Infrastructure, State-owned Enterprises, accidents and debt

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Suhendra Ratu Prawiranegara

IO – Throughout 2018, there was a perpetual media blitz of our august President Joko Widodo inaugurating glorious new infrastructure projects. At the start of the year, Joko Widodo showed up in Lampung, to ceremonially open the Sumatra Toll Road. The grand inauguration parade was highlighted on both local and national mass media, as the Presidential showman performed a stunt, riding a truck from the gate of Bakauheni Port, Lampung. The seventh President of RI routinely performs such colossal theatrical actions whenever there is infrastructure to be inaugurated, and is met with the applause and admiration of those who are entertained by his performance. It’s not likely that they are reflecting on the fact their children and grandchildren will be enslaved by the massive foreign debt steadily accumulating, long after the Jokowi show has left town.

The Trans-Sumatra Toll Road (Jalan Tol Trans Sumatera – “JTTS”) is particularly significant for the Joko Widodo Government. Why? Because it is during this term of office that JTTS was executable in the field. We must admit this objectively. However, was the execution really that successful? We need to review this from various aspects, both technical and non-technical. Technically, the Government, through the Ministry of Public Works and People’s Housing, has set the target for completing several lanes of the highway, as stipulated in Presidential Regulation No. 100/2014.

These lanes include the Bakauheni-Terbanggi Besar (Lampung) lane, the Palembang-Indralaya one, Medan-Binjai in North Sumatra and the Pekanbaru-Dumai lane. As of the end of 2018, these lanes were still “Under Construction” and embroiled in the land acquisition struggle. I would like to point how how Basuki Hadimuljono, the Minister of Public Works and People’s Housing, did indeed promise to have construction of the Lampung-Palembang lane of JTTS completed in time to support the 2018 Asian Games, as trumpeted by national media. Hello? This target was painfully missed.

In its capacity as a State-owned Enterprise, PT Hutama Karya was granted the privilege of constructing, operating, and managing the Trans-Sumatra Toll Road. As the “appointed” State-owned Enterprise, there are naturally responsibilities to be shared by both the one awarding and the one receiving the contract.

National Investments in State-owned Enterprises
At the beginning of his term of office, Joko Widodo was noted to have made a breakthrough by providing tens of trillions of rupiah for National Investment (Penyertaan Modal Negara – “PMN”), funds directed to State-owned Enterprises. PMN was ideally meant to act as both a stimulus and capital support for State-owned Enterprises, in their execution of duties assigned by the Government, viz., priority construction of strategic infrastructure projects.

What was never broadcast on mass media was the face that the PMN mechanism was a severely controversial one, as several fractions and members of the RI People’s Representative Council (Dewan Perwakilan Rakyat – “DPR”) refused to approve this mechanism, as it would impose further burdens on an already deficit State Budget. However, the Government, through the Ministry of State-owned Enterprises and the Ministry of Finance, assured the DPR that granting PMN to a State-owned Enterprise would not burden the State Budget. According to the Government explanation, PMN was instead the solution for handicapped infrastructure development in Indonesia. Was this in fact true? An in-depth review is in order here. Monitoring and evaluation of the effectiveness and efficiency of PMN in regard to State-owned Enterprises that receive these funds must also be performed.

During Joko Widodo’s earliest months, PMN beneficiary State-owned Enterprises included: PT Hutama Karya, at Rp 3.6 trillion, PT Waskita Karya, with Rp 3.5 trillion, PT Adhi Karya, at Rp 1.4 trillion, PT Perumnas – Rp 2 trillion and PT Angkasa Pura II – Rp 2 trillion. The total amount of PMN agreed between the Government and DPR RI in 2015, through approval of the Draft State Budget, was Rp 37.276 trillion. The Government also provided PMN to State-owned Enterprises in subsequent years (2016 and 2017) at steadily higher amounts. Nearing the end of Joko Widodo’s first term of office, we should evaluate and correct the mechanism of granting PMN to State-owned Enterprises. How much did PMN positively influence the Enterprises’ performance and program achievements, in particular anticipated infrastructure targets? We naturally do not want PMN to further burden a stretched State Budget, while missing promised target achievements.

State-owned Enterprise Appointments, Work Accidents, and Debts
Similar to PMN, awarding of contracts to State-owned Enterprises is the responsibility of the Government; it considers a Presidential Decree as the optimal way to accelerate infrastructure development. For example, the appointment of PT Hutama Karya to construct the Trans-Sumatra Toll Road, as the Government’s model for other infrastructure. In the appointment scheme, State-owned Enterprises are granted full technical, administrative, and financial responsibilities. In other words, State-owned Enterprises are given the hard task of both completing their duties as constructor and manager of infrastructure projects such as toll roads. State-owned Enterprises are then assigned the extra task of seeking a workable formulation to fund its projects. In fact, such an effort to seek funding interferes with their balance and equity.

State-owned Enterprises will certainly scheme and work diligently to secure adequate funding, in an era of investor reluctance. Bank debt, bond issuance and other methods are frequently a natural consequence of securing contracts. According to available records and data, the value of construction State-owned Enterprises’ shares continued to decline throughout 2017: PPRO (-85%), WASKT (-27%), PTPP (-30%), WIKA (-21%). From this fact, we can conclude that appointments of State-owned Enterprise to accelerate the completion of infrastructure projects actually cause equity and debt burdens on the State-owned Enterprises. This should not just be the responsibility of the management and leadership of State-owned Enterprises: as the owner and majority shareholder, the Government should and must also be held responsible.

During Joko Widodo’s rule, debt ratio for funding infrastructure construction in the State Budget increased sharply. In 2015, about 67.2% of infrastructure projects are funded by debt. In 2016, the total of debt-funded budget was about 66.8%. In 2017, debt ratio spiked to 99.3% of the total infrastructure budget.  This condition undeniably means that the infrastructure sector has generated great debt liabilities to the Government (the State). For example, according to the digital trace that we found, funding for the Jabodebek LRT and Palembang LRT shows that the State-owned Enterprises appointed by the Government, PT Waskita Karya and PT Adhi Karya, had trouble when executing the funding scheme at the start of the ambitious project. The technical ministries, in this case the Ministry of Transportation, State-owned Enterprises, and the Ministry of Finance have not agreed on the technicality of the right funding scheme. But in fact, PT Waskita Karya and PT Adhi Karya have already started construction and funded the project themselves using the Company’s capital reserve. This is a cruel paradox: the policy holders have not agreed on final funding, but the construction project was already executed in the field by State-owned Enterprises in order to catch up with the completion of the construction target. This condition seems to be enforced, and might cause various problems in the future, including non-technical and legal ones.

The above condition is still worsened with the occurrence of accidents because of construction errors. We still freshly recall the large number of fatalities that occur during the 2016 Eid-el-Fitr annual homeward-bound exodus. These accidents occurred because of insufficiency of rest area facilities and other necessities. The toll road towards the Brebes exit was the witness and evidence that deaths occurred due to the jam that lasted for days at the time. They were the victims of the Ministry of Public Works and the People’s Housing and the Ministry of Transportation, who wanted to show off that the 2016 homeward mass return would be smooth if one uses the toll roads. In fact, the condition of the toll road and its facility are still insufficient for the hundreds of thousands of vehicle going back during the transition.

As we all know, toll road constructors suffered many work accidents throughout 2017-2018. For example, the collapse of the crane in the Mataram-Manggarai Double-Double Track (DDT) construction project in Jakarta, Another accident occurred in the same month (February 2018): a construction pile at the Becakayu toll road project, Jakarta, accidentally collapsed and hit workers. Many other construction accidents occurred in other infrastructure projects throughout the years. This is because the execution of these infrastructure projects is rushed, neglecting work safety and health. Naturally, the quality of the construction is compromised.

Work accidents and other accidents due to the neglect of both the project executors and policy makers (Government) would naturally be a judgment when the people assess these infrastructure projects. It is only natural that the people would have different opinions about the condition and facts that occur during the construction of these infrastructure projects, both technical and non-technical. These include the Government/State-owned Enterprise’s debt ratio, funding (budget), and potential legal issues in the future.