You can contact the author (Teguh Hidayat) by email, teguh.idx@gmail.com. The author live in Jakarta, Indonesia.

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Examining the Infrastructure in Indonesia

If the following question is asked to the people, 'What is the infrastructure?’, the answer would usually, 'It is the highway, bridges, airports, etc.' But in fact, the concept of 'infrastructure' is much broader than that. According to wikipedia, the infrastructure is (I’ve simplified the sentence) physical and organizational structures needed for the survival of a community or a company. In other words, the infrastructure is facilities and/or services required by an economic system to work properly and optimally.

Therefore, the type of infrastructure can then be divided into two: physical and organizational. Physical infrastructure is like roads, bridges, ports, etc. While the organizational infrastructure is usually associated with the government policy, if infrastructure in question is related to the country's economic activity, or management policy, if infrastructure in question is related to the company's economic activity. For example, tax policy, subsidies, capital, asset management, consulting etc. Yeah, the so-called 'subsidy' is also an infrastructure, because it is a facility provided by the government to fulfill the people’s needs.

Beyond the physical and organizational infrastructure, there is also the infrastructure of ideas, and field of study. However, in this article, the definition of 'infrastructure' is limited to physical infrastructure. Because if we take organizational infrastructure as a part of the infrastructure, then the banking companies are actually the companies of infrastructure, because they provide a service to the community to facilitate the financial transactions. Well, thus let us check it again: The infrastructure we’re talking here is about roads, bridges, ports, airports, telecom infrastructure, canals, dams, roads, railways, electricity infrastructure, schools, hospitals, etc.

The construction of flyover in Jakarta, working by PT Waskita Karya

Based on the classification made ​​by BEI (Bursa Efek Indonesia, or the Indonesia Stock Exchange/IDX, the authority of the exchange), the following are some of the companies/stocks that are classified as infrastructure stocks. To simplify, we put the tickers only. The stocks listed here do not include the ones which held IPO in the third quarter of 2012, or the stocks of the company that changed its business line from another field to the field of infrastructure.
  1. Energy: LAPD, PGAS, RAJA
  2. Highways, airports, and ports: CMNP, JSMR, META
  3. Telecommunications: BTEL, ISAT, INVS, FREN, TLKM, EXCL
  4. Transportations: APOL, BLTA, BULL, CASS, CMPP, GIAA, HITS, PTIS, IATA, MBSS, MIRA, MBSS, WEHA, TMAS, RIGS, SMDR, SDMU, SAFE, INDX, TRAM, WINS, ZBRA
  5. Non-Construction Infrastructure: INDY, IBST, RINA, TOWR, SUPR, TBIG, TRUB.
You may ask, then where is the position of construction stocks like ADHI et al? By BEI (or IDX, it is the same), construction stocks are not classified as infrastructure stocks, but rather considered as a 'relative' of property stocks, which probably because ADHI et al have their majority of revenue from the construction of property project, and not construction of public facilities such as bridges, highways, etc. But if you assume that the construction stocks are also part of the infrastructure, then the following is the stocks of construction: ADHI, PTPP, WIKA, DGIK, JKON, SSIA, WSKT, and TOTL.

Outside construction companies on the Stock Exchange, there are also supporting companies of construction, like the companies of cable, cement, and iron and steel. If in the future the sector of infrastructure is booming, where the developments and constructions of infrastructure is occured across the country, then the need for cables, cement, iron and steel will also increase rapidly, so that the companies engaged in the field will also reap increased profits.

But that's if we're talking about an uncertain future. Meanwhile, if we talk about the existing data, then the following is a summary of the performance, more or less of course, of the infrastructure companies on the Stock Exchange. Please noted that the ‘good company’ mentioned below is the company that has good fundamentals and good financial performance, both in the past and present.

Energy. If we use the example of the National Gas Company (Perusahaan Gas Negara, PGAS), then this company is one of the best company in IDX, even though PGAS is only a gas distributor, not the manufacturer. The reason is because PGAS almost monopolize the market of gas distribution in Indonesia, especially for industrial gases. But PGAS is a mature company with large assets for the size of Indonesian company, ie US$ 3.6 billion, making it relatively difficult to growing further.

Highways, airports, and ports. Well, maybe this is the kind of infrastructure that is 'the most infrastructure’. Unfortunately, there are only three stocks listed, and the good one is only Jasa Marga (JSMR). Citra Marga Nusaphala (CMNP) is also quite good, but the consistency of its performance over the long term is questionable.

Both JSMR and CMNP are actually engaging in toll road only, and they do not build or operate airports and ports. While the two airport companies in Indonesia, namely Angkasa Pura I and Angkasa Pura II, they both are not listed on the Stock Exchange. And the port companies in Indonesia, namely Pelindo I, II, and III, are also not listed on the Stock Exchange. However, ICTSI Jasa Services (KARW) could be called as the first port company that listed on the Stock Exchange, after the backdoor listing of ICTSI, an international port company from the Philippines, but the performance of the company is still poor until now.

Both Angkasa Pura and Pelindo (Indonesia Port Corporation/IPC), both of which are SOEs. There are two other SOEs engaging in the field of railway infrastructure, ie Kereta Api Indonesia (KAI), and Industri Kereta Api (INKA). But just like the above two SOEs, KAI and INKA are also not listed on the Stock Exchange.

Telecommunications. Largest company in this sector is certainly Telekomunikasi Indonesia or Telkom (TLKM), and its performance is quite good. But as its fellow SOE, PGAS, the performance of TLKM is seems to be difficult to grow further, because its size is already too large. The growth of the company itself has been stagnant in the last five years.

While of the other companies in this sector, such as XL Axiata (EXCL), Indosat (ISAT), Bakrie Telecom (BTEL), until Smartfren Telecom (FREN), their performance are very bad. EXCL had once a better performance since the company was taken over by Axiata Berhad in 2009, but its current performance is again poor. For me, this is confusing, was the telecommunications industry a profitable industry? But some said that the telecommunications industry in Indonesia has begun to sunset, because the mobile phone ownership has reached nearly 100% of Indonesia's population, so there is no further space for telecom companies to grow.

Transportation. In general, the transport infrastructure can be divided into three, namely land, sea, and air. On land, there aren’t listed companies. In the air? There Garuda Indonesia (GIAA), but the performance is still far from good. At the sea? There are several names, such as Berlian Laju Tanker (BLTA), or Arpeni Pratama Ocean Line (APOL). Both companies were great names in the past, but they are now struggling with the threat of bankruptcy, as the managements failed in managed their huge debts since 2007.

Non-construction infrastructure, in this case the infrastructure of mining and telecom tower. The first group is represented by Indika Energy (INDY), and the second group is represented by several companies, but the largests are Sarana Menara Nusantara (TOWR), and Tower Bersama Infrastructure (TBIG). Both INDY, TOWR, and TBIG, all three have pretty good performance . Unfortunately, as far as I could research, the main problem in these companies is the management that tends to pay less attention to the interests of public shareholders, and the stock prices are overvalue.

Construction. As I've discussed in the article of Waskita Karya (WSKT), construction companies on the Stock Exchange, especially the SOEs ones, their fundamental are not so attractive for investment. However, for private companies, such as Total Bangun Persada (TOTL), or Surya Semesta Internusa (SSIA), then they both have strong fundamentals and are good for investment.

Cement. We do not need to talk much about this sector, as you must have already know that Semen Gresik (SMGR) and Indocement (INTP) are both good stocks with good liquidities, so they are including the blue chip of the exchange.

Cable, iron and steel. The sector of cable is probably one of the ‘darkest’ sector in BEI, because almost all stocks in the sector are not liquid, so the investors are rarely visit the ‘shop’, and there is no significant information. While the sector of iron and steel, well, if we use the example of Krakatau Steel (KRAS) as the largest company in this sector, then the sector is not quite feasible for investment.

Prospect and Outlook

In the economic development of a country, infrastructure plays a very important role, whereby if a country has poor infrastructure, its economy must be poor too. And unfortunately Indonesia from the very beginning is a country with such poor infrastructure. Based on data from the National Development Planning Agency (Bappenas) for the year 2011, Indonesia was ranked 82nd as the country with the best infrastructure in the world, far below of Malaysia (ranked 30th), and only slightly better than Vietnam (ranked 83rd). If you had visited the Kuala Lumpur International Airport (KLIA), then compare it with the Soekarno - Hatta International Airport, the you will agree that the quality of infrastructure in Malaysia is better than here.

By the community of business, the lack of infrastructure in Indonesia is referred to as the 'bottle neck', as it is hamper the development of companies and ultimately hamper the economic growth. Even so, Indonesia was still able to record a significant economic growth, ie 6.5% in 2011, higher than the 5.2% of Malaysia for the same period. This is the fact that causes many people said that the infrastructure will soon be growing rapidly in Indonesia. Because the significant growth of a wide variety of companies and business sectors in Indonesia (which in turn creates significant economic growth) will encourage the development of infrastructure in Indonesia to be able to support the growth, in this case especially the infrastructure of transports, telecommunications, and electricity.

So we could say that, slowly but surely, the bottleneck was going to break on its own. The infrastructure of policies is also launched by the government in form of Master Plan for the Acceleration and Expansion of Economic Development (MP3EI), since 2010. One of the main points in MP3EI is, the government will seek to strengthen the national connectivity. What is meant by 'connectivity' is certainly the transport and telecommunications infrastructure. For transport, one of the most well-known project might be The Bridge of Sunda Strait, which is scheduled to begin construction in 2010 (uh, it's 2013 already?), and will start operating in 2020. As for communication, the famous project is the Palapa Ring, ie the construction of fiber-optic cable network of more than 50,000 kilometers, both on land and sea, which reaches all corners of the archipelago. If this project is completed, it is almost certain that the speed of internet in Indonesia will not be as slow as it is now, and the people who live in remote areas will still be able to obtain the telephone signal. This project has been carried out since 2010, and is scheduled to be completed in 2014.

One more project in the electricity sector, the Government through the PLN (Perusahaan Listrik Negara, the State Power Company) is currently working the project of 10,000 MW powerplants in two stages, with full completion scheduled in 2014.

And the last, the government in recent years has also established several state-owned companies to support the development of infrastructure in the country, such as Indonesia Infrastructure Guarantee Fund (PT Penjaminan Infrastruktur Indonesia, PII), PT Sarana Multi Infrastructure (SMI), and PT Indonesia Infrastructure Finance (IIF). For PII, the company is reported to be ready to guarantee the construction project of of Mass Rapid Transit (MRT) in Jakarta. So, overall, everything looks good.

Assuming that everything goes as planned, the following are infrastructure companies that might have an improved performance in the future:

  1. TLKM, and some of its fellow telecom companies like ISAT and EXCL, especially if they can take fully advantage of the development of internet in Indonesia.
  2. Some cable companies. If the projects of Palapa Ring and 10,000 MW powerplants run smoothly, then the need for cables will continue to increase.
  3. Several construction companies, especially construction for public infrastructure like roads, bridges, and airports.
  4. Cement companies, of course.
  5. Iron and steel companies. Unfortunately, although the outlook is actually interesting, but there is no steel company which have a great management like Arcelor Mittal or the like. Yup, we have a lack of technology and human resources here. A friend of mine even said, if Arcelor Mittal is allowed to open its steel mills here, in Indonesia, then the Krakatau Steel and other local steel companies will soon lose their competition advantages.
  6. Finally, the transport companies, both the infrastructure (airports, etc. ) and the vehicle (aircrafts, etc.). So far there are only two stocks here: GIAA and JSMR. JSMR is better.
Well, that's all. So what do ya think? One more thing, if the quality of infrastructure in Indonesia have really increased, then the benefit would be not only for the companies that have already been mentioned above, but the entire companies in Indonesia will have a better space to grow, as their business became easier to do. In an explanation of the MP3EI, it is mentioned that the Indonesian economy will grow 7 - 9% per annum if all the infrastructure projects are well-developed as planned, where the growth rate is certainly not only contributed by infrastructure companies, but all companies in Indonesia and of course the economic activities in general.

Prospects vs. Reality

As a citizen of Jakarta, I had a great expectation when Jokowi elected as governor in last September. My hope was only this: Jakarta being free from the traffic jams, or at least the jam is reduced a little. Because, you know? Getting around in Jakarta is like a nightmare. If you choose to drive a car, you’ll be half-dying-stuck in traffic! How about the public transportation? Try the bus of Trans Jakarta, and feel the experience of waiting until half an hour or more just to wait for the bus to come.. only to realize that the bus is overload of passengers. So the conclusion, the only option is motorcycle, but of course with the risk of rain and the heat of sun. You know, in the mid of sunny day, the outdoor temperature of Jakarta could reach 38 - 40 degree of Celsius!

Actually, from the very beginning, the solution to the transportation issue is simple, ie by providing decent mass transportation, and by improving the quality (and also quantity) of roads and railways. Or in other words, the infrastructure. Jakarta residents suffered losses about US$ 1 billion per year as the result of this traffic jam, and it is because the transportation infrastructure is totally inadequate.

However lately, I think the soultion is not that easy or simple. Because, just think, if Jakarta has convenient public transport facilities, and the people switching from their private vehicles to buses and trains, then this is what will happen:

  1. The number of people who make license and vehicle registrations will decrease, which means the revenue of police officer will also go down. Similarly, the state tax will also decrease
  2. The revenue of gas stations will drop dramatically
  3. The revenue of parking companies will also fall
  4. Automotive companies will have difficulties in selling their cars and motorcycles
  5. The revenue of toll road companies will drop
  6. The revenue of auto repair shops will go down
  7. Property developer companies will find it difficult to sell buildings and apartments in the downtown, because people are now more interested in living in the suburbs
  8. Even at the grassroots level, the income of beggars, cadgers, buskers, etc will also go down, and so on.
In essence, when it is mentioned that Jakarta residents suffered losses of around US$ 1 billion per year as a result of this traffic jam, it does not mean that such money is just dissapeared, only changed hands to other person. This means that if Jakarta has an excellent transport infrastructure, and the traffic jam is successfully reduced, then there will be some people that having 'disadvantaged'. And of course these people would not remain silent if there are efforts to improve the infrastructure, and maybe that's why the traffic in Jakarta is still jammed until now.

So the difficulties faced by Jokowi et al is not the development issue of the transport infrastructure itself, but the 'resistance' from certain parties. I still remember, in a dialogue on television, there was a legislator who implicitly stating that it is natural that a big city like Jakarta have to face the traffic jam, because the traffic in other major cities around the world are also jammed anyway. After my lil’ investigation, it turns out that this ‘city traitor’ had some gas stations.

Well, that’s the problems associated with transport infrastructure. Not only in Jakarta, the construction of Suramadu Bridge which connecting the City of Surabaya and Madura Island had to face the rally from small traders in the area of ​​Port of Tanjung Perak, Surabaya, because they knew that their revenue would decrease if the bridge is opened. And so on. That's just one problem related to resistance from certain parties. Not to mention the classic problems such as bureaucracy, corruption, and so on.

While related to infrastructure of telecommunications and electricity, I do not know if there is also the same problem, but the fact is, until now Indonesia does not have such adequate infrastructure. And there is no guarantee that the infrastructure will be good. For example, the construction of 10,000 MW of powerplants, although it is on progress, but the progress is slow. Will the project be completed in 2014? Honestly, I doubt it.

Anyway, hopefully it's just a small pessimism. Because in the past, people always say that the business of apartment development will not be successful in Indonesia, because the Indonesian people is prefer to stay in a landed house rather than to stay in a house without yards. But in fact, now the apartments stand everywhere, not only in Jakarta but also in other major cities in Indonesia, and the buyers are keep coming. So even though at this time, the viable infrastructure in Indonesia is still a dream, but hopefully that dream can come true someday. We’ll see.

Original article was written at January 7, 2013

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