STUDY ON PRIVATE-INITIATIVE INFRASTRUCTURE PROJECTS IN DEVELOPING COUNTRIES IN FY2011 STUDY ON SOEKARNO HATTA INTERNATIONAL AIRPORT EXPANSION AND UPGRADING PROJECT IN JAKARTA IN THE REPUBLIC OF INDONESIA FINAL REPORT February 2012 Prepared for: The Ministry of Economy, Trade and Industry Prepared by: ITOCHU Corporation SHIMIZU CORPORATION Japan Airport Terminal Co., Ltd. Nikken Sekkei Ltd Nikken Sekkei Research Institute Japan Economic Research Institute Inc.
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STUDY ON PRIVATE-INITIATIVE INFRASTRUCTURE PROJECTS IN
DEVELOPING COUNTRIES IN FY2011
STUDY ON SOEKARNO HATTA INTERNATIONAL AIRPORT
EXPANSION AND UPGRADING PROJECT IN JAKARTA
IN THE REPUBLIC OF INDONESIA
FINAL REPORT
February 2012
Prepared for:
The Ministry of Economy, Trade and Industry
Prepared by:
ITOCHU Corporation
SHIMIZU CORPORATION
Japan Airport Terminal Co., Ltd.
Nikken Sekkei Ltd
Nikken Sekkei Research Institute
Japan Economic Research Institute Inc.
Reproduction Prohibited
Preface
This report is a summary of the results of a Study on Private Sector Initiative Infrastructure Projects
commissioned as a project in fiscal year 2011 by the Ministry of Economy, Trade and Industry to
Nikken Sekkei Research Institute, and Japan Economic Research Institute Inc.
This Study on Soekarno Hatta International Airport Expansion and Upgrading Project in Jakarta in
the Republic of Indonesia was an investigative study of the feasibility of a project for expanding and
upgrading the airport’s airside facilities, upgrading utility facilities, constructing new terminal
building, renovating and upgrading existing terminal buildings and constructing new commercial
buildings at a budget of approximately 104.5 billion yen. In recent years the number of passengers
using Soekarno Hatta Airport in the Jakarta Metropolitan Area of the Republic of Indonesia has been
increasing dramatically. Realization of a project to expand and upgrade the airport will contribute to
resolving problems resulting from aviation demand surpassing anticipated capacity.
We sincerely hope that this report will be of assistance in the realization of the above project and will
also serve as a useful reference for interested parties in Japan.
February 2012
ITOCHU Corporation
SHIMIZU CORPORATION
Japan Airport Terminal Co., Ltd.
Nikken Sekkei Ltd
Nikken Sekkei Research Institute
Japan Economic Research Institute Inc.
Map of the Project Site
Map of Indonesia
Source: Prepared by the Study Team from Google Earth photos
Location of Soekarno Hatta Airport
Source: Prepared by the Study Team from Google Earth photos
List of Abbreviations
Abbreviations Long Forms
ACI Airport Council International
APM Automated People Mover
AP-I PT. Perum Angkasa Pura 1
AP-II PT. Perum Angkasa Pura 2
ASEAN Association of South‐East Asian Nations
BAPPENAS Badan Perencanaan Pembanguan Nasional
(National Development Planning Agency)
BCP Business Continuity Plan
BHS Baggage Handling System
CH/IN Check-in
CPI Consumer Price Index
DGCA Directorate General Civil Aviation
EIRR Economic Internal Rate of Return
EV Elevator
FIRR Financial Internal Rate of Return
IDR Indonesia Rupiah
IIGF Indonesian Infrastructure Guarantee Fund
JABODETABEK Jakarta, Bogor, Depok, Tangerang and Bekasi
JCR Japan Credit Rating Agency Ltd.
JETRO Japan External Trade Organization
JICA Japan International Cooperation Agency
JIS JapanTerminalBuilding, Itochu, Shimizu
JPY Japanese Yen
LCC Low Cost Carrier
METI Ministry of Economy, Trade and Industry (Japan)
MOSOE Ministry of State-Owned Entrprises (Indonesia)
MOT Ministry of Transportation (Indonesia)
MPA Master Plan for Establishing Metropolitan Priority Area for Investment and
Industry in Jabodetabek Area
PMC Project Management Consultant
PTB Passenger Terminal Building
PPP Public Private Partnership
R&I Rating & Information Investment Inc.
ROE Return On Equity
SBI Central Bank of the Republic of Indonesia
Table of Contents
Executive Summary
(1) Background and necessity of the project S-1
(2) Basic policy concerning decisions on project content S-3
(3) Project overview S-7
(4) Implementation schedule S-14
(5) Feasibility of implementation S-15
(6) Superior Technology of Japanese companies S-17
(7) Concrete schedule for realizing the project and risks inhibiting its realization
S-19
(8) Maps indicating the project implementation site S-23
Chapter 1: Overview of the Host Country and Sector
(1) Economy of the Country & Financial Conditions of the Government 1-1
(2) Description of the Targeted Sector 1-8
(3) Description of Project Area 1-13
Chapter 2: Study Methodology
(1) Contents of the Study 2-1
(2) Method and Organization of the Study 2-3
(3) Schedule of the Study 2-4
Chapter 3: Justification, Objectives and Technical Feasibility of the Project
(1) Project Background and Necessity, etc. 3-1
(2) Necessary considerations for determining project details, etc. 3-17
(3) Project Plan Overview 3-42
Chapter 4: Evaluation of Environmental and Social Impacts
(1) Analysis of current environmental and social conditions 4-2
(2) Improvement effect of the environment accompanying the implementation of the
project 4-4
(3) Environmental and social impacts accompanying the implementation of the project
4-4
(4) Summary of laws and regulations relating to environmental and social considerations
of the partner country 4-14
(5) Procedures the implementing country (implementing or other relevant organization)
must follow for realizing a project 4-20
Chapter 5: Financial and Economic Evaluation
(1) Project Cost Estimate 5-1
(2) Overview of the Results of Preliminary Financial/Economic Analysis 5-4
Chapter 6: Planned Project Schedule
(1) Planned Project Schedule 6-1
(2) Issues Pertaining to the Project Schedule 6-2
Chapter 7: Implementing Organization 7-1
Chapter 8: Technical Advantages of Japanese Companies
(1) Expected Form of Japanese Involvement (Investment, engineering, procurement &
management, and operation & management) 8-1
(2) The Competitive Advantage that Japanese Companies have in the Implementation of
this Project (Technology , Economic Aspects) 8-19
(3) Measures Necessary to Promote the Issuance of Orders with Japanese Companies
8-22
Chapter 9: Outlook for Fund Procurement
(1) Review of Sources of Funds and Financing Plans 9-1
(2) Possibility of Funding 9-2
(3) Cash Flow Analysis 9-13
Chapter 10: Action Plan and Issues
(1) Status of Activities for the Implementation of the Project 10-1
(2) Status of Activities of Relevant Government Agencies and Implementers in Indonesia
for the Implementation of the Project 10-2
(3) Legal and Financial Restrictions of Indonesia 10-3
(4) Necessity of Additional Detailed Analysis 10-18
S-1
Executive Summary
(1) Background and necessity of the project
1) Background of the project
Aviation demand in Indonesia is growing at a remarkable pace and the Soekarno Hatta International
Airport (hereafter referred to as Soekarno Hatta Airport) plays a central role in aviation transport for
the Jakarta Metropolitan Area (Jabodetabek). In addition to being the major gateway of Jabodetabek,
the airport also serves as a domestic air transport hub. Since it commenced operation in 1985, the
number of users of Soekarno Hatta Airport has grown steadily and in 2010 the number of passengers
reached a record 44 million, surpassing the airport’s capacity.
In December 2010 a memorandum of cooperation was signed between the governments of Japan and
Indonesia for “the concept of Metropolitan Priority Area for Investment and Industry (MPA) in
Jabodetabek Area” for the development of infrastructure in Jabodetabek, and JICA commenced a
master plan study for this purpose in May 2011. JICA’s master plan focuses on the development of
infrastructure essential for promoting further growth in Jabodetabek, which plays a key role in
Indonesia’s rapidly growing economy, and targets nine priority sectors. One of the priority sectors is
airport facilities and the master plan proposes a plan for the expansion of Soekarno Hatta Airport.
The Project for the Master Plan Study on Multi-Airport Development for Greater Jakarta
Metropolitan Area in the Republic Indonesia (hereafter, JICA Master Plan), which JICA is currently
in the process of preparing, also presents plans for the development of new airport in the future. The
plan presented here also aims at accommodating Indonesia’s increasing airport demand through the
expansion and upgrading of Soekarno Hatta Airport in the interim period before any new airports are
S-2
ready to commence operation.
At the same time, Angkasa Pura II (hereafter, AP-II), the state-owned enterprise currently operating
Soekarno Hatta Airport, has already prepared its own plan for the expansion of the airport, which it
announced in 2011. However, progress in the implementation of this project has fallen behind the
schedule of the initial plan.
2) Issues in Soekarno Hatta Airport and the need for expansion and upgrading
In 2010 passenger numbers at Soekarno Hatta Airport increased about four-fold in comparison with
passenger numbers recorded in 2000. Reaching 44 million in 2010, passenger numbers far exceed
the terminal’s capacity of 22 million. As a consequence, the airport must contend with the following
issues:
Congestion in the terminal building
Congestion on the apron
Congestion in airport parking lots
During the Study Team’s site survey, the following problems also came to light:
Loss of business opportunities
Inadequate security measures
Aging of facilities
In view of the current state of the airport’s overextended capacity and congestion both landside and
airside, it can be said that the expansion and upgrading of Soekarno Hatta Airport is an issue that
needs to be addressed urgently. In addition to responding to the need for tighter airport security
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reflecting the 9.11 terrorist attacks, environmental considerations in facilities used, and the
introduction of energy-saving equipment, this airport must fulfill its role as the gateway to Indonesia
by providing a range of services for airport users and endeavoring to enhance their level of
satisfaction.
In the context of various requirements mentioned above, a Japanese private sector group to
participate in an expansion and upgrade project for this airport first needs to determine the feasibility
of the project by engaging in consultation with AP-II and relevant government organizations. The
purpose of this study is to investigate and examine the feasibility of the expansion and upgrading of
Soekarno Hatta Airport by drafting a plan from the viewpoint of the airport management and from
the viewpoint of private sector companies intending to participate in the project.
(2) Basic policy concerning decisions on project content
1) Basic policy of the study
As mentioned above, the expansion and upgrade of this airport is a pressing issue. However,
respective master plans drawn up by AP-II and the Directorate General Civil Aviation (hereafter,
DGCA) have not been coordinated; rather, the two master plans stand as independent, parallel
documents.
After having assessed the respective master plans for the expansion of Soekarno Hatta Airport,
conducted the Study Team’s own airport site surveys and interviews with AP-II and other related
organizations and consulted with JICA Master Plan Team, the Study Team will examine in this study
a project menu of options for the airport expansion, methods of financing, and a project schedule.
Then, the Study Team will present proposals to AP-II to further explore the feasibility of the project
S-4
through dialogues.
2) Forecast for demand and airport capacity
We established 60 million passengers in 2017 (domestic passengers: 47 million, international
passengers: 13 million) as a forecast figure for demand of air travel to and from Jakarta area, and this
figure was agreed on in consultation with the DGCA, AP-II and the JICA Master Plan Team.
Plans for a new airport are being considered for 2017 onwards when the demand for air travel can be
expected to exceed 60 million passengers annually but at this stage the plans are still in a state of
flux. Therefore, this study will remain within the parameters of annual passenger numbers to a
maximum of 60 million with the use of two runways (excluding preliminary investigations described
in Chapter 4).
The current capacity of the terminals including Terminals 1 through 3 is 22 million, which falls far
short of the actual number of passengers at 44 million. On the other hand, the annual takeoff and
landing capacity for the current two runways is 370,000, and therefore it is estimated that there is
available capacity until about 2015. It is believed that the airport can accommodate 60 million
passengers annually with current capacity for take offs and landings.
3) Analysis of revenue structure and identification of management issues
A look at the revenue structure of Soekarno Hatta Airport shows that a little less than 80 % of the
airport’s revenues are related to aviation business while a little over 20% are derived from
non-aviation business and just under 2% of revenues are related to cargo business. The ratio of
revenues related to non-aviation business is low compared to international standards (2010 Airport
S-5
Council International Study: 46.5 %) as well as standards for major Asian airports (a little over 40 %
for Narita, Hong Kong, Thailand and Malaysia, and about 50% for Singapore). Therefore, it is
believed that there is significant room for improvement. In specific terms, there is a need for increase
in space available for leasing following the expansion of the terminal buildings, improvement in the
quality of shops and inclusion, as customers, of those visitors to the airport who at present are unable
to enter the terminal buildings when they send off or meet passengers. To increase unit sales per
customer, the establishment of attractive commercial facilities is also necessary. The airport will
have to continue its management efforts by replacing and upgrading shops on the premises to meet
the ever-changing preferences of customers, as well as promoting the development of shops to meet
the various needs of departing customers, customers in transit, and customers sending off
passengers.
4) Goal setting and basic policy for the expansion project
a) Goal setting for the expansion project
Taking into account the current status of the airport facilities and management issues regarding
revenue, the Study Team set the following goals for the Soekarno Hatta Airport expansion project.
(i) To resolve the problem of insufficient capacity by appropriately providing facilities on the
airside (taxiways and aprons) and on the landside (terminals etc.), so that Soekarno Hatta
Airport can contribute to the further development of Indonesia’s economy
(ii) To promote improvement in customer satisfaction level and airport security by adjusting the
airport to the present world-wide needs through expansion and modification for solution of
existing issues, so that Soekarno Hatta Airport can be transformed into a world-class airport
(iii) To promote infrastructure development with a view to making Soekarno Hatta Airport an urban
hub in the long term
S-6
b) Basic policy for the expansion project
Based on the targets we set for the expansion project, we established the following basic policy for
the development of facilities.
(i) To promptly resolve the lack of capacity on both the airside and the landside; to consecutively
make a series of expansion, replacement and modification of facilities so as to ensure the
development with the airport in operation
(ii) To enhance satisfaction of customers and focus investment in higher profitable project areas, by
specifying customer-based grades, such as international, domestic or LCC passengers
(iii) To improve security by upgrading the system to the present needs, so as to secure safety of
passengers and concerned persons and inaugurate unserviced air routes, such as ones for North
America.
(iv) To deepen the attractiveness of the current airport terminal by positively taking advantage of the
local cultural climate, so as to provide an airport terminal appropriate to the gateway to
Indonesia.
(v) To provide a new moving system so as to improve the inconvenient movement between
terminals
c) Basic policy for commercialization of the project
The project will not be a new development project but a project whose objective is to expand the
existing facilities of Soekarno Hatta Airport, currently owned and operated by AP-II. Therefore,
giving careful consideration to the coordination of the roles of the Study Team and AP-II is essential.
The project is currently being examined on the basis of the following approaches but these may
change in the future upon consultation with AP-II.
S-7
(i) Implement a joint project with AP-II, taking into consideration the attendant characteristics and
risk
(ii) Implement a project with AP-II as the main organization in key areas of the management of
operations at Soekarno Hatta Airport, and Japanese companies having intention to provide
know-how and some administration
(iii) Allow the private sector (mainly Japanese companies) as risk takers to participate in numerous
project areas where there are many uncertain elements, such as the concession and cargo
business, etc.
(3) Project overview
1) Overview of the project
After undertaking a review based on the AP-II’s Grand Design, the JICA Master Plan, interviews and
site surveys, the Study Team drew up an overview of the project and determined its scale as shown
in the table below. Although future airport expansion policies for the surrounding area of Jakarta can
be expected to affect the position of Soekarno Hatta Airport and fluctuations in user numbers, the
Study Team based its estimate of the scale of the facility on figures forecast for demand adopted for
this study, that is, annual passenger numbers of 60 million in 2017 (47 million for domestic and 13
million for international passengers).
The Grand Design, which is AP-II’s airport expansion plan, assumes the construction of Runway 3
and Terminal 4 at the northern perimeter outside the current airport area to accommodate demand
exceeding 60 million passengers. As mentioned earlier, however, this study narrowed the scope of
the project to two runways and 60 million passengers per annum.
This study also did not include a railway station due to uncertainty regarding the commencement of
S-8
the operation of the railway itself and because of the long-term concept for the eastern commercial
area within the airport grounds.
S-9
Table S-1: Project Elements in the Grand Design and Scope of the Project Anticipated for This
Project
Project elements in the AP-II Grand Design Assumed Scope of Facility Development in the Project
Assumed Scale of Facilities in the
Project
Apron New development +
Partial upgrade of existing aprons
Airside
Taxiway
New construction of runway on the eastern sidePartial upgrade of existing
runway
Development area 360,000 ㎡
Terminal 1
Addition to existing facilities
+upgrade of existing facilities
30,000 ㎡ (extended area)
+upgrade of existing area
Terminal 2
Addition to existing facilities
+upgrade of existing facilities
30,000 ㎡ (extended area)
+upgrade of existing area
Terminal 3 Addition to existing
facilities 200,000 ㎡
(extended area)
Terminal
Cargo New construction 150,000 ㎡
Commercial Area
Integrated buildings Connecting buildings Interchange terminals Parking building
New construction 185,000 ㎡
People mover
New construction of connecting terminals (or
development of dedicated bus roads)
Total length: 3.5km (4 stations)
Terminal ancillary construction
Utilities, etc. Upgrade of utilities and
roads
Railway Station Railway station Not included ―
Runway 3 Not included ―
Terminal 4 Not included ― Future Expansion
Commercial area, East side
Not included ―
Source: Prepared by the Study Team
S-10
Figure S-1: Difference between project elements in AP-II’s Grand Design and those in our plan
Source: Prepared by the Study Team based on JICA, “Master Plan Study on Multiple-Airport Development for
Greater Jakarta Metropolitan Area in the Republic of Indonesia: Progress Report” (March 2011)
From the viewpoint of the main implementing organizations and assumed sources of funding for the
scope of the project plans, we divided the project into five package options as shown below. While
there are differences in views between AP-II and the Study Team regarding the main project areas
and funding sources, as shown in the table below, financial and economic analyses from hereon will
be implemented on the basis of our plan, which established a joint venture project with a wider scope
and we will conduct analyses of two scenarios, one based on package (3) with the inclusion of
package (2) and another without the inclusion of package (2).
Project costs for packages (1), (2) and (3) were calculated as shown in Table S-3..
S-11
Table S- 2: Five Package Options
Project item Capital sources AP-II is assumed
to utilize Capital sources the Study Team
is assumed to utilize
Package (1) Airside (new construction of taxiway, and upgrade of taxiway and apron)
Implemented as public works utilizing government funds After implementation, assets are transferred to AP-II as equity or grants?
Implemented as public works utilizing yen loans
Package (2) Terminal ancillary work (people mover, utilities, etc.)
Implemented as public works as in Package (1), utilizing yen loans. However, if not treated as public works, develop on the basis of a JV as in Package (3)
Package (3) Upgrade and expansion of terminal buildings
AP-II internal reserve or funds procured from the domestic market with AP-II as the main borrower.
Separate Soekarno Hatta Airport operating company from AP-II, and undertake development of the terminal building after receiving third party participation, and operate the business for a certain period of time
Package (4) New construction of cargo village Package (5) Commercial area (commercial, hotel, office, parking facilities)
Joint venture including third party participation
Construction based on the concession system with third party participation
Source: Prepared by the Study Team
S-12
Table S-3 : Calculation of Project Costs
Unit: Million
IDR Equivalent
Yen Equivalent
USD Equivalent Total
Local Portion
Foreign Portion
(1) Basic Facility
Development 6,000 78 705,900 564,720 141,180
(2) Terminal Ancillary Work 19,000 246 2,235,350 1,788,280 447,070
Extension for Terminal 3 50,000 647 5,882,500 4,411,875 1,470,625
Upgrade for Terminal 2 10,000 129 1,176,500 882,375 294,125(3)
Upgrade for Terminal 1 10,000 129 1,176,500 882,375 294,125
Construction
Costs
Subtotal of Construction Costs 95,000 1,229 11,176,750 8,529,625 2,647,125
Design Expenses (5% of Construction Costs) 4,750 61 558,838 426,481 132,356
Reserved Fund (5% of Construction Costs) 4,750 61 558,838 426,481 132,356
Total Project Costs 104,500 1,352 12,294,425 9,382,588 2,911,838
Source: Prepared by the Study Team
2) Summary of results of preliminary financial and economic analyses
In AP-II’s financial results for fiscal 2010, Soekarno Hatta Airport earned 134% of AP-II’s overall
operating profit, and is therefore a profitable airport that supplements the AP-II’s head office
expenses and offsets the deficits of other local airports that AP-II owns. According to the demand
forecast adopted for this study, the total number of both domestic and international passengers using
this airport will continue to grow and can be expected to reach 60 million by 2017, which is the
upper capacity limit for the airport upon completion of this project. According to the outlook for
income and expenditure resulting from this project scheme calculated on the basis of total passenger
numbers of 60 million and other assumptions (see Chapter 5 of this report), by 2020, or the fifth year
after commencement of the new airport services, the increase in revenue will overtake the increase in
costs from the expansion of the terminal, and operating profit exceeding that of 2010 by 52% can be
expected. On the premise that Indonesia continues effective economic growth of around 6% in the
S-13
future, an increase in the number of passengers using Soekarno Hatta Airport and an increase in the
airport’s revenue can be expected to continuously grow in the future. Based on passenger growth
forecasted by AP-II and increase in consumption per passenger assumed by the study team, financial
internal rate of return, FIRR, for Package (3) was 19% and economic internal rate of return, EIRR,
was 17%.
3) Environmental and social impacts
The consideration of environmental and social aspects of the schemes or plans proposed by this
study is basically cited from the study results of the JICA Master Plan, an antecedent study related to
this study.
The improvement of the terminal functions and connection functions between terminals examined in
this study will improve the usability of facilities for both passenger and cargo flights, and provide
high-quality space for the use of both passengers and the general public. The introduction of service
facilities including commercial areas will also create employment opportunities and will enable the
revitalization of retail and distribution businesses. In addition, underutilized land, such as the golf
course that at present is partially located between the two runways, will be converted to land for
airport purposes, making possible the integrated and orderly use of land.
A preliminary investigation of environmental and social impacts following the development of
Runway 3 and Terminal 4 in the future was conducted in the JICA Master Plan. As a result,
involuntary relocations on a scale of 2,000 households will be unavoidable due to the expansion of
Soekarno Hatta Airport, and formulation of a relocation plan is necessary. Furthermore, the
conversion of agricultural land into land for airport use will require the rerouting of irrigation
S-14
channels and the shifting of roads used by residents in their everyday activities. The conversion of
agricultural land to land for other purposes will also necessitate a review of industrial policies in
regional planning.
Due to the scale and content of the airport, an environmental impact assessment (EIA) including a
Strategic Environmental Assessment (SEA) must be undertaken prior to the expansion of the airport.
The JICA Master Plan study project is proceeding with preparations for a joint study in cooperation
with the DGCA, the agency in charge of the plan, and the University of Indonesia to enable the
required environmental assessments to proceed.
The expansion of the terminal facilities will increase the floor areas of buildings and, therefore,
unavoidably increase the impact on the environment. However, This problem can be mitigated to
some extent by adopting building designs that conform to building standards in the guidelines of the
the Ministry of Environment Decree No.8/2010 that provides the standards for environmentally
friendly buildings.
(4) Implementation schedule
The schedule for the implementation of this project that can be assumed at this stage is shown below.
It has already been confirmed that the assignment of the respective terminal functions in the project
have not yet been finalized even within AP-II. If Terminal 3 is to be developed as a terminal for the
dedicated use of domestic flights, the plan for upgrading Terminals 1 and 2 will differ significantly
from the plan this study has anticipated. Therefore, it must be noted that this factor will have a
significant impact on the implementation schedule of the project.
Source: SBI “Historical Indonesia Sovereign Rating November 2011”
Despite the various problems the country still has to contend with, Indonesia can be considered
politically and socially stable overall. The 32-year autocratic regime of President Suharto finally
collapsed in May 1998 in the wake of growing social unrest exacerbated by the Asian financial crisis,
and efforts in the ensuing six years to promote democracy6 by three successive presidents – Habibie,
Wahid, and Megawati – culminated in the first direct presidential election in the country’s history in
October 2004. The incumbent President Yudhoyono has maintained a high public approval rating
since his election in the direct election in 2004 and is currently serving his second term after being
6 Measures to democratize the country included amendment of the 1945 constitution four times (October 1999,
August 2000, November 2001, and August 2002), the abolition of the People’s Consultative Assembly’s right to
appoint the president, introduction of direct elections, limiting the terms of both president and vice president,
strengthening of the power of the legislative branch of government, and the creation of the Regional Representative
Council.
1-7
sworn into office in October 2009 following his re-election in the general election in July. The
Democratic Party, the support base of President Yudhoyono, holds only 27% of the parliament’s 150
seats and to secure a majority in parliament, his government formed a coalition of six political
parties. Although the centripetal force of the Democratic Party as the leading ruling party has
dwindled since the beginning of the second term of government, due largely to the uncovering of
corruption within the Democratic Party, the major parties within the coalition seem to have a tacit
agreement not demand Yudhoyono’s resignation despite leveling open criticism at the president and
his party. Therefore, there is a strong likelihood that President Yudhoyono will see out his second
term, which continues until October 20147. While some political parties still insist that activities of
foreign companies and organizations should be more regulated, analysts and authorities on Indonesia
consider this insistence as a tradition of the country’s orientation toward autonomy since the country
won its independence and that there is no need for concern8.
There are over 300 tribes in Indonesia with ethnic Malays (native Indonesians, known as Pribumi)
comprising 97% of the total population and Chinese who immigrated to Indonesia during the Dutch
colonial period comprising the remaining 3%. Although about 90% of Indonesia’s population is
Islam, it is not the sole religion of Indonesia but one of six religions including Christianity and
Hinduism officially recognized by the government. Islam extremists in Indonesia remain a minority.
The majority of Islam belongs to the Sunni sect, which is a moderate sect and has only a mild view
regarding world control, and therefore have little inclination to restrict a free market economy.
Although terrorist activities by Islamic extremists occur from time to time and make the future
situation unpredictable, the Yudhoyono government’s policy to eradicate terrorism is already having
7 “Heads of four major political parties cut a deal” October 22 & 25, 2011, The Daily Jakarta Shimbun 8“Domestic politics and Indonesia’s international position,” Rizal Sukma, October 18, 2011 (www.eastasiaforum.org).
1-8
an impact and it is believed that there is little likelihood of terrorist activities having a devastating
effect on the country’s economic activities. In regional areas riots do occur sporadically, such as in
the case of independence movements in Aceh or Papua, but efforts are being made to resolve these
problems including the signing of a peace treaty with Aceh and the designation of Papua and West
Papua as special autonomous regions. Because of efforts like these, local problems have not reached
the stage where they have had an impact on the country as a whole.
According to the Political Instability Index9 compiled by the Economist, Indonesia ranked 52nd out
of 165 countries in order of political instability for the 2009/2010 period, and was included in the
group of “high-risk countries.” Nevertheless, it is considered to be of lower risk than Thailand,
which ranked 39th in the same index. In addition, results of a 2011 survey10 of executive directors
of U.S. companies belonging to the U.S. Chamber of Commerce in ASEAN countries indicated that
although approximately 90% of respondents considered corruption in Indonesia to be a problem,
about 30% of respondents replied that they would choose Indonesia as a destination for expanding
their business.
(2) Description of the Targeted Sector
Essentially, airplanes have been the most efficient means of travelling long distances for Indonesia,
as it is an island country. Its national territory comprises roughly 18,000 islands of varying sizes that
are dotted throughout a vast area that runs 5,110km east to west and 1,800km north to south. At
present, no transportation infrastructure of any kind connecting these islands together has been set in
9 Economist Intelligence Unit, The Economist. 10 AmCham Singapore, “The ASEAN Business Outlook Survey 2011,” a questionnaire survey targeting 327
executive officers of U.S. companies active in ASEAN countries (Cambodia, Indonesia, Malaysia, Singapore, the
Philippines, Thailand, and Vietnam).
1-9
place, and so aviation infrastructure is a useful means of getting around within the country. What is
more, as a result of the remarkable economic development of recent years, per-capita income has
increased and the use of airplanes as a means of transportation has been rising year by year. By now
189 airports have already been installed within the country, 29 of which provide flights along
international routes, with the demand for airplanes rising on the whole.
Regulations on entering the market for domestic air transport were relaxed in Indonesia from the
latter half of the 1990s until about 2001, and so low cost carriers (LCCs) began to appear on the
scene in Indonesia.11 The appearance of these LCCs contributed to making airplanes a more
accessible means of transportation for people across a broad spectrum of incomes, with demand for
domestic routes showing particular growth since 2000. Airplane passengers in Indonesia are
characterized by their overwhelmingly strong demand for domestic routes, which account for 80% of
the total.
11 Shinya Hanaoka, “Aviation in ASEAN: Liberalization and Low Cost Carriers,” Tokyo Institute of Technology
Figure 1-1: Number of Airplane Passengers in Indonesia
Source: JICA, “Master Plan Study on Multiple-Airport Development for Greater Jakarta Metropolitan Area in the
Republic of Indonesia, Progress Report” (March 2011)
This growth in the demand for air travel has brought about a remarkable rise in the number of
passengers using Soekarno Hatta Airport, which serves the Jakarta metropolitan region, which is the
capital of Indonesia, with this already exceeding the airport’s capacity. Soekarno Hatta Airport was
opened in 1985, and functions both as a major gateway for Jakarta and as a hub within the country. It
is found in the Chengkareng area, which is located about 20km to the west of Jakarta, and can be
accessed from central Jakarta by car in about thirty minutes by using toll road, assuming the road is
not congested. At present, the only form of public transportation connecting the city of Jakarta with
the airport are buses, and so users of the airport are forced to travel there by vehicle. The actual
results from 2010 showed that the number of passengers at Soekarno Hatta Airport exceeded roughly
44 million people, making it the 16th most congested airport in the world.12
12 Airports Council International (ACI) homepage, “Passenger Traffic 2010 Final”, www.airports.org (November 10,
2011)
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Soekarno Hatta Airport mainly consists of Terminal 1, which is exclusively used for domestic routes,
Terminal 2, which is used for international routes and the state-run carrier Garuda Indonesia Airlines,
and two open parallel runways. In 2009 Terminal 3 was newly opened as a terminal exclusively for
LCCs.
But it is forecasted that Soekarno Hatta Airport will reach its saturation point when it reaches 60
million passengers per year in 2017, with the facilities undergoing marked deterioration and growing
obsolete. For this reason, in terms of national policies there are calls for the formulation of an airport
policy for the Jakarta metropolitan region that places emphasis on enlarging Soekarno Hatta Airport
and building a new airport within the metropolitan region.
In light of this background, the Japanese government has decided to implement the Master Plan
Study on Multiple Airport Development for Greater Jakarta Metropolitan in the Republic of
Indonesia based upon a request from Indonesia. Presently, it has been decided that the study
operations under JICA’s supervision will be completed by March 2012. JICA is coordinating with
the Directorate General of Civil Aviation (DGCA) of Indonesia to formulate a master plan for
expanding Soekarno Hatta Airport and to select planned sites for new airports.
In addition, in December 2010 the governments of Japan and Indonesia signed a memorandum of
cooperation for “the concept of Metropolitan Priority Area for Investment and Industry (MPA) in
Jabodtabek Area”. For about one year starting from May 2011, 11 private companies (Nippon Koei
Co., Ltd., Oriental Consultants, Co., Ltd., Mitsubishi Research Institute, Inc., Mitsubishi Corporation,
Chiyoda Corporation, JGC Corporation, Taisei Corporation, Tokyo Metro Co., Ltd., Hitachi, Ltd.,
Metropolitan Intercity Railway Company, and NYK Line) led by JICA have formed a study team
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and been working out this concept. This master plan emphasizes the infrastructural improvements
that are crucial for encouraging greater growth in the Jakarta metropolitan region, which is the
engine driving the remarkable growth in Indonesia’s economy, and lists nine priority sectors for this.
Aviation was taken up as one of these priority sectors, and serves as an element that constitutes one
of the pillars of this concept.
Conversely, Angkasa Pura II (hereafter written as AP-II), which is the state-owned company that is
running Soekarno Hatta Airport, has also prepared its own airport expansion plan, which it unveiled
in July 2011. This expansion plan, which was named the “Grand Design,” was prepared with
Indonesia’s Institute of Technology Bandung hired to serve as a consultant. This plan is primarily
characterized by the new installation of a third runway, the construction of Terminal 4, the new
installation of an automated people mover (APM), the expansion of the apron, and the construction
of a commercial building called a connecting building. The target date for the improvements was
initially announced for around 2014. But according to information obtained from the meetings
between the higher-ups at AP-II, such as the president, and the Study Team, as of September 2011,
Basic Design is currently being prepared on the basis of consulting by the Institute of Technology
Bandung. Its completion has been delayed since the beginning, and so as things stand it seems to be
difficult to achieve the target for the improvements of 2014.
What is more, according to information from AP-II from the time of the interviews, offers other than
those from this team to take part in the airport expansion project have been coming in from other
countries as well. According to AP-II, other companies from Japan have been in contact, and they
have also been approached from overseas entities in France (Aeroports de Paris (ADP)), South
Korea (Incheon International Airport Corporation), Airport Authority of Hong Kong, Airport
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Authority of India, the Netherlands (Schipol Airport Authority), and others.
(3) Description of Project Area
1) Description of Soekarno Hatta Airport
Jakarta initially had two airports: Kemayoran Airport, which was an airport exclusively for domestic
routes in the northern part of the city, and Halim Airport, which was an airport for international
routes. By the 1970s the number of passengers of these two airports exceeded their capacity, and so
the Indonesian government conducted a study on constructing a new airport that would be shared by
international and domestic routes. Initially the Ralph M. Parsons Company, the engineering
company from the United States, was consigned to carry out a primary study in 1969. Out of several
candidate sites, the Tangerang region was selected as the most suitable candidate site. In 1974, a
Canadian consulting consortium formulated a preliminary master plan. Afterwards, Aeroports de
Paris (ADP) from France formulated a master plan for a new airport based upon these previous
studies, which it submitted to the Indonesian government in 1979. The Indonesian government
purchased about 1,800ha of land in the paddy field zone of Chengkareng, which is situated to the
west of Jakarta. It then built the new airport on the basis of the master plan by ADP and opened
Soekarno Hatta Airport in June 1985. At first, it was outfitted with Terminal 1 and two open parallel
runways. Terminal 2 was completed in 1992, after which Terminal 1 was used for domestic routes
and Terminal 2 was mainly used as the international route terminal (and for some domestic routes).
This airport was constructed through a loan from France, with a rough estimate for the construction
costs coming to about 30 billion yen for Phase I and 70 billion yen for Phase II.13 The construction
was carried out under the direct control of the national government (DGCA), after which the
facilities were handed over to AP-II, a state-owned airport management company, which was tasked 13 Yoshiyuki Hoshiyama, “Jakarta’s Soekarno Hatta International Airport,” Airport Review (1997) p.306
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with managing and operating them.
The design of Terminals 1 and 2 was overseen by Paul Andreu of ADP in France. Using red as the
keynote color, he went with a type of architecture that brims with local color by incorporating the
traditional architectural style of the island of Java, Indonesia. In 1995 the Landscaping of Soekarno
Hatta Airport was awarded the Aga Khan Award for Architecture, which recognizes exceptional
architecture throughout the Islamic world.
Terminal 1 consists of an architectural style that makes use of natural draughts. For the construction
of Terminal 2, per a request from the Indonesian side it was required to have a double curbside in
order to shorten the curbside distance and walking distance, as well as being fully outfitted with air
conditioning, including both its airside and landside areas.14 For this reason its basic design is the
same as that for Terminal 1, but it differed in aspects such as its arrangement and building size.
Since the addition of Terminal 2, no major capital investments have been carried out within the
airport for a while. But given its insufficient capacity, Terminal 3 was built on the east side of the
premises as a terminal exclusively for LCCs in 2009.
The initial demand forecasts for Soekarno Hatta Airport envisioned that there would be 9.2 million
passengers by the year 1995 and 31 million by the year 2000, but it had already surpassed the 13
million mark by 1995.15
14 Aga Khan Award for Architecture homepage: http://www.akdn.org/architecture/pdf/1560_Ind.pdf (November 14,
2010) 15 Yoshiyuki Hoshiyama, “Jakarta’s Soekarno Hatta International Airport,” Airport Review (1997) p.306-309
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2) About AP-II
AP-II, which manages and runs Soekarno Hatta Airport, is a 100% state-owned company. It manages
and operates 12 airports located on the west side of the country, as Indonesia was subdivided
geographically into an east and west side (AP-I is in charge of the east side). From information
during the interviews between the Study Team and AP-II, it was found that Soekarno Hatta Airport is
the only airport out of the 12 that it manages and runs that has managed to turn a profit. According to
claims by the higher-ups at AP-II who took part in the interviews, as things currently stand the
profits from Soekarno Hatta Airport are used to cover the deficits run by its other airports.
3) Soekarno Hatta Airport’s Existing Facilities
a) Airside Facilities
An overview of the airside and landside facilities was listed within this report by reflecting the
content from the on-site study by the Study Team, principally the “Master Plan Study on Multiple-
Airport Development for Greater Jakarta Metropolitan in the Republic of Indonesia: Progress
Report” (March 2011) prepared by JICA.
The airside facilities include the north-south runway; Aprons A, B, and C at Terminal 1; and the
cargo area that were built in 1984, as well as Aprons D, E, and F at Terminal 2 that were built in
1990. The particulars for the airside facilities are listed in the following table.
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Table 1-5: History of the Construction of the Civil Engineering Facilities at Soekarno Hatta Airport
Facility Construction Year Remarks
North Runway(07R-25L) 1984 3,600mx60m
Parallel Taxiway A 1984 3,760mx23m
Parallel Taxiway B 1984 3,760mx23m
Apron A(Terminal1) 1984 84,071 m2
Apron B(Terminal1) 1984 84,071 m2
Apron C(Terminal1) 1984 88,275 m2
Apron Cargo 1984 33,278 m2
Remote Apron B/C 1984 9,309 m2
South Runway (07R-25L) 1984 3,660mx60m
Parallel Taxiway C 1984 1,306mx 23m
Parallel Taxiway D 1984 3,505mx 24m
Apron D(Terminal 2) 1990 12,564 m2
Apron E(Terminal 2) 1990 95,271 m2
Apron F(Terminal 2) 1990 131,353 m2
Remote Apron D 1990 54,315 m2
Remote Apron F 1990 59,850 m2
Connection Taxiway E 1984 1,800mx 23m
Connection Taxiway F 1984 1,800mx 23m
Apron G (Terminal 3) 1996 62,505 m2
Source: “Table 6.1.1 Construction History of SH Airport Civil Facilities” in JICA, “Master Plan Study on
Multiple-Airport Development for Greater Jakarta Metropolitan Area in the Republic of Indonesia: Progress Report”
(March 2011), translated into English by the Study Team
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Figure 1-2: Image of the Current Arrangement of Soekarno Hatta Airport
Source: Prepared by the Study Team based upon the JICA, “Master Plan Study on Multiple-Airport Development for
Greater Jakarta Metropolitan Area in the Republic of Indonesia: Progress Report” (March 2011)
Terminal 1 Terminal 2
Terminal 3
Golf course
Cargo area
Utility area
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b) Terminal Facilities
(i) Terminal 1
Terminal 1 was completed in 1985, and is currently used as a terminal exclusively for domestic
routes. It is frequently used by LCCs such as Citilink, which is a subsidiary of Garuda Indonesia
Airlines, Lion Air, and Batavia Air in particular. The building is a two-story structure constructed of
steel reinforced concrete, with a total floor space of approximately 143,000m2. Its envisioned
capacity from when it was initially built was 9 million people per annum. The terminal forms a
semicircular shape, and has three units (Terminals A, B, and C) that are each independent. There are
seven boarding areas in the front of each unit, which are connected by a corridor. There is a surface
parking lot in front of the curbside area at Terminal 1 that is constantly packed.
The concept for Terminal 1 is for one and a half stories, with check-in and arrival handled on the
first floor, and passenger boarding of the airplanes carried out on the floor above this. The facilities
comprising Terminal 1 are listed below.
<Curbside Area / Departure and Arrival Lobby> (First floor)
The curbside area at Terminal 1 is a semi-enclosed space that is covered with a roof, and which has a
semicircular corridor that continues from Terminals A through C. This area is constantly packed with
passengers prior to check-in and the people there to see them off. There is a small amount of seating
there, but the sight of people who could not get a seat sitting on the ground can be seen. The curbside
area also contains an LCC sales window for LCC tickets, with people in this area purchasing plane
tickets.
There are restaurants and eating establishments for the general public facing the curbside area.
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Additionally, as one of its recent initiatives AP-II has installed a shopping mall that can also be used
by general customers in the second floor area, but customers using this mall are rarely seen.
Photo 1-1: The packed curbside area Photo 1-2: Restaurants in the curbside area
Source: Taken by the Study Team (September 2011)
<Viewing Platform> (Second floor)
Visitors can get to the viewing platform which looks out over the runways and aprons from the
external staircases on either end of the curbside area. However, a fine-mesh fence has been spread
around the viewing platform, and so the view from there is not all that good. There are few people
actually watching the airplanes arrive and depart, and no chairs or other furniture have been installed
there. Scenes of passengers who seemed to be waiting for delayed flights sitting or laying down in
the passageway are conspicuous.
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Photo 1-3: Viewing platform Photo 1-4: View of the airside area
from the viewing platform
Source: Taken by the Study Team (September 2011)
<Entrances> (First floor)
There are three entrances facing the curbside area. But according to those in charge at AP-II, in order
to alleviate the congestion these are operated so that only people with a ticket can enter the check-in
lobby. Security checks have been set up at these entrances, with passengers undergoing inspection
via a metal detector, and their baggage subject to an X-ray scan.
<Check-in Lobby> (First floor)
In Terminal A 25 check-in counters have been set up in a linear arrangement, with 27 such counters
in Terminal B and 24 in Terminal C arranged in a similar fashion.16 In general, there are two lines
lined up at each counter dealing with passengers.
<Airport Service Fee Counter> (First floor)
At the end of the check-in lobby there is a counter where customers who have completed check-in
16 JICA, “Master Plan Study on Multiple-Airport Development for Greater Jakarta Metropolitan Area in the Republic
of Indonesia: Progress Report”, (March 2011), p.6-9
Table 3-8: Revenue breakdown of Airports Of Thailand
FY2008 FY2009 FY2010
Aeronautical revenue 56% 57% 58%
Non- aeronautical revenue 44% 43% 42%
Total (M, THB) 26,740 21,502 24,033
Source: Airports of Thailand Annual Report (2009, 2010)
Table 3-9: Revenue breakdown of Malaysia Airports Holding Berhad
FY2008 FY2009 FY2010
Aeronautical revenue 51% 52% 52%
Non-aeronautical revenue 49% 48% 48%
Total (M, MYR) 1,279 1,469 1,675
Source: Malaysia Airports Holding Berhad Annual Report (2009, 2010)
Table 3-10: Revenue breakdown of Changi Airport Group
2009/2010
Aeronautical revenue 36%
Non-aeronautical revenue 51%
Other 13%
Total (M, SGD) 961
Note: The Changi Airport Group (CAG) was founded in June 2009 and the fiscal year begins in April. As such, financial information is only available for the founding year of June 15, 2009 to March 2010 (business period of about eight months).
Source: Changi Airport Group Annual Report (2009/2010)
From the above revenue structure analysis, it is believed important from an administrative
perspective for Soekarno Hatta Airport to implement measures for boosting non-aeronautical
revenues, as the airport’s ratio of non-aeronautical revenues on overall revenues is much lower
compared to the rest of Asia and the world.
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b) Analysis of detailed revenue breakdown
With regard to a detailed breakdown of revenues (breakdown of aeronautical revenue and
non-aeronautical revenues), due to data restrictions it was only possible to assess figures for AP-II
(there was no breakdown of revenues for aeronautical /non-aeronautical by airport in the annual
reports).
Aeronautical revenues
The largest factor of AP-II’s aeronautical revenues was passenger service. This was followed
by flight services and then landing services (the air traffic control services operated by AP-I
and AP-II in Indonesia are now state-owned, and while the decision has been made to separate
the services from the airport management company, there have been no specific developments
as of yet).
Table 3-11: AP-II airport revenue breakdown
Aeronautical Revenues 2008 2009 2010
Landing Services 17.9% 15.8% 14.8%
Flight Services 26.3% 20.6% 17.8%
Passenger Service 49.6% 58.1% 62.2%
Aviobridge usage 2.9% 2.6% 2.3%
Counter usage 3.2% 2.9% 2.9%
Total 100.0% 100.0% 100.0%
Source: AP-II Annual Report (2009, 2010)
Passenger service fees (formerly known as ‘airport taxes’) at Soekarno Hatta Airport are set at
150,000 rupiah for international flights and 40,000 rupiah for domestic flights. According to
JICA’s Master Plan survey, there were a total of approximately 42 million passengers in 2010
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(of which 32 million were domestic travelers and 9.5 million were international travelers).
Estimating that half of the airport users are travelers that pay airport usage fees, airport usage
fees at Soekarno Hatta Airport in 2010 can be assumed to be around 1.3715 trillion rupiah.
This is 71.5% of the airport’s aeronautical revenues (1.9185 trillion rupiah), or 54.6% of
overall revenues.
Table 3-12: Airport usage fees at Soekarno Hatta Airport (estimate)
Passenger
(JICA MP)
Departing Passenger
(Estimated)
Fee
per passenger
Revenue
(Estimated)
(people) (people) (IDR) (M, IDR)
Domestic 32,396,066 16,198,033 40,000 647,921
International 9,647,576 4,823,788 150,000 723,568
Total 42,043,642 21,021,821 1,371,490
Source: AP-II Annual Report (2009, 2010), JICA Master Plan
Compared to the international flight fees of surrounding airports in Asia, airport service fees at
Soekarno Hatta Airport are not very high. On the other hand, however, domestic flight fees are
rather high compared to other airports in Asia.
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Table 3-13: Airport service fees (international flights)
Local currency Yen
equivalent
Dollar
equivalent
Indonesia Soekarno Hatta Airport 150,000 IDR 1,266 16.5
Narita Airport 2,540 JPY 2,540 33.1
Haneda Airport 2,000 JPY 2,000 26.1
Hong Kong International Airport 120 HKD 1,183 15.4
Suvarnabhumi International Airport (Thailand) 700 THB 1,729 22.6
Kuala Lumpur International Airport (Malaysia) 51 MYR 1,233 16.1
Kuala Lumpur International Airport (Malaysia; LCC) 25 MYR 604 7.9
Changi Airport (Singapore) 28 SGD 1,654 21.5
Changi Airport (Singapore; LCC) 18 SGD 1,063 13.9 Note: Narita, Haneda, and Hong Kong also have separate fees for children.
Source: Websites for each respective airport. Currency equivalents were taken at the time the report was drafted
(November 21, 2011).
Table 3-14: Airport service fees (domestic flights)
Local currency Yen
equivalent
Dollar
equivalent
Indonesia Soekarno Hatta Airport 40,000 IDR 338 4.4
Narita Airport 0 JPY 0 0.0
Haneda Airport 170 JPY 170 2.2
Hong Kong International Airport N/A N/A N/A
Suvarnabhumi International Airport (Thailand) 100 THB 247 3.2
Kuala Lumpur International Airport (Malaysia) 9 MYR 218 2.8
Kuala Lumpur International Airport (Malaysia; LCC) 6 MYR 145 1.9
Changi Airport (Singapore) N/A N/A N/A
Changi Airport (Singapore; LCC) N/A N/A N/A Note: Narita, Haneda, and Hong Kong also have separate fees for children. Figures for Narita Airport are for
domestic flights that originate at Narita Airport. The transit charge for international flights is 1,520 yen per adult.
Source: Websites for each respective airport. Currency equivalents were taken at the time the report was drafted
(November 21, 2011).
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Non-aeronautical revenues
Non-aeronautical revenues account for a little more than 20% of all AP-II revenues.
Of those revenues, the main non-aeronautical revenues are concessions and space rentals.
Each of the terminals is taken to be composed as follows:
Table 3-24: Area list of expanded terminal
Item Area Remarks
Integrated check-in 10,000 m2
Concessions 15,000 m2 5,000 m2 added after check-in relocated
Gate lounge / bus lounge 5,000 m2
T1 (Expanded)
Subtotal 30,000 m2
Integrated check-in 10,000 m2
Concessions 15,000 m2 5,000 m2 added after check-in relocated
Gate lounge 5,000 m2
T2 (Expanded)
Subtotal 30,000 m2
Terminal 145,000 m2
Concessions 40,000 m2
Offices 15,000 m2
T3 (Expanded)
Subtotal 200,000 m2
Source: Prepared by the Study Team
5) Setting an area size for this plan
In determining area for this plan, project elements have been classified into the following five
packages in view of business activities.
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Table 3-25: Five Project Packages
Packaged project elements Source of funds anticipated
by AP-II Source of funds anticipated
by the Study Team
Package (1) Airside (New construction or modification of taxiways and aprons)
Implemented as public works using government fund (Assets after completion may be transferred as equity or grant to AP-II.)
Implemented as public works using yen loans.
Package (2) Ancillary works for terminals (People mover, utilities, etc.)
Like Package (1), implemented as public works using yen loans. However, in the event that it is not carried out as a public work, development will be carried out through JV as per Package (3).
Package (3) Renovation and extension of terminal buildings
Use of internal reserve of AP-IIand AP-II’s collection of funds from domestic market
The managing company for Soekarno Hatta Airport will be separated from AP-II, carry out development of the terminal buildings using third party funds, and operate for a fixed period of time.
Package (4) New construction of cargo village
Package (5) Commercial area (Commercial space, hotels, offices, car parks)
Joint venture including third party fund
Construction is carried out in a concession style using third party funds.
Source: Prepared by the Study Team
The set size of facilities is summarized as follows by project package.
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Table 3-26: Size of facilities by project package
Project elements Anticipated scope of facilities Anticipated Size
Apron New construction + modification of existing areas
Package (1) Airside
Taxiway New construction of taxiway on eastern side; partial modification of existing areas
Area developed: 360,000 m2
People mover New construction for connecting to new terminal (or construction of bus route)
Total length: 3.5 km (4 stations)
Package (2) Ancillary woks for terminals
Utilities etc. Utilities, road improvement
Terminal 2 Extension of existing facilities + modification of existing areas
30,000 ㎡ (extension)
+ modification of existing facilities
Package (3) Terminal
Terminal 3 Extension of existing facilities 200,000 ㎡ (extension)
Package (4) Cargo village Cargo New construction 150,000 ㎡
Package (5) Commercial area
Integrated building, Connecting building, Interchange terminal, Parking building
New construction 185,000 ㎡
Source: Prepared by the Study Team
6) Model plan for this plan
A model plan has been created as follows based on the above considerations.
A specific plan for the location of the commercial, connecting building, and parking space will
be crafted once detailed planning is conducted.
Exact route of APM will be determined once detailed location of Airport Link Railway station
within the airport premise is provided.
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Figure 3-16: Model plan (tentative)
Source: Prepared by the Study Team
Alternative proposals have been provided below as a reference.
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Alternative Plan 1
In this plan, a design of Terminal 3 that exploits the regional character achieved in Terminals 1 and 2
is developed even further. As the additional part of the Terminal 3 looks totally different from the
existing part, it will be difficult to consider two different buildings together as one terminal building,
leaving the problem of having to remove the existing.
Figure 3-17: Alternative Plan 1
Source: Prepared by the Study Team
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Alternative Plan 2
In this alternative plan, Terminal 3 is designed to accommodate more open spots. This design will
allow for developing a certain degree of open area at the north and east sides of Terminal 3. At the
same time, however, this will reduce the number of fixed spots. Thus, in the event that a terminal is
constructed that emphasizes fixed spots, it will be difficult to accommodate those spots.
Figure 3-18: Alternative Plan 2
Source: Prepared by the Study Team
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7) Issues and solutions for realization of the project
Technical issues and solutions for realizing the plans stated above are enumerated as follows:
(i) Detailed investigation of existing terminals
Existing conditions including utility line routes and building structures will have to be
investigated in detail in planning extension and modification of the present terminals.
(ii) Elaborate study on staged development plan
Since this project for extension and improvement must be implemented while maintaining the
airport operation, it is necessary to draw up a detailed development plan with due
consideration for staged relocation. Therefore, it is preferable to start meetings with airline
companies, tenants, etc. at the earliest stage.
(iii) Coordination about connection with railway station
In preparing cross-sections of modified or ameliorated terminal buildings, plans of connecting
buildings and plans of people mover, it is necessary to ensure coordination with the planned
railway station in view of horizontal and vertical development. Therefore, it is preferable to
continuously hold meetings with the railway unit and, where it takes much time to complete a
railway, impose the railway unit planning conditions reviewing the master project schedule.
(iv) Relocation of existing facilities
Essentially, the proposed plan has been prepared so as to minimize relocation of existing
facilities accompanying extension of terminal buildings and construction of connecting
buildings; however, part of the facilities has to be relocated or demolished. Therefore, it is
necessary to confirm intention of present building users at the early stage and know who
would be moved to where (including new connecting buildings).
In constructing taxiways, part of the golf course has to be demolished and flattened. It is
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necessary to start a meeting with the concerned persons at the early stage to commence site
preparation as scheduled.
(v) Rearrangement of business area related to Cargo Terminal
The business area which comprises offices of distribution companies etc. in relation to the
present cargo area is formed on the eastern side of Terminal 1. In providing the Cargo
Terminal, it is necessary to verify intention of these companies etc. concerning relocation to
the Cargo Terminal and its vicinity and reflect it in the plan of Cargo Terminal. Therefore, it is
needed to conduct inquiries to the concerned companies etc. at the early stage and ascertain to
what extent open spot area will be placed in the business area site.
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Chapter 4 Evaluation of Environmental and Social
Impacts
The purpose of this study is to consider the feasibility of a facility project for the construction of a
new airport terminal, the upgrading of existing terminals, and the linking of terminals in an
expansion project for Soekarno Hatta Airport in Indonesia’s Jabodetabek Area. A separate
comparative study on the validity and content of extension projects in plans for new construction and
upgrading of several airports including Soekarno Hatta Airport in Indonesia’s Jabodetabek Area has
already been undertaken by JICA in the Project for the Master Plan Study on Multiple-Airport
Development for Greater Jakarta Metropolitan Area in the Republic of Indonesia (JICA Master Plan)
and is antecedent to this study.
The environmental and social impacts covered in this chapter have also been examined in detail by
the JICA Master Plan and this study, which is not at variance with the findings of the JICA Master
Plan in regard to environmental and social impacts, relates details of results of this study while
introducing the main points of the JICA Master Plan. Although the construction of Runway 3 and
Terminal 4 which requires additional land of precincts on the north of the present site is not within
the scope of this study, results of the preliminary study made in the JICA Master Plan are outlined in
this chapter.
As discussed later in (4) of this chapter, an environmental impact assessment (EIA) including a
strategic environmental assessment (SEA) established by the government of Indonesia must be
implemented in proceeding with the expansion plan for Soekarno Hatta Airport. As stated in the
JICA Master Plan, JICA will provide technical cooperation to Indonesia to enable the
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implementation of the SEA for the realization of the Soekarno-Hatta Airport extension plan.30
(1) Analysis of current environmental and social conditions
1) Analysis of the current state
Soekarno Hatta Airport is located in the northeast corner of the city of Tangerang in the eastern
corner of Banten Province. The northern perimeter of the airport is on the border of the city of
Tangerang and the Tangerang District and the expansion plan (Runway 3 and Terminal 4) of the
airport will have an impact on six villages (Desa) in the area.
The land earmarked for expansion of the airport is flat terrain less than 5m above sea level. The area
is dotted with small ponds and marshy areas so it can be presumed that the land naturally formed
into an alluvial fan at the estuary of Chi-Sadane River.
The majority of the land for the planned project consists of rice fields and residential areas, with
dwellings occupying one-fourth of the total area. The total number of buildings is approximately less
than 2,000 and irrigation channels stretch for about 2km across the land planned for the project.
Because the plan for expansion has not yet reached the implementation stage, acquisition of the land
planned for the expansion has not started yet. The University of Indonesia is currently undertaking a
survey of the number of households, population for involuntary resettlement and the current use of
the target land.31
30 http://www.jica.go.jp/english/operations/social_environmental/archive/pro_asia/pdf/ind12_03.pdf 31 JICA, “Master Plan Study on Multiple-Airport Development for Greater Jakarta Metropolitan Area in the Republic
43 As of November 30th,1 IDR = 0.0085 yen (Bloomberg.com)
8-9
The New Medan International Airport airside is owned by the Indonesian Government, while the
landside is owned by a joint venture established between AP-II and the state and operated under a
30-year contract. Thereafter, the ownership rights will be transferred to AP-II through the BOT
(Build Operate Transfer) system. AP-II is anticipated to inject a total of US$315 million
(approximately 24.2 billion yen44) into this project45, and has allocated a carrying value of 1,050.3
billion IDR (approximately 9.1 billion yen46) to the construction in progress and other assets on its
balance sheet as of the end of 2010. Based on reports released in July this year, although the new
terminal is approaching completion, the construction of roads connecting the city to the new airport
has been greatly delayed, and the original launch of the airport scheduled for July this year will be
postponed to after 2013.
Photo 8-1: Terminal building of the New Medan International Airport
Source: July 13th, 2011 by Medan Indonesia, Medanku.com
44 Calculated at the rate of US$1 = 77 yen 45 May 15th, 2009, Kuala Namu International Airport | Medan Indonesia Pride http://www.medanku.com/ 46 Calculated at the rate of 1 yen = 115 IDR
8-10
Photo 8-2: Grand design of the Medan airport (including after future extensions)
Source: May 15th, 2009 by Medan Indonesia, MedanKu.com
While the investment in the New Medan International Airport is one of the largest to-date by AP-II,
it has not been confirmed that there has been a significant increase in the amount of loans taken out
in tandem with the progress of this project. The new terminal for Soekarno Hatta Airport is
believed to be the first project of a scale that requires the taking out of loans.
Expected Form of Involvement by Japanese Companies in the Management of Soekarno Hatta
Airport
As Soekarno Hatta Airport currently forms a part of AP-II, the following are the options that can be
taken into consideration as means of accepting third-party funds, including those from Japanese
companies.
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a) Investing in AP-II
Figure 8-2: Conceptual image of investment in AP-II
Source: Prepared by the Study Team
AP-II is currently owned wholly by the Indonesian Government, and there are no plans for
privatization.
Hypothetically, even in the event that the Indonesian Government takes up the option of partial
privatization, investment analysis would be difficult due to the need to assess policy risks,
including the future of an unprofitable airport for investors.
b) Spinoff of Soekarno Hatta Airport into a separate company for a fixed period of time
Figure 8-3: Conceptual image of Soekarno Hatta Airport spin-off
Source: Prepared by the Study Team
AP II
Soekarno Hatta
T1, T2, T3, cargo, land
Liabilities
Capital
Soekarno Hatta Airport
Japanese financing
Financing by AP-II
Spin-off
AP II
Assets 12 airports in various parts of Indonesia
Liabilities
Capital Japanese Investors
8-12
Soekarno Hatta Airport is the most profitable airport, and this form would be the easiest way to
receive third party equity and the procurement of debt.
The spin-off and partial privatization of Soekarno Hatta Airport was reviewed after the Asian
economic crisis, at the request of the IMF. In reality, an international bidding took place (Paris
Airport Authority won the negotiation rights). However, as a result of opposition within
Indonesia and other factors, it was not implemented, and complete privatization is believed to
be fraught with difficulties.
As such, we believe that the review should proceed with a focus on proposing to keep the
ownership of the airport with AP-II, separate all Soekarno Hatta Airport operations for a fixed
period of time, accept third party funding, and develop the terminals and improve operations.
This would be similar to the concept of concessions applied to infrastructure PPP. The
assumption is that AP-II, which is the current owner of the facilities and concession rights, will
exchange the relevant assets and rights for a certain value, and lend these to a third party for a
fixed period of time.
However, there is a need to conduct detailed studies, including dialogues with the Indonesian
authorities, into the practicalities as well as legalities involved in bringing this to fruition.
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c) Separation of passenger terminal operations for a fixed period of time
Figure 8-4: Conceptual image of passenger terminal spin-off
Source: Prepared by the Study Team
This scheme involves the separation of the operations of Soekarno Hatta Airport, which is
currently managed under a vertically integrated system (as for Narita Airport); airside
operations including runways and apron will be handled by AP-II, while the ownership and
management of the terminal buildings will be undertaken by the newly established JV (as for
Haneda Airport).
As for b), there is no need to the separation to be permanent; after a fixed period of operation,
the ownership rights will be transferred to AP-II under the concession system.
The division of roles for AP-II and JV after the vertical separation can be classified under two
broad categories.
AP II
Existing facility
Existing facility
Japanese financing
Financing by AP-II
Extension
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(1) Annuity (receive certain fees from AP-II)
Figure 8-5: Conceptual image of annuity arrangement
Source: Prepared by the Study Team
This system is frequently used by Japanese PFI. On the one hand, JV will be able to
enjoy stable revenues in the form of facility usage fees from AP-II; on the other hand,
the scope for increase in benefits are limited.
Passengers Airlines
Facility usage fees
Shared services among buildings Loans
Repayment
Dividend Equity investment and O&M
AP II
JV (T1-3)
Japanese
Companies
User
Bank
Usage fees
Dividend
Equity investments
8-15
(2) Concession (Investors take business risks)
Figure 8-6: Conceptual image of concession arrangement
Source: Prepared by the Study Team
This system is used by the international terminal of Haneda Airport. However, as the
bulk of Soekarno Hatta Airport’s profits are made up of airport taxes, it would be an
issue to have AP-II and JV come to an agreement on profit sharing rules.
Comparison of Options and the Orientation of This Study Team
The merits and demerits of each option to investors have been organized as follows.
Agreement on operations
Dividend
Financing
Dividend
AP II
JV (T1-3)
Japanese Companies
User Usage fees
Financing O&M
Usage fees
Bank
Repayment
Loans
8-16
Table 8-6: Comparison of Options and the Orientation of This Study Team
Merits Demerits
(a) Investment in AP-II No costs accompanying the
separation of operations,
such as negotiations,
administration, taxes, etc.
Need to maintain unprofitable
local airports, as well as to bear
the costs of development
(b) Investment in spinoff of
Soekarno Hatta Airport
Possibility of gaining
increased profits from airline
companies as a result of the
enhancement in the aviation
department, as well as the
increased profits as a result
of sales expansion in the
commercial department.
Gives rise to obligation to pay a
large concessionary fee to
AP-II.
Citizens are expected to oppose
the partial privatization of an
airport in the capital city.
(c) (1) Separation of
operations for the terminal
(Annuity)
Stable profits Limited room for expansion of
profits
(c) (2) Separation of
operations for the terminal
(Concession)
Possibility of gaining
increased profits as a result
of sales expansion in the
commercial department.
Possibility of suffering losses
in the case that the commercial
department does not fare well.
Source: Prepared by the Study Team based on AP-II’s annual reports
This study team is oriented toward (b) Spinoff of Soekarno Hatta Airport into a separate company
for a fixed period of time. This option allows us to aim for greater profits not only from the
enhancement of non-aviation sectors such as the commercial department, but also from the increase
in aviation income from landing fees and aircraft parking fees.
Summarizing the dialogues and media reports to date, the Directorate General of Civil Aviation
(DGCA) of Indonesia views the participation of foreign companies in this project as one of the
options under consideration. On the other hand, AP-II is headed toward the direction of conducting
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the aviation and passenger terminal businesses by itself, while working in collaboration with foreign
companies on the new cargo terminal, the commercial sector, and hotels. This differs from the form
of involvement that our group is considering.
Even as the maximum investment (of 49%) remains a legal limitation to the fixed-period spinoff of
Soekarno Hatta Airport, which is what our study team prefers, AP-II’s policy is to keep up the
operation of the airport—its core business—independently. For that reason, the first step toward
bringing this project to fruition would be to gain AP-II’s understanding on the involvement of a third
party in the operation of Soekarno Hatta Airport. Going forward, it is important to keep up outreach
efforts in view of the potential merits to be gained in partnering with our group.
Packages (4) and (5)
With regard to Terminals 1 and 2 connecting buildings, the new cargo terminal, commercial facilities,
and hotels, AP-II has reviewed these and designated them as non-core businesses.Therefore, AP-II
appears to be considering undertaking the development of these facilities using third party funds
under the concession system.
Currently, at Soekarno Hatta Airport, part of the non-aeronautical operations such as commerce- and
cargo-related operations are managed using third party funds under the concession system, and
concession revenues make up the largest share among non-aeronautical revenues.
8-18
Table 8-7: Major Concession Contracts
Contracting party Project
type
Contract
year
Period
(Year)
Contents
PT Wahana Dirgantara BTO 2005 Development of warehouse
2,292m2, offices 340 m2, space for
disposal of goods 2,664 m2, car
parks 2,584 m2, connecting roads
Sanggraha Daksa Mitra BOT 1999*1 20 years Development and management of
golf course, parks, shopping
centers located on approximately
1,000,000 m2 of land
PT Birotika
Semesta/DHL
BOT 1999 20 years Construction and management of
warehouses and offices located on
approximately 1,411.20 m2 of land*1 There are no records of contract date on AP-II annual reports. Date of commencement of operations for golf
course based on information from Wikipedia.com.
The period of “20 years after commencement of operations” is set out in AP-II’s annual reports.
*2 Calculated based on the rate of 1 yen = 115 IDR.
Source: Prepared by the Study Team based on AP-II’s annual reports
In a concession contract, the participating company takes over, from AP-II, the rights to use the land
and carry out operations laid out in the contract for a fixed period of time (20 to 25 years), and
constructs facilities and carries out business operations at its own risks. The strengths of Japanese
companies with regard to air cargo handling facilities and the operation of commercial facilities are
as follows.
Japan’s air cargo handling volumes clearly surpasses that of Indonesia’s, and it also possesses
experience in working with ground logistics.
With respect to the operation of commercial facilities in airports, Japan has significantly
higher per passenger expenditure than Indonesia, and possesses a high level of knowhow in
the development and management of facilities in diverse areas, such as product retail, F&B,
8-19
hotels, and multistory car parks.
Packages (4) and (5) are not the main targets for review in this report, and consideration of
involvement in these packages is dependent upon future developments.
(2) The Competitive Advantage that Japanese Companies have in
the Implementation of this Project (Technology , Economic
Aspects)
1) Technology
a) Environmental technologies
Airports are made up of massive buildings and civil engineering structures, and leave a deep impact
on the environment throughout all stages of development, construction, and management. With
regard to Japanese airports, consideration is given to the environment during development, and
environmentally friendly technologies are actively incorporated into the buildings. Similarly, in this
project, through design and construction work carried out by Japanese companies, it is possible to
create environmentally friendly architectures that incorporate numerous environmental technologies.
For that reason, Japanese companies have a strong competitive advantage in this project. The
concrete measures are as follows.
[Use of natural energy]
Settingup of photovoltaic systems
Conservation of energy through the use of natural light in wide, open spaces
8-20
Figure 8-7: Example of the use of natural energy in the airport
Source: Records of terminal facility construction at Central Japan International Airport
[High-efficiency facility systems]
Introduction of high-efficiency equipment aimed at energy conservation, such as inverter and LED
lighting.
Introduction of lighting controls that utilize daylight sensors and motion sensors.
Setting up of cogeneration systems.
[Effective use of resources]
Introduction of rainwater recycling systems
Introduction of water recycling systems
Use of recycled materials
b) Construction technologies
With regard to construction technologies with low environmental burden, Japanese construction
companies may also have superior technological prowess. For instance, in the construction of
Central Japan International Airport, iron and steel slag (by-products that arise in the manufacturing
of steel) were actively used in the roadbed of large-surface roads such as runways, as part of efforts
Solar power generation panels Utilization of daylight
8-21
to use resources effectively. In addition, in concrete paving works such as for aprons, Japanese
companies have a track record for using slip form methods (approximately 60% of the paving
surface) as opposed to formwork47. The utilization of high quality management knowhow in the
management of construction materials and waste materials during the period of construction is also
anticipated. With regard to consideration for the surrounding environment during construction,
Japanese companies have also previously succeeded in reducing the burden on the surrounding
environment through methods such as continuous monitoring.
c) Disaster response and support for BCP (Business Continuity Plan)
The quake-resistance levels of Japanese architecture are the highest in the world, and buildings that
utilized Japanese quake-resistant technologies are also considered to have been extremely effective
in protecting lives and serving as emergency centers during the recent major earthquake in Indonesia.
With regard to measures against the large number of natural disasters that have hit Indonesia in
recent years, such as volcanic eruptions, earthquakes, and hurricanes, it is also possible to formulate
facility plans that utilize BCP support technologies refined through natural disaster responses in
Japan. These include response measures when infrastructure is cut off, such as measures in the event
of power outages and water shortage.
d) Operations
At Soekarno Hatta Airport, with its conspicuous inadequacy of security and aging equipment,
Japanese companies will also be able to exert their competitive edge in operational aspects, such as
the introduction of advanced security systems such as fingerprint authentication systems, as well as
the introduction of the latest baggage handling systems that make use of IC tags and CT scans. Japan
47 Homepage of Central Japan International Airport (http://www.cjiac.co.jp/)
8-22
is also considered to have superb technologies in the area of BMS systems, which are able to grasp
energy consumption patterns in a building and carry out the appropriate energy management,
including tenant billing.
2) Economic aspects
While the technological superiority of Japanese companies is often acknowledged, the historical
impact of yen appreciation has given rise to an undeniable disadvantage in terms of cost. With
respect to technological capabilities that can justify high costs, it is important to work toward
convincing the parties in question.
On the other hand, in the aspect of financing through ODA and export finance institutions, Japanese
companies are believed to have a competitive advantage over other countries. As will be described
later in Chapter 9, Japanese ODA has a very dominant position with respect to the Indonesian
Government, and Japanese financial institutions are also providing loans toward infrastructure PPP
projects in Indonesia.
(3) Measures Necessary to Promote the Issuance of Orders with
Japanese Companies
The three Japanese companies that proposed this study—Itochu Corporation, Shimizu Corporation,
and Japan Airport Terminal Co., Ltd.—have the intention of participating in this project. The three
Japanese companies involved in this study envisage participation in the passenger terminal project as
part of a joint venture with AP-II, the current operator of Soekarno Hatta Airport, and the assumption
is that independent account projects such as hotels will be commercialized under a corporate entity
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centered on a Japanese company. However, as of now, AP-II has announced to the press its
intentions to independently implement the terminal project and acknowledge external investments in
concession projects such as hotels. This is not in complete accordance with the intentions of the
three Japanese companies.
For that reason, while it is important to continue to push for swift consultations with AP-II toward
the implementation of the project, we look forward to receiving the following support from the
Japanese Government as a push toward consultations.
1) Financing
While details will be laid out in the following chapter, in the event that the Indonesia side raises a
request for yen loans for the public works portion of the project, we would like to request that the
Japanese Government take prompt steps to review the provision of yen loans, and to provide
capacity building support for AP-II and other related agencies that have no experience in utilizing
yen loans.
2) Personnel exchange, and invitational exchanges for AP-II
As it appears that the management of AP-II is conducting observations and training to airports
overseas, as countermeasures, we believe that it would be very meaningful to invite AP-II
management to conduct observations and training at Haneda Airport. We look forward to receiving
support from the Japanese Government toward such observations and training.
9-1
Chapter 9 Outlook for Fund Procurement
(1) Review of Sources of Funds and Financing Plans
The anticipated sources of funds for each of the five packages included in his proposal are laid out as
follows.
Table 9-1:Anticipated Sources of Funds for Each Target Construction Project
Project item Current anticipated sources of funds
Package (1)
Repair of runways, aprons and taxiways,
etc.
Taxes
Government bonds (domestic and foreign)
Loans from aid agencies, such as yen loans
Package (2)
Utility plant buildings, people mover,
etc.
In the event of public works: Same as
Package (1)
In the event of JV: Same as Package (3)
Package (3)
Passenger terminal buildings
Self-funding by AP-II and JIS
External loans (Subletting of yen loans from
the government, local banks, Japanese
government agencies)
Source: Prepared by the Study Team
Categorizing these sources of funds gives us the following.
Table 9-2: Target Construction Project for Each Source of Funds
Source of funds Target construction project
a) Yen loans (for the public works
portion of the project)
Package (1)
Consider potential for Package (2)
b) External loans
(Subletting of yen loans, banks,
bonds)
c) Japanese government agencies
d) AP- II self-funding
e) JIS self-funding
Package (3 )
Probably for Package (2)
Source: Prepared by the Study Team
9-2
In our consideration of possibility of funding and cash flow analysis contained in the following
chapters, we assumed that 60% of total costs for Package (2) and (3) should be raised from debt.
Given the assumption on the investment costs in Chapter 5 of 19 billion Yen for Package (2) and 70
billion Yen for Package (3) plus 10% for design and contingency, total debt would be 58.7 billion
Yen, or 7 trillion Rupiah, for Package (2) and (3) and 46.2 billion Yen, or 5.4 trillion Rupiah, for
Package (3).
(2) Possibility of Funding
1) Yen loans (for the public works portion of the project)
Financing by the Indonesian Government for large-scale public works such as Package (1) is
obtained from the broad categories of taxes, issuance of government bonds in the domestic market,
issuance of government bonds overseas, and loans from overseas aid agencies.
As described in Chapter 1, the Indonesian Government adheres to a strict code of fiscal discipline.
For that reason, for projects that require massive investments and for which returns can only be
recouped in the long-term, financing is obtained not through taxes, but through long-term debts.
The means through which a government can procure financing include the issuance of government
bonds locally and overseas, as well as loans from aid agencies; it is up to the Indonesian Government
to decide the course it wishes to take. Japan makes up a significant proportion in the area of loans
from aid agencies, and there is a high possibility for the materialization of a long-term, low-interest
loan (yen loan) from JICA should the Indonesian Government wish to receive assistance from the
Japanese Government.
9-3
Table 9-3: Balance of ODA Loans Taken Out by the Indonesian Government
(As of the Second Quarter of 2011, million USD)
Creditor Loan outstanding Share
Japan 27,001 43%
ADB 10,866 17%
IBRD 8,932 14%
IMF 3,163 5%
France 2,436 4%
IDA 2,392 4%
Germany 1,983 3%
U S A 1,187 2%
Total 62,317 100%
Source: prepared by the Study Team from Indonesian Financial Statistics Vol.9, www.bi.go.id
Loan terms for yen loans are overwhelmingly advantageous to the debtor with regard to nominal
interest rate. The current distribution yield of Indonesia’s national debt in the domestic market has
dropped to its lowest levels historically, against a background of subsiding inflation. Despite that,
the yield on a 10-year loan is 6.75% in the local currency and 4.46% in US dollars. In contrast,
Special Terms for Economic Partnership (STEP) yen loans have a fixed interest rate of 0.2% over a
40-year loan period, and a fixed interest rate of 1.4% (similarly targeted at countries with low GDP)
over a 30-year loan period even under standard terms.
9-4
Figure 9-1: Indonesia’s Yield on Government Bonds in its Local Currency (Closing Prices as of
However, it is not possible to make a comparison of loans in different currencies based only on
nominal yields; there is a need to include exchange rate fluctuation risks in the review. While the
9-5
Indonesian rupiah is relatively stable against the US dollar, its value against the yen has dropped
significantly. Hypothetically, if it had received a yen loan around August 2008, the principal and
interest calculated in rupiah would have increased by approximately 35% in three years. Should it
have received a yen loan before the Asian economic crisis, the principal and interest calculated in
rupiah may have become more than five times that of the original. In comparing the cost of loans,
there is a need to recognize that the debtor’s outlook for exchange rate fluctuations can also play an
influencing role.
Figure 9-2: Long-term Trends for Indonesia Rupiah and Japanese Yen Exchange Rates
Source: Bloomberg
In addition, information has also been received to the effect that AP-II has raised concerns that yen
loans take too much time to materialize. Yen loans are based on a principle of cooperative formation,
and there is a need for coordination with aviation authorities and planning ministries in Indonesia,
negotiations between the Indonesian and Japanese Governments, and budgetary measures in Japan.
That is why a certain amount of time is required for the process, from the commencement of
■Most recent value/Closing value/Price/Revised value 116.8939 High value 01/30/09 131.3907 Simple average 77.6308 Low value 04/11/97 19.0840
9-6
negotiations to the granting of funds.
2) On-lending of yen loans to AP-II
As a public work, yen loans are provided directly to the government but on-lent to state-owned
enterprises when they act as the main entities to projects. However, with regard to this project,
there have been no discussions from AP-II pertaining to the on-lending of yen loans.
AP-II is a state-owned enterprise, and is able to receive yen loans on-lent from the Indonesian
Government. The terms of conditions for sub-loans are currently under review, pending the revision
of an article, by the Ministry of Finance of Indonesia, but are as follows under existing regulations48.
(i) In the event that the Ministry of Finance of Indonesia converts it to rupiah and on-lends it to a
state-owned enterprise, the interest rate will be 1% on top of the market interest of Indonesia’s
central bank securities (SBI).
(ii) In the event that it on-lends the loan in yen, the interest rate will be 0.5% on top of the yen loan
interest rate.
With regard to the interest rate of the central bank securities (SBI), items with a six-month period
have conventionally been used as an indicator. However, as six-month central bank securities are no
longer being issued, the substitute indicator has not been established. According to the Indonesia
Financial Statistics49, comparing the average values for September 2011, assuming that the interest
rate—in the event that the policy interest rate (Bank Indonesia Rate or BI Rate) is cited—is 7.75%
(BI Rate 6.75% plus 1%) (as of September 2011), the interest rate in the event that nine-month
48 Article 3 of the Regulation of Minister of Finance of Republic of Indonesia Number: 259 / KMK.017./1993 49 Bank Indonesia Website as of November 19, 2011
9-7
central bank securities are cited will be 7.28% (SBI 9 months 6.28% plus 1%) (as of September
2011); these will be more advantageous to the debtor than the average 10.57% rupiah loan interest
rates offered by state-owned commercial banks. However, as the potential of the issuance of bonds
and of obtaining loans with much more advantageous loan terms than those of the average interest
rate, as a result of the strong financial base and profitability of AP-II, is also plausible, there is a need
to be cautious in asserting the advantages.
Taking out loans in yen is not a common practice among Indonesian enterprises. According to
statistics released by Bank Indonesia, 16% of all bank loan balances as at the end of August 2011
were in foreign currency denominations50, and according to an interview study of local bank officials,
most of these foreign loans were in US dollars. According to the Indonesia Financial Statistics51
mentioned previously, the average interest rate for US dollar-denominated loans is 4.75% (as of
September 2011). Despite being significantly lower than rupiah-denominated loans, these loans are
mostly taken out by export companies that gain revenues in US dollars, and there are few companies
that would attempt to maximize interest savings while bearing the risks of exchange rate fluctuations.
In the Asian economic crisis that hit after 1997, many business operators who have retained the
memory of the rupiah crash have been reluctant to take foreign exchange risks. As the yen has also
risen significantly against the rupiah in recent years, there is a need to assess how AP-II evaluates the
foreign exchange risks that accompany the taking out of yen loans. Swaps, which hedge the foreign
exchange risks for long-term yen loans, which extends to more than 30 years, do not exist in rupiah.
(Please refer to the previous “Long-term Trends for Indonesia Rupiah and Japanese Yen Exchange
Rates.”)
50 Indonesian Banking Statistics, Vol.9, August 2011, p.4, “Commercial Banks’ operation” 51 Bank Indonesia Website as of November 19, 2011
9-8
In addition to these concerns, as described earlier, the promulgation of external debt reduction
policies by the Indonesian Government is also an important point to consider in reviewing the
advantages of a yen loan. As the subletting of the loan in rupiah, described in (1) above, is expected
to provide better loan terms that that for borrowing from a commercial bank, it may be a desirable
option for AP-II. On the other hand, there may be some unease as to whether or not the Indonesian
Government, in its drive to reduce public debt, will select the option of taking a yen loan as a public
debt in a case where AP-II is able to procure financing independently.
3) Loans from local banks
Indonesia’s financing environment is considered to be in good condition. Against the background of
a favorable economy, bank finance is seeing an annual growth of more than 20%, and the bond
market is also developing gradually. With the high profile and monopolistic position in air travel in
the Jakarta metropolitan area, it is considered possible for AP-II to procure tens of billions yen
necessary for the implementation of Packages (2) and (3). However, with regard to Packages (4) and
(5) which will be implemented as independent projects under JIS, despite having a monopolistic
position in the areas of “treatment of air cargo” and “passenger services in the airport,” it faces high
commercial risks as it lacks the track record of having the stable revenues that the passenger
terminals are able to generate. As such, there is a possibility that the parent company is requested to
act as guarantor.
Financing Capability of Bank Indonesia
As of the end of June 2011, the ratio of loans to local commercial bank deposits was as low as 66%52.
52 Financial Stability Report, No.11, September 2011, Bank Indonesia, page 26
9-9
In order to ensure economic growth, Bank Indonesia has even taken the exceptional measure of
penalizing banks that do not lend out more than 78% of their deposits (starting from March 2011) 53.
While the low loan-deposit ratio serves as a liquidity measure for the Indonesian economy, which
faces extreme fluctuations, a large part of it can be attributed to the lack of good financing targets.
Major banks seeking borrowers are believed to welcome new financing demands from good
borrowers.
The lending power of major Indonesian banks is a factor, but there is also a need to take note of the
fact that Indonesian regulations on the maximum lending limit that can be provided to a single
company to 20% of its shareholders’ equity. Under current conditions and based on Indonesian
Banking Statistics, the loan limit for the top four banks as of the end of 2010 was 252.9 billion yen.
The tens of billions yen of funds that are needed urgently for the expansion of Soekarno Hatta
Airport is unlikely to hit the loan limit ceiling.
Table 9-5: Assets and Loan Limit of the Top Four Banks in Indonesia
(IDR billion) (JPY 100 million)
Rank Bank Name Market share
Total assets
Loan limit (20% of equity)
Total assets
Lending limit
1 Bank Mandiri 13.59% 449,775 8,309 38,231 3,531
2 BRI 11.37% 404,286 7,335 34,364 3,117
3 Bank Central Asia 10.84% 324,419 6,822 27,576 2,899
4 BNI 7.75% 248,581 6,624 21,129 2,815
Total 43.55% 1,427,060 29,089 121,300 12,363
Source: Prepared by the Study Team from Indonesian Financial Statistics Vol.9, www.bi.go.id
In reality, three of the four banks listed above provided a total of 4.7 trillion IDR (approximately 47
53 “Bank Indonesia’s lending drive risk creating bad loans”, Jakarta Post, March 1, 2011
9-10
billion yen at prevailing rates at the time54) for the infrastructure project in Indonesia described
below, under a financing agreement concluded in January 2010.
Table 9-6: Breakdown of Financing for Semarang-Solo Road (Toll Road, 76km)
(1 trillion IDR)
Use Source
6.83 4.70 Loan
1.84 Bank Mandiri
1.61 Bank Negara Indonesia
1.15 Bank Rakyat Indonesia
0.10 Bank Jateng
2.13 Financing
Jasa Marga(State Owned)
Sarana Pamganguan Jawa Tengah
(Regional Government Owned)
Source: Prepared based on an article from Projectfinancemagazine.com55
Although average loan interest rate are announced for each type of bank, these include the average
values for small and medium-sized enterprises; loans for large, blue-chip companies are thought to
carry lower interest rates than the rates shown below, and higher risk transactions, such as for
nonrecourse financing, should carry higher interest rate.
In addition, while the following statistics are valid up till September, Bank Indonesia’s interest rate,
which is a policy interest rate, fell by 0.25% in October and 0.5% in November. Currently, it has hit
its lowest level in history at 6%, and thecurrent rupiah interest rate may fall even lower than the rate
as of September.
54 Calculated based on the rate of 1 IDR=0.01 yen
55 Four lend into Trans-Java toll road, 08 Jan. 2010, www.projectfinancemagazine.com
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Table 9-7: Average Interest Rates of Yen and US Dollar Denomination Facility Loans
Jan Feb Mar Apr May Jun Jul Aug SepState-ownedbanks
Jan Feb Mar Apr May Jun Jul Aug SepState-ownedbanks
5.04 4.96 4.82 4.83 4.88 4.85 4.64 4.64 4.75
Commercialbanks
5.17 5.06 5.12 5.07 5.00 4.90 4.77 4.73 4.86
Foreignbanks
3.30 3.39 3.39 3.26 3.14 3.14 3.11 3.12 3.22
Average Interest Rate for Rupiah-Denomination Facility Loan (%, from Jan to Sep 2011)
Average Interest Rate for Dollar-Denomination Facility Loan (%, from Jan to Sep 2011)
Source: Prepared based on the website of the Central Bank of Republic of Indonesia, Indonesian Financial Statistics
The problem of collateral could pose a problem when receiving bank financing. With regard to the
fixed period spin-off of Soekarno Hatta Airport under consideration for this project, if the ownership
rights of the land and buildings are wholly transferred to the new company, the bank may require
collateral before providing a loan. In the event that the ownership rights remain with AP-II, there is a
need for a framework for collateral provided by a third party guarantor.
Issuance of Bonds in Indonesia
In the event that the amount obtained through the bank loan is insufficient in making up the amount
needed, there is also an option of bond issuance, with consideration for the creditability status and
high profile of AP-II. While the interest rate for bonds tends to be higher as compared to bank
financing, banks that require large amounts of long-term funding as well as power companies and
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vender finance companies that have a demand for funding that exceeds the bank loan limits have
issued tens of billions yen in bonds.
4) Loans from Japanese government agencies, excluding yen loans
In the event that AP-II and the Japanese companies that will become sponsors have the intention of
borrowing at dollar denominations, there may be room to make use of low-interest, long-term
financing and guarantees from Japanese governmental financial institutions.
While it is entirely possible to offer favorable terms for the dollar-denomination facility financing
loans from the abovementioned Indonesian banks should Japanese governmental financial
institutions seek support from the Indonesian Government, there is a possibility that it could become
a burden to AP-II.
5) Risks in procurement of funds
The recent European financial crisis is in an extremely precarious state. Should its impact reach
ASEAN, including Indonesia, it is possible that it would have considerable influence on the
procurement of financing for this project. However, in such a situation, the Study Team may be able
to exert its strength in utilizing public low-interest, long-term financing from Japan even more
effectively.
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(3) Cash Flow Analysis
In financial analysis, based on the involvement form b) in Chapter 8 (1), the concession rights for 20
years of operation of Soekarno Hatta Airport are acquired at a consideration of 600 billion IDR
(approximately 5.1 billion yen56) yearly, and the feasibility of the project was verified through the
computation of its Financial Internal Rate of Return (FIRR) in order to derive the health of its
investment and profit balance, in the event that a terminal renovation and extension project is
implemented. This assumption differs from AP-II’s policy of “having AP-II independently develop
and manage the terminals,” and ultimately, the review was conducted only as one of the project
implementation options available.
As described in the appended materials, assuming that 40% of total investment costs by equity and
the remaining 60% by local debt (12% fixed interest and twenty-three year term), return on equity
(ROE) is a satisfactory 15% when the ancillary facilities are not included (See Table 9-8); however,
should the ancillary facilities be included, the rate will be 11%, a level at which judgment could fall
either way (See Table 9-9). In addition, as there is a risk that aviation demand may decline as a result
of various factors such as terrorism, war, and infectious diseases, a “down-side case” hypothesis was
also established in which the number of passengers decreases by 10% every three years. In this case,
the return on equity (ROE) will be 14% if ancillary facilities are not included and 10% if they are
included (See Table 9-10 and Table 9-11).
However, as investment yield is largely dependent upon the increase in concession costs to AP-II,
the appeal of the project to Japanese companies will depend upon negotiations with AP-II.
56 As of November 30th, 1 IDR = 0.0085 yen (Bloomberg.com)
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The cash flow analysis is based on the following key premises.
Form of involvement: A joint venture is established in partnership with AP-II, and concession rights
to operate Soekarno Hatta Airport for 20 years are acquired.
Premises for income
Under the base case, based on the estimates in the interim report drawn up by the JICA Master
Plan Team, the total number of passengers on domestic and international routes are expected
to continue increasing in the future, reaching the maximum permissible number of 60 million
people by 2017, and flattening out thereafter. Under the “down-side case,” starting from 2018,
the number of passengers is predicted to decrease by 10% every three years.
Air traffic control operations, which are under review to be transferred to the government, are
not included in the income forecast. (The air traffic control revenue for 2010 for this airport is
assumed to be 82% of AP-II.) There are no changes to landing and aircraft parking fees, and
income is predicted to increase at the same rate as that of passenger increase.
Airport tax is assumed to stay at current levels—40,000 IDR for domestic routes and 150,000
IDR for international routes.
With the enhancement of commercial facilities, the unit sales for each passenger has been
raised to approximately 220,000 IDR (in line with other international airports) by the year
2019 for international route passengers, and to approximately half of that at 120,000 IDR for
domestic route passengers. The airport receives 15% of the amount as concession revenue.
Floor rent is taken to be same amount as it currently is, and vacancy rate—including the
increased floor space—remains at 80%.
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Premises for expenses
No significant cost reductions are predicted. Operating expenses for Soekarno Hatta Airport
for 2010 are expected to increase at the same ratio as the terminal floor area. (Operating
income for 2010 for the airport is assumed to be 82% of AP-II.)
One trillion IDR (more than 60% of Soekarno Hatta Airport’s operating income for 2010) is
paid to AP-II as the concession fee collateral for the operation of Soekarno Hatta Airport.
The establishment of the new company is taken to be the year 2012, and construction
investment takes place in the four-year period from 2013 to 2016. From 2016, it is predicted
that the total building floor area (307,147 m2 as of 2010) will double to 682,147 m2, and the
floor area that can be leased will increase 6.25 times from the current 8,000 m2 to 50,000 m2.
Ancillary works, including airside projects and unmanned people mover, are assumed to come
under the national budget for public works and be transferred to Soekarno Hatta Airport at no
charge. However, a second scenario, in which ancillary works are undertaken at the expense of
Soekarno Hatta Airport, is also under consideration.
The operating cost of the unmanned people mover is predicted to be 50 billion IDR per year
(approximately 425 million IDR57).
60% of investment costs will be financed with a rupiah-denomination loan at 12% interest,
and the loan will be returned over 19 years (5% of principal every year, and 10% in the last
year only) from the year after works on all terminals have been completed.
One trillion IDR (more than 60% of Soekarno Hatta Airport’s operating income for 2010) is
paid to AP-II as the consideration for concession rights.
57 As of November 30th, 1 IDR = 0.0085 yen (Bloomberg.com)
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Table 9-8: ROE for Package (3), without ancillary facilities (BASE CASE) (IDR million)
Source: Prepared by the Study Team based on financial statements of AP-II and other sources
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Table 9-9: Equity IRR for Packages (2) and (3), with ancillary facilities (BASE CASE)
(IDR million)
Source: Prepared by the Study Team based on financial statements of AP-II and other sources
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Table 9-10: Equity IRR for Package (3), without ancillary facilities (DOWNSIDE)
(IDR million)
Source: Prepared by the Study Team based on financial statements of AP-II and other sources
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Table 9-11: Equity IRR for Package (2) and (3), without ancillary facilities (DOWNSIDE)
(in million rupiah)
Source: Prepared by the Study Team based on financial statements of AP-II and other sources
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Chapter 10 Action Plan and Issues
(1) Status of Activities for the Implementation of the Project
1) Status of activities of three Japanese companies
Three Japanese companies, namely ITOCHU Corporation, Japan Airport Terminal Co., Ltd., and
SHIMIZU Corporation, are enthusiastic about participating in the Soekarno Hatta Airport expansion
project. As indicated in Chapter 8 (1) of this study, the three companies propose to participate in the
project in its entirety. Specifically, the companies envision participating in the passenger terminal
project jointly with AP-II, the current operator of Soekarno Hatta Airport, and furthermore,
establishing standalone businesses, including hotels, with Japanese companies fulfilling a central
role in the corporate structure.
As of this report’s publication, AP-II has announced to the press its policy to implement its own
terminal project and to permit foreign investment in concession projects, including hotels. This
policy contradicts partially with the wishes of the three Japanese companies.
In parallel with this study, Japan Airport Terminal Co., Ltd. has proposed to forge a business alliance
with AP-II for the operation of the airport. Japan Airport Terminal Co., Ltd. has over a 50-year track
record with terminal building operations at Haneda Airport. Soekarno Hatta Airport shares many
similarities with Haneda Airport, including: its positioning as a capital city airport; the characteristics
of its passengers (the number of domestic flight passengers significantly outweigh the number of
international flight passengers); and its function as the hub airport of the country. It is thus believed
that the business alliance will be extremely effective for the future operation and management of
Soekarno Hatta Airport.
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2) Status of other activities in Japan
Ahead of this study, JICA, at the request of DGCA, is implementing the Project for the Master Plan
Study on Multiple-Airport Development for Greater Jakarta Metropolitan Area in the Republic
Indonesia. The objective of the aforementioned study is to formulate a master plan for the
development of a new airport and Soekarno Hatta Airport for coping with the anticipated continued
increase in air traffic demand in Jakarta as a result of Indonesia’s economic development.
The Soekarno Hatta Airport expansion project has also been designated as a “fast track project”
based on the Memorandum of Cooperation on the Cooperation for Establishing Metropolitan Priority
Areas (MPAs) signed between the Governments of Indonesia and Japan in December 2010. With a
view to materializing the MPA concept, JICA has been implementing the Master Plan Study for
Establishing Metropolitan Priority Area for Investment and Industry (MPA) in JABODETABEK
since May 2011 and supporting the realization of the project through high-level talks among
government-related organizations.
(2) Status of Activities of Relevant Government Agencies and
Implementers in Indonesia for the Implementation of the
Project
1) Status of activities of AP-II
AP-II formulated an expansion plan in 2007 for increasing the number of runways and terminals in
response to the increasing demand of Soekarno Hatta Airport. This plan, however, has not been
approved based on the view of DGCA that a drastic resolution is necessary.
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Meanwhile, there are signs that the increase in airport demand is exceeding forecasts. Furthermore,
the situation was having a major impact on the operations of Soekarno Hatta Airport. In this light,
AP-II formulated and presented the Grand Design in 2011 to serve as the future plan for the whole
Soekarno Hatta Airport. At a private-sector session of the Japan-Indonesia administrative
vice-ministerial meeting on transportation which was held in Tokyo in July, Deputy President
Director of AP-II who was in attendance explained the Grand Design and stated that AP-II will
quickly select a Project Management Consultant (PMC) and move forward with the project.
However, as of the interview conducted by the Study Team during the site survey, the PMC had not
yet been selected.
2) Status of activities of DGCA
DGCA, as a national authority responsible for overseeing aviation administration in Indonesia, has
asked JICA to carry out a master plan formulation study as discussed earlier. The objective of the
study is to establish a vision for the modality of the airports of the Greater Jakarta Metropolitan
Area.
(3) Legal and Financial Restrictions of Indonesia
This section will present an overview on the possibility for foreign companies to enter the
anticipated project and whether there is preferential treatment as well as on the licenses which
companies should acquire for the implementation of this project. At the same time, while not directly
applicable to this project, this section will discuss the applicable PPP for the development of new
airports.
1) Regulations on foreign entry and preferential treatment
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2) Necessary licenses for establishment of new joint ventures and business management
3) Infrastructure development using the PPP method
1) Regulations on foreign entry and preferential treatment
Conditionally open business fields
The sectors in which foreign entry is prohibited in Indonesia are listed in the Presidential Regulation
No. 36 of 2010 (May 25th, 2010), Appendix I “List of Business Fields Closed to Investment.” With
regard to the transportation sector (airport), the investment sector related to this project, only “Air
Traffic Guiding Service” applies among the business fields listed. Among the “List of Business
Fields Open, With Conditions, to Investment” in Appendix II of the said Regulation, the (partial) list
of conditions to foreign entry applicable to the transportation sector, which are believed to be
relevant to this investment project, are as follows. With regard to airport-related services, no
regulations on foreign entry exist in particular except for those business fields which set forth a
maximum foreign investment restriction of 49%.
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Table 10-1: Sectors in Indonesia Open with Conditions to Foreign Investment (Airport-Related)
Business Field Condition
10. Transportation Sector (Airport-Related)
Terminal supporting business Max 49% foreign investment
Airport service Max 49% foreign investment
Air transportation supporting service (reservation system via
computer, ground handling for passenger and cargo, and aircraft
leasing)
Max 49% foreign investment
Air transportation non-commercial Max 49% foreign investment
Services related to airport Max 49% foreign investment
Freight forwarder service Max 49% foreign investment
Airplane cargo service Max 49% foreign investment
General Selling Agent (GSA) of foreign air transport company Max 49% foreign investment
Source: Presidential Regulation No. 36 of 2010, Appendix I & II (May 25th, 2010)
2) Necessary licenses for establishment of new joint ventures and business management
First, joint ventures between Indonesian and foreign companies must apply for deed of establishment
and investment plan registration as a Limited Liability Company (LLC) with the Investment
Coordinating Board (BKPM). Then, joint ventures will obtain a Capital Investment Approval Letter
from BKPM.
Registrations58
The following is an outline of the investment plan, deed of establishment, and company registrations
required for new companies.
58 JETRO website: [Indonesia – Investment System – Procedures and Necessary Documents for Establishing a Company by Foreign Enterprises]
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Table 10-2: Outline of Registration Procedures Required for Establishing New Companies
Registration Procedure Applicable Law
Investment
registration
Register investment plan with BKPM of
Indonesia and obtain initial approval.
Obtain investment basic license only for
investments in business fields requiring
financial accommodation.
Investment registration may precede or follow
company establishment.
Prepare quarterly reports on progress of
construction work to BKPM and BKPM
authorities at the provincial or city levels.
BKPM Regulation No. 12
dated December 23rd, 2009
(Issued January 2010)
Deed of
establishment
Apply and register with Ministry of Justice and
Human Rights. Obtain approval letter for
establishment from Minister of Justice and Human
Rights.
Same as above
Company
registration
Register company with Ministry of Justice. After
obtaining Approval Letter from Minister of Justice,
apply with Ministry of Trade. Certification of
company registration issued immediately (effective
5 years).
Regulation of Minister of
Trade No. 37 dated
September 4th, 2007
(No.37/M-DAG/PER/9
/2007)
Source: JETRO website: [Indonesia – Investment System – Procedures and Necessary Documents for Establishing a
Company by Foreign Enterprises]
Land rights59
Currently, Indonesia has 11 types of land rights which individuals and companies may possess with
government approval pursuant to the laws and decrees prescribed regarding land60. Among the 11
types, six types (right of ownership, business operation right, right of building, right of use,
reclamation right, and right to harvest and lease forestry products) require government approval. The
59 JETRO website: [Indonesia – Investment System – Procedures and Necessary Documents for Establishing a Company by Foreign Enterprises] 60 Government Decree No. 5 of 1960 “Basic Agrarian Law” and Government Decree No. 24 dated July 8th, 1997
“Real Estate Registration System”
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remaining five types (land lease right, tenancy right, right of pledge, residency right, and right to
lease agricultural land) may be transferred and obtained among stakeholders without government
approval.
Right of ownership is approved only for Indonesian nationals and may not be acquired by foreign
nationals. Therefore, it has traditionally been the case with joint ventures between foreign and
Indonesian companies that Indonesian investors apply for the right to conduct business operations on
the land and register the right in their names. These title holders lease the use of the land to joint
businesses, and in this way, joint ventures have used the land for business operations61. Meanwhile,
ever since the 1994 government regulation allowed the formation of companies with 100% foreign
investment, foreign joint ventures have been able to acquire the land business operation right directly
under their names.
According to Presidential Decree No. 34 of 1992 concerning the use of the land for which the land
business operation right and right of building were granted to a foreign joint venture, a foreign joint
venture, with regard to the business operation right granted to it: 1) May assign the right (however,
prior approval of the Minister of Territorial Jurisdiction is necessary); 2) May turn the right into a
loan guarantee through establishing a mortgage; and 3) May retain the right for a maximum of 35
years and extend the right for a maximum of 25 years. While there are advantages, including the
possibility of renewal, there are also restrictions. 1) A foreign joint venture may not use the land for
purposes other than those prescribed in the business operation right (e.g., constructing a building
61 Regulations on business right and construction right concerning foreign investment companies established through
mergers between an Indonesian investor (for this project, we assume AP-II) and a foreign investor (for this project,
we assume JIS) (i.e., newly established joint ventures): Presidential Decree No. 32 of 1992 (follow-on law of
Presidential Decree No. 23 dated March 20th, 1980).
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which serves a purpose other than the initial purpose). 2) If a foreign joint venture uses the land for
uses and under conditions other than those prescribed in the contract, the business operation right
will be revoked. 3) The right will apply only to the businesses of the foreign joint venture. 4) The
right applies only to land for which an Indonesian investment company has already acquired the
business operation right.
If the land is not owned by an Indonesian investment company (i.e., if the land for construction and
business operations under this project is owned by the Indonesian Government and is provided to
AP-II for the aviation business), the foreign joint venture may be granted the right to manage the
land provided by the government by the Minister of Territorial Jurisdiction (Land Minister
Regulation No. 9 dated December 6th, 1965). On this basis, an Indonesian investment company is
permitted to transfer the right of use and right of building associated with the aforementioned land to
a foreign joint venture. The following is an outline of the right of building, right of use, and right of
operation.
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Table 10-3: Outline of Key Land Rights
Land Right Right Holder Condition Deadline Right of building: Right to construct and own buildings built on government-owned land, land for which right of operation was granted, or individually-owned land
Indonesian nationals, corporations in Indonesia founded in line with Indonesian law (including foreign investment companies), etc.
-Right may be assigned through sale/purchase, exchange, capital participation, donation, or accession. -Right may also be turned into loan guarantee through mortgage (mortgage expires with determination of right of construction) -Obligations of right holders include: 1) Payment of amount and by the payment method stipulated in the decision regarding the right of building 2) Use of land according to the purposes and conditions set forth in the decision regarding the right of building and contract 3) Maintain land and buildings in favorable stage and preserve the environment (Pay sufficient considerations to interests of local communities) 4) Following the determination of the right, swiftly return the land to the Government/holder of the right of operation/landowner 5) Following the determination of the right, return the title certificate to land authorities
Effective for maximum of 30 years with possibility of 20-year maximum extension. Extension of right of building on land for which right of operation was offered requires prior agreement with right holder. Renewal possible.
Right of use: Right to use government-owned land, land for which right of operation was granted, or individually-owned land
Indonesian nationals, corporations in Indonesia founded in line with Indonesian law (including foreign investment companies), etc.
-Right may be assigned through sale/purchase, exchange, capital participation, donation, or accession. -Right may be turned into loan guarantee through mortgage (mortgage expires with determination of right of use -Obligations of right holders include: 1) Payment of amount and by the payment method stipulated in the decision regarding the right of building, contract for use of land with operation right, and contract for right of use with landowner 2) Use of land according to the purposes and conditions set forth in the decision regarding the right of building, contract for use of land with operation right, and contract for right of use with landowner 3) Maintain land and the buildings on the land in favorable stage and preserve the environment 4) Following the determination of the right, swiftly return the land to the Government/holder of the right of operation/landowner 5) Following the determination of the right, return the title certificate to land authorities
In principle, maximum of 25 years with possibility of 20-year maximum extension, if the land is government-owned or is land for which right of operation was granted and the land is used only for the same purpose. Renewal possible.
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Right of operation: If land provided by the Government to a government agency is provided to a third party for the use of the land, the right granted by the Minister of Territorial Jurisdiction to the aforementioned government agency
Government agencies, including ministries and agencies and directorates general
Those granted with the right of operation are recognized to have the following rights: (1) To plan the purpose of the application and use of the aforementioned land (2) To use the land for the purpose of its application and use (3) To assign a six-year right of use to part of the land to a third party (4) Receive funds in the form of income, compensation, and annual payments The following restrictions apply to (3): 1) Maximum area which can be assigned: 1,000m2 2) Assignee is restricted to Indonesian nationals and corporations located in Indonesia which were established according to Indonesian law. Assignment is permitted only once.
Registration is specified if the effective date for the right of operation exceeds five years. If effective dates are not specified in particular, it is deemed to be over five years. (Provisions on registration are set forth in the Minister of Land Regulation No. 1 dated January 5th, 1966).
Source: JETRO report, Real Estate Usage System in Indonesia (2010).
Applicable laws: For right of building and right of use, Government Decree No. 5 of 1960 “Basic Agrarian Law,”
Government Decree No. 24 of 1997 “Real Estate Registration System,” and other laws; for right of operation,
Minister of Land Regulation No. 9 dated December 6th, 1965.
Building license62
The construction of a connecting building to Soekarno Hatta Airport requires the acquisition of a
building license. Specifically, pursuant to the provisions of the Minister of Home Affairs Regulation
No. 32 dated April 30th, 2010, the company will apply for and obtain a building license from the
provincial or city public works authorities with regard to buildings and non-buildings (e.g., parking
space, sports court, pool). The provincial governor and city mayor (in the case of Jakarta, special
provincial governor) issue the building license pursuant to the locality’s District Spatial Plan Details
(RDTRK), Plan for Building and Environment (RTBL), or district technology plan (RTRK). The
building license is also a precondition for receiving public services (e.g., electricity, water, sewage,
and telephone).
62 JETRO website: [Indonesia – Investment System – Procedures and Necessary Documents for Establishing a Company by Foreign Enterprises]
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Business license63
A company which is newly founded for the said investment project must acquire a business license.
The company will apply for and obtain the license from BKPM or the provincial BKPM authority.
The business license for foreign companies is effective for 30 years from the start of business or
production. After obtaining the business license, the company will bear an obligation to:
Prepare quarterly reports on the progress of the construction work to BKPM and BKPM
authorities at the province or city; and
Provide reports on investment activities in the first and second half of the year to BKPM and
BKPM authorities at the province or city.
Taxation and preferential treatment measures which will serve either as investment incentives or
disincentives for the implementation of the project are listed below.
A variety of license and non-license procedures are required for activities ranging from the founding
of a new company to the start of construction and business operations. In recent years, however,
these procedures have become simplified. For example, One-Stop Integrated Services are provided
which allow for the submission of most applications at a single location within the BKPM (Articles
26 and 28 of the provisions of the New Investment Law No. 25 dated April 26th, 2007). One-Stop
Integrated Services are available also in the special province of Jakarta at the Jakarta Investment and
Promotion Board (BPMP) (Governor Regulation No. 14 dated January 20th, 2010). According to the
overview provided by JETRO, the services provided by One-Stop Integrated Services are as follows.
63 BKPM Regulation No. 12 dated December 23rd, 2009 (issued January 2010). JETRO website: [Indonesia – Investment System – Procedures and Necessary Documents for Establishing a Company by Foreign Enterprises]
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Table 10-4: List of Services Provided by One-Stop Integrated Services
License Services Non-License Services
a. Investment registration
b. Basic permit for investment
c. Basic permit for investment expansion
d. Basic permit for investment modification
e. Business permit, business expansion permit, permit for joint business with investment company, permit for business modification: Commerce, agriculture, fisheries, livestock, forestry, industry, tourism, mining, transportation, information and communications, labor, education, services, public works services, and other services
f. Location permit
g. Permit of land use appropriation (IPPT)
h. City special planning (KRK) / Building arrangement plan (RTLB)
i. Permit for construction of buildings (IMB)/IPB/KMB
j. Nuisance Act Permit (UUG/HO)
k. Company registration certificate issued by Ministry of Trade (TDP)
l. Other permits necessary for investment
m. Producer import license (API-P)
n. Expatriate employment plan (RPTKA)
o. Recommendation for temporary residency visa (TA 01)
Invests in frontier areas, underdeveloped areas, border areas, or other areas deemed in need of
investment
Engages in activities directed at maintenance of natural environment
Conduct research and development and innovative activities
Has partnerships with very small as well as small and medium enterprises or with
cooperatives
Industry that utilizes the country’s capital goods, machinery, or facilities
The contents of the preferential tax treatment are presented below. Article 18, paragraphs 4 to 6 of
the New Investment Law set out provisions on preferential tax treatment, while paragraph 7 of the
said law provides that the Ministry of Finance (MOF) will prescribe the details of the treatment set
forth in paragraphs 4 to 6. Because the measures will be offered in line with the Government’s
National Industrial Policy (Article 19 of the said law), it is believed that the applicable details will be
amended as appropriate.
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Table 10-5: Preferential Tax Treatment for Foreign Investors
Preferential Tax Treatment
Contents of Regulation Applicable Law
Income tax reduction
Income tax reduction for investments up to a specific limit which were made during a specified period
Article 18, paragraph (4) a of New Investment Law
Import duty reduction
- Reduction of import duty on capital goods and equipment which cannot be procured domestically
- Reduction of import duty on raw materials and ancillary materials which were imported with conditions during a specified period
Article 18, paragraph (4) b&c of said law
VAT exemption and extension
Exemption (for a specified period) or tax payment extension for VAT on capital goods and equipment which cannot be procured domestically
Article 18, paragraph (4) d of said law
Special depreciation
Rapid amortization Article 18, paragraph (4) e of said law
Fixed asset tax reduction
Reduction of fixed asset taxes in specific business fields in specified regions and districts
Article 18, paragraph (4) f of said law
Corporate tax reduction
Reduction of corporate taxes of specified amounts and for a specified period. New investments in pioneer industries (industries with significant ripple effects; industries with high added value, high external economic potential, new technologies, and strategic value for the national economy)
Article 18, paragraph (5)
Import duty reduction
Import duty reduction for all investors updating their existing facilities
Article 18, paragraph (6)
MOF additional measures
MOF will set forth the details of the above system of preferential financial treatment.
Article 18, paragraph (7)
Source: New Investment Law dated April 26th, 2007.
3) Infrastructure development using the PPP method
The Yudhoyono administration in Indonesia, from its first term (2004-2009) and into its second term
(2009-2014), has consistently improved the infrastructure promotion environment by identifying
public-private-partnerships (PPP) as an approach for developing the investment environment without
increasing foreign debt.
Applicable law: Enforcement of Presidential Decree No. 67 of 2005 concerning infrastructure
PPP procedures
A Memorandum of Understanding (MOU) regarding the system of responsible authorities for
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PPP was concluded in 2010 among three agencies: BKPM; BAPPENAS; and MOF.
To cover for the risk of the PPP business, Minister of Finance Decree No. 38 of 2006
concerning risk management of PPP projects was enforced. In 2006, a risk management unit
which manages support measures was set up within the Ministry of Finance. Procedures
pertaining to site acquisition were amended (2006). The Indonesian Infrastructure Guarantee
Fund (IIGF) was established (2010).
To ensure public financing for PPP projects, the Infrastructure Finance Facility was
established in 2009 and the Infrastructure Investment Fund in 2010.
To promote infrastructure PPP projects, the Infrastructure Summit has been held (2005 and
2006) and the “PPP Book” has been issued (2009 and 2011).
The Government of Indonesia67, in hopes of receiving bids from foreign companies, intends to issue
the “PPP Book” annually, which will serve as an infrastructure PPP project plan, and will disclose
the tender results of infrastructure PPP projects as well as potential projects, priority projects, and
tender projects. The PPP Books up to PPP Book 2011 have listed multiple new airport development
and enhancement projects among the air transportation projects. Existing airports are owned by
state-owned companies, AP and AP-II, and it is believed that airport expansion and renovation
projects, including PPP Soekarno Hatta Airport, will be implemented by AP and AP-II.
All PPP projects are 1) assumed to be economically viable, and 2) from the perspective of
whether or not projects by themselves are financially viable:
(a) For projects which are financially not viable by themselves, hybrid financing is envisioned, in
which the public sector will bear the construction costs and the private sector will bear the O&M
costs.
67 Reference: BAPPENAS, Infrastructure Project Plan “PPP Book 2010-2014.”
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(b) If projects are financially marginal by themselves, PPP with Government support is envisioned,
in which the public and private sectors will bear the construction costs and the private sector will
bear the O&M costs.
(c) If projects are financially viable by themselves, a regular PPP is envisioned, in which the private
sector will bear all the costs (construction costs and O&M costs)68.
A rough guide to understanding the PPP projects listed in the PPP Book for private companies:
“Potential projects” indicate projects which are at the stage of preliminary economic analysis,
including cost recovery; “Priority projects” indicate projects requiring pre-FS or FS; and
“Tender projects” indicate projects approved by the Government (MOF).
The PPP projects listed in “priority projects” specify the type of solicitation. While a great
majority of the projects are “solicited” projects which are submitted in accordance with the
solicitation from the contracting agency, “unsolicited” projects which are submitted at the
discretion of the private sector in the absence of solicitation are permitted. In the case of the
latter, the contracting agency may purchase the project for a price commensurate with the
contents of the FS proposal (if not participating in a tender), or offer bonus points (10%
maximum) to the assessment of the bidder at a tender, and thereby, giving the bidder
preferential treatment69. Therefore, it is believed that while all infrastructure PPP projects are
subject to competitive tendering, waiting until the competitive tendering is in fact too late and
68 Reference: BAPPENAS, “PPP Policy and Regulation in Indonesia,” by Dr. Ir. Bastary Pandji Indra, MSP Director
for PPP Development (8 February 2011).
69 BAPPENAS, by Bastary Pandji Indra, Director for Public Private Partnership Development, “Infrastructure PPP in Indonesia”, Bangkok, 15 February 2009.
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it will become essential for companies to participate earlier on, i.e., during the pre-FS or FS
stage (“priority project” stage).
In accordance with the MOU concluded in August 2010, BAPPENAS will offer guidance for
the development of PPP projects throughout the process (planning and preparations) until the
tender of a PPP project. The MOF is responsible for viability gap funding (to supplement
construction funds) and debt guarantees for the Government-funded portion of PPP projects70,
while BKPM is responsible for promoting PPP projects and marketing.
The main contracting agencies are the Ministry of Transportation (airport, port, railway, coal railway,
and urban transport), Ministry of Public Works (toll roads and water supply and sewage), the
Government-owned national electricity company PLN (power generation), and provincial
governments. Domestic and international companies wishing to make a bid must negotiate directly
with the contracting agencies.
(4) Necessity of Additional Detailed Analysis
1) Promotion of detailed plan of passenger terminal project
This project is crucial for the future development of the Indonesian economy, and its swift
commencement is desirable. On the other hand, Soekarno Hatta Airport is the gateway of
international flights in Indonesia and serves as the hub of its domestic flights. As such, a diverse
range of challenges need to be solved for promoting the plan. AP-II has indicated its intent to move
forward with the project by recruiting a PMC, and this is an effective method for advancing this
project. However, ultimately, the operator will need to make its own judgment. 70 Presidential Regulation 78/2010 and Ministry of Finance Regulation PMK 260/2010.
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The three Japanese companies have indicated its wish to participate in the project as co-business
operators. These companies have an extensive background in project promotion. In particular, with
respect to promoting the project, the Study Team believes that it will be extremely effective to
implement additional detailed analysis concerning the passenger terminal project and making a
proposal to AP-II from the perspective of the business operator.
2) Considerations regarding Japanese support, including ODA loans
As of the publication of this report, AP-II has indicated its intent to start this project using its own
funds and bank loans. However, in addition to this project, AP-II has plans to repair nine airports,
and their financing is anticipated to pose a significant challenge. In particular, bearing in mind that
Soekarno Hatta Airport serves as a core business for AP-II, it is believed that financial assistance for
this project will have tremendous impact on AP-II’s management.
In this light, as this study has proposed, the Study Team believes that offering financial support
including the use of ODA loans for certain project components such as the construction of basic
facilities will be very effective for moving along this project. However, as AP-II, the state-owned
company, will be the core implementer of this project, the use of ODA loans will require
consultations with the Indonesian Government. Such factors may significantly affect scheduling and
other aspects. The promotion of this project will require the cooperation of the Government of Japan
for the early implementation of various procedures.