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Sinking Indonesia docks, idle ships spur S$8b port revamp

SEMARANG (Indonesia) — The scene in Semarang on Indonesia’s Java island looks like it belongs to the previous century, if not the one before that. On a humid March day, trucks laden with goods bump through pools of seawater on roads to the sinking Dutch-era port. Shirtless men heave sacks of rice off wooden schooners as a lighthouse from 1884 towers above. At the container facility next door, by contrast, there are signs of modernity. Labourers are expanding the storage yard and lengthening the dock to accommodate three ships at a time, up from one. Pumps keep the seawater at bay.

SEMARANG (Indonesia) — The scene in Semarang on Indonesia’s Java island looks like it belongs to the previous century, if not the one before that. On a humid March day, trucks laden with goods bump through pools of seawater on roads to the sinking Dutch-era port. Shirtless men heave sacks of rice off wooden schooners as a lighthouse from 1884 towers above. At the container facility next door, by contrast, there are signs of modernity. Labourers are expanding the storage yard and lengthening the dock to accommodate three ships at a time, up from one. Pumps keep the seawater at bay.

For Mr Sutikno Khusumo, the confluence of old and new symbolises what is wrong with Indonesia’s port system—and shows why he is hopeful that President Joko Widodo will fix it. Mr Sutikno’s father, Harto, started a shipping company with one leased boat in 1987. Today, Pelayaran Tempuran Emas is the nation’s biggest container shipper, with 22 vessels.

But the fleet, which navigates the 17,000 islands of the world’s largest archipelago, can spend as much time waiting as it does sailing. “If there are delays, it’s like throwing all your money in the sea,” Mr Sutikno said.

Mr Widodo, who took office in October and is universally known as Jokowi, is investing US$6 billion (S$8.1 billion) in the seafaring nation’s ports. It is a small start. He estimates it will take US$450 billion to fix his country’s infrastructure — outmoded dams, airports and rail lines.

The tangled logistics in the world’s fourth-most-populous nation can cause absurd anomalies. It is cheaper to import oranges from China to Jakarta than to transport the fruit domestically from Borneo, a quarter of the distance. In Semarang, it can take 10 days to move materials through the container port, forcing manufacturers to hold bloated inventories.

“There’s no reliability, no regular frequency, so you cannot do ‘just in time’,” said Mr Richard Lino, chief executive of state port company Pelabuhan Indonesia II. He sees progress under Mr Jokowi: “It’s completely different because we have 100 per cent support from the top.”

Mr Jokowi, who turns 54 next month, plans to link industrial centres in Jakarta to a new port in the capital by building a road and raising canal bridges to accommodate barges. In January, the government broke ground on a new deep-sea port in Medan on Sumatra. Mr Jokowi wants to start constructing four more ports in October, and expects to have finished an offshore project begun earlier at Kalibaru in Jakarta by then.

It is all part of his commitment to drive domestic trade and increase exports of everything from palm oil to cars. “When we have good infrastructure, there’s connectivity from city to city, from province to province, from island to island,” Mr Jokowi said in a February interview with Bloomberg. And he has reason to act quickly. Gross domestic product in South-east Asia’s biggest economy grew 4.7 per cent in the first quarter of this year, the weakest since the financial crisis. He wants to lift that to 7 per cent within five years, in part by cutting logistics costs, which account for almost a quarter of the US$811 billion economy.

To pay for his programme, Mr Jokowi had to first tackle the politically perilous topic of fuel subsidies. For decades, the government had subsidised petrol and diesel. That made fuel as cheap as 50 cents per litre. Last year, the subsidies cost the government about US$20 billion, or 14 per cent of its budget. On Jan 1, Mr Jokowi scrapped petrol subsidies completely and left a small discount on diesel. His moves freed about US$18 billion.

Still, it can take years to make headway on infrastructure. In January, Mr Jokowi attended the ground-breaking of the new, US$700 million Medan port. It had been stalled for eight years over a land dispute and Mr Jokowi got the state plantation company to hand some property over.

Investors sense change is coming. Shippers bet Mr Jokowi’s port emphasis will mean lower costs and larger volumes — along with rising shares. Workmen near Mr Sutikno’s Jakarta office prepare concrete and steel slabs next door to the capital’s main Tanjung Priok Port for an offshore dock bigger than 150 soccer fields. “I have no doubt about investment on the ports side,” Mr Sutikno said. “We feel it.” BLOOMBERG

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