[Analytics] Land of milk and honey: Businesses think big for new Indonesian capital

Indonesian President Joko Widodo smiles at reporters as he arrives before delivering a speech ahead of Independence Day, at the parliament building in Jakarta, Indonesia, Aug. 16, 2019. Reuters. Sketched by the Pan Pacific Agency.

Businesses have begun jumping at the opportunities presented by the capital’s relocation following President Joko “Jokowi” Widodo announcement of the location on Monday. A mere 24 hours after the President officially revealed the new capital would be located in North Penajam Paser and Kutai Kartanegara regencies in East Kalimantan, property developer PT Agung Podomoro Land published an advertisement to promote its latest project, Borneo Bay City, on Tuesday. Riska Rahman, Norman Harsono specially for The Jakarta Post.

Despite being located in the province’s financial center of Balikpapan, the publicly listed company dubbed the superblock consisting of a mall, hotels and seven apartment towers as “the best investment in the new capital in East Kalimantan” as it would only take 20 minutes to reach North Penajam Paser via the planned Balikpapan-Penajam highway.

“Property and construction businesses will certainly grow near the administration center at a time when challenges are relatively low,” said Indonesian Employers Association (Apindo) executive director Danang Girindrawardana.

Subsidiary of state-owned construction firm PT PP, PT PP Properti (PPRO), voiced its interest in developing real estate projects in the province following the government’s landmark decision.

PPRO president director Taufik Hidayat told the press that the company had formed a team four months ago to conduct research into the business opportunities in the new capital. He also said several investors had offered to work with the publicly listed firm to develop properties in the area.

“Landowners in East Kalimantan have come forward and asked us to cooperate to develop their land and it could potentially reach up to 500 hectares,” Taufik said at the Indonesia Stock Exchange building in Jakarta.

Subsidiary of state-owned construction firm PT Wijaya Karya, PT Wika Beton, also sees opportunities in the capital city relocation, estimating it could boost the precast concrete maker’s growth by double digits over the next five years. The firm is ready to build a new plant on 26 ha of land in East Kalimantan to increase its production capacity in anticipation of an influx of orders.

The government has projected that the entire capital relocation process will cost Rp 466 trillion (US$32.27 billion), with only 19 percent to come from the state budget and the remaining to be be financed by state-owned enterprises and private businesses.

“We’ll first look at the business scheme for the project because it could be in the form of a public-private partnership [PPP] scheme or through projects financed by the state budget,” said state-owned PT Waskita Karya operational director Bambang Rianto when asked if his company would take part in the development of the new capital.

At the same time, East Kalimantan has abundant natural resources with a low exploration rate of below 20 percent, Danang said.

East Kalimantan recorded annual economic growth of 5.43 percent in the second quarter, stronger than Indonesia’s gross domestic product (GDP) expansion of 5.05 percent during the same period.

Mining is the highest contributor to the province’s economy, chipping in 46 percent. Manufacturing trails behind in second, followed by construction, agriculture and trade, according to Statistics Indonesia (BPS) data.

More than 600 mining licenses have reportedly been issued for sites in the two regencies but Indonesia Mining Association (IMA) chairman Ido Hutabarat said his institution could not verify the number. “Most are coal mines but there’s no assessment yet on the impacts,” he said.

The expected blossoming of economic activities in the region will require a reliable energy supply. The Indonesian Renewable Energy Society (METI) estimated that the new capital, expected to house around 1.5 million residents, would consume between 3.75 and 4.5 terawatt-hour (TWh) of electricity each year.

Based on METI’s estimate, the new capital will consume one-seventh of the electricity consumed in Jakarta and Tangerang, Banten, last year, which was 31.6 TWh according to Energy and Mineral Resources Ministry data.

“We hope the new capital will optimize the use of renewable energy to meet its energy needs, considering the availability of renewable sources of energy in the surrounding areas,” said METI chairman Surya Darma.

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