, land acquisition and disagreements on financing between
the former and current governments, although given existing momentum we expect the current project
phases to progress to completion.

■ Jakarta and Palembang are also building light rail transit (LRT) systems in time for the 2018 Asian
Games. In Jakarta, the 42km IDR11.9trn (USD916mn) first phase of the LRT will connect
Kelapa Gading in the north with Velodrome in the east. Like the MRT, the LRT has been delayed by
disagreements between the city and developers over land acquisition, route and the type of train. In
Palembang, the Ministry of Transport appointed state-owned Waskita Karya to build a IDR7trn
(USD539mn) LRT line between Sultan Mahmud Badarudin II International Airport and Jakabaring Sport
City.
We see considerable risks to implementation for intercity and urban rail projects, stemming from a lack of
policy continuity, a lack of experience by local contractors and land acquisition challenges. For example,
the IDR100trn (USD7.4bn) Jakarta-Surabaya Railway upgrade project, for which the Indonesian
government has sought assistance from Japanese organisations in October 2016, has suffered from project
revisions. The plan to upgrade the existing railway between Indonesia's two largest cities to allow higher
train speeds was originally budgeted at IDR25trn (USD1.8bn), but the scope and cost of the project
ballooned after Jokowi reshuffled his cabinet in July 2016 and replaced the transport and finance ministers
previously overseeing the project. According to reports, Japanese negotiators have become more cautious
following the 300% budget increase. The Jakarta-Bandung project also suffers from demand risks, which
may stop future high-speed rail projects from moving forward - the existing railway between the two cities
is hardly used by commuters, who prefer faster, more convenient and cheaper bus services. Income levels in
Indonesia may not be high enough to support market fares or meet ridership expectations - current
projections say the line will only break even in 40 years.

Island Railways
Indonesia - Railway Development Plans in Java, Sumatra and Sulawesi
Source: Ministry of Transportation, BMI
Ports: Improving Maritime Transport A Priority
The Jokowi administration has placed great emphasis on improving Indonesian ports' efficiency and
competitiveness as part of his economic and political initiative of transforming the country into a "global
maritime axis." To achieve this, the government will require IDR700trn (USD55.4bn) to develop 24
commercial seaports and more than 1,000 domestic ports, and procure vessels for its marine-highway
program. Although the maritime sector is of immense strategic and economic importance to the archipelago
nation, Indonesia's ports have suffered from perennial underinvestment and are highly inefficient.
Indonesia's ports ranked 13th out of 14 Asian countries on the United Nations Conference on Trade and
Development's Port Connectivity Index, and placed 63rd out of 155 countries on the World Bank's Logistics
Performance Index in 2016. Continuing investment in ports infrastructure will be necessary as Fitch
Ratings expects stronger traffic growth among the three state-owned seaport companies.
In January, the government announced SOE port operator Pelindo II will form a joint venture with a
Japanese company to build and operate the planned 7.5mn TEU, IDR40.3trn (USD3.1bn) Patimban Seaport

in Subang, West Java. The designated National Strategic Project is expected to relieve congestion at
Jakarta's Tanjung Priok port in the region, and is being partly funded by a JPY227bn (USD2.2bn) soft loan
from Japan. The project replaced a previous proposal for a port at nearby Cilamaya after the latter was
deemed too close to existing offshore oil and gas facilities.
In August 2016, the first of five new terminals opened at Tanjung Priok port, the country's main shipping
gateway. The New Priok Container Terminal 1, part of a IDR32trn (USD2.5bn) expansion plan, will help
alleviate bottlenecks at Tanjung Priok which has been operating beyond its 5mn twenty-foot equivalent unit
(TEU) capacity since 2011. The completed first phase will consist of three container terminals and two
product terminals that will increase the port's capacity to 11.5mn TEU by 2019. A second phase will further
expand the port's capacity to 18mn TEU.
Jokowi is also pursuing a network of 'sea toll roads' - a domestic maritime corridor that aims to improve
logistics flows and reduce the costs of transporting goods between Indonesia's many islands - especially to
and from the eastern provinces of Papua, West Papua, Maluku and North Maluku. The network will be
centred on six major seaports near five cities: Belawan near Medan, Batam, Tanjung Priok in Jakarta,
Tanjung Perak in Surabaya, Makassar, and Sorong.
The Ports Of Indonesia

Indonesia - Locations Of Current And Planned Major Seaports And Airports
Source: 2015-2019 Medium Term Development Plan, BMI

Airports: High On The Agenda
Indonesia is also investing in expanding and upgrading existing airports, which are coming under greater
strain from the country's rapidly growing aviation industry. Airport operator Angkasa Pura II announced
in 2015 a IDR60trn (USD4.6bn) plan to expand and renovate five airports in western Indonesia by 2021.
One of the goals of the expansion is to improve the region's international air links and ease traffic pressure
on existing gateways like Jakarta's Soekarno-Hatta International Airport.
Indonesia currently has 232 airports, of which 55 are commercial. SOEs Angkasa Pura I and Angkasa
Pura II operate most of Indonesia's major airports, while the Ministry of Transportation manages smaller,
non-financially viable airports. The ministry plans to build 37 new airports by 2017, in line with the
previous government's National Airport Master Plan to build or relocate 45 airports by 2022.. One of the
first phase airports to be built is the USD500mn Adisutjipto International Airport in Yogyakarta, Central
Java, while a major project in the second phase is the USD1.1bn Karawang International Airport in West
Java.
We believe private companies will play an increasingly important role in the development of air
infrastructure, as the government turns to public-private partnerships (PPPs) to build regional airports.
According to Indonesia's 2015 PPP Report, two new airports are being developed under a PPP scheme,
while another 10 airports are will be expanded using the model. These include development of a new airport
in Bali and Kulunprogo and the extension of Mutiara Airport, Komodo Airport, Sentani Airport and
Matahora Airport. These projects are estimated to cost a total of USD1.9bn and are all listed as potential
projects for future development, and are factored into our long-term forecasts.
The soon-to-be-opened 42.2ha Terminal 3 Ultimate at Jakarta's Soekarno-Hatta International Airport is

symbolic of Indonesia's ambitious plans for its airports. The IDR4.7trn (USD360mn) building has an annual
capacity of 25mn passengers and authorities want the airport to serve as an international transit hub on par
with Singapore and Kuala Lumpur. Plans are already being drawn for a fourth terminal, an indication of the
government's desire to develop the aviation sector.

Table: Indonesia - Major Transport Infrastructure Projects
Project/sector Value, Size Companies Timeframe Status

USDmn end
Jakarta - Surabaya 12,000 750km Japan International - Feasibility
High Speed Cooperation Agency (JICA) studies/EIA
Rail Project (financier) under way
Trans-Sumatra Rail 6,950 2,168km Indonesia Ministry of Transport 2025 At planning
Project, Aceh - (sponsor) stage
Lampung
Jakarta - Bandung 5,130 142km China Development Bank 2019 Under
(West Java) High (financier); Government of construction
Speed Rail Project Indonesia; PT Perkebunan
Nusantara (PTPN), PT
Jasa Marga (Persero),
Kereta Api Indonesia (KAI),
Wijaya Karya (all construction,
Indonesia)
Patimban Port Project, 3,090 7,500,000TEUs Government of Indonesia 2019 At planning
Subang, West Java (sponsor) stage
Buleleng New 3,000 - Airports Kinesis Consulting - At planning
International Floating (consultant/project stage
Airport, Bali management, Canada), PT
Angkasa Pura (operator,
Indonesia)
Source: BMI's Key Projects Database

Energy And Utilities Infrastructure - Outlook And Overview
BMI View: The energy & utilities infrastructure in Indonesia will grow at robust rates over the next 10
years, supported by public and private investments in the power plants and transmission lines that will be
required to meet the country's growing energy needs.
Latest Updates
■ We forecast that Indonesia's energy & utilities infrastructure sector will grow by 4.7% in real terms in
2018 and at an annual average of 5.6% between 2018 and 2026. The power infrastructure segment will
outperform, as growing electricity demand support investment in generating and transmission facilities.
■ In September, state-owned utility firm PLN raised IDR4trn (USD300mn) from listing its first asset-
backed securities on the Indonesian Stock Exchange. This follows toll-road operator Jasa Marga's
similar listing in August, and reflects how the government's limited fiscal capacity encourage companies
to seek alternative financing methods.
■ In October, SBS Energi Kelautan (SBSEK) a completed final investment decision with SBS
International (SBS) to move forward with the first phase of the 150MW Nautilus marine energy project
in Lombok. The 12MW first phase, costing USD64mn, is expected to be completed by 2020, while the
total three-phase project is expected to cost USD750mn.
Table: Energy And Utilities Infrastructure Data (Indonesia 2016-2026)
2016e 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
Energy and utilities infrastructure 2.4 4.5 4.7 5.0 5.4 5.8 6.0 6.0 5.9 5.9 5.8
industry value real growth, % y-o-y
Power plants and transmission grids 3.5 5.4 6.0 6.4 6.7 7.2 7.6 7.5 7.4 7.4 7.3
infrastructure industry value real
growth, % y-o-y
Oil and gas pipelines infrastructure 1.4 3.1 4.5 4.4 4.9 4.8 4.8 4.7 4.7 4.6 4.6
industry value real growth, % y-o-y
Water infrastructure industry value 1.7 4.1 3.6 4.0 4.4 4.9 4.8 4.8 4.7 4.7 4.6
real growth, % y-o-y
e/f = BMI estimate/forecast. Source: BMI

Structural Trends
2017-2026: Sustained Demand Fuelling Power Infrastructure Growth
Sustained demand growth will see Indonesia's power infrastructure segment outperform relative to the
energy & utilities infrastructure sector, as state-owned generator PLN and private producers continue to
invest in new power plants and transmission lines across the archipelago nation. Thermal sources,
particularly coal, will remain the dominant form of generation over the next decade, with its attractiveness
stemming from the technology's affordability and scalability, and Indonesia's substantial coal and gas
reserves. The government's recent cutback to its goal of adding 35,000MW of capacity by 2019 does not
affect our growth forecasts, as we had already taken into account that many of the planned projects would
be delayed past the announced deadline. We forecast the power infrastructure segment will grow by 6.0% in
real terms in 2018 and average 7.1% annually between 2018 and 2026 - the fastest in the energy & utilities
infrastructure sector.
Power Segment To Outperform

Indonesia - Energy & Utilities Infrastructure Value and Growth by Sector
700,000 8
600,000
500,000
6
400,000
300,000
4
200,000
100,000
0 2
2016e
2017f
2018f
2019f
2020f
2021f
2022f
2023f
2024f
2025f
2026f
Power infrastructure industry value, IDRbn (LHS)

Oil and gas infrastructure industry value, IDRbn (LHS)
Water infrastructure industry value, IDRbn (LHS)
Power plants infrastructure industry real growth, % y-o-y (RHS)
Oil and gas infrastructure industry real growth, % y-o-y (RHS)
Water infrastructure industry real growth, % y-o-y (RHS)
e/f = BMI estimate/forecast. Source: Statistics Indonesia, BMI

We note that there are a number of fundamental factors favouring further investment in power infrastructure
over the next 10 years. Despite the government's downsizing of the third 'Fast Track Programme' from
35,000MW to 15,000MW by 2019, we believe that household and industrial consumption will continue to
exhibit strong growth over our full forecast period up to 2026. Our Power Team forecasts that per capita
electricity usage in Indonesia will grow from the current 880kWh per year to more than 1,400kWh per year
by 2026, underscoring the need for the continued development of Indonesia's power infrastructure and
underpinning our robust growth outlook for the sector.
Growth in the oil & gas infrastructure and water utilities segments will be slower but still robust as the
government expands the country's network of pipelines and the need for clean and sustainable water sources
increase over the coming decade. Water infrastructure, in particular, will be a source of opportunity for
foreign companies as Indonesia lacks domestic manufacturing capacity in terms of water supply and
treatment systems. Flood mitigation facilities will also be a source of growth as rising sea levels threaten
coastal communities - including the 10-million strong capital of Jakarta.
Private Involvement Needed
We expect to see growth in the power sector as opportunities continue to open up for private sector
involvement, with the government keen to increase the role of IPPs in supplying electricity. The share of
electricity generated by IPPs has steadily increased since 2009, when the government took away PLN's
legal monopoly in the sector. PLN's 2015-2024 Business Plan previously estimated an increasing proportion
of planned capacity will be fulfilled by IPPs: of the 19,000MW of capacity that was scheduled to be added
in 2019, more than 75% is expected to come from IPPs. It is hoped the participation of private companies in
the power sector can help accelerate project timelines and reduce the burden of the ambitious capacity goals
on the already financially strained SOE.

Growing Role of IPPs

Indonesia - Planned Additional Generation Capacity By Operator, MW
2017-2024 = BMI forecast. Source: PLN 2015-2024 Electricity Supply Business Plan, BMI
Common Challenges
Power sector projects will continue to face chronic challenges of land acquisition and bureaucracy common
to infrastructure projects in Indonesia, which continue to pose risks to and could deter private investors. For
example, these issues delayed the start of construction of the 2,000MW Batang coal power plant from 2012
to 2015, with final land issues only being resolved after a court order in 2016. While the amended Land
Acquisition Law approved by the Jokowi administration in 2015 aims to speed up the process, in part by
allowing landowners to be forced to sell for public-interest projects, the full effect of the law on projects has
not yet been seen. Environmental and construction permits for new projects will also continue to experience
delays given Indonesia's lack of institutional capacity.

Power Sector Developing

Indonesia - Generation by Type, TWh
600
400
200
0
2016e
2017f
2018f
2019f
2020f
2021f
2022f
2023f
2024f
2025f
2026f
Generation, Coal, TWh Generation, Natural Gas, TWh
Generation, Oil, TWh Generation, Nuclear, TWh
Generation, Hydropower, TWh Hydro-Electric Pumped Storage, TWh
Generation, Non-Hydropower Renewables, TWh
e/f=BMI estimate/forecast. Source: BMI
Power Plants: Thermal Remains Dominant
Coal and natural gas power plants will continue to hold dominant shares in Indonesia's power sector, with
our Power Team forecasting that generation from the two sources will nearly double between 2017 and
2026. Coal and natural gas have will continue to be favoured by the government given that the technology
established and inexpensive and that Indonesia is also home to extensive coal and gas reserves. The
government's established support for domestic coal-fired generation is reflected in its 2014 decision to
impose export limits aimed at keeping more coal for domestic use. These factors support our view that
despite the proliferation of renewable technologies, even in Asia's emerging markets, Indonesia's power
landscape will remain dependent on coal and gas resources. Indeed, our Key Projects Database illustrates
this trend - 56% of ongoing power projects, representing 69% of upcoming capacity, are thermal projects.

Coal To Remain Core Supply
Coal power accounts for more than half of Indonesia's total electricity generation, while the FTP 2 and FTP
3 have set goals for adding 7,000MW of new coal capacity by 2024. The fuel source represents the most
attractive 'quick fix' in terms of short-term capacity expansion, given the widespread availability and
underutilization of the country's coal reserves. Government support for coal power is also evident in its
decision to impose export limits in 2014 - an attempt to keep a larger share of production for domestic use.
One of the largest and most prominent coal power projects is the 2,000MW Batang power plant in Central
Java, which will be crucial to meeting the region's electricity demands but has faced years of opposition
from local and international groups over land acquisition and environmental impact (see 'Land Reforms
Slow To Improve Project Timelines', October 12). Only in 2016 did the Supreme Court rule, using the
amended Land Acquisition Law, to allow the acquisition of the remaining land required. Although the
project is back on track for now, the three-year delay increased estimated costs from USD3.4bn to USD4bn.
Partly financed by a USD3.4bn development loan from the Japan Bank for International Corporation, the
project is scheduled to come online in 2019. The power plant will be built and operated under a 25-year
purchase-power agreement by Bhimasena Power Indonesia, a consortium of utility company J-Power,
trading conglomerate Itochu and coal miner Adaro Energy.
Many of the 30 upcoming coal power projects in BMI's Key Projects Database are being developed by IPPs
and involve international partners or domestic mining and metals companies. For example, mining and
metals firm Aneka Tambang (Antam) is investing IDR1.8trn (USD132.4mn) in a 80MW coal plant in East
Halmahera, North Maluku Province. Foreign companies involved in developing the Indonesian coal power
capacity include China Shenhua Energy Company, Mitsubishi Hitachi Power Systems, Toshiba
Corporation, Hyundai Engineering & Construction, and Genting.

Emphasis On Thermal Projects

Indonesia - Power Project Pipeline by Value (LHS) and Capacity (RHS)
Source: BMI Key Projects Database
Gas A Key Growth Area
We forecast significant growth in natural gas generating capacity given that one of the primary objectives of
the FTP is to reduce Indonesia's dependence on oil by increasing the generation share of coal and natural-
gas power stations. Our team expects natural gas generation to more than double from 57TWh in 2016 to
more than 116TWh in 2026. Meanwhile, generation from oil will account for more than 28TWh by 2026,
making up less than 7% of national generation. Many new gas-fired power stations are being built with
involvement from international investors or power companies. In September 2016, PLN awarded a 500MW
expansion of the Muara Karang combined-cycle gas turbine power plant in Jakarta to a consortium
comprising Mitsubishi Hitachi Power Systems (MHPS), Mitsubishi Corporation and Wijaya Karya. In
January 2016, PLN awarded an 880MW Jawa-2 GTCC power plant in Jakarta to a consortium involving
MHPS, Mitsubishi and Wasa Mitra Engineering (WASA). Other international firms involved in various
natural gas power projects include Japan's Sojitz Corporation, South Korea's Lotte Group and Samsung
C&T, America's GE, and Finland's Wartsila.

All Lines Lead To Jakarta

Indonesia - Priority Power Projects on Sumatra and Java
Source: Committee for Acceleration of Priority Infrastructure Delivery, BMI
Hydropower To Remain Underdeveloped
Despite Indonesia's considerable hydropower reserves - nearly 76,000MW according to a 2015 report from
the Asian Development Bank - hydropower remains underdeveloped and only accounts for 9% of current
generating capacity. We do not expect this share to change over the next 10 years, but do forecast sizeable
expansion in hydropower capacity as part of larger government initiatives in the sector. Opportunities for
private investors in hydropower will arise, given the lack of experience among domestic companies for
developing such projects. PLN awarded three hydropower plants with a combined 1,310MW of capacity
and worth IDR37.7trn (USD2.91bn) to several private developers in March 2012; companies involved
include ANZAC, Sulbar Group, China Gezhouba Group, Kerinci Hydro Energy and Dharma Hydro.
Among smaller-scale projects, the Ministry of Public Works and Housing launched tenders in February
2016 for eight dams with 21MW of capacity and worth IDR8.4trn (USD646mn).
We note that the risk of delays from land acquisition issues will be greater for hydropower plants than other
projects given the larger areas required for reservoirs relative to their generating capacities. Projects in more

remote locations will also face difficulties from weak infrastructure and an underdeveloped transmission
grid. Additionally, droughts are common in Indonesia will pose a challenge to ensuring stability in
hydroelectricity capacity.
Geothermal Invites Private Participation
Indonesia has around 28,000MW of potential geothermal reserves - the third largest in the world - giving
the energy source tremendous growth potential, especially since current geothermal capacity is only
505MW. Our Power Team forecasts that Indonesia's non-hydro renewables sector will outperform -
growing more than 63% between 2017 and 2026 - primarily driven by geothermal projects. The
government's FTP includes plans to add 1,000MW of geothermal capacity by 2019 and 4,800MW of
capacity by 2024. State-owned oil and gas company Pertamina, which has developed many of the current
geothermal plants, has earmarked IDR33trn (USD2.5bn) to develop new projects, though most of the
planned capacity will also be from private producers.
Regulatory changes since 2012 have improved the investment climate through auctioning new sites,
outlining a concession tender mechanism, and allowing exploration in protected forests. Jokowi's decision
to eliminate fuel subsidies in 2014 will also make renewable sources more competitive in the long term. In
2013, the ministries of Finance and Energy and Mineral Resources began working on a set of ceiling prices
to replace the current feed-in tariff. In November 2015, the government announced auctions for 25 new
geothermal sites in the forests of Java and Sumatra, areas where development was prohibited prior to 2014.
However, some current regulation still falls short in addressing the risks for private developers. Tenders are
issued before any drilling takes place and official geological data for Indonesia as a whole is lacking,
preventing bidders from reliably assessing a site's production value. The new reverse auction system could
also negatively impact growth as developers may overbid to win projects but later leave them unfinished
due to a lack of economic feasibility. We note that overbidding has led to some project delays in markets
that employ a reverse auction scheme, including India and Chile. Finally, although development of
geothermal resources in protected forests is now permitted, companies must still obtain permission from the
Ministry of Environment and Forestry, which could introduce additional bureaucratic delays.
Small, But Steady Growth For Solar And Wind
Although solar and wind power currently form a very small part of Indonesia's electricity infrastructure, we
expect accelerating growth in the future due to their advantages for serving the country's more isolated

islands, which may not be able to support a larger power plant or undersea transmission cables. Indonesia
has good solar potential, with insolation ranging from 4.5 to 5.1kWh/m2. In July 2016, the government
introduced a feed-in tariff for photovoltaic (PV) projects that could stimulate more rapid growth in the
coming years.
Indonesia also has good winds, with up to 9,000MW in potential capacity. While investment in wind power
is more limited than in solar and geothermal, at least two wind farm projects are moving forward: the
62.5MW Jeneponto 1 Wind Park in South Sulawesi, supported by Energi Angin Indonesia, Asia Green
Capital Partners and the International Finance Corporation; and a 70MW wind farm also in South
Sulawesi, developed by UPC Renewables and Ayala Corporation's AC Energy Holdings.
No-Go For Nuclear
While Indonesia has earmarked USD8bn to develop four nuclear plants with a combined capacity of
6,000MW and a target operation date of 2025, we do not expect the plants will be built on time and have
therefore excluded them from our forecasts. Besides the high capital costs of and popular opposition
to nuclear power, Indonesia also lacks significant uranium reserves and the facilities to process fuel on a
large scale, meaning it will likely need to import fuel. Although the government has taken steps towards
developing nuclear power - conducting feasibility studies and signing agreements with Chinese and Russian
power companies - we do not believe nuclear energy will enter the power stream for at least a decade, if not
longer. The abundance and affordability of coal and natural gas, as well as the larger growth potential for
renewable energy, in Indonesia means nuclear power will not be a financially attractive option for meeting
electricity demand.
Transmission: Extensive Investment Needed
Although Indonesia has a relatively extensive domestic grid, distribution losses are high at around 9.5% of
output, while the electrification rate is less than 70% - meaning 20mn households, or 80mn people, do not
have access to electricity. Indonesia's geography also limits flexibility in power distribution - only eight
transmission grids are interconnected while 600 are isolated. Increased demand is also putting pressure on
the existing network, in particular Java's 500kV backbone. PLN owns and operates around 39,000 circuit-
km of high-voltage transmission lines and more than 530,000 km of low-voltage distribution lines, and has
embarked on an extensive expansion programme to relieve congestion, improve interconnectivity and
increase access.

One of the key projects is a 700km USD2.2bn transmission network linking grids in Java and Sumatra,
which includes a 40km undersea transmission line with a capacity of 3,000MW. The project, which is
largely funded by a loan from the Japan International Cooperation Agency, would allow power stations in
Sumatra to meet Java's growing energy demands and is being built in conjunction with four coal-fired
power plants in Banko, Sumatra with a total capacity of 2,400MW. Construction started in 2014 with a
target completion date of 2016 - though we anticipate there have been delays given the lack of information
available on its progress. Other key projects include a second 500kV transmission line in Java to increase
capacity and an international undersea link between PLN's network in Sumatra and Tenaga
Nasional Berhad's on the Malaysian peninsula, allowing electricity trade for the first time.
Oil & Gas Pipelines: Expanding To Meet Demand
Indonesia will see a significant expansion in its natural gas pipeline network as the fuel plays an
increasingly important role in the country's electricity supply and as the government pushes for natural gas
to replace oil for household and transport uses. In September 2015 the government announced it would need
at least USD32.4bn to finance the country's gas infrastructure plans, which include expanding the pipeline
network from the current 12,000km to 27,300km; building 16 liquefaction plants and 11 degasification
plants; and establishing urban networks to connect households to the gas supply by 2025. The government
is also working to establish a network of compressed-natural-gas (CNG) fillings stations and to convert
vehicles to use CNG instead of petroleum.
We expect numerous opportunities to arise for investors in Indonesia as the country expands its gas
infrastructure, as both financing and technical in the country's gas sector will require international
companies and investors to participate. In May 2016, state-owned Korea Gas Corporation signed a
memorandum of understanding with Indonesian distributor Perusahaan Daerah
Pertambangan dan Energi to build two gas pipelines in South Sumatra and Bali worth USD600mn. In
September 2016, state-owned Pertamina started construction on an urban gas network that will connect
32,000 households in the city of Prabumulih, South Sumatra.
Water: Regional Utilities Hamper Potential
We forecast the water segment will underperform in the energy and utilities sector, averaging 4.5% between
2017 and 2026. Indonesia's water infrastructure sector has historically lagged behind other utilities owing to
years of underinvestment and attempts to decentralise responsibility, despite the growing water and
sanitation needs of the rapidly urbanising country. However, rising industrial demand and increased

government support - with a goal for 100% water and sanitation connections by 2020 - has spurred a
number of projects in the country. These projects include drinking water treatment and transmission
facilities in East Java and West Nusa Tenggara and desalination projects in Jakarta.
A primary reason for Indonesia's underdeveloped water infrastructure is the role of regional water
companies known as Perusuhaan Daerah Air Minum (PDAM). Many of these companies are highly
inefficient, operate at losses and lack the capital to expand or upgrade existing facilities - of the country's
383 PDAMs, only 51% are considered financially healthy by the Ministry of Public Works. PDAMs'
decentralised nature and links to regional rather than federal governments also mean national-level
initiatives to improve water infrastructure do not necessarily translate to action on the part of PDAMs. The
continued presence of PDAMs also means any private company involved in water PPPs will likely be
working with a PDAM, potentially exposing it to the latter's inefficiencies and risks.

Table: Indonesia - Major Energy & Utilities Projects By Value, USDmn
Project Sector Value Size Unit Companies Time- Status

Name (USDmn) frame
End
Kayan River Power Plants 17,800.00 7,000 MW China Power Investment 2021 At planning
Hydropower & Corporation (CPI)[Financier] stage
Project, North transmission {China}, PT Kayan Hydro
Kalimantan grids Energy[Operator]{Indonesia},
Shanghai Electric
Group[Construction]{China}
Batang Coal- Power Plants 4,000.00 2,000 MW Bank of Tokyo- 2018 Under
fired Power & Mitsubishi[Financier]{Japan}, construction
Plant, Central transmission Mizuho Bank Ltd[Financier]
Java grids {Japan}, Sumitomo Mitsui
Banking Corporation[Financier]
{Japan}, Japan Bank for
International
Cooperation[Financier]{Japan},
PT.Bhimasena Power[Operator]
{Indonesia}, J-Power
Company[Operator](34){Japan},
Adaro Energy[Operator](34)
{Indonesia}, Itochu[Operator](32)
{United States}
Adaro's Power Plants 3,500.00 1,200 MW Adaro Energy[Operator] - At planning
South & {Indonesia} stage
Sumatra transmission
Coal-fired grids
Power Plant
Peranap Power Plants 2,400.00 1,200 MW Tenaga 2020 Feasibility
Coal-Fired & Nasional Berhad[Sponsor] studies/EIA
Power Plant, transmission {Malaysia}, Perusahaan Listrik under way
Riau province grids Negara (PT PLN)[Operator]
{Indonesia}, PT Bukit Asam
(PTBA)[Sponsor]{Indonesia}
Cirebon Coal- Power Plants 2,000.00 1,000 MW Black & Veatch[Consultant/ 2020 Contract
Fired Power & Project Management]{United Awarded
Plant transmission States}, Toshiba[Construction]
Expansion grids {Japan}, Mitsubishi Hitachi Power
Project, West Systems (MHPS)[Construction]
Java {Japan}, Hyundai Engineering &
Construction[Construction]{South
Korea}, Export-Import Bank of
Korea (Eximbank)[Financier]
{South Korea}, Nippon Export
and Investment Insurance of
Japan[Financier]{Japan}, Japan
Bank for International
Cooperation[Financier]{Japan},
Chubu Electric Power[Sponsor]
{Japan}, Korea Midland Power
(KOMIPO)[Sponsor]{South
Korea}, Samtan[Sponsor]{South
Korea}, Indika Energy[Sponsor]
{Indonesia}, Cirebon Electric
Power[Sponsor]{Indonesia}

Residential/Non-Residential Building - Outlook And Overview
BMI View: Indonesia's residential and non-residential buildings sector is poised for strong growth in 2018
and beyond. Indonesia's rapid economic development, rising urbanisation rates and surging levels of
foreign investment are all conducive for the launch and construction of residential, commercial and
industrial buildings.
Latest Updates
■ We forecast that the residential and non-residential building sectors in Indonesia will grow by 8.5% in
real terms in 2018, and at an annual average of 8.1% between 2018 and 2026. Both the residential and
non-residential segments will record robust growth, but the non-residential component will be the
outperformer, driven by investments in industrial and commercial construction.
■ In October, developer Perum Perumnas and railway operator Kerata Api Indonesia started
construction on a USD107mn four-tower, transit-oriented residential complex in Depok, a suburb of
Jakarta. With a total of 3,693 apartments, the project reflects how ongoing transport infrastructure
upgrades and urbanisation trends are driving construction in the real estate sector.
■ In September, Singaporean developer Keppel Land acquired a USD44mn parcel of land in Jakarta,
adjacent to the International Finance Centre for the development of luxury apartments. The development
reflects how, despite an ongoing low-cost housing shortage in the city, major foreign investments in
Indonesia's residential building sector remains concentrated in luxury housing.
Table: Residential and Non-Residential Building Industry Forecasts (Indonesia 2017-2026)
2017e 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
Residential and Non-residential Building 7.66 8.52 8.26 8.27 8.75 8.32 7.68 7.66 7.67 7.68
Industry Value Real Growth (%)
Residential Building Industry Value Real 6.8 7.2 7.1 7.0 6.5 6.5 6.5 6.5 6.5 6.4
Growth (%)
Non-residential Building Industry Value Real 7.9 8.9 8.6 8.6 9.3 8.8 8.0 8.0 8.0 8.0
Growth (%)
e/f = BMI estimate/forecast. Source: BMI, Statistics Indonesia

Structural Trends
2018-2026: Growth To Outperform
The residential and non-residential building sector will be a bright spot in Indonesia's construction industry,
with a forecast annual growth rate of 8.1% in real terms between 2017 and 2026. In particular, the non-
residential building segment will see robust growth supported by favourable monetary and investment
policies, and a growing domestic middle-class market for retail, entertainment and tourism services. As
prices bottom out in the residential segment, we expect a surge in investment interest from buyers seeking
to take advantage of low property prices and easing interest rates. Both the residential and non-residential
segments will benefit from Indonesia's strong demographics - a large, young population of 260mn, high
urbanization rate of 53% and rapid real GDP growth forecasted by BMI to reach an annual average of 6.9%
between 2017 and 2026.
Growth in the residential and non-residential building sector will be co-dependent on strong growth in
infrastructure, which we forecast will average 5.9% annual average real growth over our 10-year forecast
and is supported by President Joko 'Jokowi' Widodo's ongoing IDR5,500trn infrastructure development
plan. New roads, railways, power plants and water systems will be essential in unlocking residential,
commercial and industrial developments in major cities like Jakarta as well as undeveloped rural regions.
Meanwhile, demand from future residents and corporations will generate sufficient user fees necessary for
current toll-road, mass transit, power and water utilities to remain financially viable investments under
private development and public-private partnership schemes which the government is looking to utilise.

Residential & Non-Residential Surging

Indonesia - Residential & Non-Residential Building Forecasts
3,000,000 10
2,000,000 8
1,000,000 6
0 4
2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
Residential Building Industry Value, IDRbn
Non-residential Building Industry Value, IDRbn
Residential Building Industry Value Real Growth (%)
Non-residential Building Industry Value Real Growth (%)
Construction Industry Value, Real Growth, % y-o-y
f=BMI forecast. Source: Statistics Indonesia, BMI
Non-Residential: Demographics Driving Growth
Indonesia's non-residential building segment is poised for strong growth over the next five years as the
government implements policies encouraging investment in manufacturing in an attempt to shift the
country's industrial base away from resource extraction. Rising real wages in China will support this trend,
as companies seek to relocate lower-value production chains to Southeast Asia; this will be facilitated by
the development of Special Economic Zones (SEZs) in Batam, Bintan and Kairmun aimed at integrating
industrial centres with transport nodes and global supply chains. Overall construction growth in Indonesia
will also support the industrial building sector, as steel and cement companies invest in new facilities to
meet rising demand.
We expect growth in commercial building construction, especially retail and tourism, as rising disposable
incomes in major cities support the development of malls, hotels and other entertainment facilities. BMI's
Consumer Team forecasts that household spending will grow by an annual average 10% through 2021,
while BMI's Tourism Team notes that Indonesia's domestic tourism market has huge growth potential.

Indonesia has also become a focal point for developers and investors from China, Hong Kong, Japan and
Singapore, with a strong pipeline of foreign-financed malls and entertainment projects.
The office sector will be a weak spot in the non-residential building segment, as there is a risk of oversupply
in the near term. Colliers International forecasts total office space in Jakarta to increase around 30% by
2019 even as occupancy rates fell to 79.4% in Q416 - the lowest since 2005. Average asking rents in the
city have also continued to decline, especially among lower-grade buildings, as only half of the new office
space added in 2015 was absorbed by the market. Although there is a substantial amount of new office
space currently under construction, these unfavourable price dynamics means that future projects are less
likely to be launched as developers remain sceptical of the market's ability to absorb even more space.
Foreign Investment Rising

Indonesia - Foreign Direct Investment in Real Estate, Industrial Estates and Business Activities, USDmn
3,000
2,500
2,000
1,500
1,000
500
0
2010 2011 2012 2013 2014 2015 2016
Source: Indonesia Investment Coordinating Board
Residential: Strong Demand Despite Low Prices
Despite falling real estate prices in major cities such as Jakarta, Bandung and Surabaya, Indonesia's
residential building segment continues to have strong fundamental demand dynamics given the country's
young population and rising urbanization rates. While the current supply of housing stock sits at around

200,000 per year, there is demand for as much as 800,000 new units per year, according to the Indonesian
Real Estate Developers Association. Just over half of all Indonesians lived in cities as of 2015, while there
is a shortage of as much as 13.6mn units. Much of the excess demand is concentrated in the Greater Jakarta
region where, despite declining property prices, there remains a lack of affordable housing available to
lower-income households.
In major cities, buyers and developers are taking advantage of low prices and favourable lending policies to
expand investment, which will provide a boost to growth in the residential building segment. Foreign direct
investment in construction and real estate has surged in the past two years, reflecting market sentiment that
prices have bottomed out. In August 2016, the Bank of Indonesia (BI) started allowing mortgage down
payments as low as 15% of the property value for first-time buyers, down from the previous 30%. Over the
past year, BI also lowered its benchmark interest rate from 7.5% to 4.75%, and our Country Risk team
expects the rate to be maintained at around 5% over the long term. These measures, combined with
gradually loosening restrictions on foreign ownership of property, will help drive residential buyer demand
and spur construction activity on future projects.
The Ministry of Public Works and Public Housing has plans to reduce Indonesia's housing backlog from the
current 13.6mn units to 6.8mn units by 2019, in line with Jokowi's promise to build 10mn homes for low-
income individuals by 2019. The first of these new homes were part of the 'One Million Houses Programme'
launched in several cities across Indonesia in 2015 and estimated to cost IDR80.7trn (USD6.2bn). An
additional USD163mn has been assigned to renovate 250,000 dilapidated houses across the country. We
expect that the sheer size of Indonesia's public housing plans will provide opportunities to developers, even
if higher profits may be found in private housing.

Table: Indonesia - Major Construction and Social Infrastructure Projects by Value, USDmn
Project Name Sector Value Size Unit Companies Time- Status

(USDmn) frame
End
Bontang Oil Industrial 14,500.00 350000 b/d Pertamina[Sponsor] 2021 At
Refinery Project, Construction {Indonesia}, Government of planning
East Kalimantan Indonesia[Sponsor] stage
{Indonesia}
Train III Project, Industrial 8,000.00 - - BP[Sponsor]{United 2020 At
Tangguh LNG Construction Kingdom} planning
Facility, Special stage
Region of West
Papua
Cilegon Integrated Industrial 6,000.00 6000 '000 POSCO[Construction] - Under
Steel Mills, Banten Construction tonnes {South Korea}, PT Krakatau construct
Steel[Operator]{Indonesia} ion
PIHC Industrial 5,200.00 2000 '000 PT Pupuk Indonesia - At
Petrochemical Construction tonnes Holding Company (PIHC) planning
Plant, Papua, [Operator]{Indonesia} stage
Special Region of
West Papua
Cilacap Refinery Industrial 5,000.00 - - Amec Foster 2022 At
Upgrade, Central Construction Wheeler[Design/Architect] planning
Java {United Kingdom}, stage
Pertamina[Operator]
{Indonesia}, Saudi
Aramco[Operator]{Saudi
Arabia}

Infrastructure Risk/Reward Index

Indonesia - Infrastructure Risk/Reward Index
BMI View: Indonesia is Asia's fifth-largest construction industry and characterized as a 'high risk, high
reward' market on our Risk/Reward Index. Its strong economic expansion and sizable infrastructure deficit
supports growing infrastructure investment, but individual projects face numerous implementation
challenges that can drive up costs and delay construction schedules.
Risk/Reward Snapshot
Indonesia and Asia-Pacific Infrastructure Risk/Reward Index
Industry
Country Risks
Rewards
50
Country
Industry Risks
Rewards
Indonesia Regional Average
Scores out of 100, higher score = more attractive market. Source: BMI Infrastructure Risk/Reward Index.
Global And Regional Ranks:
■ Regional rank (out of 21): 11th
■ Global rank (out of 105): 31st
Key Features And Latest Updates
■ Indonesia rose to being ranked 11th out of the 21 regional markets in our latest Asia-Pacific
Infrastructure Risk/Reward Index, and 31st out of 105 markets globally. The improvement reflects the

country's steadily strengthening projects pipeline. We forecast that Indonesia's construction industry will
grow by 6.8% in real terms in 2018, among the fastest in the region.
■ Indonesia's construction industry has immense growth potential, underpinned by a large and urbanizing
population, fast economic growth and government policies focused on infrastructure development. The
President Joko Widodo's government is looking to launch more than IDR5,500trn (USD423bn) worth of
infrastructure projects through 2025.
■ The government is facing fiscal constraints in funding all of its planned projects - roughly 60% of the
IDR5,500trn worth of projects will need to rely on private financing. Although Indonesia has made
strides in establishing and refining a public-private partnership (PPP) programme, investor interest is
lagging as evidenced by the tax amnesty initiative's recent shortfall in getting Indonesians to repatriate
foreign assets.
■ The operating environment in Indonesia remains challenging, with projects frequently facing construction
delays owing to prolonged land-acquisition and permit-approval processes. Foreign investors and
contractors will also have to compete with dominant - and politically connected - state-owned enterprises
across construction and infrastructure sectors.
RRI Matrix Breakdown

Indonesia and Asia-Pacific Infrastructure Risk/Reward Index by Component
100
80
60
40
20
0
Cons. Ind. Value
Cons. Ind. Real Growth
Project Pipeline
GDP Per Capita
Population
Urban Population
Population Growth
GDP Per Capita Growth
Competitive Landscape
Cons. Timeliness
Cons. Contracts
Legal Environ.
Labour Market
LT Economic Risk
ST Economic Risk
LT Political Risk
ST Political Risk
Operational Risk
Indonesia Regional Average
Scores out of 100, higher score = more attractive market. Source: BMI Infrastructure Risk/Reward Index

Asia Infrastructure RRI: Frontier Markets Offer High Rewards And High Risks
BMI View: Infrastructure RRI scores across Asia were largely unchanged this quarter as there were few
major shifts in investment trends or government policies. Emerging and frontier markets in South and South
East Asia continue to offer the highest rewards alongside notable risks.
A Diverse Range of Risks

Asia Pacific - Infrastructure Reward/Index Heat Map
Scores out of 100, Higher Score = More Attractive Market. Source: BMI Infrastructure Risk Reward Index.

Main Regional Features and Latest Updates
■ Our Infrastructure Risk/Reward scores for the majority of the 21 markets in our Asia coverage were
unchanged this quarter, with the notable exceptions of China, whose score fell by two points, Indonesia,
whose score rose by three points, and Sri Lanka, whose score fell by two points.
■ The developed, urbanised markets of Singapore, Malaysia, Hong Kong and Australia continue to hold
the top four positions in our Asian Infrastructure Risk/Rewards Index (RRI). Growth opportunities in
these markets are more favourable than in other developed markets, while they have fewer operating risks
than their emerging-market counterparts.
■ Emerging markets in South Asia and the Mekong region, including Vietnam, India, Pakistan and
Bangladesh have among the highest Rewards scores, owing to the positive growth outlook in their
construction industries, supportive government policies and stable economic expansion.
■ China, which accounts for more than half of Asia's construction industry value, receives above-average -
but not stellar - scores this quarter. Growth in China's construction industry is gradually decelerating
while the country's restrictive business environment drags down its overall score.
Risk/Reward Tradeoffs
Asia Pacific Infrastructure - Risk/Reward Index

South Asian, Mekong Markets To Be Top Performers
The emerging and frontier construction markets of South Asia and the Mekong region will continue to be
among the top performers in the region, largely thanks to their strong industry growth outlook and sizable
infrastructure investment plans. In addition to these markets growing from a low base, they are also focal
points in China's 'Belt & Road' initiative, which will bring investment in ports and other transport projects.
Bangladesh, Pakistan, India and Vietnam all sit squarely in the 'high-risk, high-reward' quadrants of our
RRI, indicating that investors will need to be adequately prepared for risks in these markets, which range
from political turmoil to poor contract enforceability. Bangladesh and Pakistan in particular are among the
least-developed countries in the region, and face pertinent security and terrorism risks which could threaten
high-value infrastructure projects.
Emerging Markets Offer Greatest Rewards

Asia - Infrastructure Industry Rewards Scores
100
75
50
25
0
Vietnam
India
Pakistan
Indonesia
Malaysia
Philippines
Bangladesh
China
Cambodia
Laos
Thailand
Regional Average
Mongolia
Myanmar
Singapore
Sri Lanka
Hong Kong
Australia
South Korea
New Zealand
Taiwan
Japan
Scores out of 100. Higher score = lower risk. Source: BMI Infrastructure Risk/Reward Index

Expansionary Infrastructure Investment Supporting Philippines' Rewards
Continued support for infrastructure development in the Philippines, coming from both President Rodrigo
Duterte and foreign investors, has helped bolster the market's position as one of the top performers in South
East Asia. The Philippines, like many other emerging markets in the region, scores highly on the Rewards
components but lags in the Risks components. The Duterte government has pledged to improve the speed of
project implementation by streamlining bureaucracy and courting investment from China, which has helped
improve components of the country's Industry Risks scores in recent quarters. Of particular note this quarter
is the country's 'Project Pipelines' score, which rose to the back of the government's largest-ever
infrastructure budget (see 'Largest-Ever Infrastructure Budget Supports Positive Outlook', September 18).
High Rewards, Significant Risks

Philippines - Industry Rewards and Risks Component Scores
100
Rewards Risks
75
50
25
0
Industry Value
Industry Growth
Project Pipeline
Cons. Timeliness
Cons. Contracts
Legal Environ.
Labour Market
Philippines Regional Average
Scores out of 100. Higher score = lower risk. Source: BMI Infrastructure Risk/Reward Index
China Has Sizable Rewards, But Formidable Challenges
China dominates Asia's regional infrastructure industry with a domestic market worth more than
USD700bn and extensive investments in projects across South and South East Asia. Despite the country's

above-average Rewards score this quarter, we highlight that China's restrictive business environment acts as
a significant drag on its overall RRI score. China scores extremely poorly for the Competitive Index
component, reflecting that the vast majority of infrastructure contracts are awarded to domestic or state-
owned firms. Similarly, China receives mediocre scores in the Legal Environment and Long-Term Political
Risk categories, which are products of persistent corruption and questionable contract enforceability.
Giant Market, But Mediocre Risk/Reward Balance

China and Asia-Pacific Infrastructure RRI by Component
100
75
50
25
0
Industry Value
Industry Growth
Project Pipeline
GDP Per Capita
Population
Urban Population
Population Growth
GDP Per Capita Growth
Comp. Landscape
Cons. Timeliness
Cons. Contracts
Legal Environ.
Labour Market
LT Economic Risk
ST Economic Risk
LT Political Risk
ST Political Risk
China Regional Average Op. Risk
Scores out of 100. Higher score = more attractive market. Source: BMI Infrastructure Risk/Reward Index
Financial, Political Risks Weigh On Sri Lanka's Score
Sri Lanka, despite being one of the largest recipients of Chinese infrastructure investment and having
significant growth potential, receives below-average scores across all components of the RRI this quarter.
Situated next to India and along key shipping routes in the Indian Ocean, Sri Lanka has geographic
advantages in becoming a regional transport and logistics hub, but projects - many of which have been
financed by China - have fallen short of expectations. The multibillion-dollar Hambantota Port and
accompanying Mattala Rajapaksa Airport have both failed to meet traffic projections, leaving the Sri
Lankan government with mounting debts. Efforts to renegotiate debts to China resulted in political and

public backlash against a plan for state-owned China Merchants Group to take a majority stake in the
Hambantota Port, reflecting the heightened political and operational risks facing projects in Sri Lanka.
Asia Pacific Infrastructure Risk/Reward Index

Rewards and Risks Scores

Asia Pacific Infrastructure Rewards

Industry and Country Rewards Scores

Asia Pacific Infrastructure Risks

Industry and Country Risks Scores

Market Overview
BMI View: Indonesia's infrastructure is dominated by SOEs and conglomerates, but there are growing
opportunities for smaller private and foreign firms to participate in the country's infrastructure
development plans as there is a shortage of capital and technical expertise for many power, water and
transport projects.
The competitive landscape of the Indonesian infrastructure industry is dominated by state-owned companies
and large domestic conglomerates, but smaller private firms and international companies are taking a
growing share as the government deregulates the sector and seeks to leverage private capital to fund
developments. Indonesian President Joko Widodo has called for greater private investment and participation
in the infrastructure sector, recognising that government budgets will be unable to cover the IDR5,500trn
(USD423bn) worth of projects planned as part of the country's 2015-2019 medium-term development plan.
We therefore expect greater numbers of private and foreign firms to enter the industry, although SOEs will
continue to play a large role in major and high-profile projects.
State-Owned Enterprises Continue To Dominate
The Indonesian government, recognising the need for private sector participation in funding, building, and
operating its ambitious IDR5,500trn (USD423bn) infrastructure plan, has taken steps in the past few years
to improve the business and investment climate in the country. In February 2016, the government opened an
additional 35 industries, including passenger land transport and toll roads, to foreign investment.
Our Key Projects Database reveals SOEs continue to dominate current projects, especially in operations, but
private and international firms are gaining traction in the construction and sponsorship/financing stages.

State-Owned Enterprises Dominant

Indonesia - Market Share Of Ongoing Projects, By Company Role
Ongoing = Contract Awarded or Under Construction. Source: BMI Key Projects Database
Private participation is limited in the operation phase, largely because the government has only deregulated
several sectors, leaving incumbent SOEs and domestic conglomerates as the bidders with the most
experience. State electricity operator PLN lost its legal monopoly in 2009, but it still generated 70% of the
country's capacity in 2015. Private toll-road operators were permitted starting in 2004, but SOE Jasa Marga
continues to control 63% of Indonesia's toll road network. Existing private participants are often
subsidiaries of Indonesian industrial conglomerates like the Astra Group, Bakrie Group, Ciputra Group,
and MNC, many of whom have long ties to the country's political, military or religious elites.
Operationally, SOEs and domestic conglomerates also possess a huge advantage in terms of government
connections over newcomers and international industries. Construction SOEs like Wijaya Karya, Waskita
Karya, and Pembangunan Perumahan continues to have the lion's share of projects, despite an
increasingly competitive tendering process. Excluding Indonesian government agencies, 9 of the top 10
companies involved in ongoing projects in Indonesia are SOEs with the 10th being the World Bank:

Table: Indonesia - Companies With The Most Ongoing Infrastructure Projects
Company Role Nationality SOE? Number of ongoing projects

Wijaya Karya Construction Indonesia Y 21
Pembangunan
Perumahan Construction Indonesia Y 18
Hutama Karya Construction Indonesia Y 14
Jasa Marga Operator Indonesia Y 14
Perusahaan Listrik
Negara (PLN) Operator Indonesia Y 13
Waskita Karya Construction Indonesia Y 12
Bank Mandiri Financier Indonesia Y 8
Angkasa Pura Operator Indonesia Y 7
Adhi Karya Construction Indonesia Y 6
World Bank Financier United States N 6
China and Japan Tiptoe Into Transport
Although Indonesian firms overwhelmingly dominate projects in the overall transport sector, Chinese and
Japanese companies are players in the railway sector given their technical expertise. China Railway
International holds 40% of the joint-venture consortium building the 144km Jakarta-Bandung High-Speed
Railway, while the China Development Bank is financing most of the IDR66.3trn (USD5.1bn) cost.
Meanwhile, Japan's Shimazu Corporation, Obayashi Corporation, Mitsubishi Heavy Industries, and
Sumitomo are constructing rail projects in Jakarta and West Java financed by the Japan International
Cooperation Agency. Mitsui is also involved plans to expand Jakarta's Tanjung Priok port.

China, Japan Participate In Transport

Indonesia - Market Share Of Ongoing Transport Projects, By Company Nationality
Ongoing = Contract Awarded Or Under Construction. Source: BMI Key Projects Database
Indonesia's transport sector is slowly being deregulated, and the government's Medium-Term Development
Plan for building 1,000km of toll roads, 2,358km of railways, 15 airports, and 24 seaports by 2019 will
leave room for greater involvement from international and private firms. In February 2016, the government
loosened restrictions on foreign ownership of the passenger land transport, construction consultancy and
toll-road operation sectors, which should be a boon for international companies.
Energy Increasingly Competitive
The energy and utilities sector currently has the highest share of international companies, the result of
Indonesian firms' lack of technical expertise in the power sector, and we expect the market share of private
and foreign firms to grow further. Many power projects in our Key Projects Database - especially
geothermal, hydropower, and larger coal and gas plans - involve firms from China, Japan, South Korea or
the United States. The largest ongoing power project, the 2,000MW USD4bn Batang Coal Power Plant, is
financed by Japanese banks, and will be operated by a consortium including J-Power and Itochu. China's
Sinohydro and Harbin Power Engineering are involved in a number of coal power plants.

Diversifying Energy Sector

Indonesia - Market Share Of Ongoing Energy And Utilities Projects, By Company Nationality
Although state operator PLN continues to dominate Indonesia's electrical capacity, we expect the energy
sector to become even more competitive in the next few years, driven by the government's plan to add
19,000MW of capacity by 2019. Independent power producers (IPPs) are expected to supply a greater share
of the planned capacity, which should generate interest among Indonesian and international power
operators. Additionally, a government initiative for increasing the share of geothermal and hydroelectric
energy will draw interest and involvement from firms with technical expertise in the sector - most of the
planned 4,800MW of geothermal capacity is expected to come from IPPs.

Growing Role of IPPs

Indonesia - Planned Additional Power Capacity By Source, MW
Source: PLN
Building Demand High
Although construction within the residential/non-residential building sector is almost exclusively the
domain of Indonesian firms, international firms are participants in the design, consulting and management
stages. These opportunities will continue to grow as Indonesia's strong economic performance and
urbanising population drive demand for residential, commercial and industrial buildings.
Government-led building initiatives, like Jokowi's plan to build 10mn units of low-income housing by 2019,
will likely be picked up by SOEs like Pembangunan Perumahan, but private residential and commercial
developments will increasingly seek international architects, consultants and managers. Existing
participants include Singapore's Ong & Ong and the US' Skidmore Owings & Merrill who are designing
a number of residential and commercial buildings in Jakarta.

Regulatory Environment Slowly Improving
The government has been taking steps to improve the regulatory and business environment for
infrastructure companies, which should invite greater competition moving forward. One of the most
significant changes is a 2015 amendment to the 2012 Land Acquisition Law that attempted to streamline the
process, allowed private companies to pay land costs upfront, and gave courts the right to rule on disputes.
As the first projects complete the new process in 2017, we will begin to see the extent of the reformed law's
positive effect.
The government has also been gradually loosening restrictions on foreign ownership in certain industries -
the negative investment list, or DNI - with the most recent update in May 2016. The updates relevant to the
infrastructure industry included increasing foreign ownership caps to 100% for toll-road operators and 67%
for construction services and small-scale geothermal power plants.
Table: Major Company Financial Data
Latest FY Market Revenue Operating Profit Total Debt/ Interest PE Ratio

Earnings Cap (USD) Growth Growth EBITDA Coverage
(% y-o-y) (% y-o-y) Ratio
Semen Indonesia 12/2016 3,886.783 -3.01951 -11.779 0.899357 8.690251 11.44945
Persero TBK*
Indocement 12/2016 4,478.855 -13.6878 -27.7075 0.023029 309.6444 15.40855
Tunggal Prakarsa
Holcim Indonesia 12/2016 517.9579 2.374505 -14.996 5.871143 0.455836 na
TBK PT
Surya Semesta 12/2016 263.2678 -21.9998 -33.6906 4.367795 2.22087 55.68125
Internusa PT
Wijaya Karya 12/2016 1,589.867 15.04197 38.73226 3.401757 3.905611 16.09915
Persero TBK PT*
Jaya Konstruksi 12/2016 734.8939 -0.10654 8.917989 0.856792 8.978111 30.16012
Manggala
Pembangunan 12/2016 1,513.306 15.766 23.2277 2.871001 4.621915 20.90823
Perumahan
Persero*
Total Bangun 12/2016 206.1622 4.979694 78.36975 0.155491 31.1348 12.30789
Persada
Adhi Karya 12/2016 596.3721 17.83226 13.6668 5.618797 2.095554 25.33554
Persero TBK PT*
Truba Alam 12/2016 na -96.4516 -72.4201 na -1.70746 na
Manunggal ENG
Nusa Konstruksi 12/2015 50.35531 -23.8271 -71.8396 3.120339 0.88945 na
Enjiniring

Major Company Financial Data - Continued
Latest FY Market Revenue Operating Profit Total Debt/ Interest PE Ratio

Earnings Cap (USD) Growth Growth EBITDA Coverage
(% y-o-y) (% y-o-y) Ratio
Jasa Marga 12/2016 2,436.552 69.18149 20.8213 5.13279 2.07362 16.17623
(Persero) TBK PT*
Citra Marga 12/2016 351.7961 51.61809 40.46534 1.633967 6.638835 10.33695
Nusaphala PER
PT
Nusantara 12/2016 148.7523 59.62768 40.19538 5.193942 1.974738 13.35484
Infrastructure TBK
Wijaya Karya 12/2016 494.1928 31.25622 71.22568 1.231851 7.225278 24.15773
Beton TBK PT*
Waskita Karya 12/2016 2,426.243 68.08265 126.5619 6.449738 3.235084 11.22269
(Persero) TBK PT*
* = Indonesian government has controlling stake. na = not available. Source: Bloomberg

Company Profile
Adhi Karya
SWOT Analysis
Strengths ■
Achieving greater diversity in its earnings via expansions into the EPC, property, realty
and skyscraper markets.
■
Established local player.
■
The Indonesian government owns a majority share in the company, so it should be
adept at navigating Indonesian bureaucracy.
Weaknesses ■
Despite significant experience in road construction, the company has less experience
in operations and will face strong competition from the leading toll road operator Jasa
Marga.
■
Heavy reliance on Indonesian government contracts.
■
No geographical diversification.
Opportunities ■
Has a large domestic market with plenty of opportunities to expand further.
■
The government's 27GW Electricity Fast Track Programme opens up opportunities for
Adhi to grow its EPC business.
■
The new government's push to develop infrastructure, coupled with greater fiscal
flexibility post fuel subsidy cuts will help fuel ADHI's project pipeline.
Threats ■
Fallout in housing prices in Indonesia.
■
High inflation on construction inputs such as cement could hurt bottom line.
Company Overview Adhi Karya (IDX: ADHI) is a major Indonesian construction company that is 51% owned
by the Indonesian government. The company undertakes a wide range of general civil
engineering projects, including bridges, roads, ports and power plants; residential,
commercial and industrial buildings; and mechanical and electrical works for integrated
building systems. The company has three subsidiaries: Adhi Persada Properti, a

residential and commercial property developer and operator; Adhi Persada Beton, a
concrete manufacturer and trader; and Adhi Persada Gedung, a building construction
contractor.
Strategy Owing to a surge in government-backed infrastructure spending, Adhi Karya has

experienced strong revenue growth over the past several years and is poised for further
growth in the upcoming years. About 72% of Adhi's new contracts in 2016 were
awarded by state and regional governments or other state-owned enterprises. As
Indonesia's government continues pursuing its ambitious infrastructure development
plans, Adhi says it expects the order book of its construction companies to grow by
nearly 22% in 2017. However, we note the company will likely face headwinds from
realizing its growth goals as the government struggles with implementing projects on-
schedule - the company's revenues rose by 17.8% in 2016 to a record high of
IDR11.1trn (USD834.3mn), but well short of its stated goal of IDR14.2trn for that year.
This means despite a strong order backlog from government and SOE projects, Adhi is
likely fall behind in realising its revenue and earnings growth, as construction activity
from delayed projects may be realized in later years than originally planned. As the
government continues to struggle with operational and bureaucratic challenges to
implementing its infrastructure development plans, associated delays will be felt among
the contractors executing those projects. Nevertheless, we have a moderately
optimistic view that the government will gradually resolve issues that have previously
delayed projects and expect the frequency and severity of delays in private and public
projects to improve in the coming years.
Meanwhile, the company continues to diversify into the property development and
management sectors in a bid to ensure a stable source of revenue. In 2015, ADHI
merged Adhi Persada Realti, its former house realtor, into its property development
subsidiary Adhi Persada Properti, and is developing a number of hotels, commercial
buildings, and residential projects targeting the middle-income housing market in
Jakarta. Although the construction segment remains the largest source of ADHI's
revenues, contributing 85% in 2015, the property business is more profitable - ADHI's
real estate/property net margin in 2015 was nearly 17%, compared to 5% for the
construction segment. However, property income fell in that year due to a wider
slowdown in the Indonesian property market.
Recent Major ongoing projects that will help drive revenues for ADHI in the coming quarters
Developments include:
■ Jakarta LRT System: The 42km IDR11.9trn (USD916mn) first phase will connect
Kelapa Gading in the north of the city with Velodrome in the east. Currently under
construction, the project is scheduled to open in time for the 2018 Asian Games.
■ Jakarta Elevated Toll Road: The 70km IDR41trn (USD3.2bn) network of elevated
roads is aimed at relieving severe traffic in the Indonesian capital. ADHI is a

contractor for all six sections, which are currently under construction and scheduled
for completion by 2018.
■ Kertajati International Airport: The new IDR25.4trn (USD1.9bn) airport near
Bandung will provide additional passenger capacity in West Java. Currently under
construction, the project is scheduled for completion by 2017.
■ Trans Java Toll Road: ADHI is a contractor for several segments of the toll road,
including an 87km section from Ngawi to Kertasono in East Java targeted for
completion by 2017.
Financial Data FY2016
■ Market capitalisation: IDR8.4trn

■ Revenue (FY2016): IDR11.1trn
■ Earnings per share (FY2016): IDR88.0
FY2015


Jasa Marga
SWOT Analysis
Strengths ■
Indonesia's first and largest toll road company.
■
Weaknesses ■
Little geographical diversification - 62% of road concessions are in the Greater
Jakarta/West Java regions as of end-2015.
■
■
Rising debt-to-profitability ratio fuelled by rapid investments in toll roads.
Opportunities ■
Immature road networks outside Java.
■
Government focus on infrastructure development will boost expansion projects and
upgrades to existing roads.
■
Has expressed interest in pioneering rupiah-denominated bonds issued outside
Indonesia, potentially opening up opportunities to more foreign investors.
Threats ■
Toll roads in less-developed regions and islands may see low traffic volumes and
require coordination with different regional governments.
■
Slowing Indonesian property market will threaten attempts to develop real estate
alongside toll roads.
Company Overview Jasa Marga (IDX: JSMR) operates about 63% of Indonesia's toll roads and is 70%
owned by the government. In addition to collecting toll revenue, the company draws
income from advertising and the development of property adjacent to its toll roads.
Jasa Marga is heavily involved in the financing and construction of the country's rapidly
expanding network of toll roads, including sections of the Trans Java and Trans
Sumatra networks currently under construction.
Although Jasa Marga lost its legal monopoly on toll-road operations in 2004, it remains
the dominant player in the industry with more than 590km of toll roads in its portfolio as

of 2016, a figure expected to reach 987km by 2018. The company has 26 concessions,
19 of which are currently operational.
Strategy As the oldest and largest toll road operator in Indonesia, Jasa Marga has extensive
experience in the sector and is well positioned to benefit from the government's plan to
expand the toll-road network by another 1,000km by 2019. Since 2014, the company
has secured a number of new toll road concessions, and projects the length of its
network to reach 987km by 2018. Jasa Marga's fast expansion is reflected in its surging
revenues - in 2016, annual revenue hit 16.7trn, a nearly 70% increase in y-o-y terms.
Around 38% of Jasa Marga's toll road concessions are located outside the Greater
Jakarta area, where we believe there is growth potential given the current lack of
express road infrastructure. Toll roads in less-developed regions, however, will be at
greater risk falling short of traffic projections until the surrounding areas possess the
requisite level of development that would incentivize their use. In more developed areas,
Jasa Marga is attempting to improve traffic congestion by introducing electronic toll
gates, widening lanes and restricting truck traffic during peak hours.
Jasa Marga's role in expanding Indonesia's toll-road network also means the company
has become increasingly leveraged, with a debt-to-equity ratio approaching 2 in 2015.
The company's long-term debt is now IDR18.5trn (USD1.4bn), more than 10 times its
2016 profit. At the same time, Jasa Marga has been exploring other avenues to finance
further expansion - in May, President-Director of Bank Mandiri Kartika Wirjoatmodjo
said that he was exploring the option of issuing rupiah-denominated foreign debt for
Jasa Marga.
Jasa Marga is also expanding outside of toll-road construction and operations. In

addition to developing and leasing property and advertising space adjacent to toll
roads, the company is a contractor for the upcoming Jakarta LRT - which is being built
over Jasa Marga-owned roads - and the Jakarta-Bandung High-Speed Railway. While
the recently formed Jasamarga Properti venture could be lucrative, there are significant
risks associated with the project such as access to financing, an under-developed
mortgage market and chronically high levels of inflation win Indonesia that threaten the
success of Jasa Marga as a property developer.
Recent In December 2016, Jasa Marga announced plans to raise IDR7trn (USD521mn) from
Developments bond issuances and stock sales to fund expansion.
In March 2016, Jasa Marga opened the 18.5km Krian-Mojokerto segment of the
Surabaya-Mojokerto Toll Road, one of the sections of the Trans-Java Toll Road project.
In January 2016 Jasa Marga reportedly submitted plans for the construction of two new
elevated toll roads (the Jakarta Cikampek Elevated and Jakarta Cikampek 2 South) in
order to increase the capacity of the overcrowded Jakarta-Cikampek toll road.
As of late 2015 the group was developing 1,000km of new toll roads, with projects
under construction including the Krian-Mojokerto Section (18.47 km) of Surabaya-

Mojokerto Toll Road, Gempol-Rembang (13.9 km) Section of Gempol-Pasuruan Toll

Road, Perbarakan-Lubuk Pakam Section (4.85 km) of Medan-Kualanamu-Tebing Tinggi
Toll Road, Bawen-Salatiga Section (17.5 km) of Semarang-Solo Toll Road and Solo-
Ngawi-Kertosono Toll Road (177.1 km).
Financial Data ■ FY2016

■ Revenues: IDR16.7trn (+69.2% y-o-y)
■ Net profit:: IDR1.9trn (+28.9% y-o-y)
■ Earnings per share: IDR277
FY2015
■ Revenues:IDR9.8trn (+7.3% y-o-y)

■ Net Profit: IDR1.5trn (+3.1% y-o-y)
■ Earnings per share: IDR216

Wijaya Karya
SWOT Analysis
Strengths ■
Established local player.
■
■
Highly diversified across the downstream and upstream segments of the construction
market - owns Wika Benton, the largest precast concrete producer in Indonesia.
Weaknesses ■
■
Geographical diversification at a nascent stage.
■
Structure as a state-owned enterprise may not be competitive with international
private companies.
Opportunities ■
Has a large domestic market with plenty of opportunities to expand further.
■
The government's 35,000MW electricity Fast Track Programme opens up
opportunities for WIKA to grow its EPC and IPP business.
■
Large deficits in infrastructure and concrete among regional peers create significant
opportunities for growth.
Threats ■
High inflation on construction inputs such as concrete could hurt bottom line.
■
Political turmoil remains a latent risk given Indonesia's fragmented political
landscape.
Company Overview Wijaya Karya (IDX: WIKA) is major construction company that is 65% owned by the
Indonesian government. The company's activities cover a wide range of sectors,
including water and energy, transport infrastructure, steel manufacturing, mechanical
and electrical installations, heavy equipment and general engineering, and procurement
and construction (EPC). Wijaya Karya is involved in many infrastructure projects
including sections of the Trans Java Toll Road, the Jakarta MRT, and the Jakarta-

Bandung High-Speed Railway. Wijaya Karya has six subsidiaries, with each respectively
focusing on power plants, pre-cast concrete, real estate, industrial manufacturing and
engineering, private buildings, and asphalt mining and trading.
Strategy While Wijaya Karya's current operations are less reliant on government contracts than
fellow construction state-owned enterprise Adhi Karya - only around 36 of its 2015
revenues came from government agencies or other SOEs - it remains dependent on the
government's infrastructure drive for future revenue growth. The Indonesian
government's plan to implement IDR5,500trn worth of infrastructure projects by 2022
will provide a significant boost to Wijaya Karya's project pipeline. After a slowdown in
the wake of the 2014 presidential elections, the company's current project pipeline is
strong - in 2016, Wijaya Karya secured IDR54.8trn worth of new contracts, a nearly
100% increase over the year prior.
Wijaya Karya's business is well-diversified within Indonesia, with subsidiaries that are
involved in construction, cement and steel manufacturing, mechanical and electrical
installations, and heavy equipment and general engineering. Within Indonesia, Wijaya
Karya is the construction company most involved in the rail sector, partnering in the
China-backed Jakarta-Bandung High-Speed Railway joint venture as well as the
government-funded Jakarta MRT lines. The company's power segment also aims to
provide 3,500MW of capacity as an independent power producer (IPP), in line with the
government's goal of adding 35,000MW in capacity by 2019. After making its first
power plant investment in 2011, the company has since established five power plants
with a total capacity of 194MW. In the upstream market, the Wijaya Karya subsidiary
Wika Benton is one of the largest precast concrete producers in Indonesia with eight
plants and a total capacity of 1.85mn tonnes per year.
The company aims to expand beyond Indonesia in a bid strengthen its presence in
Southeast Asia and hedge against political and market volatility within Indonesia. In
2014, Wijaya Karya formed a joint venture (JV) with Myanmar's United Mercury Group to
build a precast concrete factory and work on infrastructure projects. In 2015, Wijaya
Karya was awarded a USD92mn contract to build a new airport in Oecusse, Timor-
Leste. The company has also set up representative offices in Saudi Arabia, and plans to
expand into Algeria and Malaysia. However, we expect this diversification process to
take several years to realise, with WIKA to still largely relying on state-owned projects in
Indonesia in the coming years.
After having spinning off a minority share of Wika Beton in 2014, Wijaya Karya is now
looking to publicly list a 30% stake of Wika Gedung, the commercial and residential
building constructor, via an IPO in the second half of 2017. The company aims for the
IPO to raise IDR3trn, which it says it will use to invest in the Indonesian government's
priority infrastructure projects.

Recent In July 2016, Wijaya Karya began construction on the USD5.2bn Jakarta-Bandung
Developments High-Speed Railway project as part of the Kereta Cepat Indonesia China consortium.
However, delays in land acquisition have slowed construction activity in the months
since and the project is now believed to be behind schedule and over budget.
In October 2016, Wijaya Karya signed a contract with the government to develop three
phases of the Balikpapan-Samarinda toll road, which is part of the Trans-Kalimantan
Expressway.
In December 2016, Wijaya Karya was awarded a USD391mn contract to build a six-
kilometre light rail (LRT) line in Jakarta between Kelata Gading and Velodrome.
Construction began in 2017 and the project is expected to be complete in time for the
2018 Asian Games.
Financial Data FY2016

■ Revenue (FY2016): IDR19.980trn (+15.0% y-o-y)
■ Earnings per share (FY2016): IDR158.64 (+55.8% y-o-y)
FY2015


Methodology
Infrastructure Forecast Methodology
Industry Forecast Methodology
BMI's Industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined.
Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions
allow us to forecast a variable using more than the variable's own history as explanatory information. For
example, when forecasting oil prices, we can include information about oil consumption, supply and
capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality
is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for
analysis and forecasting.
We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of
objective views, we use a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-
linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for
example poor weather conditions impeding agricultural output, dummy variables are used to determine the
level of impact.
Effective forecasting depends on appropriately selected regression models. We select the best model
according to various different criteria and tests, including but not exclusive to:
■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account
■ Testing the directional movement and magnitude of coefficients
■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)

■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity
BMI uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of our industry
forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot
structural breaks, anomalous data, turning points and seasonal features where a purely mechanical
forecasting process would not.
Sector-Specific Methodology
Construction Industry
Construction Industry Value
Our data is derived from GDP by output figures from each country's national statistics office (or
equivalent). Specifically, it measures the output of the construction industry over the reported 12-month
period in nominal values (ie domestic currency terms). As it is derived from GDP data, it is a measure of
value added within the industry (ie the additional contribution of the construction industry over other
industries, such as cement production). Consequently, it does not measure the nominal value of all inputs
used in the construction industry, which, for most states would increase the overall figure by 50-60%.
Furthermore, it is important to note that the data does not provide an indication of the total value of a
country's buildings, only the construction sector's output in a given year.
This data is used because it is reported by virtually all countries and can therefore be used for comparative
purposes.
Construction Industry Value Real Growth
Our data and forecasts for real construction measures the real increase in output (rather than nominal
growth, which would also incorporate inflationary increases). In short, it is an inflation-adjusted value of the
output of the construction industry y-o-y. Consequently, real growth will be lower than the nominal growth
of our 'construction value' indicator, except in instances where deflation is present in the industry.
Data for this is sourced from the constant values for construction value added, using the same sources noted
above. We use officially calculated data to accurately account for inflation specific to the construction
industry.

Construction Industry, % Of GDP/Construction Value (USD)
These are derived indicators. We use BMI's Country Risk team's GDP and exchange rate forecasts to
calculate these indicators.
Capital Investment
Total Capital Investment
Our data is derived from GDP by expenditure data from each country's national statistics office (or
equivalent). It is a measure of total capital formation (excluding stock build) over the reported 12-month
period. Total capital formation is a measure of the net additions to a country's capital stock, so takes into
account depreciation as well as new capital. In this context, capital refers to structures, equipment, vehicles
etc. As such, it is a broader definition than construction or infrastructure, but is used by BMI as a proxy for
a country's commitment to development.
Capital Investment (USD), % Of GDP, Per Capita
These are derived indicators. We use our Country Risk team's population, GDP and exchange rate forecasts
to calculate them. As a rule of thumb, we believe an appropriate level of capital expenditure is 20% of GDP,
although in rapidly developing emerging markets it may, and arguably should, account for up to 30%.
Government Capital Expenditure
This is obtained from government budgetary data and covers all non-current spending (ie spending on
transfers, salaries to government employees, etc). Due to the absence of global standards for reporting
budgetary expenditure, this measure is not as comparable as construction/capital investment.

Government Capital Expenditure, USDbn, % Of Total Spending
These are derived indicators.
Construction Sector Employment
Total Construction Employment
This data is sourced from either the national statistics office or the International Labor Organization (ILO).
It includes all those employed within the sector.
Construction Employment, % y-o-y; % Of Total Labour Force
These are derived indicators.
Average Wage In Construction Sector
This data is sourced from either the national statistics office or the ILO.
Infrastructure Data Sub-Sectors
BMI's Infrastructure data examines the industry from the top down and bottom up in order to calculate the
industry value of infrastructure and its sub-sectors. We use a combination of historic data as reported by the
central banks, national statistics agencies and other official data sources, and BMI's Infrastructure Key
Projects Database tool.
Where possible we source historic data for the relative portion of either infrastructure spend or value
generated by the various sub-sectors we classify as infrastructure. We seek to segment official infrastructure
data into pre-set categories classified by us, across all countries, in order to optimise the ability to compare
industry value across the sub-sectors of infrastructure. We then apply ratios to the infrastructure subsector
value in order to derive the value. Real growth is calculated using the official construction inflation rate.
In those instances where historic data is not available, we use a top down and bottom up approach
incorporating full use of BMI's Infrastructure Key Projects Database, in most cases dating back to 2005.
This allows us to calculate historical ratios between general infrastructure industry value and its sub-sectors,

which we then use for forecasting. Our Key Projects Database is not exhaustive, but it is comprehensive
enough to provide a solid starting point for our calculations.
The top down approach uses data proxies. We have separated countries into three tiers. Each tier comprises
a group of countries on a similar economic development trajectory and with similar patterns in terms of
infrastructure spending, levels of infrastructure development and sector maturity. This enables us to confirm
and overcome any deficiencies of infrastructure-specific data by applying an average group ratio (calculated
from the countries for which official data exists) to the countries for which data is limited.
■ Tier I - Developed States. Common characteristics include:
■ Mature infrastructure markets;
■ Investments typically target maintenance of existing assets or highly advanced projects at the top of the
value chain;
■ Infrastructure as percent of total construction averages around 30%.
■ Tier I countries: Canada, Germany, Greece, UK, US, France, Hong Kong, Taiwan, Singapore, Israel,
Japan, Australia.
• Tier II - Core Emerging Markets. Common characteristics include
■ The most rapidly growing emerging markets, where infrastructure investments are a government
priority;
■ Significant scope for new infrastructure facilities from very basic levels (eg highways, heavy rail) to
more high value projects (renewables, urban transport);
■ Infrastructure as percent of total construction averages around 45% and above.
■ Tier II countries: Colombia, Malaysia, Mexico, South Korea, Peru, Philippines, Turkey, Vietnam,
Poland, Hungary, South Africa, Nigeria, Russia, China, India, Brazil, Indonesia.
• Tier III - Emerging Europe. Common characteristics include:
■ Regional socioeconomic trajectories;
■ Development defined by recent or pending accession to European structures such as the EU.
Infrastructure development to a large degree dictated by EU development goals and financed through
vehicles such as the PHARE and ISPA programmes, and institutions such as the EBRD and EIB;
■ Infrastructure as percentage of total construction averages between 30% and 40%.
■ Tier III countries: Czech Republic, Romania, Bulgaria, Slovakia, Slovenia, Estonia, Latvia, Lithuania,
Croatia, Ukraine.
This methodology has enabled us to calculate infrastructure industry values for states where this was not
previously possibly. Furthermore, it has enabled us to create comparable indicators.

The top down hypothesis-led approach has been used solely to calculate the infrastructure industry value as
a percentage of total construction. For all sub-sector calculations we apply the bottom-up approach, ie
calculating the ratios from our Key Projects Database where data was not otherwise available.
Our Infrastructure Risk/Reward Index (RRI) quantifies and ranks a country's attractiveness within the
context of the Infrastructure industry, based on the balance between the Risks and Rewards of entering and
operating in different countries.
We combine industry-specific characteristics with broader economic, political and operational market
characteristics. We weight these inputs in terms of their importance to investor decision making in a given
Industry. The result is a nuanced and accurate reflection of the realities facing investors in terms of: 1) the
balance between opportunities and risk; and 2) between sector-specific and broader market traits. This
enables users of the Index to assess a market's attractiveness in a regional and global context.
The index uses a combination of our proprietary forecasts and analyst assessment of the regulatory climate.
As regulations evolve and forecasts change, so the Index scores change providing a highly dynamic and
forward-looking result.
The Infrastructure Risk Reward Index universe comprises 105 countries.
Benefits of using BMI's Infrastructure RRI:
■ Global Rankings: One global table, ranking all the countries in BMI's universe for Infrastructure from
least (closest to zero) to most attractive (closest to 100).
■ Accessibility: Easily accessible, top down view of the global, regional or sub-regional Risk/Reward
profile.
■ Comparability: Identical methodology across 105 countries for Infrastructure allows users to build lists of
countries they wish to compare, beyond the confines of a global or regional grouping.
■ Scoring: Scores out of 100 with a wide distribution, provide nuanced investment comparisons. The higher
the score, the more favourable the country profile.
■ Quantifiable: Quantifies the Rewards and Risks of doing business in the Infrastructure sector in different
countries around the world and helps identify specific flashpoints in the overall business environment.
■ Comprehensive: Comprehensive set of indicators, assessing industry-specific risks and rewards alongside
political, economic and operating risks.
■ Entry Point: A starting point to assess the outlook for the Infrastructure sector, from which users can dive
into more granular forecasts and analysis to gain a deeper understanding of the market.

■ Balanced: Multi-indicator structure prevents outliers and extremes from distorting final scores and
rankings.
■ Methodology is a combination of proprietary BMI forecasts, analyst insights and globally acceptable
benchmark indicators (example: World Bank's Doing Business Scores, Transparency International's
Corruption Perceptions Index).
Weightings Of Categories And Indicators

Source: BMI Research
The RRI matrix divides into two distinct Categories:
Rewards: Evaluation of an Industry's size and growth potential (Industry Rewards), and also macro
industry and/or country characteristics that directly impact the size of business opportunities (Country
Rewards).
Risks: Evaluation of micro, industry-specific characteristics, crucial for an industry to develop to its
potential (Industry Risks) and a quantifiable assessment of the country's political, economic and
operational profile (Country Risks).

Our matrix is deliberately overweight on Rewards (60% of the final RRI score for a market) and within that,
the Industry Rewards segment (60% of final Rewards score). This is to reflect the fact that when it comes to
long term investment potential, industry size and growth potential carry the most weight in indicating
opportunities, with other structural factors (demographic, labour statistics and infrastructure availability )
weighing in, but to a slightly lesser extent. In addition, our focus and expertise in Emerging
and Frontier Markets has dictated this bias towards industry size and growth to ensure we are able to
identify opportunities in countries where regulatory frameworks are not as developed and industry sizes not
as big (in USD terms) as in developed markets, but where we know there is a strong desire to invest.

BMI Indonesia Infrastructure Report Q1 2018

Uploaded by

Copyright:

Available Formats

You might also like

BMI Indonesia Infrastructure Report Q1 2018

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BMI Indonesia Infrastructure Report Q1 2018

Uploaded by

Copyright:

Available Formats

Q1 2018

Published by:BMI Research

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: October 2017

BMI Research © 2017 Business Monitor International Ltd

BMI Industry View ............................................................................................................... 7

Industry Forecast .............................................................................................................. 11

Infrastructure Risk/Reward Index ................................................................................... 49

Market Overview ............................................................................................................... 59

Company Profile ................................................................................................................ 67

© Business Monitor International Ltd Page 4

Infrastructure Forecast Methodology .......................................................................................................... 76

© Business Monitor International Ltd Page 5

BMI Industry View

Forecast & Industry Developments

Table: Five-Year Forecast Scenario (Indonesia 2017-2022)

2017f 2018f 2019f 2020f 2021f 2022f

Construction industry 1,415,397.64 1,580,053.99 1,766,730.15 1,978,926.52 2,217,742.96 2,479,944.18

f = BMI forecast. Source: Statistics Indonesia, BMI

© Business Monitor International Ltd Page 7

Table: Infrastructure Risk Reward Index (Indonesia 2017-2017)

© Business Monitor International Ltd Page 8

Indonesia Infrastructure Industry SWOT

© Business Monitor International Ltd Page 9

Indonesia Infrastructure Industry SWOT - Continued

© Business Monitor International Ltd Page 10

Table: Construction And Infrastructure Industry Data (Indonesia 2017-2026)

f=BMI forecast. Source: Statistics Indonesia, BMI

© Business Monitor International Ltd Page 11

f = BMI forecast. Source: Statistics Indonesia, BMI

Bulk Of Activity Remains Focused On Java, Sumatra

© Business Monitor International Ltd Page 12

Java and Infrastructure Lead Construction Activity

Source: Statistics Indonesia, BMI

© Business Monitor International Ltd Page 13

Jakarta Construction Outpaces GDP Share

Source: Statistics Indonesia, BMI

2018: Slow But Steady Growth

© Business Monitor International Ltd Page 14

Lagging Financing and Construction Scores

© Business Monitor International Ltd Page 15

2019-2020: Gradual Reform And Acceleration

© Business Monitor International Ltd Page 16

2021-2026: Elevated Growth

Transport Infrastructure - Outlook And Overview

© Business Monitor International Ltd Page 17

Table: Transport Infrastructure Industry Forecasts (2017-2026)

e/f = BMI estimate/forecast. Source: BMI

2018-2026: Upgrading Transport To Improve Logistics

© Business Monitor International Ltd Page 18

Table: Competitiveness Of Indonesia's Infrastructure

Rank/139 Rank/142 Rank/144 Rank/148 Rank/144 Rank/140 Rank/138 Rank/137 in

Source: World Economic Forum Global Competitiveness Report

Reducing Bureaucratic Burden

© Business Monitor International Ltd Page 19

Growth Across All Sectors

e/f = BMI estimate/forecast. Source: National sources, BMI