Indo Infra Report

Q3 2010
www.businessmonitor.com
INFRASTRUCTURE REPORT
ISSN 1752-5411
Published by Business Monitor International Ltd.
INDONESIA
INCLUDES 5-YEAR FORECASTS TO 2014
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INDONESIA
INFRASTRUCTURE
REPORT Q3 2010
INCLUDING 5-YEAR INDUSTRY FORECASTS BY BMI

Part of BMI's Industry Report & Forecasts Series
Published by: Business Monitor International
Copy Deadline: May 2010

Indonesia Infrastructure Report Q3 2010

Business Monitor International Ltd Page 2



CONTENTS
Executive Summary ......................................................................................................................................... 6
SWOT Analysis ................................................................................................................................................. 8
Indonesia Infrastructure SWOT ............................................................................................................................................................................. 8
Indonesia Infrastructure Project Finance SWOT ................................................................................................................................................... 9
Indonesia Economic SWOT ................................................................................................................................................................................... 9
Indonesia Political SWOT .................................................................................................................................................................................... 10
Market Overview ............................................................................................................................................. 11
Indonesia .................................................................................................................................................................................................................. 11
Industry Forecast Scenario ........................................................................................................................... 14
Table: Indonesia--Construction And Infrastructure Industry Data ...................................................................................................................... 14
Construction and Infrastructure Forecast Scenario .................................................................................................................................................. 15
Transport Infrastructure ................................................................................................................................ 17
Table: Indonesia--Transport And Infrastructure Industry Data ........................................................................................................................... 17
Transport Infrastructure Forecast Scenario ............................................................................................................................................................. 19
Transport Infrastructure Overview ........................................................................................................................................................................... 20
Developing Roads ................................................................................................................................................................................................ 20
More Track Needs To Be Laid ............................................................................................................................................................................. 21
Tourists Boost Airport Sector .............................................................................................................................................................................. 22
Trade Mainly By Water ........................................................................................................................................................................................ 22
Major Projects New and Ongoing Projects ........................................................................................................................................................... 22
Airports ................................................................................................................................................................................................................ 22
Ports .................................................................................................................................................................................................................... 23
Roads And Bridges .............................................................................................................................................................................................. 24
Railways .............................................................................................................................................................................................................. 26
Major Projects Table Transport ....................................................................................................................................................................... 28
Table: Indonesia Major Infrastructure Projects ............................................................................................................................................... 28
Energy and Utilities Infrastructure ............................................................................................................... 31
Table: Indonesia Energy & utilities And Infrastructure Industry Data ............................................................................................................. 31
Energy and Utilities Infrastructure Forecast Scenario ............................................................................................................................................. 32
Energy and Utilities Infrastructure Overview ........................................................................................................................................................... 33
Major Projects New and Ongoing Projects ........................................................................................................................................................... 35
Power Plants and Transmission Grids ................................................................................................................................................................. 35
Oil and Gas Pipelines .......................................................................................................................................................................................... 38
Water ................................................................................................................................................................................................................... 38
Major Projects Table- Energy and Utilities ......................................................................................................................................................... 40
Table: Indonesia Major Infrastructure Projects ............................................................................................................................................... 40
Business Environment .................................................................................................................................. 44
Indonesia Business Environment .............................................................................................................................................................................. 44
Limits Of Potential Returns.................................................................................................................................................................................. 44
Risk To Realisation Of Potential Returns ............................................................................................................................................................. 44
Regional Overview .................................................................................................................................................................................................... 45
Asia Pacific Infrastructure Business Environment Ratings .................................................................................................................................. 45


Table: Regional Infrastructure Business Environment Ratings............................................................................................................................ 48
Project Finance Ratings ................................................................................................................................ 49
Indonesia Project Finance Ratings ........................................................................................................................................................................... 49
Design and Construction ..................................................................................................................................................................................... 49
Commissioning and Operating ............................................................................................................................................................................ 49
Overall Project Finance Rating ........................................................................................................................................................................... 49
Regional Overview .................................................................................................................................................................................................... 49
Project Finance Ratings: Outlook For Asia Pacific ............................................................................................................................................. 49
Table: Design and Construction Rating ............................................................................................................................................................... 52
Table: Commissioning and Operating Rating ...................................................................................................................................................... 53
Table: Overall Project Finance Rating ................................................................................................................................................................ 54
Macroeconomic Outlook ............................................................................................................................... 55
Table: Indonesia - Economic Activity .................................................................................................................................................................. 57
Political Outlook ............................................................................................................................................. 58
Domestic Politics ................................................................................................................................................................................................. 58
Regional Security ................................................................................................................................................................................................. 59
Long Term Political Outlook ............................................................................................................................................................................... 60
Domestic Politics ................................................................................................................................................................................................. 63
Regional Politics .................................................................................................................................................................................................. 64
Long-Term Politics .............................................................................................................................................................................................. 68
Company Monitor ........................................................................................................................................... 72
PT Adhi Karya ..................................................................................................................................................................................................... 72
John Holland Group ............................................................................................................................................................................................ 74
PT Wijaya Karya (WIKA) .................................................................................................................................................................................... 75
Global Overview ............................................................................................................................................. 77
Global Project Finance Ratings........................................................................................................................................................................... 77
Table: Design and Construction Rating ............................................................................................................................................................... 77
Table: Commissioning and Operating Rating ...................................................................................................................................................... 80
Table: Overall Project Finance Rating ................................................................................................................................................................ 83
Global Business Environment Ratings: China And India Break Into Top 10 ....................................................................................................... 85
Table: Global Infrastructure Business Environment Ratings, April 2010 ............................................................................................................ 86
Methodology ................................................................................................................................................... 89
New Infrastructure Data Sub-sectors: Methodology ................................................................................................................................................. 89
Infrastructure Forecasts: Methodology ............................................................................................................................................................... 90
Sources ................................................................................................................................................................................................................ 92
Industry Forecasts .................................................................................................................................................................................................... 92
Construction Industry .......................................................................................................................................................................................... 93
Data Methodology .................................................................................................................................................................................................... 93
Construction ........................................................................................................................................................................................................ 93
Capital Investment ............................................................................................................................................................................................... 94
Construction Sector Employment ......................................................................................................................................................................... 94
Infrastructure Business Environment Ratings ........................................................................................................................................................... 95
Ratings Overview ................................................................................................................................................................................................. 95
Table: Infrastructure Business Environment Indicators ...................................................................................................................................... 96
Project Finance Ratings ........................................................................................................................................................................................... 97
Table: Design And Construction Phase ............................................................................................................................................................... 98


Table: Commissioning And Operating Phase Commercial Construction ......................................................................................................... 99
Table: Commissioning And Operating Phase Energy And Utilities .................................................................................................................100
Table: Commissioning And Operating Phase Transport ..................................................................................................................................101
Sources ...............................................................................................................................................................................................................102



Executive Summary
Infrastructure was in the spotlight in Indonesia as Jakarta was host to a major regional ministerial
conference hosted by the United Nations called Infrastructure Asia. In preparation for the conference and
to showcase Indonesias endorsement of the public private partnership (PPP) model, the National
Development and Planning Agency launched a prospectus of 100 projects, with an estimated value of
IND440trn (US$48.8bn). The agency will tender out these projects under PPP schemes between 2010 and
2014.
The governments endorsement in theory of the PPP model has lately produced more tangible results such
as changes in legislation to make the model more flexible and easier to implement. Indonesias appeal as
an infrastructure market lies in strong positive macro fundamentals. Indonesia is now the third largest
emerging economy in Asia after China and India. According to BMI forecasts GDP compound annual
real growth will be 5.8% between 2010 and 2015.
For the infrastructure sector, the lack of well developed infrastructure and the low base from where
investments are taking place leaves much scope for growth in greenfield investments in transport, energy
and utilities adding to the markets appeal for investors. In terms of scale, measured in industry value,
Indonesia is also amongst the largest markets globally. Revised and updated data from the Indonesian
statistics agency reveal a much stronger picture for infrastructure than was originally thought. In 2010, we
forecast that infrastructure industry value will account for 45% of total construction industry value, up
from our previous more moderate forecast of 33%. Accordingly infrastructure industry value forecasts
have increased. BMI forecasts infrastructure industry value in Indonesia to be IND311bn (US$34bn) in
2010 and this is forecast to rise to IND546bn (US$64bn) by 2014, representing real growth of 10.3%. The
infrastructure aspect of the stimulus plan, though slow to trickle in the system (according to the
governments own admission), did in the end work wonders for the industry value over 2009, with
construction industry value recording real growth of 27% over 2009. This is a direct result of heavy
government spending, the effects of which will continue to be felt in 2010. The removal of the stimulus
will result in much tamer growth rates in the medium term.
However, enormous challenges remain and thus Indonesia remains in BMIs view one of the riskiest
environments for infrastructure investments globally. Issues such as very high levels of corruption, low
absorption capacity and the heavy bureaucratic edifice are pertinent obstacles to the implementation of
PPPs in the country on the scale that the government is hoping for. BMIs Project Finance and
Infrastructure Business Environment ratings echo this view, with Indonesia having amongst the poorest
score in the Asia Pacific region.


Therefore, because of the risks associated with Indonesias investment climate for infrastructure, we
believe that the growth we are forecasting will be primarily driven by government investments.
Expectations that the private sector will also invest in infrastructure have been taken into account in our
forecasts, though they do not provide the main support system for growth. For this reason we see much
upside potential for Indonesias infrastructure industry value, but it will be strictly predicated upon an
structural amelioration of the business environment; therefore, bar dramatic changes in policy, this
potential can be realised only in the long term.



SWOT Analysis
Indonesia Infrastructure SWOT
Strengths There are a large number of major projects planned for the near future, particularly
in the transport and energy sectors.
The government is also planning an IDR90trn infrastructure investment programme
as part of an economic stimulus package.
There is strong political will to make PPPs and concessions a mainstream means
of procuring new infrastructure.

Weaknesses The countrys power sector is running a supply deficit and is managing its shortfall
with outages.
Most Indonesian contractors still operate equipment purchased before the 1997
monetary crisis, which falls woefully short on parameters of speed and quality of
work.
Indonesia has an underdeveloped road system. Paved roads account for only 46%
of the total roads in the nation, compared with 92% in China and 50% in India.

Opportunities International opportunities such as the reconstruction of Iraq and work in
neighbouring South East Asian countries offer more room for growth for home-
grown construction companies.
There are opportunities for international companies to compete with the fragmented
domestic industry for major projects, particularly in the house building, energy and
transport sectors.
The government has opened up the market for PPPs, which may help to raise
funding.

Threats Earthquakes are a frequent occurrence in Indonesia, causing mass devastation
and costing the government millions of dollars in reconstruction work.
The threat of terrorism in Indonesia may force foreign investors away from the
nation.
The financial crisis may make it difficult for the government to raise the money
needed for its infrastructure projects.



Indonesia Infrastructure Project Finance SWOT
Strengths Transport assets and electricity demand has showed resilience leading to an
upwards revision in demand risk scores.

Weaknesses Contract enforceability is dubious.
Corruption is high.
High foreign exchange risk.

Opportunities New state-owned infrastructure guarantee agency and amendments to the
PPP/concessions legislation are steps towards addressing deep structural
problems in Indonesias infrastructure market.

Threats Political risks remain high, with the rule of law in the country extremely fragile.

Indonesia Economic SWOT
Strengths Indonesia's strategic location between the Indian and Pacific Oceans and its
adjacency to major East-West trade routes make it an important economy in the
region.
Indonesia has a low cost and large supply of available labour resources.

Weaknesses Indonesia's economy is not growing fast enough to reduce joblessness. Although
unemployment has been decreasing, the unemployment rate is still relatively high,
at 7.9% in August 2009. Many are forced to work in the informal sector.
Indonesia's physical infrastructure is considered substandard. The archipelagic
nature of the country makes it difficult to weave national infrastructure together.

Opportunities Indonesia could attract much-needed foreign investment by strengthening its
business environment, particularly through reform of its unreliable legal system.
Indonesia stands to benefit from the rise of Islamic financing, having adopted new
legislation in early 2008 designed to tap into this rapidly expanding sphere.

Threats Production at Indonesia's ageing oil fields has been in decline since the mid-1990s.
Thus, the country has become a net importer of crude oil in recent years, adding
downward pressure on its current account position. But the resumption of the Cepu
field in late 2009 may change this.
Indonesia is perceived as one of Asia's riskier destinations. This leaves the
economy vulnerable to sudden capital outflows at times of risk aversion, which can
lead to sharp swings in the currency.



Indonesia Political SWOT
Strengths Indonesia managed a successful transition to democracy in 2004. In addition, the
2009 parliamentary and presidential elections passed by peacefully, signalling the
consolidation of the democratic process.
The military's role in politics has gradually been reduced. The prospects of a
military coup which seemed a real possibility in the late 1990s and early 2000s
have diminished substantially.

Weaknesses Indonesia's domestic political scene is characterised by a proliferation of minority
parties, and formal and informal coalitions are necessary to govern and legislate.
Moreover, the efficiency of state institutions is encumbered by bureaucracy and
corruption.
Indonesia's cultural and ethnic diversity saw the archipelago wracked by separatist
rebellion and ethnic violence in the late 1990s and early 2000s, which took great
efforts to bring to heel. In the event of a new economic crisis, calls for regional
secession could re-emerge.

Opportunities President Susilo Bambang Yudhoyono's Democratic Party had a strong showing in
the 2009 parliamentary elections. Coupled with a strong mandate following his re-
election in the same year, the implementation of policies in the legislature should
potentially become less problematic.
Indonesia's status as the world's most populous Muslim country leaves it well
positioned to speak out on global Islamic issues, and act as a bridge between the
Middle East and the Asia-Pacific region.

Threats Regional militant group Jemaah Islamiah (JI) poses a lingering threat to security in
Indonesia. JI is blamed for a series of attacks, including the Bali bombings of
October 2002 and other such incidents, including the Jakarta bombings of July
2009.
The fact that Indonesia subsidises basic goods means that when the government
raises prices, there is a risk of public unrest, or at least a political backlash.



Market Overview
Indonesia
President Susilo Bambang Yudhoyono who was re-elected in July 2009 has claimed that
infrastructure projects will be among his major priorities over the next five years as the country seeks to
boost growth and reduce poverty.
The Jakarta Post reports that the World Bank and the ADB have pledged to contribute IDR2trn
(US$170mn) for infrastructure development, which will be placed in a new infrastructure fund. In
addition, the government has allocated IDR1trn (US$85mn) from the state budget.
The infrastructure fund is designed to provide an alternative source of finance to help investors access
loans for projects. The target pool of money for the fund is about US$1.7bn over the next five years, and
therefore the money acquired so far falls significantly short.
The National Development Planning Agency (Bappenas) has estimated that US$121.65bn will be needed
for Indonesia's infrastructure over the coming half decade. However, the government has only limited
resources with which to finance this investment, and it is estimated that it can cover only about 30% of
the amount required.
The latest measure announced (at time of writing) is the establishment of a guarantee fund for
infrastructure projects in the country. PT II is one of a number of measures the government is taking to
make investing in PPPs in Indonesia more attractive. Other measures include the creation of the Indonesia
Infrastructure Fund, designed to provide an alternative source of funding for infrastructure projects.
Measures related to land issues are also being implemented, as land clearance is one of the major barriers
to the country's investment climate.
In March 2009, Indonesia's National Development Planning Agency (Bappenas) reportedly opened up
eight major infrastructure projects in transport and utilities as PPPs. The government has admitted that it
cannot bear the burden of financing its long-term infrastructure programme (2010-2014), which consists
of 87 projects, solely though public funds and is thus seeking private sector participation.
According to the Jakarta Globe, the total value of the contracts the government is offering through these
eight projects is US$4.5bn. These eight projects are 'ready to go', which is defined as having completed
bidding documents, a dedicated team to handle the procurement and the government's backing in terms of
land acquisition and financing guarantees, the newspaper notes. It remains to be seen if this will tempt
potential investors, previously put off by the arduous land acquisition processes in an already difficult


operating environment compounded by the financial crisis, uncertain demand for energy and transport
infrastructure, and the tightening liquidity.
The projects include: one power plant in Central Java, worth US$2bn; three toll roads with the first
linking Medan to Binjan valued at US$126mn, the second linking Medan to Being Tinggi valued at
US$476mn, and the third in West Java valued at US$395bn; two railways with the first in Kalimantan
Province (US$740mn) and the second between Soekarno Airport and Manggarai (US$700mn); a cruise
terminal; and a water treatment plant in Banfung valued at US$54mn. The overall value of the
government's infrastructure plan (2010-2014) is IDR1.43trn (US$124bn).
BMI notes that Indonesia has yet to prove itself as a reliable investment destination through a successful
track record. For instance, of the 90-odd projects that were highlighted as priorities in the January 2005
Infrastructure Summit in Jakarta the majority of which related to toll road and infrastructure projects
none have gone forward, which raises serious doubts about the viability of this new infrastructure plan.
Despite the fact that the government recognises that urgent action is needed, the regulations in place have
prevented a private sector response to the problem.
The state-owned fund PT Penjaminan Infrastruktur Indonesia (PT II) will be set up as a
commercially run company. It will act as an insurance company, providing compensation to investors for
losses incurred in the event that unfavourable policies are passed, or promised favourable ones are not.
The fund has been launched with initial capital of IDR1trn (US$107mn). Additional capital will be built
up over the coming years as the number of PPPs increase.
PT II has been set up to meet three objectives outlined by the government in the press release for the
fund's launch. The first is to reduce the cost of financing PPP projects. Indonesia is desperate to attract
private investors to infrastructure projects in the country; however, issues with regulatory frameworks and
difficulties in raising project financing are oft-cited barriers to entry. Currently the interest rate for project
financing from banks is around 15%, according to the chairman of the Indonesian Toll Road Association,
Fatchur Rochman, as cited by the Jakarta Post. Fatchur notes that if PT II led to around a 2-3% drop in
interest rates this would entice potential investors.
Regarding the stimulus plan, Indonesia's Coordinating Minister for Economic Affairs, Hatta Radjasa,
disclosed in November 2009 that that funds from the infrastructure stimulus plan have been slow to
trickle down into projects thus far this year.
Out of the INR73trn stimulus package, INR12.2trn was approved for infrastructure projects in the 2009
budget. The Ministry of Public Works was allocated the largest amount INR6.6trn and the Ministry of
Transport received INR2.2trn. The minister said that in the first nine months of the year, only 35% of the


allocated funds had actually been disbursed, the Jakarta Post reports. The minister said that the absence of
clear guidelines and complicated administration processes are the chief reasons behind the delays.
Indonesia's heavy bureaucratic edifice and nebulous regulatory environment are deterring investments in
infrastructure in the country. The Jakarta Post notes that only 85km of the 1,095km target for new toll
roads have been developed over the past five years. Red tape in Indonesia has also hindered the
absorption of funds from the stimulus plan.
An official from the state-owned Enterprises Ministry of Indonesia has said that the ministry will reduce
the number of government-owned construction firms from 14 to six in 2010, reports The Jakarta Post. He
added, that the ministry has been working to consolidate five companies Virama Karya, PT Indah
Karya, PT Yodya Karya, PT Bina Karya and PT Indra Karya as part of the plan. The ministry is
aiming to encourage specialisation among its companies.


Industry Forecast Scenario
Table: Indonesia--Construction And Infrastructure Industry Data
2007 2008e 2009f 2010f 2011f 2012f 2013f 2014f
Construction Industry
Value, IDRbn 305,200 419,642 554,982 687,817 799,384 929,734 1077835 1239924
Value, US$bn 33.31 43.01 53.59 75.17 91.36 108.74 126.8 145.9
Construction Industry,
Real Growth, % y-o-y 8.65 7.31 27.25 18.69 9.98 9.71 9.6 9.2
Construction Industry, %
Of GDP 7.70 9.07 10.92 12.23 12.65 13.03 13.4 13.7

Total Capital Investment,
IDRbn 889,853 1,096,308 1,190,514 1,315,667 1,495,681 1,706,004 1,944,967 2,206,500
US$bn 97.11 112.36 114.96 143.79 170.93 199.53 228.82 259.6
% Of GDP 22.50 23.69 23.43 23.40 23.66 23.91 24.16 24.4
Capital Investment Per
Capita, US$ 419.24 479.26 484.51 599.13 704.15 813.01 922.20 1,035.3
Real Capital Investment
Growth, % y-o-y 9.54 11.69 3.42 5.00 7.00 7.00 7.20 7.2
Government Capital
Investment, IDRbn 59,099 77,054 71,104 79,405 87,267 97,741 112,538 131,816
Government Capital
Investment, US$bn 6.45 7.90 6.87 8.68 9.97 11.43 13.24 15.5
Government Capital
Investment, % Of Total
Spending 7.80 7.82 7.76 7.84 7.90 7.97 8.05 8.1

Construction Sector
Employment, '000 4,801 5,363 5,547 5,825 6,234 6,671 7,152.3 7,668.2
Employment, % y-o-y 9.76 11.72 3.43 5.01 7.02 7.01 7.2 7.2
Total Workforce, '000 96,663 98,172 99,704 101,261 102,842 104,447 106,077 107,733
Employees As % Of Total
Labour Force 4.97 5.46 5.56 5.75 6.06 6.39 6.7 7.1

Infrastructure Industry
Value As % of Total
Construction 45.67 45.67 45.99 45.24 44.80 44.42 44.10 43.84


Table: Indonesia--Construction And Infrastructure Industry Data
2007 2008e 2009f 2010f 2011f 2012f 2013f 2014f
Value, IDRbn 139,388 191,655 255,254 311,177 358,147 413,024 475,374 543,613
Value, US$bn 15.21 19.64 24.65 34.01 40.93 48.31 55.93 63.95
Value Real Growth (%) 9.17 27.19 28.18 16.66 8.85 8.72 8.75 8.53
Value As % Of GDP 3.52 4.14 5.02 5.53 5.67 5.79 5.91 6.02
e/f = BMI estimate/forecast. Source: ILO, UNCTAD, Statistics Indonesia

Construction and Infrastructure Forecast Scenario
The re-election of Susilo Bambang
Yudhoyono as president should be
positive for infrastructure development.
Yudhoyomo has pledged to make
infrastructure his key focus over the next
four years as the government looks to
boost economic growth, reduce
unemployment and eradicate extreme
poverty. Between 2009 and 2014,
IDR1,430trn (US$140bn) is expected to
be spent on infrastructure, with the
government providing IDR418.9trn
(US$41.2bn) of this total. However, the
low absorption capacity, hindered by red tape, makes this investment highly unlikely to be achieved.
Indicative of the problems in allocating capital efficiently to achieve the timely development of projects is
the admission by the government that after the first nine months of the year, only 35% of the IDR73trn
stimulus package had actually been disbursed.

Revised and updated data from the Indonesian statistics agency reveal a much stronger picture for
infrastructure than was originally thought. In 2010, we forecast that infrastructure industry value will
account for 45% of total construction industry value, up from our previous more moderate forecast of
33%. Accordingly infrastructure industry value forecasts have increased. BMI forecasts infrastructure
industry value in Indonesia to be IDR311bnbn (US$34bn) in 2010 and this is forecast to rise to IDR546bn
Marginal Decline
Construction Industry Value And Infrastructure Share

e/f = BMI estimate/forecast, Source: Statistics Indonesia, BMI
Calculation


(US$64bn) by 2014, representing real growth of 10.3%. The infrastructure aspect of the stimulus plan,
though slow to trickle in the system according to the governments own admission, did at the end work
wonders for the industry value over 2009, with construction industry value recording real growth of 27%
over 2009. This is a direct result of heavy government spending, the effects of which will continue to be
felt in 2010. The removal of the stimulus will result in much tamer growth rates in the medium term.


Transport Infrastructure
Table: Indonesia--Transport And Infrastructure Industry Data
2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f
Transport Infrastructure Industry
Value As % Of Total
Infrastructure 70.46 71.18 71.54 71.35 71.24 71.14 71.05 70.98
Value, IDRbn 98,216 136,422 182,613 222,031 255,137 293,817 337,765 385,864
Value, US$bn 10.72 13.98 17.63 24.27 29.16 34.36 39.74 45.40
Value Real Growth (%) 4.89 28.59 28.86 16.34 8.67 8.56 8.61 8.41
Value As Percent Of Total
Construction (%) 32.18 32.51 32.90 32.28 31.92 31.60 31.34 31.12

Roads and Bridges
Infrastructure Industry Value As
% of Transport Infrastructure 33.40 43.40 49.01 51.44 52.90 54.20 55.30 56.23
Roads and Bridges
Infrastructure Industry Value,
IDRbn 32,804 59,207 89,490 114,213 134,977 159,236 186,800 216,967
Roads and Bridges
US$bn 3.58 6.07 8.64 12.48 15.43 18.62 21.98 25.53
Roads and Bridges
Infrastructure Industry Value
Real Growth (%) -7.54 70.18 46.15 22.38 11.93 11.37 10.96 10.32
Roads and Bridges
Infrastructure Industry As % of
Total Infrastructure 23.53 30.89 35.06 36.70 37.69 38.55 39.30 39.91
Roads and Bridges
Total Construction 10.75 14.11 16.12 16.61 16.89 17.13 17.33 17.50

Railways Infrastructure Industry
Value As % of Transport
Infrastructure 34.30 26.80 22.32 19.89 18.43 17.14 16.03 15.11
Value, IDRbn 33,688 36,561 40,758 44,159 47,016 50,354 54,146 58,297
Value, US$bn 3.68 3.75 3.94 4.83 5.37 5.89 6.37 6.86
Value Real Growth (%) -21.56 -1.78 6.48 3.10 0.22 0.50 1.18 1.84


Table: Indonesia--Transport And Infrastructure Industry Data
2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f
As % of Total Infrastructure 24.17 19.08 15.97 14.19 13.13 12.19 11.39 10.72
As % of Total Construction 11.04 8.71 7.34 6.42 5.88 5.42 5.02 4.70

Airports Infrastructure Industry
Value As % of Transport
Infrastructure 24.40 10.56 8.82 7.89 7.33 6.83 6.41 6.05
Value, IDRbn 23,965 14,406 16,113 17,519 18,699 20,079 21,646 23,361
Value, US$bn 2.62 1.48 1.56 1.91 2.14 2.35 2.55 2.75
Value Real Growth (%) 149.69 -50.20 6.85 3.47 0.49 0.78 1.46 2.10
As % of Total Infrastructure 17.19 7.52 6.31 5.63 5.22 4.86 4.55 4.30
As % of Total Construction 7.85 3.43 2.90 2.55 2.34 2.16 2.01 1.88

Ports Harbours and Waterways
Infrastructure Industry Value As
% of Transport Infrastructure 7.92 19.20 19.85 20.78 21.34 21.83 22.26 22.61
IDRbn 7,779 26,193 36,251 46,140 54,445 64,148 75,173 87,239
US$bn 0.85 2.68 3.50 5.04 6.22 7.50 8.84 10.26
Infrastructure Industry Value
Real Growth (%) 23.21 226.42 33.40 22.03 11.75 11.22 10.84 10.22
e/f = BMI estimate/forecast, Source: Statistics Indonesia, BMI Calculation



Transport Infrastructure Forecast Scenario
Transport infrastructure is forecast to
account for the majority of infrastructure
industry value to the end of our forecast
period in 2014, with a steady stake of
around 71%. Transport infrastructure
industry value forecasts have been
revised upwards in line with the upgrade
in BMIs entire outlook for Indonesias
construction and infrastructure sector.
Accordingly transport infrastructure
industry value is forecast to be IDR222
(US$24.3bn) in 2010 and rise to
IDR385bn (US$45bn) by 2014.
Major projects in freight railways and ports to boost export capacity will support growth in the coming
years. The ASEAN- China free trade agreement is also acting as a catalyst for development of the
countrys infrastructure. According to an official from Indonesia's State-Owned Enterprises Ministry,
cited in the Jakarta Globe, the total capital expenditure for ports and airports will be IDR10.3bn
(US$1.1bn) in 2010, up from IDR3.3bn (US$349mn). These will be disbursed for projects at 66 ports and
25 airports around the country. Approximately IDR6.2trn (US$662mn) has been earmarked for ports and
IDR4.1trn (US$438mn) for airports
Ports, harbours and waterways will account for an increasing share of transport infrastructure industry
value between 2009 and the end of our forecast period, 2014. In 2010, BMI is forecasting the ports,
harbours and waterways infrastructure industry value to be IDR46bn (US$5bn). This is set to register real
growth of 13.2% on average per year between 2010 and 2014. This increase in value aligns with various
investment plans for the countrys ports sector, including Indonesia's state-owned shipping line PT
Pelabuhan Indonesia plans to invest US$500mn in expanding port infrastructure and the plans to re-
develop Tanjun Priok into an international port hub and to to build a new terminal in Lamong Bay in
Surabaya.
Our forecasts suggest that airports will experience negative real growth every year and their share of total
transport infrastructure industry value will decline from 10.6% in 2008 to 6% in 2014. Though the
government has announced investments in airports in 2010, we refrain from revising our forecasts based
on the announcement alone, given the tendency of projects in Indonesia to be delayed. Airports are an
especially difficult area, as indicated by the delays with the expansion of the Ngurah Rai International
Airport.
Roads Dominate
Transport Infrastructure Value, By Industry, IDRbn

Calculation


We do see upside potential to our forecasts for railways infrastructure. Indonesia is the largest exporter of
thermal coal in the world, and in 2009, China received more than 15% of Indonesia's coal exports. Private
freight railways to carry coal to the ports in the Kalimantan region have already broken through, with the
first one in East Kalimantan expected to begin construction in the first quarter of 2010.
Transport Infrastructure Overview
President Susilo Bambang Yudhoyono has claimed that infrastructure projects will be among his major
priorities over the next five years as the country seeks to boost growth and reduce poverty. BMI believes
that with the global economy beginning to recover, foreign investment funds will once again start to flow
into Indonesia, and that the government should take advantage of this opportunity to secure financing for
key infrastructure projects. The Indonesian government has already been active in this area pledging to
improve the countrys roads, airports, power plants, bridges and irrigation system. According to the
National Development Planning Agency (Bappenas) the government will finance at least 29% of the total
IDR1,430trn (US$140bn) which is expected to be spent on infrastructure between 2009-2014. The
shortfall will be met by both local and foreign investors. Bappenas noted that the government is seeking
to attract IDR440trn (US$48.8bn) in private capital for 100 projects in transport and utilities infrastructure
to be implemented as public private partnerships (PPPs) between 2010 and 2014. Projects that will be
procured using a PPP model include: 18 toll roads, 12 port projects, seven air-transport projects, nine
railway projects.
As well as boosting economic growth, large-scale public works projects will also provide employment,
However, Indonesia has not been has severely impacted by the global financial crisis as other countries.
Unemployment stands at 8.1%, which is down from 9.3% in 2008.
Official statistics state that Indonesia has 391,009km of roads, 6,458km of railways, and 21,579km of
waterways. In addition, Indonesia has developed an extensive air transport network that encompasses 652
airports, meaning that all Indonesias islands are accessible by either sea or air, although safety remains a
key issue.
Developing Roads
The road network is best in Indonesias most developed islands such as Java, Sumatra and Bali, which are
also the main population centres. Indonesia has experienced very rapid growth of the total number of road
vehicles in circulation. Despite being given a high priority in government spending programmes, road
construction in Indonesia as a whole has progressed at a slower pace. The Jakarta Post reported in early
February 2009 that financial problems have become the main obstacle to the development of the East
Java highway. The East Java Public Works Agency said that cost estimates have risen by IDR900bn and


that after six years of construction only 75km of the total 630km have opened to traffic. The troubles of
the three concessionaires involved in the project highlight the problems facing the plan.
A great deal more needs to be done as congestion is becoming a major problem, specifically in Jakarta,
where average speeds during rush hour are slower than 10kph. The problem will only increase, as more
vehicles are expected on the nations roads. The number of cars produced in the country should increase
to 556,908 in 2012, up from 380,376 currently. Low costs and relatively low penetration in terms of car
ownership on the part of the populace (barely 1% of people own a car) all bode well for future prospects.
However, increasing car ownership will put pressure on the nations roads. In the short term, Indonesias
economic stimulus package will provide financing to improve the road network, while the growth of the
mining sector will encourage foreign investors to improve communications. The country has a road
network of 391,009km in length, of which 216,714km is paved.
More Track Needs To Be Laid
The first railway tracks in Indonesia were laid by the Dutch in the 1860s and built up subsequently to
facilitate agricultural and mining commodity exports. Currently, the network is owned and operated by
the state-owned Indonesian railway public corporation, PT Kereta Api (Persero). Railways only make up
a small percentage of freight carried, approximately 8.5%. The countrys railway system stretches for
approximately 6,485km, of which just 125km is electrified. The system consists of three different gauge
measurements. In Q209, there has been development on the commuter lines in the greater Jakarta area,
with a particular focus on the light-railway system. Meanwhile, a new rail link is being planned
connecting the capital and the countrys international airport. There are also plans for a new railway line
in East Kalimantan, which is one of the largest provinces in Indonesia. The province is rich in mineral
and natural resources and has attracted a wealth of foreign and domestic investments. Ras Al Khaimah
Minerals and Metals Investment (RMMI) is hoping that through investments in both energy resources
and infrastructure in Indonesia, it can secure supplies and have more control over pricing, in order to meet
the increasing demand for power in the emirate.
Indonesia is currently the world's largest exporter of thermal coal and the second largest exporter of coal
in the world. According to BMI data, coal reserves in 2009 are estimated at 4,328mn tonnes. The country
has stepped up coal production over recent years, with production increasing by 13% year-on-year (y-o-y)
on average between 2000 and 2008, according to the British Petroleums BP Statistical Review. This is
set to continue, with the estimated production of 241mn tonnes in 2009 rising to 808mn tonnes by 2020.
In order to support this rapid increase in production, the country needs to build up surrounding
infrastructure to transport the coal both for domestic use and to ports for export. Rail is seen as one of the
most efficient ways to transport coal. Currently, the coal produced in the area is transported by either road
or river; however, the roads are not of a high enough standard for this to be effective. The river is


unusable during the dry season, according to the Jakarta Globe. Consequently, the country is working to
build up its rail network to transport the coal and therefore maximise production in the region.
Tourists Boost Airport Sector
The government has shown itself willing to contract out airport operations and services to private sector
companies. A number of state-owned enterprises are active in the aviation sector. Angkasa Pura II
operates a group of 10 airports in western Indonesia, including the international terminals at Jakarta, and
is also responsible for associated services such as air traffic control. Indonesia's airports have developed
to cater to the demands of the tourist sector. In 2008, the number of tourist arrivals was estimated at
6.98mn, and this is set to increase to 9.28mn by 2012. However, surrounding infrastructure is still
underdeveloped, hence government plans to build a rail link. It should be noted that Reuters cited a study
by Indonesia Railway Watch, a local independent body, which highlighted losses in revenues in railway
operators for short-distance journeys.
Trade Mainly By Water
Sea transport is of vital importance to Indonesia, an archipelago of many islands. A port sector has
developed for domestic trade and international imports and exports. The countrys major ports include
Banjarmasin, Belawan, Ciwandan, Kotabaru, Krueg Geukueh, Palembang, Panjang, Sungai Pakning,
Tanjung Perak and Tanjung Priok. Indonesia has also developed inland waterways spanning 21,579km. In
Kalimantan and Sumatra, the river system provides a key transport link to a large number of
communities, which are poorly served by roads and in the case of Sumatra by rail as well. However,
Indonesias ports are notoriously inefficient and corrupt. In February 2009, the Jakarta Globe reported
that the chairman of the Indonesia Competitiveness Development (Senada), which is funded by USAID,
described the countrys ports as among the least efficient in South East Asia both in terms of turnaround
times and unit costs. As a result of handling delays, the major shipping lines complain that they often
have to leave the port of Jakarta before being fully loaded.
Major Projects New and Ongoing Projects
Airports
Indonesia's Adisutjipto International Airport in Yogyakarta will be expanded to more than double its existing
size in order to cater for increasing passenger traffic. Traffic increased to 3.2mn passengers in 2009. The
airport's operator Angkasa Pura I, confirmed that the expanded airport would increase size to 18,000 square
metres (m
2
) up from 8,000m
2
. Several contractors have submitted their designs and the operator is the process
of floating a tender for the expansion project. The airport was renovated in 2006 to enhance its capacity to 1mn
passengers.


Airports
Q1 2010
The Kuala Namu International Airport project, which is behind schedule and over budget, is to be
reviewed, according to a statement (in January 2010) from Indonesia's Transport Ministry. The review
has been touted in order to prevent further delays with the project already more than a year behind
schedule and is likely to focus on the project's budget. Construction of the airport started in June
2006, with an initial completion target of October 2009. However, by the end of 2009 works were only
25% complete.
The expansion of Ngurah Rai International Airport (DPS) in Indonesia is scheduled to begin in
January 2010, reported Airport Technology. The long-delayed expansion project involves extension of
both international and domestic passenger terminals, car parks and other supporting facilities. The
US$15mn expansion project is expected to be completed within 30 months. The earlier plan to
expand the commercial zone of the airport to cover nearly 40% of the passenger terminals was
rejected because it could cause security problems at the airport. However, the revised design
involves a reduction of the size of the business site of 30% and a reduction of the public area of 10%.
Q4 2009
In late November 2009, the Indonesian Transport Ministry announced plans to build 31 regional
airports and upgrade three international airports Kuala Namu international airport, Lombok
international airport and Sultan Hasanuddin international airport in 2010. The government will invest
IDR802bn (US$84.49mn) in the construction of 2,750m runway at Lombok airport, IDR4.4trn
(US$463mn) in the construction of 3,750m twin runway at Kuala Namu airport, and is expected to
complete the 52,000m Sultan Hasanuddin airport by 2010. The 31 smaller airports will be financed
by local administrations.
Q3 2009
In September 2009, it was reported by the Jakarta Post that the Island of South Sulawesi would build
an airport to allow tourists to visit the Tana Toraja area. The airport will be developed as part of the
governments 2009-2014 tourism strategy and will be big enough to land a Boeing 707.
As reported by the Jakarta Post, in May 2009, the global economic downturn has begun to affect
expansion in the airport sector. The West Java Provincial administration has been forced to postpone
the development of the Kertajati, Majalengka international airport. Construction had been planned to
begin next year but there have been difficulties finding investors. Before the economic crisis, a
number of investors from the UK and Malaysia had displayed interest in the IDR25trn (US$2.5bn)
project. However, many of these have now withdrawn. The project had been originally planned
around the concept of an aero city, in which a small city would be built nearby to support the airport.

Ports
In March 2010, Indonesia's state-owned shipping line, PT Pelabuhan Indonesia (Pelindo) III, announced
plans to build a new terminal in Lamong Bay in Surabaya. The terminal is estimated to cost IDR1.3trn
(US$144mn). Work on the terminal is expected to start in August 2010. Once completed, the port's capacity


will be increased to 3.5mn twenty-foot equivalent units (TEUs) from the current 1.5mn TEUs. President
director of Pelindo III, Djarwo Surjanto, has said that the project will be funded by the company's internal
budget.
Ports
Q4 2009
In November 2009, Indonesian state port authority, Pelindo II, released details of a major overhaul
planned for Indonesia's largest port Tanjung Priok, also known as the Port of Jakarta. The five-year
development plan, which is anticipated to start in 2010, will require investment of at least IDR6trn
(US$627mn). Pelindo is currently seeking investors for the project, according to Pelindo's president
director, Richard Lino, as quoted by the Jakarta Post. Plans include upgrading the infrastructure at
the port as well as improving the bureaucracy and administration.
Q3 2009
In August 2009, Indonesia's state-owned shipping line PT Pelabuhan Indonesia (Pelindo I)
announced that it is planning a US$500mn port infrastructure expansion venture. Financing has been
arranged with private shipping lines, multilateral organisations and local governments. Over the next
five years, US$500mn will be invested to expand and upgrade the existing infrastructure at ports in
Aceh, Batam, North Sumatra, Riau and Belawan. According to a report by the Jakarta Post, private
companies taking part in the financing include Maersk Lines and Regional Container Line. The two
multilaterals involved are the Islamic Development Bank, which has already approved an US$87mn
loan, and the Japan Bank for International Cooperation. Local governments also contributing to
financing are the Langkat Regency of North Sumatera, Sabang Regency, North Aceh Regency and
the Dumai Regency of Riau. Meanwhile, the director of commercial and business development of
Pelindo I told the Jakarta Post that the ports of Belawan and Batam will see investments of US$83mn
and US$100mn to expand their container handling capacity. The port of Dumai in Riau will receive an
investment of US$125mn to expand its liquid bulk capacity, in an effort to become a hub for crude
palm oil distribution. Expansion projects will also take place in the ports of Malayahati and Sabang in
Aceh and Perawang in Riau, where US$192mn has been earmarked for investments in cargo
handling terminals.

Roads And Bridges
In March 2010, Australia provided financing for the upgrade of a 31.5km-long stretch of the West Kalimantan
highway. The project is one of 20 road and bridge upgrading projects in nine provinces in eastern Indonesia
being funded by Australia with a concessional loan of AUD300mn (US$276mn) and a grant of AUD30mn
(US$27.6mn).
Roads
Q3 2009
In September 2009, Indonesian state toll road agency (BPJT), announced that it was raising tariffs
between 12.74-18.56%. The increased levies will be applied from October 2009 and will be
implemented on 14 major toll roads in the country. As well as increasing the cost for freight traffickers,


Roads
there are also concerns that the hiked fees could cause inflationary pressures. However, BPJT has
made the decision based on projections of higher commodity prices in 2010 as the global economy
begins to display some semblance of recovery.
In August 2009, the pre-feasibility study for the proposed 30km suspension bridge connecting Java
and Sumatra in Indonesia was presented to the central government following two years of study. The
construction of the bridge is expected to cost IDR100trn (US$10.07bn). The bridge could be open to
traffic by 2020 if construction starts in 2012. The governor of Banten province, Ratu Atut Chosiyah,
said that according to the study the bridge could boost the province's economic growth by 2-8%, and
could boost the Lampung province by 4-11%. However, it is unlikely that the Indonesian government
could finance more than a third of the project's cost. According to the National Development Planning
Agency (Bappenas), the government will finance at least 29% of the total IDR1,430trn (US$140bn)
that is expected to be spent on infrastructure between 2009-2014.
In August 2009, PT Jasa Marga, the largest toll road operator in Indonesia, disclosed plans to sell its
minority stakes in 12 subsidiaries in an effort to finance future investments. Toll roads make up a tiny
fraction of Indonesia's road system, but the partially state-owned operator has a dominant position in
that market. The company's director, Frans Sunito, said that the divestments would take place in 2009
and 2010, and that the company is planning to divest all of its minority stakes (less than 20%) in the
12 subsidiaries where it is a minority stakeholder, according to a report in the Jakarta Globe. Yet this
is not considered a reaction to current economic circumstances. PT Jasa Maraga has not been
affected by the financial crisis as the entire Indonesian economy has shown resilience to external
financial shocks. According to Q109 results, revenues for Jasa Marga increased by 4.2% y-o-y to
reach IDR833bn (US$83mn), while net profit increased by 4% y-o-y, reaching IDR189bn
(US$18.7mn). The company is planning at least five new toll-road projects including the Bogor Ring
Road, which will extend for 11km; the Semarang- Solo road, which will extend for 76km; the Gempol-
Pasuruan road, which will extend for 32km; and the JORRII-Kunciran-Cengkareng road, which will
extend for 26.4km.
In August 2009, a new scheme was passed that would allow regional governments to tax vehicle
purchases and then spend the revenues on improving public roads. Under the bill, a new car owner
will pay 1-2% tax on his first purchase and between 2- 10% on any additional vehicles acquired. The
scheme is expected to be fully implemented by 2011. Of the total revenues generated, 70% will go to
the provinces, with the remainder going to cities and municipalities.

According to the Jakarta Post, in July 2009, the planned overpass connecting Tanjung Priok-Semper-
Plumpang-Cikunir will need some small design changes, as the project could threaten one of state-
owned oil and gas company Pertaminas major fuel depots. The design changes could involve
building a short tunnel that would act as a shield and would prevent material from lorries, or stones
thrown by cars, from landing on the fuel depot, which the road will pass over. The tunnel would also


Roads
protect motorists from any potential gas leaks from the plant.
In July 2009 the Jakarta Post reported that the Association of Regional Development Banks is
planning to provide 70% of the money needed to build a proposed turnpike in the inner city of
Surabaya. The announcement should hopefully result in construction on the project commencing in
the near future, having been held in limbo for past six years. The total cost of the project is IDR1.8trn
(US$176.8mn), with the ARDB providing IDR1.2trn (US$117mn). The remainder will be provided by
private investors. The Surabaya municipality has claimed that the construction project is necessary as
the city is facing even worse daily traffic congestion than the capital, Jakarta. Under the initial plans, a
25km stretch of road was to be built at a cost of IDR5.3trn (US$530.6mn). However, this was deemed
too expensive and since then the scale of the development has been reduced, with the turnpike seen
as the first step in the project.
In July 2009, as reported by Xinhua, Indonesias public works minister has announced that the
section of the Trans-Asian road that runs through Indonesia will be completed by 2014. In total,
Indonesia will contribute 7,000km of the planned Asian mega-network. The Trans Eastern Sumatra
road will be 3,000km long, the Northern Java coastline road will be 1,000km, while the Trans South
Kalimantan road will be a further 3,000km. Meanwhile, in order to ensure the connectivity of the
network into Malaysia, a bridge is being planned that will cross the Malacca straits. The Trans Asian
road was first proposed by the United Nations in 1959, with the aim of improving the Asian economy.
Plans for the project were finally put in place in 2003. In total, the road will be 13,777km, starting in
Bali, Indonesia, and ending in Khosravi, Iran.

Railways
In March 2010, China Railway Group (CRG) was awarded a US$4.8bn contract to build and operate a coal
railway line in Southern Soumatra. The contract includes US$1.3bn for engineering, procurement and
construction of the 307km railway, as well as US$3.5bn for operating and maintaining the railway for 20 years.
The railway will transport coal from Indonesian coal producer PT Bukit Asam (PTBA)'s coal mine in Banko
Tengah, South Sumatra, to Srengseng in Lampung province. Once completed, which is due in 2014, it will
have the capacity to transport 27mn tons of coal per year.
Railways
Q4 2009
A joint venture (JV) from the United Arab Emirates has been cleared to invest US$1bn in the
construction of a railway in Indonesia's East Kalimantan. The project will be the first private railway in
Indonesia. The railway, which is being built by MEC Infrastructure, a joint venture formed of the Ras
Al Kaimah Investment Authority and UAE-based Trimex Group's MEC Holdings, is now ready for
construction, meaning all regulatory hurdles have been passed. The project has been in negotiations
for more than a year, having encountered difficulties that included trouble in securing a railway


Railways
operating licence. The railway will stretch 130km and will link a coal mine in Muara Wahau to the
coast, where a US$250mn new port is being built by MEC Holdings.
Q3 2009
In September 2009, it was announced that Indonesias US$1.5bn Central Kalimantan Rail Project is
due to be tendered by the end of 2009 or early 2010. The Central Kalimantan rail project will run for
185km, linking Puruk Cahu and Bangkuang. It is planned to be awarded as a 30-year concession,
and according to Mining.com 11 countries have already expressed an interest in taking part in the
project. The project includes the construction of a single track of railway as well as construction of
stations, workshops and coal loading and unloading facilities. Estimated cost is US$700mn. Once the
project is completed, which is set for 2012, the railway will be capable of transporting 10mn tonnes of
coal per year, increasing to 20mn tonnes following the first 10 years of operation.
The number of automobiles and motorbikes in the country has tripled in the past eight years to reach
9.52mn, while road space has increased by just 1%. However, one of the great hopes for the easing
congestion the Mass Rapid Transport System has only recently entered the design phase and will
not be operational until 2016. The 14.5km rail line will carry 400,000 people per day by 2020 and will
cost a total of US$1.5bn. However, critics are calling for the project to be sped up in order to reduce
the congestion pressures on the city. So bad is traffic that many businessmen now prefer to travel
between meetings by helicopter.


Major Projects Table Transport
Table: Indonesia Major Infrastructure Projects
Project
Project Value,
US$mn Company name(s) Timeframe Status
Airport Construction
Lombok airport
concourse extension 85 na 2010 Announced
New terminal at Ahmad
Yani Airport 44 PT Angkasa Pura II 2008+
Construction to start
at the end of 2008
Kuala Namu airport 463 na na
Project 25%
complete/under
review
Pondok Cabe airport
runway extension 100+ A3 2008+ Loan announced
Three new airports in
Kalimantan na na 2008+
Three years of
construction work
scheduled
Expansion of Nugrah Rai
airport 15 na 2010- Project announced
Construction of
commercial buildings at
the Soekarno Hatta
international airport,
Jakarta 1,350 PT Angkasa Pura II na At planning stage
Construction of airport at
Samarinda 110.7 na na Project announced
Adisutjipto International
Airport expansion na Angkasa Pura I 2010-
Tender for
contractor due
South Sulawesi new
regional airport na na 2009-2014
Plans announced in
September 2009
Jawa Barat International
Airport, Kertajati 2500 na na
At planning stage/
delayed
Port Construction
Port of Jakarta (Tanjung
Priok) expansion 627
PT Pelabuhan
Indonesia na Seeking investors
Port expansions at Aceh,
Batam, North Sumatra,
Riau and Belawan 500
PT Pelabuhan
Indonesia 2009+ Announced
Cruise Ship Port on Bali 3,320 na Q309
Currently under
construction
Karimun Port dockyard
and ferry terminal 370 Saipem 2008+
Construction under
way
New container terminals
in Balikpapan and
Jayapura 87.2 na 2008+
Tenders to be
offered


Project
Project Value,
Development of the
Sabang port (Aceh
province) 900
Dublin Port
Company na Project announced
Indramayu International
Sea Port at Cantigi 750 na 2007-2012
Construction will
start in 2007
Development of
Indonesias Teluk
Lamong port (first stage) 200
International
Container Terminal
Services and Dubai
Ports World na To be started
Bontang Port 41
PT Indo
Tambangraya
Megah 2009- Under way
Lamong Bay port new
container terminal 144
PT Pelabuhan
Indonesia 2010-
Construction due to
begin in August
2010
Road and Bridge Construction
Java/Sumatra
Suspension Bridge 10700 na 2012-2020
Pre-feasibility
completed in
August 2009
Toll Road, Java 1000 PT Adhi Karya Tbk 2008+ Project announced
Elevated roads in Jakarta 4,340
PT Jakarta Toll
Road Development 2008+ Project announced
Surabaya Turnpike 177
Surabaya
Munipality 2009+
Funding being
sought
Semerang -Solo toll road 55
PT Bank Negara
Indonesia 2008+
Loan for project
announced
Darmaga-South Sental
Toll Road na PT Adhi Karya Tbk 2008+
First section to be
completed in 2009
2nd toll road Jakarta-
Soekarno Hatta airport na Jasa Marga 2008-2010 Project announced
3 toll road projects in
Java 810 Bakrie & Brothers na At planning stage
Construction of 3 toll
roads in central Java 719 na -2009 At planning stage
Trans-Kalimantan
highway 439.92 na 2009
In the construction
phase
Toll road between
Cilincing in Jakarta and
Cibitung in West Java 250
PT MTD CTP
Expressway 2007-
Construction to start
after the land
clearing process is
completed
Construction of Manado-
Mapanget road 8.3 na 2007 - 2009
Project approved in
August 2007
86.5km project in
Lampung 41.7 na 2009- Project announced


Project
Project Value,
Pontianak-Tayan, West
Kalimatran Highway
expansion na na 2010-
Australian grant and
loan secured for the
project
Railway Construction
Southern Sumatra freight
railway 4800
China Railway
Group/PT Tamband
Batubara Bukit
Asam 2010-1014
Construction
contract awarded
Jakarta Subway 1000 na 2019-2014
Construction to
begin in 2009
Jakarta-Surabaya high-
speed railway 6140 na 2008+
Project to be funded
by international
investment
Jakarta Monorail na na na
Feasibility study
underway
Jakarta- Soekarno Hatta
Airport Rail Link 555 Pt RaiLink 2007-2009
Construction
Underway
Central Kalimantan Rail
Project 700 na 2010- Tender due in 2010
Construction of cargo
train network in Java 150 na na At planning stage
East Kalimantan rail
project 1000
Ras Al Khaimah
Minerals and Metals
Investment 2010-
Cleared to start
construction
na=not available. Source: BMI



Energy and Utilities Infrastructure
Table: Indonesia Energy & utilities And Infrastructure Industry Data
2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f
Industry Value As % Of Total
Infrastructure 29.54 28.82 28.46 28.65 28.76 28.86 28.95 29.02
Energy And Utilities Infrastructure
Industry Value, IDRbn 41,172 55,233 72,641 89,147 103,010 119207 137,609 157,750
Industry Value, US$bn 4.49 5.66 7.01 9.74 11.77 13.94 16.19 18.56
Industry Value Real Growth (%) 20.86 23.84 26.52 17.47 9.31 9.12 9.09 8.81
Industry Value As Percent Of Total
Construction (%) 13.49 13.16 13.09 12.96 12.89 12.82 12.77 12.72

Power Plants and Transmission
Grids Infrastructure Industry Value As
% Of Total Energy and Utilities 30.34 33.81 33.45 33.30 33.22 33.14 33.07 33.02
Grids Infrastructure Industry Value,
IDRbn 12,491 18,677 24,299 29,689 34,215 39,504 45,513 52,089
Grids Infrastructure Industry Value,
US$bn 1.36 1.91 2.35 3.24 3.91 4.62 5.35 6.13
Grids Infrastructure Industry Value
Real Growth (%) 34.10 39.21 25.10 16.93 9.00 8.86 8.86 8.62
Grids Infrastructure Industry As % of
Grids Infrastructure Industry As % of

Oil and Gas Pipelines Infrastructure
Industry Value As % Of Total Energy
and Utilities 6.84 8.96 9.34 9.52 9.63 9.73 9.81 9.87
Industry Value, IDRbn 2817.8 4949.0 6783.6 8489.0 9921.3 11595 13496 15577
Industry Value, US$bn 0.31 0.51 0.66 0.93 1.13 1.36 1.59 1.83
Industry Value Real Growth (%) -0.57 65.32 32.07 19.89 10.63 10.27 10.05 9.59


Table: Indonesia Energy & utilities And Infrastructure Industry Data
2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f
Industry As % of Total Infrastructure 2.02 2.58 2.66 2.73 2.77 2.81 2.84 2.87
Industry As % of Total Construction 0.92 1.18 1.22 1.23 1.24 1.25 1.25 1.26

Water Infrastructure Industry Value
As % Of Total Energy and Utilities 62.82 57.23 57.21 57.17 57.15 57.13 57.12 57.11
Water Infrastructure Industry Value,
IDRbn 25863 31608 41558 50969 58873 68108 78600 90083
Water Infrastructure Industry Value,
US$bn 2.82 3.24 4.01 5.57 6.73 7.97 9.25 10.60
Water Infrastructure Industry Value
Real Growth (%) 17.94 11.90 26.48 17.39 9.26 9.09 9.06 8.78
Water Infrastructure Industry As % of
Water Infrastructure Industry As % of
e/f = BMI estimate/forecast, Source: Statistics Indonesia, BMI Calculation

Energy and Utilities Infrastructure Forecast Scenario
Between 2006 and 2015, it is estimated that about US$40bn needs to be invested in the power sector to
keep pace with demand. State-owned, PT Perushaan Listrik Negaga (PLN) has the herculean task of
increasing power generation by 20 gigawatts (GW) (once both phases of the programme are completed)
to meet demand.
For 2010 alone, the utility has earmarked IDR74trn (US$7.99bn) for capital expenditure (capex).
Financing remains the main obstacle to realisation. PLN's president director, Dahlan Iskan, said in late
January 2010 that the company only has IDR23trn (US$2.48bn) of the total available. The company will
consider raising loans or issuing bonds totalling around IDR51trn (US$5.51bn). PLN will use 55% of the
planned capex for new power plant projects. The remaining funds will be used for the construction of
electricity transmission systems and repair of sub-stations.



The total value of the energy and utilities
infrastructure industry in the country will
experience average real growth of around
10.7% each year between 2010 and 2014.
Power plants and transmission grids will
contribute 33%, or IDR30bn (US$3.2bn)
to the utilities infrastructure value in
2010. According to our forecasts, their
contribution will remain steady to the end
of our forecast period in 2014.
Compound annual real growth for power
plants and transmission grids is forecast
to be 10.5% between 2010 and 2014.
This is reflected in the fact that PLNs
power expansion programme is already under way and will continue to at least 2012, and possibly carry
over to 2013 if delays occur. After 2015 we would expect to see a slightly steeper decrease in the
contribution power plants and grid infrastructure make to the total utilities infrastructure industry value.
Energy and Utilities Infrastructure Overview
Demand for power in Indonesia is currently outstripping supply. The nation has been hit by blackouts,
with the Indonesian state electricity utility PT Perushaan Listrik Negaga (PLN) managing the power
shortage through scheduled outages.
Indonesia passed a law on September 8 2009, to liberalise the electricity market in an effort to break the
dominant position of PLN, the state-owned utility, in the market. The development has been received
with cautious optimism by the industry and analysts, who see this as a step in the right direction in
channelling much-needed investments for new electricity infrastructure. The new law enables local
authorities in the country, to provide electricity to their region from private companies, bypassing PLN's
networks. This effectively ends PLN's monopoly over transmission, distribution and retail operations, as
well as breaking the dominant position the company has over the power generation market. According to
the Wall Street Journal, though the state-owned companies will have the right of first refusal to develop
new power generation projects, the local authorities will have the authority to approve new projects.
Private power producers will be allowed to propose tariffs reflecting the true cost of power generation.
This is a first step in liberalising the electricity market, and analysts hope that it will prove more resilient
than previous efforts. In 2002, there was an effort to liberalise the sector but the Constitutional Court
PLN's Capex Reflected In Our Forecasts
Energy And Utilities Infrastructure Value And Share Of
Infrastructure Value

Calculation


revoked the parliament's decision, arguing that electricity infrastructure was strategic infrastructure, and
thus it was not appropriate to allow the private sector have any control over it.
It is hoped that an injection of private capital will reduce government subsidies for PLN, which were
expected to hit IDR47.5trn (US$5.2bn) in 2009.
Meanwhile, after a year of very difficult fundraising ventures PLN secured, in October 2009, two new
loan facilities and has now met almost 91% of the dollar-denominated funding requirements of its
expansion plans. The companys capital investment programme forms part of the Indonesian
government's 'crash programme' to boost electricity generation.
The first phase of the programme will add 10,000 megawatts (MW) in generating capacity through 35
new coal-fired power plants. This phase is behind schedule, with most of the plants still under
construction. The second phase will see the addition of a further 10,000MW of generating capacity
between 2010 and 2014. It is hoped that 4,000MW of this will come from IPPs. However, in order for
this to happen, Indonesia needs to make the sector more attractive to investors, improving policies and
renegotiating tariffs to reflect construction costs.
The first of these latest loan agreements was between PLN and the China Development Bank and the
Industrial and Commercial Bank of China for US$763mn. These loans will finance the construction of
a 660MW coal-fired power plant in Central Java and a 224MW coal-fired power plant in West Sumatra.
The second loan agreement was between PLN and domestic banks Bank Mandiri, Bank Negara
Indonesia and Bank Rakyat Indonesia for US$329mn. These funds have been earmarked for the
construction of a 200MW coal-fired power plant in Lampung and a 400MW coal-fired power plant in
North Sumatra.
According to the Jakarta Globe, PLN has now secured US$3.8bn for seven power projects for the first
phase of the programme in Java and is thus hoping to complete these by 2010. Beyond Java,
US$974.7mn, equal to 84% of funding required, has been secured for 20 projects, out of 22 proposed.
The government announced the financing details of the second phase of the programme in August 2009.
Accordingly, 40% of the investment programme will be implemented by the state utility, while the rest is
going to come through independent power producers. The investments are due to be completed by 2012.
The second phase pertains to the construction of 83 power plants, with a total estimated cost of
US$17.3bn. Approximately 12% of the new capacity will be hydropower, 14% natural gas, 26% coal and
48% geothermal.


However, as with the first phase, the sizable price tag for the investment programme is a concern, and
according to BMI's Project Finance Ratings for Asia Pacific, risks to private participation in the energy
and utilities sector in the country are significant, meaning that the independent power producers (IPPs)
the government is anticipating may not all materialise.
In early November 2009, it was reported that progress on the construction of 50 small IPPs had slowed
due to financing issues and rising costs. According to the Jakarta Post, higher engineering, procurement
and construction costs, the increasing price of fuel and difficulties in financing is threatening the
commissioning and operation of 500MW worth of IPPs. As such, the government is planning to facilitate
a renegotiation of tariffs, operating schedules and other conditions between the IPPs and Indonesia's state-
owned utility, PT Perusahaan Listrik Negara (PLN), to whom the electricity must be sold.
Indonesia has built up a coal-based power sector, as the country has substantial reserves of the fuel. Given
the countrys substantial and under-used coal resources, the fuel represents the most attractive quick fix
in terms of short-term capacity expansion in the power sector.
Geothermal also holds promise for Indonesia. The World Bank is looking to provide Indonesia with
around US$300mn in grants or loans to enable it to further develop its clean energy sector. Through the
Clean Technology Fund, the World Bank presently manages around US$5bn in funds. Indonesia has the
worlds third largest capacity for geothermal energy, yet is still heavily reliant on non-renewable sources
such as coal. Meanwhile, the country could earn up to US$15bn under the World Banks Reducing
Emissions from Deforestation and Degradation (REDD) programme which pays countries to protect their
rain forests.
PLN has about 26,000km of high-voltage transmission lines and more than 530,000km of low-voltage
distribution lines. The state-run operator may award contracts to build transmission networks to selected
companies under the new 10GW 2010 expansion programme. PLN may need to spend more than
US$7.7bn on power networks, according to Herman Darnel Ibrahim, Vice-President of Transmission and
Distribution at the company. PLN currently operates about 25,000MW of power capacity in Indonesia,
according to Power Technology. However, the electricity output falls far short of this, due to ageing and
inefficient transmission, distribution and generating infrastructure. As a result, the country has suffered a
number of power outages.
Major Projects New and Ongoing Projects
Power Plants and Transmission Grids
In March 2010, PLN announced it will invest IDR3.7trn (US$410mn) to upgrade power transmission and
distribution in Jakarta. The 500 Kilovolt (kV) Project involves construction of a network system, to connect all


the city's substations. PLN will construct a 150kV cable underground line and four high voltage substations in
North Jakarta. Funds for the project will come from internal sources.
In March 2010, the Japan Bank for International Cooperation (JBIC) arranged two loans totalling US$1.8bn for
two Indonesian independent power producers (IPPs). The biggest loan is for US$1.2bn for PT Paiton Energy.
It will support the US$1.5bn expansion of the company's East Java Plant, which will increase capacity by
815MW and is due to come online in April 2012. Paiton is owned by Japanese companies Mitsui and Tokyo
Electric Power and UK-based International Power. JBIC is providing 60% of this loan, with the rest coming
from Bank of Tokyo-Mitsubishi, Mizuho Corporate Bank, Sumitomo-Mitsui Banking Corp, Sumitomo
Trust and Banking and the Tokyo branches of BNP Paribas, HSBC, Crdit Agricole and ING.
The second loan is for US$595mn and has been granted to Cirebon Electric Power for the construction of a
660MW power plant in Cirebon, West Java. The total cost of the project is estimated at US$850mn, with the
plant due to come online in November 2011. Cirebon also has Japanese involvement, with Marubeni having a
32% stake, as well as Korea Midland Power, PT Indika Energy and Samtan Co.
In March 2010, India's National Aluminium Company (NALCO) announced it is due to start the construction
of a smelter and a coal-fired power plant in the Kalimantan province in Indonesia by June 2010. The US$4bn
joint venture (JV) project will include construction of a 500,000 tonne aluminium plant and a 1,250 megawatt
(MW) power generation facility. The company will complete the project in three to four years. The project will
help NALCO expand its operations in the Southeast Asia region.
In February 2010, South Korean utility East-West Power announced a partnership with PT Bakrie Power,
Bakrie Group's investment unit, for the construction of US$450mn coal-fired power plants in Indonesia. The
companies have entered into a preliminary agreement to complete the construction of two 100 megawatt (MW)
plants by 2013. Both the companies will also operate and maintain the power plants for the next 30 years.
In February 2010, PLN awarded an engineering contract worth US$156.7mn to Japanese company Sumitomo
for the construction of a geothermal power plant. The plant, with an installed capacity of 110MW, will be
located in South Sumatra in Indonesia. It will have two power generating units and is expected to become
operational in 2012. Japan International Cooperation Agency (JICA) is providing a loan to finance the
project.
In January 2010, Indonesia's Asahan 3 hydropower plant in North Sumatra faced yet more delays as the
government considered on which entity will finance it, reported Jakarta Globe. The government is deciding
between the Japan Bank for International Cooperation (JBIC) and a group of local investors, who have
proposed a price which undercuts JBIC's costs by US$70mn. The Indonesian government had already signed a
US$420mn finance agreement with JBIC for the project, meaning the project would have to be done by more


expensive Japanese contractors. Meanwhile, local investors have claimed they can complete the construction at
a cost of US$350mn. The construction of the plant was due to start in 2004.
Q4 2009
In November 2009, the provincial administration of Papua announced that it will construct a 2,000MW
hydropower plant to meet increasing power demand and support infrastructure. Provincial governor
Barnabas Suebu has said that feasibility studies for the plant are on the verge of completion. He
added that the estimated cost of developing the plant is IDR5trn (US$525mn), which will be partly
financed by the administration, with investors invited to finance the rest.
Indonesia's energy and mineral resources ministry is planning to spend IDR800bn (US$84mn), in
2010, on solar power projects, with the aim to improve electricity provision in remote areas. The
ministry intends to build solar power plants with a peak capacity of 2,234 kilowatts (kW).
In October 2009, PLN announced plans to invest US$2.2bn in a power grid linking Sumatra to Java.
The 700km power grid would include 40km of underwater power cables passing through the Sunda
Strait, and would supply 3,000MW of power to Java and 600MW to Sumatra, which will be produced
by six coal-fired plants. The company is expected to float a tender in mid-2010. The construction of
the grid is expected to start in 2011 and to be completed in 2016.
In October 2009, it was reported that Indonesian energy firm PT Medco Energi International is looking
to build a new US$400mn geothermal power plant in Northern Sumatra. According to Reuters, the
company is also looking to spend US$100mn on a biofuel project in Papua Island. PT Medco Energi
is looking to develop around 1mn hectares of land to develop biofuel feedstock.
Q3 2009
In September 2009, Indonesian government-owned utility Perusahaan Listrik Negara (PLN)
announced a 30MW coal-fired power plant will be built in Waai village on Ambon island, in Indonesia,
in mid-2010, reported Trading Markets. Agus Lomo, a PLN spokesperson, has stated that the
company has selected a 23-hectare (ha) area on the island for the coal-powered plant. Coal is a
major fuel source for Indonesia's power sector. In 2009, BMI estimates that the fuel will make up
40.3% of the country's power mix. Indonesia has built up a coal-based power sector, as the country
has substantial reserves of the fuel. By the end of 2013, 84 terrawatt hours (TWh) of power will be
derived from coal-fuelled generation. Indonesian coal consumption is forecast to increase from an
estimated 33mn to 41.8mn tonnes per year by 2012. This equates to a rise in demand from 49.5mn to
62.7mn tonnes of hard coal. Given the country's substantial and under-used coal resources, the fuel
represents the most attractive quick fix solution in terms of short-term capacity expansion in the
power sector.
In August 2009, it was reported that PLN is considering building a power plant near Sulawesi liquefied
natural gas (LNG) project. The Sulawesi plant will have a minimum capacity of 100MW. The company
has stated that it is interested in using the Donggi-Senoro project's natural gas for its power plant and


that it will be cheaper to build the power plant near the project than to transport the gas to other
locations.
In July 2009, Chinese power company Shenhua Goa Power began construction of a power plant and
mine in Indonesia. The project is expected to be completed in 2011 and when operational will
produce 1.5mn metric tonnes of coal per year.

Oil and Gas Pipelines
Oil and Gas Pipelines
Q3 2009
In July 2009, it was reported that the Indonesian government was urging Japanese oil and gas
company Impex to build a liquified natural gas facility in Malaku. Government research suggests that
the new plant could be linked to Impexs gas block in Timor through an underwater pipeline. Inpex is
currently planning to build a US$19.6bn floating terminal to serve the Masela block. However,
research commissioned by the Indonesian authorities suggests that building a plant onshore would
save considerable amounts of money for Impex. Initially, it was thought that the water would be too
deep to construct the 150km pipeline, but technology improvements have now made this feasible.
Q2 2009
In April 2009, it was reported by the Jakarta Post that Indonesian state-owned oil and gas company
PT Pertamina is planning to construct a gas pipeline through the Bankiriang wildlife park. The pipeline
will run from Toli District to Batui District and will help the development of the Donggi and Minahaki
gas fields in Toli. The gas will be transported to a liquefied gas refinery, which is being built in Batui
by PT Donggi Senoro LNG. Construction on the pipeline will begin after the company has received a
forestry licence and PT Pertamina will have to cooperate with the Central Sulawesi Nature Resource
Conservation Agency (BKSDA).
Q1 2009
In January 2009, state-owned gas supplier PGN announced that it was looking to increase its
revenue by 20% in 2009. As reported by the Jakarta Post, rapid growth towards the end of 2008 was
due to the completion of a transmission pipeline in South Sumatra and West Java. Presently, PGN
operates 2,109km of gas pipelines, as well as a number of distribution outlets.

Water
According to a World Bank report, Indonesia suffers more than any other South Asian country as a result of its
poor sanitation. With President Bambyang Yudhoyono beginning a second five-year term in October 2010, the
Jakarta Post reviewed his success in terms of water and sanitation. The newspaper claimed that approximately
94mn Indonesians do not have access to sanitation. This is despite government pledges to increase piped water
coverage to 66% of cities and 30% of villages by 2009. The Jakarta Post alleges that this target has been
missed, with only 16.1% of the population having access to piped water by the end of 2008. Part of the


problem is that roads get the biggest segment of infrastructure spending, while water and sanitation gets the
smallest, a situation that will have to change if Indonesia is to meet its National Development Goals.
Water
Q2 2009
In July 2009, the Jakarta Water Regulatory Body called for the city administration to construct a
pipeline running between the Jatiluhur reservoir in the city of Purawakarta and the capital. Currently,
the majority of Jakartas water supply comes from the Kalimalang River. The water pipeline project
would cost around IDR1.5trn (US$147mn) and would allow Jakartas water plants to secure a clean
supply. Although the Kalimalang River is in reasonable condition, it is bisected by a number of
polluted rivers such as the Bekasi.
As reported by the Jakarta Post, in July 2009, the government provided funding to help regional tap
water companies to extend their networks. As a result of the planned aid, an extra 10mn households
should gain access to drinking water. Under the decree, the government will cover 3.5% of the
interest rates that banks will charge on loans to regional water suppliers. The central government will
also guarantee 70% of the loans, which will give more confidence to the lenders. Presently, only
7.6mn households in Indonesia have access to tap water.
Q1 2009
According to reports in the Jakarta Post in April 2009, approximately 80mn Indonesians still lack
adequate sanitation due to a lack of toilets. Household waste is a huge contributor to pollution
problems in the country, with 75% of rivers in the country already being badly polluted. As a result the
government is being pressured to construct an integrated sanitation system across the whole country.
Presently, only IDR1.2trn (US$112mn) has been allocated for sanitation and the majority of the
money willbe used to develop facilities for drinking water.


Major Projects Table- Energy and Utilities
Project
Project Value,
Pipeline and Oil and Gas Construction Projects
Gas pipeline for Medan na PGN 2009-2011 Project announced
Oil Refinery in Banten 5,600
PT Pertamina NIORD,
Petrofield 2006-2013
Construction under
way
Three LNG Projects 1,780 PGN 2008-2017
First terminal due
online in 2011
Tangguh liquefied natural gas
project at Tangguh, Papua 5,000
BP and partners including
MI Berau (held by
Mitsubishi Corp and INPEX
Corp), CNOOC, Nippon Oil
Exploration Berau, KG
Companies (held by Japan
National Oil Corp,
Kanematsu Corp and
Overseas Petroleum Corp)
and LNG Japan Corp (held
by Sojitz Corp. and
Sumitomo Corp) 2005-2008
Operational in late
2008
Construction of Parepare oil
refinery in South Sulawesi 3,500
PT Intanjaya Agromegah
Abadi and Inter Global
Technologies 2006-2010
Construction work
started in 2006
Construction of Muara Bekasi
to Muara Tawar gas pipeline na na na Project announced
Gas pipeline from Toli District
to Batui District na PT Pertamina na Planning stage
Power Plant Construction
30MW coal-fired power plant,
Ambon na PLN na Announced
Sumatra- Java power bridge 2200 PLN 2011-2016
Tender expected
mid-2010
Papua hydropower plant 525 na na At planning stage
Geothermal Power Plant
Northern Sumatra 400
PT Medco Energi
International na Announced
Bali Power Plant 1,000
Qatari-Indonesian
consortium na Planning stage
Gas fired power plant in
Bojonegoro 1000 KEPCO 2008-2014
Construction to
begin in 2010
200MW power plant in
Indragiri 300
Middle East Mine Power
Holdings 2008-2012
Construction to
begin in 2009
Six geo-thermal plants 200 PT Pertamina 2008+ Project announced
200MW coal-fired power plant
in East Kalimantan 174 PT PLN 2009-2012 Project announced


Project
Project Value,
2,000MW coal-fired power
plant (CFPP) in Pemalang na na 2009 Bidding stage
Coal-fired plant (CFPP) in
Pomala 300 na 2009+ Planning stage
Biomass plant in South
Sulawesi na JSC PromSviaz Automatika 2008+
Feasibility study
under way
60MW gas fired power plant in
Wajo na PT Energy Sengkang 2008+
Construction to
begin in 2009
Three steam power projects na na 2008+ Project announced
Combined cycle gas power
plant, Java 247
PT PLN, Marubeni
Corporation, Alstom 2008+ Tender awarded
Karang Asem power plant,
Bali 270
PT Truba Alam Manunggal
Engineering 2008+ Project announced
Sulawesi Coal-fired plant na PT Aneka Tambang 2008-2010 Project announced
Solar Power projects 300
Suntech Power Holding
Company 2008+ Project announced
Four power plants, Java and
Kalimantan 900 Adhi Karya 2008+ Tender announced
Geothermal Plant, West Java 76+ PT Wijaya Karya 2008+
Funding being
sought
660MW Cirebon power plant 545+ Marubeni Corp 2008+
Funding being
sought
Three 67MW power plants,
Kalimantan 400 Sebukit Power 2009-2011 Project announced
1000MW Nanten Gas Power
plant 1000 Kepco 2010-2014 Project announced
600MW Labuan Power plant,
Banten 429
Chengda Engineering Corp,
PT Truba Juring Engineering -June 2009 79% complete
10 coal-fired Power Plants 573 Semen Gresik 2008 Project announced
350MW Tanjung Awar-Awar
plant 645
China National Machinery
Corp, China National
Electric Equipment Corp,PT
Penta Adi Samudra 2008-2010 Project awarded
110MW Nagan Raya
hydropower plant 245 Sinohydro Corp 2008-2010 Project awarded
540MW coal power plant West
Sumatra 350 Power Machines 2008+ Project announced
65MW Coal fired plant South
Kalimantan 152.6 Wika 2008+ Project awarded
100MW Coal fired plant
Kalimantan 750 KOMIPO 2008+ Project announced


Project
Project Value,
60MW Coal fired plant
Pontianak 59.9 na 2008-2010 Bank loan secured
Hydropower Plant West Java 600 na 2008+ World Bank Loan
990MW Indramayu Power
Plant 592.2+
of Sinomach, CNEEC, Penta
Adi Samudra 2008+
Under construction.
Loan from China
1,120MW coal fired plant Java 1,200 PLN 2008+
PT Astratel
Nusantara stated its
interest
Geothemal Project 4+ na 2008-2009 World Bank Loan
Four nuclear projects 8,000 na 2008-2025
Site surveys under
way
300MW power plant Sumatra na
China Shehau Group, PT
Energi Musi Mukmur 2008-2010
Permission by
government
authorities given
Two 600MW coal fired power
plants 615 PLN and China Exim Bank 2008+ Loan agreed
500MW power plant in Jambi na Monnet Ispat, Energy LTD 2008+
Coal supplies yet to
be guaranteed
120MW coal fired power plant
in Buntoi 59.4
National Heavy machinery,
Shandong Electric Power
Construction, PT Power
Mandiri 2008-2009 Project announced
Environment-friendly thermal
power plant in East
Kalimantan 18,640 na na At planning stage
Construction of two steam
power plants projects in West
Java and East Java 1,440
China National Machinery
Industry (Sinomach) and
Penta Adi Samudera
consortium na At planning stage
North Jakarta transmission
and distribution systems
ugrades 410 PLN 2010 At planning stage
Paiton Energy East Java plant
upgrade 1,200 Paiton Energy 2010-2012 Loan agreed
Cirebon Electric Power
Ciberom power plant 850 Cirebon Electric Power 2010-2011 Loan agreed
Kalimantan coal fired power
plant na
National Aluminium
Company (NALCO) 2010-2014
Project announced
in March 2010
PT Bakrie Power coal-fired
power plant 450
PT Bakrie Power, East-West
Power 2010-2013
Joint venture
agreed in February
2010
South Soumatra geothermal
power plant 157 Sumitomo (EPC)/ PLN 2010-2012
Contract awarded in
February 2010


Project
Project Value,
Asahan 3 hydropower plant 420 na na
Delayed/
Government
evaluation financing
options
Water
Bantan resevoir na na 2008+
Construction
scheduled to begin
in 2013
East Flood Canal 564.6 na 2008-2010 Under construction
na=not available. Source: BMI



Business Environment
Indonesia Business Environment
Indonesias score in BMIs Asia Pacific Business Environment Ratings is 49.9 out of 100. In spite of the
significant scale of opportunity due to the size of the market, the demand and the willingness of the
government to divert resources to infrastructure, deep structural weaknesses such as high levels of
corruption, a nebulous bureaucratic and legislative edifice have severely impeded investments in the
countrys infrastructure from non-public sources.
Limits Of Potential Returns
Infrastructure Market
Indonesia has one of the fastest growing construction industries in Asia. BMI has upgraded its forecasts
following a very strong 2009 and according to BMI forecasts, its domestic construction industry is
forecast to grow from US$43bn in 2008 to US$145bn by 2014. Recent state initiatives to revise the policy
in corporate regulation, tax, customs, labour and infrastructure are all likely to provide an impetus to the
Indonesian infrastructure sector. In the short term, the main driver of growth in the infrastructure sector
will be the governments economic stimulus package, which is ploughing IDR90trn into infrastructure
construction. Liquidity problems will be eased by some level of support from the Asian Development
Bank (ADB), while the government is looking to launch PPP schemes to raise capital from the private
sector.
Country Structure
Indonesia scores only moderately with regard to its labour market infrastructure. Moreover, with high
levels of unemployment, this is an area that will require greater attention from the authorities. The
government is looking to boost employment with a large infrastructure construction programme, which it
is thought may put as many as 3mn people to work in labour-intensive construction projects. Still, the
latest data suggest that Indonesia has not been as badly impacted by the global financial crisis as other
countries in the region. Unemployment stands at 8% down slightly from the 2008 level of 8.4%. In the
other area constituting country structure access to electricity Indonesia has been making progress and
can be said to be on the path to sustainability.
Risk To Realisation Of Potential Returns
Market Risks
The tendering process in Indonesia is fairly competitive, and though some of the larger contractors get the
major government projects, there are no serious barriers to entry for new firms. Investors must contend
with security concerns and weak governance, particularly in the legal sphere. Indonesia suffers from one


of Asias worst investment climates, which has proved to be a major obstacle to attracting greater foreign
direct investment (FDI) flows. Corruption and graft remain major obstacles which also drag down the
transparency of tendering process score.

Country Risk
Indonesia was hit harder than any of its neighbours by the Asian financial crisis of 1997-1998. Though
progress has been made particularly in terms of reducing the burden of external debt (including
graduation from an International Monetary Fund loan programme in December 2003) tackling key
issues such as unemployment still remains an area of underperformance. Moreover, lifting private sector
investment, both foreign and domestic, remains a pressing task for the incumbent authorities. Other
problems include widespread corruption, a lack of transparency and an explosion of local taxes following
fiscal decentralisation in 2001. Indeed, there have been reports in Q209 about corruption and inefficiency
in the countrys ports which are considered to be among the worst in the region. Q309 also saw
concerns over corruption in airports with the Supreme Audit Agency now set to investigate a number of
major airports in the country including the Soekarno-Hatta International Airport outside Jakarta.
Regional Overview
Asia Pacific Infrastructure Business Environment Ratings
Cambodia has been added to our Asia Pacific Infrastructure Business Environment Ratings following the
addition of a Cambodia quarterly infrastructure report to BMI's infrastructure service. The country faces
immense challenges to its business environment, a condition reflected in its poor ratings and ranking in
the region.
China remains at the top of the regional table, as the country's infrastructure sector offers opportunities
for growth on a large scale. Taiwan has seen the greatest jump in score this quarter due to revision in
industry value growth expectations. Malaysia has gained points on the back of the fiscal stimulus, while
Thailand's score reduced due to persistent political risks, which undermine the prospects for economic
growth.
BMI's Business Environment Ratings are compiled by looking at indicators that fall into two main
groups. First, limits to potential returns, which includes factors that show the potential of the market, for
example, government investment and growth forecasts for the infrastructure market. Second, is risk to
realisation of returns, which includes risks to investors, including corruption, policy continuing and
transparency.
Limits of potential returns takes into account the opportunities available for investing in infrastructure


through the infrastructure market indicator. Countries with large stimulus packages from which we have
already seen evidence of investment filtering though, such as China, score well here. For the more
developed countries with a high class of existing infrastructure, such as Singapore, the opposite is true.
The country structure sub-rating takes into account factors such as the availability and sophistication of
the labour market, the maturity of the financial services sector, and the levels of access to electricity.
In the Asia Pacific region, China presents the fewest limits to potential returns, with the highest score of
72.1 out of 100. The country scores over 70 for both infrastructure market and country structure.
India's potential, in terms of infrastructure market, has reduced somewhat this quarter, but it is still the
highest in the region (82.5 out of 100), making up considerably for its far below average country structure
(48.9). The Infrastructure Market score reflects the country's continued commitment to infrastructure
development, the limited impact that the financial crisis has had on the sector, and future growth
potential. Because of these factors, India is catching up with China in terms of its overall limits to
potential returns for investors, with the second highest score in the region this quarter of 70.7.
Fiscal stimulus measures in Malaysia have increased government spending quite abruptly over the final
quarter of 2009 and as a result, Malaysia's score in the infrastructure market has increased accordingly,
bolstering the entire score to 52.4 from the previous 50.1. However, it should be noted that this increase
masks the fact that construction industry value real growth will be sluggish and industry value moderate.
Risks To Realisation Of Returns
The risk to realisation of returns indicator assesses the level of risks inherent in countries' infrastructure
markets. The reverse is generally true when looking at which countries perform well here compared with
the limits of potential returns stage. More developed countries generally have more sophisticated financial
and legal frameworks and a higher level of transparency and policy continuity.
The highest score for risks to realisation of returns therefore the country presenting the fewest risks to
an investor is Singapore, with a near-perfect score of 90 out of 100. The lowest score belongs to
Cambodia, with 28.6, making it BMI's riskiest country in which to invest, in Asia Pacific.
With a near-perfect score of 95 out of 100, Singapore posts the highest score for market risks in Asia
Pacific, and indeed the highest score of all the countries in BMI's infrastructure universe. Singapore
offers infrastructure investors a highly transparent and competitive environment in which to do business.
This is matched by the highest score in the region for country risk, 86.7, due to exceptional scores for
policy continuity and external risk as well as no perceived corruption.


The spread of scores in this section is quite considerable. Only one country scores in the 90s (Singapore)
and only one in the 80s (Hong Kong). Indeed, the most popular group is scores below 50.
Indonesia's score is the second lowest in the region, 41.8 out of 100; this is due to the region's lowest
score for market risks, making its infrastructure market the riskiest in which to be involved. There are few
companies active in the country, and the level of transparency in the tendering process leaves much to be
desired, with allegations of corruption at this stage common.
In the lower scale in terms of market risks, we find Vietnam, the Philippines and Pakistan. While
Philippines and Vietnam have been keen to revamp their image and refine the tendering process, a
process that has perhaps been most successful in Vietnam, limited progress in this area is expected
anytime soon in Pakistan, which is in penultimate place. The same can be said of the presence of
competition in the market, with Vietnam increasingly attracting large international companies, and
Pakistan making no progress in the right direction.
Cambodia is in the last place, scoring very poorly in terms of corruption and legal framework, structure of
the economy and vulnerability to external economic and financial shocks. The score would have been
even lower had it not been for the strong score in policy continuity.
Infrastructure Business Environment Ratings - March 2010
Little has changed is the scores this quarter, with a few notable exceptions, and the rankings remain
largely unchanged bar some shuffling around in the middle section. The emerging economies of Asia are
still fraught with different levels of risks, whether political, operational or institutional, making the
development of effective public private partnerships (a necessary component to bridge the infrastructure
deficit) or broader private sector participation still somewhat challenging. Widespread corruption and
bureaucracy, as well as cumbersome tendering procedures, continue to act as deterrents for potential
investors.
China maintains its position at the top of the table with an overall score of 72.1 out of 100. Strong
potential in the infrastructure market due to the government's public works focused stimulus plan means
the country has one of the fastest growing infrastructure sectors globally, offering both high growth and
opportunities of a much greater scale than anywhere else in the region. While the potential in China is
evident, the level of risk is higher than average. The dominant position of large state-owned infrastructure
firms is something to be aware of; especially as contracts from the stimulus plans have favoured state-
owned enterprises, which in turn enhance their dominant position in the market.
Singapore presents few risks for investors and the country offers a sound and stable investment
destination; however, its small infrastructure sector in terms of industry value means fewer opportunities


to invest. However, there have been some signs of progress, with large projects in the pipeline. As these
become more concrete, we expect Singapore to cement its high-ranking position.
Taiwan and Malaysia have seen the greatest alterations in scores. Both countries' governments have
bolstered government expenditure, which has been reflected in our ratings as higher infrastructure market
scores. Taiwan gained 9.7 points, while Malaysia got five. However, while Taiwan's greater expenditure
is heavily geared towards infrastructure investments, in Malaysia it is part of a wider stimulus plan,
therefore the effect on infrastructure growth will be less pronounced. For this reason we caution that
Malaysia's gains this quarter, mask weak growth and limited opportunities in infrastructure.
Table: Regional Infrastructure Business Environment Ratings
Limits of Potential Returns Risks to realisation of returns

Infrastructure
Market
Country
Structure Limits
Market
Risks
Country
Risk Risks
Infrastructure
BE Rating
Regional
Ranking
China 80.0 71.3 76.9 50.0 67.7 60.6 72.1 1
Singapore 45.0 84.4 58.8 95.0 86.7 90.0 68.1 2
South Korea 55.0 80.3 63.8 75.0 76.2 75.7 67.4 3
India 82.5 48.9 70.7 50.0 64.3 58.6 67.1 4
Taiwan 47.5 71.2 55.8 75.0 75.2 75.1 61.6 5
Hong Kong 25.0 84.8 45.9 85.0 77.2 80.3 56.2 6
Malaysia 32.5 71.5 46.1 55.0 74.9 66.9 52.4 7
Vietnam 60.0 42.3 53.8 35.0 49.6 43.7 50.8 8
Indonesia 57.5 45.9 53.4 24.0 53.7 41.8 49.9 9
Thailand 25.0 75.7 42.8 55.0 61.8 59.1 47.7 10
Philippines 35.0 52.3 41.1 35.0 53.4 46.1 42.6 11
Pakistan 20.0 40.1 27.0 35.0 33.6 34.2 29.2 12
Cambodia 25.0 27.8 26.0 20.0 34.4 28.6 26.8 13
Regional
Average 65.6 71.2 67.6 67.5 73.7 71.2 68.7
Source: BMI. Scores out of 100, with 100 highest. The Infrastructure BE Rating is the principal rating. It is comprised
of two sub-ratings 'Limits of Potential Returns' and 'Risks to realisation of returns', which have a 70% and 30%
weighting respectively. In turn, the 'Limits' Rating is comprised of Infrastructure Market and Country Structure, which
have a 65% and 35% weighting respectively and are based upon growth/size of the Infrastructure industry (Market)
and the broader economic/socio-demographic environment (Country). The 'Risks' rating is comprised of Market Risks
and Country Risk which have a 40% and 60% weighting respectively and are based on a subjective evaluation of
industry regulatory and competitive issues (Market) and the industry's broader Country Risk exposure (Country),
which is based on BMI's proprietary Country Risk Ratings. The ratings structure is aligned across the 14 Industries for
which BMI provides Business Environment Ratings methodology, and is designed to enable clients to consider each
rating individually or as a composite, which the choice depending on their exposure to the industry in each particular
state. For a list of the data/indicators used, please consult the appendix at the back of the report. ,



Project Finance Ratings
Indonesia Project Finance Ratings
Design and Construction
In BMIs project finance ratings, Indonesia has the lowest regional score for design and construction
(along with Pakistan) in terms of inputs. The highly volatile Rupiah and expectations that inflation will
remain at high levels in the coming years, means the country scores very few points. Structural problems
in the political environment and the legal and regulatory framework, work against the country, shaving
off points. Issues with heavy bureaucracy and corruption mean that a project will face obstacles from the
onset, making long-term revenue projects from infrastructure assets highly uncertain.
Commissioning and Operating
Weak contract enforceability is a crucial long-term risk shown by our matrix. This in turn raises the
possibility of power purchase agreements or other forms of pricing agreements with the government or a
state-controlled firm to be violated, thus we also deem price risk in Indonesia to be a risk factor.
Overall Project Finance Rating
The combinations of risks present throughout a projects life cycle make Indonesia one of the riskiest
markets globally, for project finance operations. In the Asia Pacific region it ranks at penultimate place,
just ahead of Pakistan and has a 10 point gap with the third lowest scoring country, Vietnam. Though the
government has endorsed the use of PPPs and has recently taken steps to increase investor protection in
the form of a state-owned investment guarantee agency and new legislation, the participation of private
sector investors is still disproportionately small to the scale of opportunities in the market. Risks could be
to the upside for certain indicators that make up the score, such as the PPP/Concessions framework and
contract enforceability, due to the recent changes. However, we believe that it will be some time before
Indonesia makes up the 10 point gap, separating it from Vietnam.
Regional Overview
Project Finance Ratings: Outlook For Asia Pacific
This quarter we have introduced updated oil price scenarios, drawn from BMI's long-term oil price
forecasts and also new thresholds and updated historical data for the imports of power as a percentage of
total consumption. The latter indicator is used to gauge risks during the operating phase, for commercial
and non-residential construction projects. It assumes that the higher the dependence of a country on


power imports, the greater the chances of intermittent power supply, which in turn could affect the
commercial viability and payback for projects in the sector.
The net effect of these updates has been negative, as indicated by slightly lower regional averages.
Countries with high power import dependency, such as Taiwan and Singapore have had their scores
reduced. Furthermore, countries that exhibit higher dependency on imports than they used to under our
previous scores have also had their scores reduced.
Cambodia has been added to our regional table this quarter, following the introduction of a new quarterly
infrastructure report. The country scores poorly, negatively impacted by the lack of adequate legal and
regulatory infrastructure.
BMI's PFR provides a globally comparative, numerically based assessment of the risks facing the
projected cash flows of major infrastructure projects in the energy and utilities, transport, and commercial
construction sectors. Specifically, it evaluates the degree of uncertainty facing projects that are generally
characterised by the following: long construction period, high construction costs, difficulty in redeploying
project assets (eg power station) to other uses, earnings generated only after construction completed over
a long period of time.
BMI's PFR is best used for evaluating the breadth and depth of risks a major infrastructure project may
face during its lifecycle, which will in turn affect the source, availability and cost of finance. Thus, in the
current environment, characterised by a limited pool of financial resources and growing demand from
competing projects coming to market, the PFR provides a leading indicator for the cost of financing major
projects and the pace at which infrastructure development will occur in each state.
We have created two different tables aiming to better identify, analyse and assess broad categories of
risks that sponsors and/or companies may encounter during the project's lifecycle. The two tables are
composed very broadly first of the design, engineering and construction phase, and second, of the
commissioning and operation phase. The two final scores for each country are then combined to yield the
overall project finance rating.
The weightings of each indicator and each group of indicators (inputs, regulatory, market risks, etc.) are
adjusted to reflect the relative importance, and thus relative risk level, they pose for sponsors and equity
holders.
Design And Construction Phase
The design and construction table encompasses factors such as inflation and long-term currency volatility
(henceforth referred to as inputs), which at this stage affect primarily the cost of equity and debt, but also


the cost of raw materials if they are sourced locally and hence the total cost of the project, as well as legal
and regulatory risks that the company or sponsors may encounter and which can delay commencement of
construction and pose regulatory (red tape) issues. Closely related to the legal and regulatory risks are the
risk factors within the wider political framework, encompassing political risk factors such as the level to
which the rule of law is enforced and respected, and the long-term policy continuity and consistency of
government policies over the years. Last but not least, is the financial risk component, comprising
domestic economic stability and the international availability of finance.
Broadly speaking, we can distinguish four bands/groups within the table. There are no real surprises in
our ratings for the Asia Pacific region with Singapore and Hong Kong at the top of the table with scores
above 70 out of 100 on the merit of their sound institutional, regulatory and banking environment, as well
as proficiency in project finance operations. Singapore's 90-page 'Public Private Partnership Handbook',
published initially in 2004 by the ministry of finance, is perhaps the most comprehensive guide to PPP
regulations and procedures any country has issued in the world, highlighting the willingness of the
government to create the most conducive environment possible for the successful implementation of
PPPs; a goal they have achieved, as Singapore represents one of the most stable environments in the
region and globally. Their high scores in the 'PPP Legal Framework' indicator reinforce their position on
the top of the Design and Construction regional table.
Taiwan, Malaysia, South Korea and China follow the first group closely, but fall within the second group
(scores in the 60s). Malaysia's legal and regulatory environment leaves room for improvement, a fact that
lowers the country's score, since a weak institutional and legal framework, especially a poor track record
in contract enforceability in Malaysia, is one of the risks facing sponsors and contractors in the initial
stages of a project's lifecycle. South Korea's strength lies in low political risk levels and a sound
regulatory infrastructure.
In the third and fourth groups (scores in the 50s and 49 and below) we find four of the most dynamic
infrastructure markets in Asia: India, Philippines, Vietnam and Indonesia. In spite of the impressive
infrastructure development course these four countries have embarked on the past half decade, they still
present formidable risks, which extend to project finance operations as well. Cambodia is also in this
bracket, though the country is not yet as desirable a destination for infrastructure investors as the other
four countries above.
It is worth noting that the common weakness shared by all states is the legal and regulatory environment,
where the scores of all four countries show the closest convergence. Corruption, PPP/concessions legal
framework and contract enforceability are the three indicators that make up the group. In almost all three
of these indicators Vietnam, Philippines, India and Indonesia have scores below five out of 10.


Pakistan remains at the bottom of the table owing to low scores in terms of inputs and the
political/security environment.
Table: Design and Construction Rating
Inputs
Legal/
Regulatory
Risks
Political
Environment
Economic/
Financial
Risks Total
Hong Kong 100.0 86.7 83.6 53.9 77.1
Singapore 84.0 84.3 88.0 55.3 75.0
Malaysia 84.0 60.4 73.8 53.4 66.0
South Korea 54.0 74.0 82.1 53.5 64.8
Taiwan 84.0 61.7 62.3 57.2 64.7
China 86.0 49.0 60.7 56.5 62.0
Thailand 74.0 56.3 58.7 51.5 58.8
Philippines 62.0 39.2 58.9 50.7 52.7
India 70.0 33.4 65.8 52.6 55.6
Vietnam 30.0 33.1 59.4 47.1 43.9
Cambodia 52.8 18.3 51.4 44.8 42.8
Indonesia 12.0 23.1 60.5 51.5 40.2
Pakistan 12.0 19.9 43.8 44.9 33.1
Source: BMI

Commissioning And Operating Phase
The table that identifies potential factors that influence the levels of risk during the commissioning and
operation of a project has been broken down into three categories: transport, energy and utilities, and
commercial construction. The aim is to reflect the different levels of risk a power plant has from a toll
road or a stadium for instance during the operational phase of the project's lifecycle. The aim was to add a
degree of separation between sub-sectors in infrastructure, and although the sub-categories in the table are
similar for all three sectors, the scores are different for each country in each sector, which allows us to
gauge the different levels of potential risk and potential breadth of the financial impact they may have.
The rising price of oil and BMI's upward revisions for oil price forecasts in the coming years, have
eroded the score of many countries. This is because a core determinant of the inputs score for energy and
utilities is the price of oil. Higher price expectations mean that the cost of operating power generation
assets will also increase, therefore jeopardising the projected long-term revenue stream of assets. For this
reason, this quarter we find that for many countries the inputs score for energy and utilities has in fact
decreased, dragging down the entire score of countries.


Table: Commissioning and Operating Rating

Commercial/Business
Construction Energy And Utilities Transport
Inputs Outputs Total Inputs Outputs Total Inputs Outputs Total
Hong Kong 85.0 72.4 76.2 90.0 71.2 76.9 100.0 68.4 77.9
Singapore 67.0 67.5 67.3 72.0 67.5 68.8 76.0 65.2 68.4
China 73.0 57.5 62.1 73.0 56.4 61.3 84.0 56.9 65.0
Taiwan 67.0 54.3 58.1 67.0 54.3 58.1 76.0 52.1 59.2
Malaysia 67.0 53.7 57.7 67.0 54.2 58.1 76.0 54.2 60.8
Philippines 53.5 54.0 53.9 53.5 55.8 55.1 58.0 55.8 56.4
India 55.0 53.1 53.7 70.0 54.3 59.0 70.0 53.7 58.6
Thailand 59.5 45.3 49.6 59.5 45.3 49.6 66.0 45.3 51.5
Cambodia 51.4 48.2 49.2 56.4 49.3 51.5 55.2 49.3 51.1
South Korea 37.0 53.7 48.7 42.0 53.1 49.8 36.0 53.7 48.4
Vietnam 40.0 50.9 47.7 40.0 50.9 47.7 40.0 50.9 47.7
Indonesia 16.0 38.0 31.4 16.0 38.6 31.8 8.0 38.6 29.4
Pakistan 11.0 25.1 20.9 28.5 25.6 26.5 8.0 25.1 20.0
Source: BMI

Overall Project Finance Rating For The Asia Pacific Region
Combining the scores of the two tables we have distilled the overall project finance rating, which thus
takes into account all of the above sectors and sub-categories. Here we can also categorise the results into
four groups or bands of countries, with each group presenting a similar level of risk that may affect the
source, availability and cost of finance. In the first group (score of 70 and above) we find Singapore and
Hong Kong, whose overall characteristics and market components create the safest environment in the
region for project finance operations. Based on both countries' overall scores, Singapore presents fewer
risks in the initial development phases, but more uncertainty in the longer term, while Hong Kong
presents low risks throughout a project's life cycle.
The new entry in our regional table, Cambodia, gains points for policy continuity, market orientation and
low security risks. However, the country scores very poorly on corruption, contract enforceability and
PPP/concessions legal framework indicators.
Vietnam, Indonesia and Pakistan are at the bottom of our table again this quarter. Although Vietnam's
rating presents some upside risk because of declining levels of inflation, the risk rating also encompasses
some deep structural problems in the country's overall business environment, such as corruption,


overtaxing government intervention in some industries, one of them being the energy and utilities sector.
Indonesia's legal and regulatory scores also present upside in light of recent changes in the PPP
regulations and also the introduction of a state-guarantee agency specifically for the infrastructure sector
(January 2010). Pakistan presents a plethora of other structural problems, which combine to give the
country the lowest score in the region and consequently the riskiest profile, which indicates significant
risks to any project in infrastructure, both in the construction phase and the potential returns on
investments over the long term.
Table: Overall Project Finance Rating
Commissioning and
Operating Overall
Hong Kong 77.1 77.0 77.0
Singapore 75.0 68.2 71.6
Malaysia 66.0 58.8 62.4
China 62.0 62.8 62.4
Taiwan 64.7 58.5 61.6
South Korea 64.8 48.9 56.9
India 55.6 57.1 56.3
Thailand 58.8 50.2 54.5
Philippines 52.7 55.1 53.9
Cambodia 42.8 50.6 46.7
Vietnam 43.9 47.7 45.8
Indonesia 40.2 30.9 35.5
Pakistan 33.1 22.4 27.7
Regional Average 56.7 52.9 54.8
Source: BMI

Risks and Limitations To BMI's Project Finance Ratings
It should be noted that although we believe that the resultant scores are a reliable guide to project finance
risks, PFR assesses broad industry risks, rather than individual projects. This has several implications.
First, there will be instances where the risk profile for example, the supply of inputs of particular
project is markedly different from the general risk prevailing in the industry. Second, the PFR will not
take into account measures by private sector project participants to mitigate risk when structuring finance
for example, by securing a substantial equity involvement from the sponsoring agency or government.



Macroeconomic Outlook
Approaching Pre-crisis Levels Of Growth
BMI View: We remain bullish on Indonesia's growth prospects over the coming year, projecting real
GDP growth to reach 5.2% in 2010, before accelerating to 5.5% in 2011. However, we note that the
political situation has worsened following the implication of Vice-President Boediono and Finance
Minister Sri Mulyani Indrawati in the Bank Century bailout scandal.
Recent economic data released across the globe has been generally encouraging and many countries in
Asia maintained the V-shaped rebound through Q409 as external demand remain robust. As such, our
global growth forecast now stands at 3.0% for 2010, representing a decent recovery for the global
economy from an estimated -1.8% outturn in 2009. Notably, we expect emerging Asia to outperform the
other regions, projecting real GDP growth to reach 7.2% in 2010, compared to just 1.8% for the
developed states. Although trade-dependent economies are likely to benefit inordinately from resurgent
external demand, the sustainability of the recovery beyond the next two quarters is still in question. As
such, while export-driven economies are likely to show a larger jump in real GDP growth with respect to
2009, domestic demand-driven economies such as India and Indonesia have a more stable platform for
growth.
Indonesia's real GDP growth came in at a robust 5.4% y-o-y in Q409, taking full -year 2009 GDP growth
to 4.5% (slightly above our forecast of 4.3%). We remain bullish over Indonesia's growth prospects over
the coming year, projecting real GDP growth to reach 5.2% in 2010, before accelerating to 5.5% in 2011.
Underpinning this sanguine outlook is our expectations that the country's large domestic economy will
continue to perform well. Indeed, Indonesia with less dependence on exports is also relatively
insulated against a slowdown in the US (from 2.8% in 2010 to 1.8% in 2011) or China (from 9.0% in
2010 to 7.7% in 2011), which we expect to happen in late H210.
High Private Consumption Growth Maintained
Private consumption growth held at 4.0% y-o-y in Q409, contributing the lion's share of 2.4 percentage
points (pp) to headline growth. Going forward, we expect a robust figure from this component of GDP,
forecasting private consumption growth to reach 5.5% in 2010. We see two key reasons supporting our
view. Firstly, we believe that the BI will keep the benchmark rate relatively low for the next two years
(envisioning only a 125bps rate hike by end-2011), supporting more uptake of household debt. Secondly,
the projected increase in investment in the coming quarters should provide a boost to real wages, thereby
bolstering private consumption.


More signs have also been appearing in recent months that support our upbeat view. Indeed, Indonesia's
unemployment rate (released bi-annually) actually fell from 8.14% in March 2009 to 7.87% in August
2009, despite the downturn. We expect the unemployment rate to further decline to 7.6% by end-10,
providing considerable support to household spending. In addition, consumption will be fuelled by further
rupiah strength (we currently project the unit to appreciate to IDR8,900/US$ by end-10). Moreover,
consumer confidence is still holding up well, judging from the robust car sales registered towards the end
of 2009, and we expect this to continue over the medium term.
Investment Picking Up
Gross fixed capital formation (GFCF) growth accelerated for a second consecutive quarter, rising by
4.2% y-o-y in Q409, contributing 1.0pp to headline growth. Although the figure is still far below the
average 10.1% growth (a figure skewed to the upside given the global boom of the time period) seen in
2007-2008, the trend has been encouraging and we currently project GFCF growth to reach 5.0% in 2010.
Given the strong performance of the economy, businesses are likely to increase investment in the coming
quarters. Indeed, in the latest Business Survey conducted by Bank Indonesia (Q309), there was increased
optimism regarding the business situation. Moreover capacity utilization is already at 74.20% in Q409,
close pre-crisis levels, indicating that businesses will have to invest to cope with increasing demand.
Business lending will also be facilitated by our expectation that Bank Indonesia will keep the BI rate low
and embark on more efforts to encourage further lending by commercial banks
External Sector Holding Up
In a further sign that global trade flows are normalising, export and import growth (referring to both
goods and services) finally turned positive on a y-o-y basis after three consecutive quarters in negative
territory, with export recovery vastly outpacing import growth. However, we believe that this trend is
poised for a reversal given our outlook that Indonesia's domestic demand will fuel stronger import
growth. Moreover, with the Asean-China Free Trade Agreement (FTA) in effect since the beginning of
this year, there is a likelihood that import of Chinese goods may surge. That said, we acknowledge that
Indonesian exports will also benefit from the FTA and it is premature to assess the net impact on
Indonesia's trade balance until further data is available. Currently, we expect export growth to reach 8.5%
and import growth to reach 9.9% in 2010.
Optimism Tempered By Clouding Of Political Situation
Despite our bullishness on the Indonesian economy, we note that the domestic political situation has
become decidedly cloudier. While we had been optimistic following the strong mandate garnered by
President Susilo Bambang Yudhoyono during the presidential elections in 2009, the scandal involving the
bailout of Bank Century poses a serious overhang. In the worst case scenario, Vice-President Boediono
and Finance Minister Sri Mulyani Indrawati (both of whom are crucial towards further economic reforms)
would stand to lose their positions.


Table: Indonesia - Economic Activity
2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f
Nominal
GDP,
IDRbn
1
2,774,280 3,339,480 3,955,630 4,627,989 5,080,866 5,623,103 6,303,476 7,081,861 7,922,408 8,804,754
Nominal
GDP,
US$bn
1
285.4 366.2 431.7 474.3 490.4 614.5 720.4 828.3 932 1035.9
Real GDP
growth, %
change
y-o-y
1
5.7 5.5 6.3 6.1 4.5 5.2 5.5 5.4 5.2 5
GDP per
capita,
US$
1
1,263 1,600 1,864 2,023 2,067 2,561 2,968 3,375 3,756 4,131
Populatio
n, mn
1
226.1 228.9 231.6 234.5 237.3 240 242.8 245.4 248.1 250.7
Industrial
productio
n index,
% y-o-y,
ave
1
2.3 0 2 3.1 1.3 4 4.5 5.8 6 5.8
Unemploy
ment, %
of labour
force,
eop
1
11.2 10.3 9.1 8.4 7.9 7.6 7.2 7 7 7
Notes:
f
BMI forecasts. Sources:
1
BMI/IMF.



Political Outlook
Domestic Politics
Political Bickering To The Fore
BMI View: Indonesian President Susilo Bambang Yudhoyono's position is less secure than previously
assumed and political infighting is clearly revealed in the Bank Century saga. In our view, prolonged
political bickering will slow economic reforms going forward.
Indonesian President Susilo Bambang Yudhoyono's position is getting slightly shaky, especially as the
Bank Century bailout scandal has been seized upon by the opposition to weaken the president's position
and oust key officials (most notably Finance Minister Sri Mulyani Indrawati and Vice President
Boediono). Indeed, the decisive victories in the parliamentary and presidential elections registered by
Yudhoyono and his Democratic Party last year set the stage for greater ease of policy formation and
enactment. However, the situation has turned for the worse and we fear that political infighting within the
government will begin to impede the policy making process going forward, slowing down much needed
economic reform.
Where Has The Support Gone?
We are particularly concerned about the poor support for Yudhoyono within his coalition government.
Yudhoyono's ruling coalition is comprised by the Democratic Party as well as four other smaller parties
(United Development Party, National Awakening Party, Prosperous Justice Party, National Mandate
Party). A clear show of disunity was demonstrated when the preliminary findings of an investigation into
the Bank Century bailout were revealed on February 8. Of the four allied parties, three concluded that the
bailout of Bank Century was a mistake.
Non-allied parties such as the Golkar party and the Indonesian Democratic Party of Struggle (PDI-P),
which offered a more reconciliatory tone post the presidential elections, have also taken the opportunity
to become more critical of Yudhoyono. We believe that this situation is decidedly unhealthy for the
potential for further economic reform. Indeed, in the worse case scenario, Yudhoyono stands to lose both
Mulyani and Boediono in one swoop. Although we note that there is only an outside chance of this
happening, it would have severe implications for the prospect of further economic reforms and
policymaking in general. In our view, what is likely to happen is that Yudhoyono will be forced into a
series of negotiations with the various parties to settle for a less harsh conclusion to the Bank Century
incident, meaning that lesser officials will likely be used as scapegoats while the more prominent officials
generally escape punishment.


In all, this means that Yudhoyono's position is not as secure as previously assumed. As such, we have
adjusted Indonesia's short-term political risk (STPR) rating from 75.8 to 74.2. Going forward, should the
political bickering worsens (Yudhoyono has already ordered an investigation on tax evasion into
companies controlled by Golkar chairman Aburizal Bakrie in what is perceived as a retaliatory salvo), it
is conceivable that the government's scope for economic policymaking will be further constrained.
Regional Security
Malacca Strait: Assessing The Risks
BMI View: The Singaporean authorities' warning of a possible terror attack on oil tankers passing
through the Malacca Straits underscores the threat posed to Asian shipping in a vital trade route. In this
article, we assess the alternatives.
The Singaporean authorities on March 4 issued a warning about a potential terror attack on oil tankers
passing through the Malacca Strait, citing 'intelligence [from] our liaison partners'. In addition, the
government has boosted security at Changi International Airport and new casino resorts as a precaution.
Home Affairs Minister Wong Kan Seng did not say who would orchestrate such attacks, but Islamist
militants have for many years been believed to favour targeting the Strait to disrupt global shipping.
The Malacca Strait is crucial in this regard, because around 40% of world trade passes through it.
Malacca is the main channel between East Asia and South Asia, the Middle East, Europe, and Africa. The
Malacca Strait is especially important for China and Japan, as 80% of Chinese oil imports and 90% of
Japanese inbound crude shipments pass through it. Defence planners in Beijing and Tokyo have long
feared that terror attacks, piracy, or interdiction by hostile navies could choke off their trade and oil
supplies. Furthermore, Singapore is the world's top container shipping port and refuelling hub, and any
temporary shutdown of the port would be a tremendous economic blow to the city-state, especially as it
emerges from recession.
Militant groups have a proven capability to attack large ships. In 2000, Islamist militants used a small
boat to carry out a suicide bombing against the USS Cole in Yemen's port of Aden, and in 2002, they
attacked the French oil tanker Limburg in the Gulf of Aden. More recently, Somali pirates have
demonstrated an ability to seize large vessels, including an oil supertanker in 2008. While joint maritime
patrols by Indonesia, Malaysia, and Singapore have helped curb piracy, the overall threat to shipping in
the Malacca Strait is real.
Alternative Routes Available, But At A Cost
Fortunately, there are alternative routes to Malacca should it become blocked. The first is via the Sunda
Strait, which separates Indonesia's largest islands of Sumatra and Java. However, this route is considered


difficult to navigate (especially for large vessels), because of the presence of shallow patches, strong
tides, oil platforms, and tiny uninhabited islands. Secondly, there is the route through the Lombok and
Makassar Straits, which is wider, deeper, and less congested. However, this route is 1,600 nautical miles
longer, requiring a further 3 days' travelling time. This also adds to shipping costs.
Overall, the rising volume of Asia trade especially with emerging markets in the Middle East and Africa
means that the Malacca Strait is likely to become more important and more congested going forward,
thereby increasing the risk of a terror attack or piracy. China is building pipelines across Myanmar to
bypass the Strait, and Malaysia is investing plans to build a trans-peninsular pipeline, but these schemes
will not compensate for Malacca. Over the next few days, BMI will be publishing an extensive report on
naval competition in the Indian Ocean, discussing this in more detail.
Long Term Political Outlook
Outlook Improved, But Uncertainty Lingers
BMI View: Although Indonesia has returned to relative orderliness since the post-Suharto chaos of the
late 1990s and early 2000s, the country faces multiple challenges and threats to its stability that could
flare up again if President Yudhoyono or his successor proves incompetent or if improved governance
fails to take hold. As such, investors will continue to view Indonesia as one of Asia's riskier destinations.
Indonesia has held two rounds of peaceful parliamentary and presidential elections, in 2004 and 2009,
suggesting that democracy is finally taking root after a highly uncertain period following the fall of
President Suharto in May 1998. Suharto seized power from Indonesia's first president, Sukarno, in 1966
and ruled through a military-dominated authoritarian regime whose political vehicle was the still
influential Golkar party. The immediate post-Suharto period was highly unstable, given that his departure
was triggered by economic meltdown. Indonesia subsequently saw the presidency change three times in
as many years, and the archipelago was almost torn asunder by separatist rebellions and religious
violence, which were only quelled in the early 2000s. Given this recent history, it is still too early to say
that Indonesia has taken a decisive turn for the better.
Threats And Challenges To Stability
Poverty and unemployment: Indonesia's per capita GDP exceeds US$2,000, but it remains a poor
country with an increasingly uneven income distribution. Indonesia's Gini coefficient (which measures
income inequality) rose to 0.368 in 2008, from 0.311 in 1999, indicating a wider wealth gap. In addition,
while official unemployment was 8.1% in February 2009, this masks a high degree of underemployment.
Part-time workers make up a large 70% of the total number of employed Indonesians. Meanwhile,
urbanisation is proceeding rapidly, with the urban population expected to increase from 54% in 2010 to


63% by 2020, according to UN forecasts. Many new urban migrants will end up eking a basic living in
Indonesia's increasingly crowded cities.
These adverse socio-economic conditions mean that inflation particularly of food and fuel prices - is a
particularly sensitive issue. Indonesia has become a net oil importer in recent years, and increases in
domestic fuel prices were a major source of discontent against Suharto and his successors. However,
more recent increases in fuel prices by the Yudhoyono administration in 2005-08 have met more subdued
resistance.
Young population profile: Although Indonesia's total fertility rate the average number of children a
woman will have in her lifetime has fallen to an estimated 2.2, just above replacement level (2.1), the
country's population is very young as a whole. Around 44% of the population is aged below 25. This
means that there is a substantial pool of young people that, if left unemployed or underemployed, could
drift into criminal groups, radical political movements, or even Islamist terrorist networks.
High degree of ethnic diversity: Indonesia remains a highly diverse nation, ethnically and in religious
terms. The dominant group, the Javanese, make up only 40.6% of the population, with the next-largest
groups, the Sundanese and Madurese, comprising only 15% and 3.3% respectively. Eighty-six percent of
the population describe themselves as Muslims, but almost 10% are Christians (Protestants and
Catholics). At the time of Suharto's downfall, violence erupted against Indonesia's ethnic Chinese, who
controlled a disproportionate segment of the economy. Suharto's exit was followed by intense clashes
between Muslims and Christians in Lombok, the Moluccas islands and Sulawesi, while separatists groups
stepped up agitation or insurgencies in Aceh, Riau, Papua, and East Timor. Of these, only the latter
achieved independence, in 1999. Separatist violence was quashed in the early 2000s, but it is far from
clear whether this represents a lull or a definitive acceptance of inclusion in Indonesia.
Islamist terrorism: Indonesia has experienced many incidents of terrorism over the past decade, the
worst of which was the Bali bomb attacks in October 2002 that killed 202 people. More recently, two
luxury hotels were attacked in Jakarta in July 2009. Although radical Islamist parties have failed to make
significant gains and Indonesia generally remains tolerant, a small number of dedicated terrorists can
cause disproportionate damage to the country's reputation. In the early 2000s Indonesia's rumour mill
suggested that rogue elements of the powerful military were secretly backing Islamist militants to
destabilise the country, in order to pave the way for a return to military rule, but this is impossible to
verify.
Immature political system: The political party system is still dominated by personalities rather than
issues, although this is slowly changing. In recent years, the secular-nationalist parties have been far
stronger than Islamist-oriented parties. However, there have been some concerns that religious freedom is
under threat as the government has accommodated Islamist intolerance on some social issues. Meanwhile,


although elections are now largely peaceful events, they are usually accompanied by at least some
accusations of irregularities or vote-buying. Overall, Indonesia remains one of the most corrupt countries
in the world, and corruption scandals from time to time take a toll on senior figures and undermine faith
in institutions.
Indonesia scores a relatively poor 53.6 out of 100 in our long-term political risk (LTPR) ratings, dragged
down by poor scores in the characteristics of polity (49.4) and characteristics of society (52.5)
components. Indeed, with a relatively high poverty incidence, a widening income gap, tensions among a
diverse ethnic population, and high levels of corruption, the country still has formidable challenges to
overcome. Nonetheless, the political outlook has become considerably brighter with the re-election of
President Susilo Bambang Yudhoyono for a second term in July 2009, and this is reflected in the high
score of 70.0 in the policy-continuity component of our LTPR ratings.
Scenarios For Political Change
A key question going forward is whether the stability enjoyed under President Yudhoyono represents a
normalisation of political processes or a peaceful lull until centrifugal forces once again take hold.
Yudhoyono, a former general with secular-nationalist and economic reform leanings, is widely
considered the country's most capable leader. However, he must step down after two terms in 2014 and it
is far from clear who will succeed him, let alone what their policies would be.
Best-case scenario: Democratic consolidation. Under this scenario, democracy is consolidated by
another peaceful election in 2014 that transfers power to Yudhoyono's successor, who shares his reformist
vision. Indonesia remains broadly stable, which in turn leads to greater foreign investment and faster
economic growth. Separatism fails to revive, while any terror attacks, if they occur, are on a small scale
with minimal political or economic impact. Indonesia then evolves along the lines of South Korea,
politically, in becoming a stable democracy. We see at least a modest chance that Indonesia will follow
this path.
Intermediate scenario: Muddling through. In this scenario, democracy is consolidated, but governance
remains poor and beset by corruption, while parliament is dominated by anti-reform and pro-vested
interests elites. Meanwhile, although terrorism and separatism are contained, occasional deadly incidents
frighten investors, adding further reasons not to invest in Indonesia. In order to quell such disturbances,
the military's power increases, in turn leading to civil-military tensions. The economy continues to grow
at a modest pace, but remains a regional laggard. Under these circumstances, Indonesia would
increasingly resemble the Philippines. We see a modest likelihood of this scenario playing out, especially
if Yudhoyono disappoints in his final term (2009-2014) and if his successor proves incompetent.
Worst-case scenario: Renewed fragmentation. In this scenario, Yudhoyono fails to reform institutions
and squanders his opportunities, leading to a populist succeeding him in 2014 with the backing of an


unwieldy and fragmented coalition. Indonesia then slides back into instability, which deters investment.
Islamist terrorists re-emerge, while resource-rich separatist movements make a renewed push for
independence, on the grounds that they would be economically better off on their own. With the central
government weak and divided, Jakarta starts to lose control of outlying regions, and the military goes on a
new offensive to bring them to heel. A new military coup then becomes a distinct possibility, as the
armed forces' importance rises. Indonesia increasingly comes to resemble Pakistan as a country on the
brink of failure. Overall, we view this scenario as unlikely, but one that cannot be precluded.
Domestic Politics
Yudhoyono Dragging His Feet On Fighting Corruption
BMI View: Indonesian President, Susilo Bambang Yudhoyono's handling of the corruption scandal is
disappointing, and risks further public backlash. The incident also raised doubts about Yudhoyono's
commitment to curbing graft. That said, we still believe that Yudhoyono will clamp down on corruption,
albeit at a slow pace.
President Susilo Bambang Yudhoyono's handling of the corruption scandal involving the police, the
Attorney-General's Office (AGO) and the Corruption Eradication Commission (KPK) has been
disappointing and we believe this will result in some form of public backlash. Indeed, expectations are
high that Yudhoyono will take strong steps to clamp down on the police and the AGO, after a fact-finding
team recommended that charges brought against two members of the KPK be dropped due to a lack of
evidence. Moreover, there are speculations that the KPK members were framed by members of the police
and the AGO, sparking tremendous public support for the KPK. Yudhoyono's weak response to the
allegations has raised questions about his commitment to curbing graft.
Key Recommendations From Fact-Finding Team
Drop charges against KPK members
Eradicate legal mafia (people who offer bribes, sale of court verdicts, threaten witnesses)
Impose sanctions on selected individuals in the Police and the AGO
Muted Reaction From Yudhoyono
In response to the findings, Yudhoyono asked the police and the AGO to drop the charges against the two
KPK members on November 23 2009. Yudhoyono also suggested a reshuffling of staff at the police and
the AGO. We see this as an unsatisfactory reaction to the police and AGO's attempt to prevent the KPK
from achieving its mandate. It must be noted that Yudhoyono did not use his presidential powers to


ensure that the AGO drop the charges, nor did he push for any punishment against the AGO or the police.
It was announced on November 24 that there has been a reshuffling amongst senior members of the
police, but we do not believe that the actions taken thus far will be sufficient to appease the public.
Indeed, sporadic protests have broken out around Indonesia over Yudhoyono's handling of the issue and
we see a risk of further public unrest if the president fails to take a more affirmative stance against public
corruption.
Bank Century Bailout, Another Hurdle To Clear
Aside from the above-mentioned case, Yudhoyono still has to deal with what will be potentially, a large
fallout over the bailout of Bank Century in 2008. The government funds pumped into the bank
amounted to IDR6.7trn (US$712mn), or five times the original estimate, prompting a query into the issue.
There have been accusations that the bailout had been instigated by influential shareholders and
depositors at the bank, who stood to lose money in the event of a bank collapse. Moreover, there have
also been allegations that money withdrawn from the bank had been used to finance Yudhoyono's
campaign ahead of the parliamentary and presidential elections held in mid-2009.
An audit carried out by the Supreme Audit Agency (BKP) suggested that the bank had attempted to
conceal irregularities and ultimately may not have required the bailout. This implicates Vice-president
Boediono who was central bank governor at the time and Finance Minister, Sri Mulyani Indrawati,
who were both active advocates of the bailout. At this point, we do not think that either Boediono or
Mulyani will be removed from office. However, the two scandals have definitely tarnished Yudhoyono's
image and an uncommitted handling of these two issues would likely lead to further doubts about his
dedication to combating graft.
Despite some headway in combating corruption over the last few years, Indonesia still has a long way to
go to display a clean image. Indeed, Indonesia's score in the Corruption Perception Index as compiled by
Transparency International improved slightly from 2.6 (out of 10) in 2008 to 2.8 in 2009. While the
improvement is a positive, Indonesia still lags behind regional competitors Malaysia and Thailand.
Regional Politics
East Asia Summit: Regional Unity Decades Away
BMI View: Asian unity especially in the political sphere is likely to remain elusive for many years to
come. Although we expect Asian countries to continue forging economic ties, differences in economic
development, culture, history and geopolitical leanings will hamper the emergence of an EU-style
regional bloc. In addition, efforts by China, Japan and the US to exert influence in the region risk
creating new fault lines in Asia.


Asian integration is once again under the spotlight following the East Asia Summit in Hua Hin, Thailand,
over the weekend of October 24-25. The meeting brought together the leaders of the 10 Association of
Southeast Asian Nations (ASEAN) states plus China, Japan, and South Korea (ASEAN+3), as well as
India, Australia and New Zealand. During the summit, Japan and Australia outlined differing visions for
building a regional bloc over the coming decade, but ultimately China and its relationship with Japan will
determine whether these visions can succeed.
Asia's Elusive Unity
Although there are several Asian international organisations such as ASEAN, Asia-Pacific Economic
Cooperation (APEC), the Asian Development Bank (ADB), South Asian Association for Regional
Cooperation (SAARC) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation (BIMSTEC ), these fall short of matching the European Union as entities that aim for deeper
economic and political integration.
During the cold war, Asian unity proved impossible as the region divided into pro-American, pro-Soviet,
pro-Chinese and non-aligned camps. In the post-cold war era, Asia's economic rise led former Malaysian
premier Mahathir Mohamad to talk up the need for regional unity. His calls gained added weight in the
immediate aftermath of the 1997-98 Asian financial crisis, which forced several countries to request
substantial IMF assistance. This was considered humiliating, as the IMF imposed tough conditions on its
loans, leading to short-term economic hardship. In addition, the IMF was perceived to be forcing
American-style neoliberal economic reforms onto Asia's hitherto highly successful model of close
relations between government and big business (derided by its critics as 'crony capitalism'). At the time,
Japan proposed the creation of an 'Asian Monetary Fund', but the US quashed the idea, apparently fearing
loss of influence in the region. However, in 2000, the ASEAN+3 countries signed the Chiang Mai
Initiative, a series of currency swap agreements designed to prevent a repeat of the financial crisis.
Since the 1997-98 crisis, Asia, especially China, has grown rapidly and this has led to a new sense of
confidence, notwithstanding the severity of the 2008-09 global recession. Nonetheless, at the height of the
latest global financial crisis, Asia largely failed to deliver a coordinated response, with China and Japan
acting separately to provide currency swap facilities to the region's troubled economies. Going forward,
China is poised to overtake Japan as the world's second-largest economy in the next year or two, and this
will make Beijing the natural leader of Asia.
Factors Driving Asian Integration
Economy, trade and investment: Perhaps the most important driver of Asian unity is growing intra-
regional trade. This has risen three-fold over the past decade and now accounts for 54% of Asia's total
trade. That said, a significant proportion of intra-Asian trade is driven by final demand from the US and
EU. Nonetheless, over the longer term, as Asian countries become richer and rebalance their economies
away from exports, Asian final demand will rise in significance. Ultimately, this should improve Asia's


ability to 'de-couple' from a future US-led slump, although this ability is probably at least a generation
away.
Desire for a louder voice in the world: At present, most Asian countries except China and Japan have
only a limited voice on the world stage. Thus, medium-sized countries such as Thailand and Vietnam
could benefit from an Asian community or union, since it would allow them to 'punch above their weight'
internationally. In addition, Asian countries acting collectively would be able to speak more forcefully on
issues such as world trade; reform of the IMF, international institutions and the global financial
architecture; global climate change; and key strategic issues such as Afghanistan, Iran, etc. An 'Asian
Union' could eventually become a global diplomatic player.
Security imperatives: Although ASEAN has a security forum (known as the ASEAN Regional Forum),
it lacks the muscle of a region-wide security organisation such as Europe's NATO. However, Asia faces
many security threats, such as transnational Islamist militants, international piracy, organised crime, and
border disputes, suggesting that a more powerful organisation is needed. Thus far, China has prioritised
security in Central Asia via the Shanghai Cooperation Organisation.
The rise of China: Undoubtedly, the rise of China is a major factor driving Asian integration, with the
Chinese Diaspora in Southeast Asia forming important additional commercial links between the region
and the People's Republic. Aside from the trade aspect, Beijing is also financing infrastructure
developments across the region that will further boost trade and investment. However, it is unclear if
China is seeking true regional integration or is instead seeking a 'hub and spoke' relationship with Asian
states that would resemble the 'tributary system' that once existed between itself and many Asian states.
Either way, we see a distinct possibility that the yuan will eventually become the de facto regional
currency.
Major Obstacles To Asian Integration
At the same time, there are substantial obstacles to achieving EU-style integration:
Economic disparities: There is a much wider gap between the incomes of rich Asian countries such as
Japan, Singapore, and South Korea and poor ones such as Bangladesh and Cambodia, compared to such
disparities within the European Union or Europe as a whole. These differences in development mean that
it will be much more complicated to harmonise monetary and fiscal policies in Asia with a view to
adopting an eventual common currency.
Cultural and historical tensions: 'Europe' is a fairly well-defined geographical and cultural concept, but
'Asia' is not. Cultural and linguistic differences are much more pronounced in Asia than they are in
Europe. Most European countries speak Indo-European languages and have been shaped by similar
historical forces such as Christianity, the 19th century rise of nationalism and the industrial revolution,


and post-war democratisation. By comparison, different parts of Asia have been shaped by vastly
different historical forces, be they Hinduism, Buddhism and Islam, or British, French, Dutch, Spanish, or
Japanese colonialism. (It could also be argued that China, Japan, Korea and Vietnam share an underlying
'Confucian' culture.) While we do not wish to exaggerate these factors, we also feel that they should not
be ignored. Furthermore, while most historical and territorial disputes in Europe have been resolved, these
are still very much alive in Asia.
Divergent geopolitical leanings: A third major factor hampering Asian unity is individual countries'
divergent geopolitical leanings with regard to the US, China, and Japan, and the fact that these three are
competing for influence in the region. For example, Japan, South Korea, Thailand, the Philippines,
Pakistan and Australia are all US-designated 'major non-NATO allies' and thus have privileged defence
relationships with Washington, as do several other states such as Singapore and Taiwan. Japan and Korea
also host substantial US bases. These arrangements give the US tremendous influence in the region.
By comparison, while China has been carefully cultivating support in Asia, it has yet to translate this into
decisive political influence, with Beijing reticent about appearing overbearing. However, there is a real
risk that as China's power in the region grows, other Asian states may become wary of falling under
Chinese hegemony. A case in point is Vietnam, which was briefly invaded by China in 1979 and is
becoming more concerned about Beijing's claims to islands in the South China Sea. Even South Korea,
which is increasingly China-friendly, could find itself at odds with Beijing over the future of North
Korea. Of course, some Asian states will seek to bandwagon with China, but others such as Japan and
India will resist this. The US could seek to exploit these differences by offering itself as a hedge against
Chinese domination. US-Japanese moves to strengthen defence cooperation with India, Vietnam and
Australia hint at an informal alliance to counterbalance China, although none of them would publicly
admit this.
At the Hua Hin Summit, it was evident that there were already differences emerging over the role of the
US in any deeper Asian community. Japanese Prime Minister, Yukio Hatoyama's East Asian Community
proposal was ambiguous about US involvement, whereas Australian Premier, Kevin Rudd's Asia-Pacific
Community plan specifically includes the US. However, if a majority of Asian states favours a
community without the US, then Tokyo and Canberra could find their views marginalised. Another
ambiguity is the role of Russia in any Asian community. Clearly, there is a risk that the more non-Asian
states (eg the US, Australia, and Russia) are included, the less 'Asian' any Asian community would be.
Sino-Japanese Rapprochement Key To Asian Integration
Ultimately, the key to greater Asian integration lies with China and Japan, since they are the region's
biggest economies and because Australia is too peripheral (and possibly not 'Asian' enough) while India
has shown less interest in taking a lead in the region. Japan, whose economy faces years of weak growth
due to a shrinking and ageing population, lacks the ability to foster Asian integration single-handedly, but


it could conceivably play spoiler to any Chinese integration plans. Thus, for Asian integration to proceed
smoothly, China and Japan need to have amicable relations, which have hitherto been tarnished by
Japan's perceived unapologetic war record in China, and mutual suspicions over each other's expanding
military capabilities. In this regard, the Franco-German core relationship in the European Union could
serve as a model. However, even with a strong Sino-Japanese core, we would expect EU-style Asian
integration to be a slow process, with any meaningful Asian bloc likely to be decades away.
Long-Term Politics
Long-Term Political Outlook
Outlook Improved, But Uncertainty Lingers
BMI View: Although Indonesia has returned to relative orderliness since the post-Suharto chaos of the
late 1990s and early 2000s, the country faces multiple challenges and threats to its stability that could
flare up again if President Yudhoyono or his successor proves incompetent or if improved governance
fails to take hold. As such, investors will continue to view Indonesia as one of Asia's riskier destinations.
Indonesia has held two rounds of peaceful parliamentary and presidential elections, in 2004 and 2009,
suggesting that democracy is finally taking root after a highly uncertain period following the fall of
President Suharto in May 1998. Suharto seized power from Indonesia's first president, Sukarno, in 1966
and ruled through a military-dominated authoritarian regime whose political vehicle was the still
influential Golkar party. The immediate post-Suharto period was highly unstable, given that his departure
was triggered by economic meltdown. Indonesia subsequently saw the presidency change three times in
as many years, and the archipelago was almost torn asunder by separatist rebellions and religious
violence, which were only quelled in the early 2000s. Given this recent history, it is still too early to say
that Indonesia has taken a decisive turn for the better.
Threats And Challenges To Stability
Poverty and unemployment: Indonesia's per capita GDP exceeds US$2,000, but it remains a poor
country with an increasingly uneven income distribution. Indonesia's Gini coefficient (which measures
income inequality) rose to 0.368 in 2008, from 0.311 in 1999, indicating a wider wealth gap. In addition,
while official unemployment was 8.1% in February 2009, this masks a high degree of underemployment.
Part-time workers make up a large 70% of the total number of employed Indonesians. Meanwhile,
urbanisation is proceeding rapidly, with the urban population expected to increase from 54% in 2010 to
63% by 2020, according to UN forecasts. Many new urban migrants will end up eking a basic living in
Indonesia's increasingly crowded cities.
These adverse socio-economic conditions mean that inflation particularly of food and fuel prices is a
particularly sensitive issue. Indonesia has become a net oil importer in recent years, and increases in


domestic fuel prices were a major source of discontent against Suharto and his successors. However,
more recent increases in fuel prices by the Yudhoyono administration in 2005-08 have met more subdued
resistance.
Young population profile: Although Indonesia's total fertility rate the average number of children a
woman will have in her lifetime has fallen to an estimated 2.2, just above replacement level (2.1), the
country's population is very young as a whole. Around 44% of the population is aged below 25. This
means that there is a substantial pool of young people that, if left unemployed or underemployed, could
drift into criminal groups, radical political movements, or even Islamist terrorist networks.
High degree of ethnic diversity: Indonesia remains a highly diverse nation, ethnically and in religious
terms. The dominant group, the Javanese, make up only 40.6% of the population, with the next-largest
groups, the Sundanese and Madurese, comprising only 15% and 3.3% respectively. Eighty-six percent of
the population describe themselves as Muslims, but almost 10% are Christians (Protestants and
Catholics). At the time of Suharto's downfall, violence erupted against Indonesia's ethnic Chinese, who
controlled a disproportionate segment of the economy. Suharto's exit was followed by intense clashes
between Muslims and Christians in Lombok, the Moluccas islands and Sulawesi, while separatists groups
stepped up agitation or insurgencies in Aceh, Riau, Papua, and East Timor. Of these, only the latter
achieved independence, in 1999. Separatist violence was quashed in the early 2000s, but it is far from
clear whether this represents a lull or a definitive acceptance of inclusion in Indonesia.
Islamist terrorism: Indonesia has experienced many incidents of terrorism over the past decade, the
worst of which was the Bali bomb attacks in October 2002 that killed 202 people. More recently, two
luxury hotels were attacked in Jakarta in July 2009. Although radical Islamist parties have failed to make
significant gains and Indonesia generally remains tolerant, a small number of dedicated terrorists can
cause disproportionate damage to the country's reputation. In the early 2000s Indonesia's rumour mill
suggested that rogue elements of the powerful military were secretly backing Islamist militants to
destabilise the country, in order to pave the way for a return to military rule, but this is impossible to
verify.
Immature political system: The political party system is still dominated by personalities rather than
issues, although this is slowly changing. In recent years, the secular-nationalist parties have been far
stronger than Islamist-oriented parties. However, there have been some concerns that religious freedom is
under threat as the government has accommodated Islamist intolerance on some social issues. Meanwhile,
although elections are now largely peaceful events, they are usually accompanied by at least some
accusations of irregularities or vote-buying. Overall, Indonesia remains one of the most corrupt countries
in the world, and corruption scandals from time to time take a toll on senior figures and undermine faith
in institutions.


Indonesia scores a relatively poor 53.6 out of 100 in our long-term political risk (LTPR) ratings, dragged
down by poor scores in the characteristics of polity (49.4) and characteristics of society (52.5)
components. Indeed, with a relatively high poverty incidence, a widening income gap, tensions among a
diverse ethnic population, and high levels of corruption, the country still has formidable challenges to
overcome. Nonetheless, the political outlook has become considerably brighter with the re-election of
President Susilo Bambang Yudhoyono for a second term in July 2009, and this is reflected in the high
score of 70.0 in the policy-continuity component of our LTPR ratings.
Scenarios For Political Change
A key question going forward is whether the stability enjoyed under President Yudhoyono represents a
normalisation of political processes or a peaceful lull until centrifugal forces once again take hold.
Yudhoyono, a former general with secular-nationalist and economic reform leanings, is widely
considered the country's most capable leader. However, he must step down after two terms in 2014 and it
is far from clear who will succeed him, let alone what their policies would be.
Best-case scenario: Democratic consolidation. Under this scenario, democracy is consolidated by another
peaceful election in 2014 that transfers power to Yudhoyono's successor, who shares his reformist vision.
Indonesia remains broadly stable, which in turn leads to greater foreign investment and faster economic
growth. Separatism fails to revive, while any terror attacks, if they occur, are on a small scale with
minimal political or economic impact. Indonesia then evolves along the lines of South Korea, politically,
in becoming a stable democracy. We see at least a modest chance that Indonesia will follow this path.
Intermediate scenario: Muddling through. In this scenario, democracy is consolidated, but governance
remains poor and beset by corruption, while parliament is dominated by anti-reform and pro-vested
interests elites. Meanwhile, although terrorism and separatism are contained, occasional deadly incidents
frighten investors, adding further reasons not to invest in Indonesia. In order to quell such disturbances,
the military's power increases, in turn leading to civil-military tensions. The economy continues to grow
at a modest pace, but remains a regional laggard. Under these circumstances, Indonesia would
increasingly resemble the Philippines. We see a modest likelihood of this scenario playing out, especially
if Yudhoyono disappoints in his final term (2009-2014) and if his successor proves incompetent.
Worst-case scenario: Renewed fragmentation. In this scenario, Yudhoyono fails to reform institutions
and squanders his opportunities, leading to a populist succeeding him in 2014 with the backing of an
unwieldy and fragmented coalition. Indonesia then slides back into instability, which deters investment.
Islamist terrorists re-emerge, while resource-rich separatist movements make a renewed push for
independence, on the grounds that they would be economically better off on their own. With the central
government weak and divided, Jakarta starts to lose control of outlying regions, and the military goes on a
new offensive to bring them to heel. A new military coup then becomes a distinct possibility, as the


armed forces' importance rises. Indonesia increasingly comes to resemble Pakistan as a country on the
brink of failure. Overall, we view this scenario as unlikely, but one that cannot be precluded.



Company Monitor
PT Adhi Karya
Strengths
Entering the PPP/concessions market through the new investment division.
The new investment division allows the company to cover all aspects of construction and
infrastructure.
Weaknesses
In spite of its large experience with road construction, the company is very inexperienced
in toll road concessions and it will face strong competition from the leading toll road
operator PT Jasa Marga.
Opportunities
Has a large domestic market with plenty of opportunities to expand further.
The governments and PLNs 10 gigawatt (GW) of new power generation initiative opens
up opportunities for Adhi to grow its EPC business.
Indonesia has one of the most robust construction markets globally that showed resilience
during the global financial crisis.
Threats
Fallout from Dubai could threaten the companys operations in the Middle East.

Company Overview

Adhi Karya is a major player in the Indonesian construction industry. The company undertakes
projects related to general civil engineering: bridges, roads, ports and power plants; construction
of commercial, residential and industrial buildings; and mechanical and electrical works for
integrated building systems.
Adhi Karya is continuing its expansion in the Middle East. As well as a contract signed earlier to
build a property project in Qatar, the company has been awarded a similar project in Oman.
Valued at US$104mn, the Oman project includes a shopping mall, apartment towers and a hotel.

Financial Highlights

The company had a strong year in 2008, increasing its revenues by 33.5% compared to the
previous year, from IDR4.9trn to IDR6.4trn. However, net profit declined by 26.5% over the same
period from the previous year, from IDR112bn to IDR83bn. Though these results in net profit may
have caused concern if the company was based in Europe, Indonesias construction industry
resilience means that the company may have managed to escape deterioration in its finances
over 2009. The Q209 results give reasons for optimism, showing a 37% increase in revenues y-o-
y, from IDR1.2trn in Q208 to IDR1.6trn in Q209. Net profit surged by 182% from IDR10bn in Q208
to IDR29bn in Q209.

Strategy and
Evaluation
The company is majority owned by the government of Indonesia, with a 51.9% share. It is the
largest construction and infrastructure company in Indonesia, with several large scale contracts
under its belt in transport and power projects, as well as in the residential and commercial
construction sector.
The company entered the Oman commercial construction in 2007, securing a foothold in the Gulf
construction market. In the future it can use its Oman presence as a platform for further growth in
the Gulf and wider Middle East, not just in construction, but also the where it can in the future use
as a base to launch operations in the wider region.
In addition to selective geographic expansion, Adhi has also taken the first steps in entering the
PPP/concessions market with the establishment of the Investments division. This is a very


opportune time to enter this market. Adhi has the advantage of being a well established local
player, expertise that will be valuable in dealing with the local bureaucracy.
The construction sector contributes the largest share of revenue, 90.3% in 2008, with 5% coming
from the Investment division (infrastructure PPPs) and 4.5% from EPC contracts. This breakdown
indicates that in spite of recent strides to become involved with the EPC and especially power
market and concessions market, those are still in their infant stages and it will take some time
before this balance will change.


John Holland Group
Company Overview The John Holland Group is a diverse Australian construction and engineering company that lists
its primary activities as: civil engineering and infrastructure, non-residential building and
construction, rail construction and maintenance, structural mechanical process works,
transmission and telecommunications systems, tunnelling and underground mining, water
infrastructure, and operations and maintenance.
John Holland is 95% owned by Leighton Holdings Limited, a public company listed on the
Australian Stock Exchange, with the remaining 5% belonging to Heytesbury.
The group has undertaken a number of projects in Indonesia in recent years, including three
separate contracts for PT Newmont Nusa Tengarras copper and gold mine development. These
contracts amount to about US$100mn, and involve the mining, crushing, washing, stockpile
blending and loading of material on to barges.
John Holland was also responsible for developing a copper and gold mine on Sumbawa Island,
again for PT Newmont Nusa Tengarra, as a part of a US$62mn contract. The construction activity
involved the development of infrastructure for a self-contained 200-person township, as well as
facilities for a 120,000 tonnes-per-day mining operation. During this project, the firm had to draw
on its experience in accessing remote locations as transportation to the site involved using boats
and helicopters.
John Holland has also executed the US$100mn Musi Pulp Mill project. This project, located west
of Palembang in South Sumatra, involved the design and construction of the civil and structural
works.

Key Statistics No. of employees: 2,300
Year established: 1949

Key Personnel Chairman of the board: Janet L. Holmes Court
Managing director: David Stewart

Address John Holland Group
70 Trenerry Crescent
Abbotsford, Victoria 3067, Australia
Tel: +61 (3) 9934 5209
Fax: +61 (3) 9934 5275
Web: www.johnholland.com.au


PT Wijaya Karya (WIKA)
Company Overview PT Wijaya Karya (WIKA), is a state-owned enterprise that operates a diverse portfolio of activities.
These focus on water and energy, transport infrastructure, steel manufacturing, mechanical and
electrical installations, heavy equipment, and general engineering procurement and construction.
WIKA has three subsidiaries, which concentrate on real estate, trade and concrete production.
The companys work includes the Laban Gambut Dam at Kalimantan, and the Bili-bili water
supply concrete pipe channel in South Sulawesi.
WIKA has been engaged in a number of infrastructure developments, such as the toll road linking
Jakarta, Bogor and Ciawi, construction of irrigation facilities in several areas, commercial
buildings and railroad track works.
In January 2008, according to The Jakarta Post, WIKA will construct the Tembesi Dam, a large
dam in Batam. The IDR225bn (US$21mn) project is expected to help expand Batam's potable
water production capacity by gathering rain water and water from Tembesi Bay. According to the
Jakarta Post, despite the slowdown in the financial market, the government is committed to
revitalising infrastructure projects to help maintain the growth in the economy. Indonesia's
infrastructure is sorely underdeveloped and the British Chamber of Commerce reports that over
the next five years Indonesia will require infrastructure investments of US$70bn.
According to the Jakarta Globe in July 2009, WIKA is one of three state-owned enterprises that
are up for sale this year. In total Indonesia has a total of 139 state corporations, but only around
22 make profit. As a result, the authorities are planning to reduce the total number to 69 through
mergers and divestments.

Financial Highlights In April 2009, according to the Jakarta Globe, the company is forecasting IDR9.4trn in new
contracts in 2009. This compares with a total of IDR8.93trn in 2008. The company works
predominately on state-run projects and so should benefit from the infrastructure stimulus
package. The company expects the total number of government projects to increase by 7% this
year.
In H109, WIKA posted a 51% increase in net profit as it secured a number of new contracts. Total
net profits reached IDR93.34bn, compared with IDR61.81bn for the same period in 2008. In H109
WIKA secured contracts worth IDR5.5trn, a 22.3% increase on H108. Company president,
Bintang Perbowo, is targeting a profit of IDR175bn by the end of 2009.

Key Statistics Income (2008): IDR156bn (US$14.6mn)
No. of employees: 135
Year established: 1960

Key Personnel President director: A Sutjipto

Address PT Wijaya Karya
Jl. D.I. Panjaitan Kav. 9


13340 Jakarta, Indonesia
Tel: +62 (21) 819 2808
Fax: +62 (21) 819 1235
Web: www.wika.co.id



Global Overview
Global Project Finance Ratings
BMI's Project Finance Ratings are an invaluable tool for assessing the risks facing project finance
activities in a given country. The ratings are comparable across all 64 countries that BMI's Infrastructure
service covers, and enable users to compare and contrast risks of raising project finance across those
countries.
The Project Finance Rating is split into three tables, the first looks at risks to project finance in the initial
phase of a project - the design and operating phases, ie short term risks. The second, at longer term risks
through the commissioning and operating phases of a project, and finally a table compiling the two, to
provide the country's overall project finance rating.
In the initial phases of a project, the countries which perform better are the more developed states - all the
developed countries, excluding Greece, are in the top 15. Greece is ranked a relatively poor 34th place,
owing to the current economic troubles in the country. The best performing country and therefore the
least risky for project finance in the initial phases is Hong Kong, one of four countries which score in the
70s. The top scoring countries are low risk in terms of currency volatility and inflation, and have stable
political environments. The top three have sophisticated and transparent regulatory frameworks.
The lower scoring countries, suffer from a lack of transparency in the regulating environment, as well as a
volatile short-term economic environment. The riskiest countries, all with scores below 40, present
similar risks in terms of political and civil unrest, high levels of security threat in some parts of the
country, such as last placed Pakistan, and high levels of corruption.
Inputs
Legal/
Regulatory
Risks
Political
Environment
Economic/
Financial
Risks
Design and
Construction
Total
1 Hong Kong 100.0 86.7 83.6 53.9 77.1
2 Australia 96.0 85.0 83.6 54.2 76.1
3 Singapore 84.0 84.3 88.0 55.3 75.0
4 Bahrain 100.0 59.0 67.7 69.4 73.0
5 Poland 84.0 51.2 70.5 72.2 69.9
6 Slovenia 68.0 66.5 76.7 65.5 69.0
7 United States 72.0 74.6 85.1 50.4 68.3


Inputs
Legal/
Regulatory
Risks
Political
Environment
Economic/
Financial
Risks
Design and
Construction
Total
8 Israel 72.0 61.6 70.0 68.2 68.1
9 Lithuania 55.2 76.1 71.5 68.2 68.0
10 Estonia 50.4 76.8 74.7 68.0 67.9
11 United Kingdom 60.0 82.4 84.5 51.9 67.7
12 Germany 68.0 76.5 82.9 51.0 67.5
13 France 68.0 76.8 81.5 51.3 67.3
14 Kuwait 72.0 60.6 67.3 67.8 67.1
15 Slovakia 66.0 62.3 70.9 65.1 66.2
16 Malaysia 84.0 60.4 73.8 53.4 66.0
17 Croatia 62.0 63.0 69.5 64.5 65.0
18 South Korea 54.0 74.0 82.1 53.5 64.8
19 Peru 78.0 46.5 65.4 67.4 64.8
20 Taiwan 84.0 61.7 62.3 57.2 64.7
21 Oman 78.4 56.8 72.3 52.8 63.6
22 Chile 43.2 65.7 85.5 54.7 62.3
23 UAE 68.8 59.9 71.3 53.3 62.2
24 Latvia 36.8 75.6 69.4 63.3 62.0
25 China 86.0 49.0 60.7 56.5 62.0
26 Qatar 64.0 60.9 71.5 53.2 61.5
27 Japan 54.0 87.1 63.9 48.4 61.1
28 Saudi Arabia 83.2 47.1 60.8 53.7 60.0
29 Czech Republic 60.0 66.5 68.2 49.5 59.6
30 Algeria 78.0 46.5 47.7 65.2 59.6
31 Morocco 76.0 65.0 59.5 47.3 59.6
32 Hungary 42.0 79.0 72.3 47.2 58.8
33 Thailand 74.0 56.3 58.7 51.5 58.8
34 Greece 68.0 63.2 54.2 49.7 57.2
35 Romania 60.0 51.7 62.3 51.1 55.8
36 India 70.0 33.4 65.8 52.6 55.6
37 South Africa 33.6 64.2 66.2 47.7 52.8
38 Philippines 62.0 39.2 58.9 50.7 52.7
39 Bulgaria 40.8 51.5 64.3 51.6 52.6


Inputs
Legal/
Regulatory
Risks
Political
Environment
Economic/
Financial
Risks
Design and
Construction
Total
40 Mexico 48.0 46.6 63.8 49.9 52.3
41 Libya 56.8 35.4 40.5 65.1 51.3
42 Brazil 42.0 45.8 61.5 50.6 50.7
43 Argentina 42.0 44.9 55.0 54.8 50.3
44 Egypt 42.0 38.1 57.2 52.9 48.8
45 Colombia 42.0 42.2 56.0 49.0 48.0
46 Bosnia 60.0 43.6 41.2 45.1 46.8
47 Ecuador 47.0 44.5 46.7 48.7 46.7
48 Venezuela 40.0 25.5 35.3 68.3 45.8
49 Turkey 12.0 51.3 61.7 50.1 45.6
50 Vietnam 30.0 33.1 59.4 47.1 43.9
51 Kazakhstan 12.0 48.0 58.6 47.1 43.1
52 Iran 28.0 47.2 40.0 51.5 43.1
53 Yemen 38.0 40.5 46.6 44.4 42.9
54 Cambodia 52.8 18.3 51.4 44.8 42.8
55 Uganda 12.0 42.9 59.6 45.3 41.7
56 Cote d'Ivoire 72.0 13.0 35.5 44.8 41.6
57 Cameroon 60.0 14.3 42.3 44.4 41.0
58 Russia 6.0 44.2 45.0 54.3 40.3
59 Indonesia 12.0 23.1 60.5 51.5 40.2
60 Ukraine 6.0 50.4 45.0 47.5 39.2
61 Angola 36.0 22.6 44.5 46.6 39.1
62 Iraq 36.0 21.7 32.0 45.7 35.5
63 Nigeria 6.0 33.1 42.4 47.4 35.0
64 Pakistan 12.0 19.9 43.8 44.9 33.1
Source: BMI

Commissioning and Operating
In the latter phases of a project's life cycle, countries which score well offer an investor a consistent and
permanent political and regulatory environment which is unlikely to radically change over the longer
term, a stable long-term economic outlook in terms of currency volatility and inflation, which will boost


ability to gauge profits over the long term, and in turn repayment of loans, and finally, limited threat to
demand for the asset, which will ensure revenue streams.
Australia comes notably ahead of the pack, securing its top spot with the only score in the 80s for this
phase; it poses the least risk to investors across all sectors. The next bracket of countries, scores in the 70s
and above, all post admirable scores across the indicators. In the 60s and above, we find countries which
either score reasonably well across the board on all the factors mentioned above, or present high scores in
one or two areas. The 50s and above bracket can be seen as the average tier, with most countries placing
here.
Countries scoring 49.9 and below are found lacking in a number of the qualities mentioned above. Many
of these are pulled down due to high levels of financial and economic instability, including currency
volatility and inflationary or deflationary pressures.

Commercial/Business
Construction Power Transport
Commissi-
oning and
Operating
Total
1 Australia 80.5 84.8 83.5 85.5 83.7 84.2 94.0 82.6 86.0 84.6
2 Bahrain 85.0 70.3 74.7 90.0 72.0 77.4 100.0 70.8 79.6 77.2
3 Hong Kong 85.0 72.4 76.2 90.0 71.2 76.9 100.0 68.4 77.9 77.0
4 Oman 74.2 75.3 75.0 79.2 75.9 76.9 85.6 75.9 78.8 76.9
5 Qatar 67.0 77.4 74.3 72.0 76.2 75.0 76.0 75.1 75.4 74.9
6 Saudi Arabia 76.6 68.0 70.6 81.6 68.0 72.1 88.8 68.0 74.3 72.3
7 UAE 69.4 70.9 70.5 74.4 70.9 72.0 79.2 70.9 73.4 71.9
8 Kuwait 61.0 71.3 68.2 66.0 71.3 69.7 68.0 71.3 70.3 69.4
9 United States 53.5 77.1 70.0 58.5 73.8 69.2 58.0 73.2 68.7 69.3
10 Singapore 67.0 67.5 67.3 72.0 67.5 68.8 76.0 65.2 68.4 68.2
11 France 49.0 72.4 65.4 56.5 72.4 67.6 52.0 72.4 66.3 66.4
12 Poland 69.5 61.6 64.0 74.5 63.3 66.7 76.0 63.9 67.5 66.1
13 Romania 65.0 64.9 64.9 62.5 66.0 65.0 70.0 66.0 67.2 65.7
14 Germany 49.0 70.1 63.8 49.0 67.9 62.2 52.0 69.6 64.3 63.4
15 China 73.0 57.5 62.1 73.0 56.4 61.3 84.0 56.9 65.0 62.8
16 Argentina 53.5 64.1 60.9 58.5 61.6 60.7 58.0 64.1 62.3 61.3
17 United Kingdom 40.0 69.5 60.7 45.0 69.5 62.2 40.0 69.5 60.7 61.2
18 Slovakia 53.0 63.3 60.2 55.5 63.3 61.0 54.0 63.3 60.5 60.6



Commercial/Business
Commissi-
oning and
Operating
Total
19 Lithuania 37.6 66.0 57.5 50.1 65.5 60.8 46.8 66.0 60.3 59.5
20 Peru 59.0 54.8 56.0 76.5 54.8 61.3 72.0 54.8 59.9 59.1
21 Malaysia 67.0 53.7 57.7 67.0 54.2 58.1 76.0 54.2 60.8 58.8
22 Estonia 47.7 64.9 59.7 47.7 65.4 60.1 43.6 61.4 56.1 58.6
23 Taiwan 67.0 54.3 58.1 67.0 54.3 58.1 76.0 52.1 59.2 58.5
24 Israel 53.5 58.1 56.8 58.5 59.3 59.1 58.0 59.3 58.9 58.2
25 Slovenia 49.0 59.9 56.6 54.0 61.0 58.9 52.0 61.0 58.3 57.9
26 Czech Republic 50.0 61.4 58.0 55.0 62.0 59.9 40.0 61.4 55.0 57.6
27 India 55.0 53.1 53.7 70.0 54.3 59.0 70.0 53.7 58.6 57.1
28 Algeria 64.0 54.0 57.0 64.0 52.3 55.8 72.0 52.3 58.2 57.0
29 Greece 49.0 58.0 55.3 49.0 58.0 55.3 52.0 59.7 57.4 56.0
30 Morocco 58.0 51.4 53.4 85.0 49.7 60.3 64.0 49.7 54.0 55.9
31 Japan 44.5 60.0 55.4 49.5 58.9 56.1 46.0 58.9 55.0 55.5
32 Philippines 53.5 54.0 53.9 53.5 55.8 55.1 58.0 55.8 56.4 55.1
33 Egypt 53.5 55.5 54.9 53.5 55.5 54.9 58.0 54.4 55.5 55.1
34 Chile 31.6 64.1 54.3 36.6 61.0 53.7 28.8 64.1 53.5 53.8
35 Croatia 38.5 59.4 53.1 46.0 58.2 54.6 48.0 55.1 53.0 53.5
36 Libya 55.9 51.1 52.6 55.9 51.7 53.0 61.2 51.7 54.6 53.4
37 Latvia 25.9 61.5 50.8 38.4 61.5 54.6 31.2 61.5 52.4 52.6
38 Hungary 28.5 61.8 51.8 31.0 62.4 53.0 28.0 60.6 50.9 51.9
39 Cambodia 51.4 48.2 49.2 56.4 49.3 51.5 55.2 49.3 51.1 50.6
40 Yemen 49.0 49.8 49.5 49.0 51.5 50.7 52.0 50.9 51.2 50.5
41 Thailand 59.5 45.3 49.6 59.5 45.3 49.6 66.0 45.3 51.5 50.2
42 Venezuela 55.0 46.8 49.3 55.0 46.3 48.9 60.0 46.3 50.4 49.5
43 Angola 50.5 49.1 49.5 50.5 47.4 48.3 54.0 48.5 50.2 49.3
44 South Korea 37.0 53.7 48.7 42.0 53.1 49.8 36.0 53.7 48.4 48.9
45 Bulgaria 47.9 43.9 45.1 37.9 57.0 51.3 37.2 54.7 49.5 48.6
46 Iran 41.5 49.8 47.3 46.5 49.8 48.8 42.0 49.8 47.5 47.9
47 Vietnam 40.0 50.9 47.7 40.0 50.9 47.7 40.0 50.9 47.7 47.7
48 South Africa 26.8 55.0 46.5 26.8 54.4 46.1 22.4 54.4 44.8 45.8
49 Cote d'Ivoire 53.5 41.8 45.3 53.5 40.1 44.1 58.0 40.1 45.5 45.0



Commercial/Business
Commissi-
oning and
Operating
Total
50 Iraq 50.5 41.3 44.1 50.5 40.2 43.3 54.0 41.9 45.5 44.3
51 Brazil 28.5 50.3 43.7 36.0 49.7 45.6 28.0 49.1 42.8 44.0
52 Bosnia 57.5 40.9 45.9 47.5 40.9 42.9 50.0 40.4 43.3 44.0
53 Mexico 34.0 47.7 43.6 34.0 46.6 42.8 32.0 48.3 43.4 43.3
54 Ecuador 34.7 38.6 37.2 61.3 38.6 46.1 47.0 38.6 41.3 41.6
55 Turkey 18.5 49.6 40.2 21.0 49.6 41.0 8.0 50.1 37.5 39.6
56 Kazakhstan 16.0 48.0 38.4 16.0 50.3 40.0 8.0 48.6 36.4 38.3
57 Colombia 31.0 37.0 35.2 36.0 42.0 40.2 28.0 42.6 38.2 37.9
58 Russia 15.5 47.8 38.1 13.0 45.5 35.7 4.0 45.5 33.0 35.6
59 Cameroon 40.0 30.3 33.2 40.0 32.1 34.4 40.0 31.5 34.0 33.9
60 Uganda 16.0 43.2 35.1 16.0 41.5 33.9 8.0 41.5 31.5 33.5
61 Ukraine 15.5 40.9 33.3 13.0 42.0 33.3 4.0 42.0 30.6 32.4
62 Indonesia 16.0 38.0 31.4 16.0 38.6 31.8 8.0 38.6 29.4 30.9
63 Nigeria 13.0 38.7 31.0 13.0 39.2 31.4 4.0 37.5 27.5 29.9
64 Pakistan 11.0 25.1 20.9 28.5 25.6 26.5 8.0 25.1 20.0 22.4
Source: BMI

Overall Project Finance Rating
Australia is the top scorer in BMI's Project FinanceaRatings, posting the only score in the 80s. Other
countries which are found in the top bracket, scores of 70 and above, all illustrate similar properties in
terms of stability and proficiency in regultions for project finance. The second bracket, scores of 60 and
above, contains some of BMI's favoured markets for project finance operations. Though they have less
than perfect project finance requirements, they can all be considered low risk for an investor.
The global average Project Finance Rating is 55. In the 50 and above bracket we find countries which
have a number of deficiencies in the project finance environment, ranging from issues with transparency
and regulations, to political and economic stability. Countries which fall in the bottom two brackets,
scores of 40 and above, and those below 40, exhibit multiple and in the case of the latter group, structural
weaknesses, which can hinder the project payback from an infrastructure project. Pakistan is placed last.


High levels of risks in terms of politics and a volatile and opaque economy mean there is little prospect of
successfully raising financing in the country.
Design and Construction Commissioning and Operating Overall
1 Australia 76.1 84.6 80.3
2 Hong Kong 77.1 77.0 77.0
3 Bahrain 73.0 77.2 75.1
4 Singapore 75.0 68.2 71.6
5 Oman 63.6 76.9 70.2
6 United States 68.3 69.3 68.8
7 Kuwait 67.1 69.4 68.2
8 Qatar 61.5 74.9 68.2
9 Poland 69.9 66.1 68.0
10 UAE 62.2 71.9 67.1
11 France 67.2 66.4 66.8
12 Saudi Arabia 59.9 72.3 66.1
13 Germany 67.5 63.4 65.5
14 United Kingdom 67.7 61.2 64.5
15 Lithuania 68.0 59.5 63.8
16 Slovenia 69.0 57.9 63.5
17 Slovakia 66.2 60.6 63.4
18 Estonia 67.9 58.6 63.3
19 Israel 68.1 58.2 63.2
20 China 62.8 62.8 62.8
21 Malaysia 66.0 58.8 62.4
22 Peru 64.8 59.1 62.0
23 Taiwan 64.7 58.5 61.6
24 Romania 55.8 65.7 60.8
25 Croatia 65.0 53.5 59.2
26 Czech Republic 59.6 57.6 58.6
27 Algeria 59.6 57.0 58.3
28 Japan 61.1 55.5 58.3
29 Chile 62.3 53.8 58.1
30 Morocco 59.6 55.9 57.8


31 Latvia 62.0 52.6 57.3
32 South Korea 64.8 48.9 56.9
33 Greece 57.2 56.0 56.6
34 India 55.6 57.1 56.3
35 Argentina 50.3 61.3 55.8
36 Hungary 58.8 51.9 55.3
37 Thailand 58.8 50.2 54.5
38 Philippines 52.7 55.1 53.9
39 Libya 51.3 53.4 52.4
40 Egypt 48.8 55.1 52.0
41 Bulgaria 52.6 48.6 50.6
42 South Africa 52.8 45.8 49.3
43 Mexico 52.3 43.3 47.8
44 Venezuela 45.8 49.5 47.7
45 Brazil 50.7 44.0 47.3
46 Yemen 42.9 50.5 46.7
47 Cambodia 42.8 50.6 46.7
48 Vietnam 43.9 47.7 45.8
49 Iran 43.1 47.9 45.5
50 Bosnia 46.8 44.0 45.4
51 Angola 39.1 49.3 44.2
52 Ecuador 46.7 41.6 44.1
53 Cote d'Ivoire 41.6 45.0 43.3
54 Colombia 48.0 37.9 42.9
55 Turkey 45.6 39.6 42.6
56 Kazakhstan 43.1 38.3 40.7
57 Iraq 35.5 44.3 39.9
58 Russia 40.3 35.6 38.0
59 Uganda 41.7 33.5 37.6
60 Cameroon 41.0 33.9 37.4
61 Ukraine 39.2 32.4 35.8
62 Indonesia 40.2 30.9 35.5
63 Nigeria 35.0 29.9 32.5


64 Pakistan 33.1 22.4 27.7
Global Average 56.0 54.1 55.0
Source: BMI

Global Business Environment Ratings: China And India Break Into Top 10
BMI's Infrastructure Business Environment Ratings quantify the relative potential of the infrastructure
market in a given country. At the same time, they highlight potential risks that an investor may encounter
while operating in different countries. The scores are 100% comparable across the 64 countries in BMI's
infrastructure universe and serve as an invaluable tool to compare and contrast risks and opportunities in
countries across the globe.
Compiling the scores into a global table, the results are largely in line with expectations about business
environments across the globe; however, there are a few surprises. In order to best evaluate the results, we
have decided to split the results into five bands, scores of 70 and above, 60 and above, 50 and above, 40
and above and 39.9 and below.
The lowest scoring indicator on average is infrastructure market, which returns a global average score of
just 45.7 out of 100. This reflects the longer term impact of the global financial crisis on the construction
industry value. Due to this, there are higher limits to potential returns than there are risks to realisation of
returns on average.
70s and above: The highest scoring countries are, for the most part, developed states with some
of the most sophisticated legal and financial frameworks in the world. The top four: UK,
Australia, Germany and France, all present stable, attractive, operating environments with large
infrastructure markets offering opportunities for further growth. The one country bucking this
trend is China, which secures its fifth placed ranking due to the high level of growth anticipated
in its already substantial infrastructure industry. Japan, despite a stagnant infrastructure sector,
secures its place in the top band due to the sheer size of its construction industry, the second
largest in the world at the end of 2009.
60s and above: This band is home to some of BMI's favourite markets in the terms of
infrastructure industry potential. Although these countries lose some points in terms of smaller


industry sizes, less transparency or more complex regulations, they present some of the biggest
opportunities. Key highlights here include Poland, Qatar, India, Oman, Chile and Colombia.
50s and above: This is the most common band by far, where 26 countries fall, and indeed the
global average overall business environment score is 53.6 out of 100. A mixture of countries fall
in this bracket, those with more developed country and market structures which fail to impress
on the infrastructure potential side eg Hong Kong and the Israel, and those with much higher
potential in infrastructure opportunities, but higher risks, eg Brazil and Vietnam.
40s and above: In this bracket we find countries which either present very high risks through
deep structural problems, eg. deep running transparency issues in Indonesia, or those with very
low infrastructure potential, eg Argentina, as well as those that perform poorly across the board,
presenting high risks and limited potential, eg Ukraine.
39.9 and below: In the lowest band we find the countries which offer the least to potential
investors. The countries found here include frontier markets such as Iraq which offer little in the
way of a structured business environment, high risk countries such as Pakistan, and small and
stagnant infrastructure markets such as Yemen.
Table: Global Infrastructure Business Environment Ratings, April 2010

Infrastructure
Market
Country
Structure Limits
Market
Risks
Country
Risk Risks
Infrastructure
BE Rating Ranking
United Kingdom 67.5 88.3 74.8 85.0 78.9 81.3 76.8 1
Australia 65.0 88.1 73.1 90.0 79.9 84.0 76.3 2
Germany 62.5 85.0 70.4 75.0 77.5 76.5 72.2 3
France 67.5 81.3 72.3 65.0 76.4 71.8 72.2 4
China 80.0 71.3 76.9 50.0 67.7 60.6 72.1 5
Japan 60.0 86.6 69.3 80.0 77.1 78.3 72.0 6
Singapore 45.0 84.4 58.8 95.0 86.7 90.0 68.1 7
United States 47.5 91.7 63.0 75.0 80.7 78.4 67.6 8
South Korea 55.0 80.3 63.8 75.0 76.2 75.7 67.4 9
India 82.5 48.9 70.7 50.0 64.3 58.6 67.1 10
Oman 55.0 60.8 57.0 82.5 71.3 75.8 62.7 11
Poland 52.5 76.1 60.8 75.0 61.4 66.8 62.6 12
Qatar 60.0 54.8 58.2 75.0 70.4 72.3 62.4 13
Chile 42.5 81.5 56.2 77.5 75.2 76.1 62.2 14



Infrastructure
Market
Country
Structure Limits
Market
Risks
Country
Risk Risks
Infrastructure
BE Rating Ranking
Taiwan 47.5 71.2 55.8 75.0 75.2 75.1 61.6 15
Algeria 67.5 54.7 63.0 47.5 63.9 57.4 61.3 16
Colombia 60.0 52.9 57.5 75.0 65.7 69.4 61.1 17
Bahrain 45.0 70.6 54.0 77.5 73.1 74.9 60.2 18
Slovenia 45.0 80.2 57.3 60.0 70.0 66.0 59.9 19
Greece 47.5 76.9 57.8 65.0 63.9 64.3 59.8 20
Romania 62.5 70.9 65.4 40.0 48.9 45.3 59.4 21
Brazil 55.0 57.8 56.0 72.5 61.2 65.7 58.9 22
Saudi Arabia 47.5 67.2 54.4 75.0 62.9 67.7 58.4 23
UAE 47.5 59.7 51.8 80.0 69.1 73.5 58.3 24
Croatia 50.0 70.5 57.2 60.0 59.8 59.9 58.0 25
Hong Kong 27.5 84.8 47.6 85.0 77.2 80.3 57.4 26
Czech Republic 37.5 81.1 52.7 75.0 63.0 69.0 57.3 27
Estonia 40.0 76.8 52.9 75.0 59.3 65.6 56.7 28
South Africa 52.5 59.3 54.9 57.5 61.3 59.8 56.4 29
Hungary 37.5 76.7 51.2 65.0 67.4 66.5 55.8 30
Israel 32.5 73.1 46.7 75.0 72.4 73.4 54.7 31
Lithuania 42.5 76.6 54.4 47.5 57.2 53.3 54.1 32
Russia 42.5 71.9 52.8 52.5 60.3 57.2 54.1 33
Egypt 45.0 57.8 49.5 70.0 57.0 62.2 53.3 34
Latvia 35.0 78.8 50.3 70.0 53.2 59.9 53.2 35
Slovakia 40.0 80.1 54.0 30.0 61.9 49.2 52.6 36
Malaysia 32.5 71.5 46.1 55.0 74.9 66.9 52.4 37
Iran 52.5 56.5 53.9 35.0 57.2 48.3 52.2 38
Kuwait 30.0 78.6 47.0 57.5 68.9 64.3 52.2 39
Mexico 37.5 62.6 46.3 72.5 61.5 65.9 52.2 40
Kazakhstan 50.0 66.0 55.6 30.0 53.3 44.0 52.1 41
Libya 47.5 63.8 53.2 32.5 54.6 45.7 51.0 42
Vietnam 60.0 42.3 53.8 35.0 49.6 43.7 50.8 43
Turkey 40.0 50.7 43.8 75.0 58.3 65.0 50.1 44
Indonesia 57.5 45.9 53.4 24.0 53.7 41.8 49.9 45
Thailand 30.0 75.7 46.0 55.0 61.8 59.1 49.9 46



Infrastructure
Market
Country
Structure Limits
Market
Risks
Country
Risk Risks
Infrastructure
BE Rating Ranking
Morocco 50.0 44.4 48.1 55.0 51.6 52.9 49.5 47
Bulgaria 32.5 71.6 46.2 35.0 54.3 46.6 46.3 48
Peru 37.5 47.8 41.1 45.0 64.6 56.8 45.8 49
Argentina 30.0 54.2 38.5 65.0 57.6 60.6 45.1 50
Ukraine 32.5 63.5 43.3 50.0 46.0 47.6 44.6 51
Philippines 35.0 52.3 41.1 35.0 53.4 46.1 42.6 52
Nigeria 47.5 34.4 42.9 32.5 46.6 41.0 42.3 53
Bosnia 35.0 54.0 41.6 35.0 42.9 38.9 41.1 54
Iraq 52.5 20.2 41.2 32.5 36.0 34.6 39.2 55
Angola 50.0 20.2 39.6 30.0 43.8 38.3 39.2 56
Uganda 40.0 20.4 33.1 42.5 54.9 49.9 38.2 57
Yemen 40.0 27.0 35.5 37.5 43.1 40.9 37.1 58
Ecuador 30.0 37.6 32.6 40.0 42.9 41.7 35.4 59
Cameroon 35.0 28.6 32.8 32.5 46.2 40.7 35.1 60
Venezuela 22.5 36.7 27.5 25.0 43.8 36.3 30.1 61
Pakistan 20.0 40.1 27.0 35.0 33.6 34.2 29.2 62
Cote d'Ivoire 25.0 29.1 26.4 20.0 36.6 29.9 27.5 63
Cambodia 25.0 27.8 26.0 20.0 34.4 28.6 26.8 64
Global Average 45.7 61.8 51.3 56.5 60.5 58.9 53.6
Source: BMI



Methodology
New Infrastructure Data Sub-sectors: Methodology
BMIs new Infrastructure Data examines the industry both from the top down and the bottom up in order
to calculate the industry value of infrastructure and its sub-sectors.
For the bottom up - a country-specific - approach, we have made full use of BMIs Infrastructure Major
Projects Databases for each country, in most cases dating back to 2005. This has allowed us to calculate
historical ratios between general infrastructure industry value and its sub-sectors, which we then use for
forecasting. Our Major Projects Tables are not exhaustive, but they are sufficiently comprehensive to
provide a solid starting point for our calculations.
The top down approach uses deduction to form the main hypothesis. We have separated the 35 countries
into three Tiers. Each Tier comprises a group of countries that are on a similar economic development
trajectory and have similar patterns in terms of infrastructure spending, levels of infrastructure
development and sector maturity. This methodology enables us to confirm and overcome any deficiencies
of infrastructure-specific data, by applying an average group ratio (calculated from the countries for
which official data exists) to the countries for which data is limited.
Tier I- Developed States; common characteristic: mature infrastructure markets, investments typically
target maintenance of existing assets or highly advanced projects at the top of the value chain.
Infrastructure as percent of total construction on average around 30%.
Countries in Tier I: Germany, Greece, UK, US, France, Hong Kong, Taiwan, Singapore, Israel, Japan,
Australia.
Tier II Core Emerging Markets; common characteristic: the most rapidly growing of emerging markets,
where infrastructure investments are a strategic priority for the government. There is significant scope for
new infrastructure facilities from very basic levels (highways, heavy rail for instance) to more high value
projects (renewables, urban transport). Infrastructure as percent of total construction on average around
45% and above.
Countries in Tier II: Mexico, South Korea, Peru, Turkey, Vietnam, Poland, Hungary, South Africa,
Nigeria, Russia, China, India Brazil, Indonesia.
Tier III- Emerging Europe; common characteristic: regional socioeconomic trajectories, development has
been defined by the recent or pending accession to European structures such as the European Union.


Infrastructure development to a large degree dictated by EU development goals and financed through
vehicles such as the PHARE and ISPA programmes, and institutions such as the EBRD and EIB.
Infrastructure as percent of total construction on average between 30% and 40%.
Countries in Tier III: Czech Republic, Romania, Bulgaria, Slovakia, Slovenia, Estonia, Latvia, Lithuania,
Croatia, Ukraine.
This methodology has enabled us to calculate infrastructure industry values for states where this was not
previously possibly. Furthermore, it has enabled us to create comparable indicators.
The top down hypothesis-led approach has been used solely to calculate the Infrastructure Industry Value
as a Percentage of Total Construction. For all sub-sector calculations we have applied the bottom-up
approach, i.e. calculated the ratios from our Major Projects Tables where data was not otherwise
available.
Infrastructure Forecasts: Methodology
BMIs industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric regression modelling. The precise form of model we use varies from industry to
industry, in each case being determined, as per standard practice, by the prevailing features of the industry
data being examined. BMI mainly uses OLS estimators and in order to avoid relying on subjective views
and encourage the use of objective views, uses a general-to-specific method. BMI mainly uses a linear
model, but simple non-linear models, such as the log-linear model, are used when necessary. During
periods of industry shock, for example a deep industry recession, dummy variables are used to
determine the level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including, but not exclusive to:
R
2
tests explanatory power; Adjusted R
2
takes degree of freedom into account
Testing the directional movement and magnitude of coefficients
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)

It must be remembered that human intervention plays a necessary and desirable role in all of BMIs
industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that
analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely
mechanical forecasting process would not.


Within the infrastructure industry, this intervention might include, but is not exclusive to, new
investments across sectors, or projects getting cancelled; general investment climate and business
environment changes; domestic or regional trends changing; macroeconomic indicators; and regulatory
changes.
Forecasting figures of construction and infrastructure value mainly depend on past and future fixed
capital investment formation as a strong expected investment in a nation drives the construction growth
rate. BMI uses top down approach to forecast infrastructure and its sub-sectors. Generally speaking, a fast
construction growth means a strong increase in most parts of infrastructure.
Infrastructure and Construction Added Value
Figures for construction and infrastructure value added to GDP are based, where possible, on national
accounts as published by the relevant statistics agencies and central banks, as well as primary
government/ministry sources and official data. Where these are unavailable, construction GDP estimates
are based on a range of variables including:
Stated infrastructure and development programmes
Likely increases owing to related urban or industrial sector developments
Political factors (such as an electorally motivated public works programmes)
Infrastructure and Construction Real Growth and as a percentage of GDP is calculated using BMIs own
macroeconomic forecasts.
Employment Within The Construction Industry
These figures are forecast based on:
The growth or otherwise of real gross fixed capital formation
Company results and expansion plans
Example of Construction Value Model:
(Construction Value)
t
=
0
+
1
*(Gross Fixed Capital Formation)
t
+
t

Example of Infrastructure Value Model:
(Infrastructure Value)
t
=
0
+
1
*(Construction Value)
t
+
t

Note: Infrastructure sub-sector values are forecast using a similar regression model.


Sources
BMI uses publicly available information to compile the country reports and collate historical data.
Sources used in Infrastructure reports include UN statistics; national accounts; infrastructure, public
works, transport, energy and economy ministries; officially released company results and figures; trade
bodies and associations and international and national news agencies.
Industry Forecasts
BMIs industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined. BMI mainly uses ordinary least squares (OLS) estimators and in order to avoid relying on
subjective views and encourage the use of objective views, uses a general-to-specific method. BMI
mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when
necessary. During periods of industry shock, for example a deep industry recession, dummy variables
are used to determine the level of impact. Effective forecasting depends on appropriately selected
regression models. BMI selects the best model according to various different criteria and tests, including,
but not exclusive to:
R
2
tests explanatory power; Adjusted R
2
takes degree of freedom into account;
Testing the directional movement and magnitude of coefficients;
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);
All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.

BMI uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of BMIs
industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that
analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely
mechanical forecasting process would not. Within the infrastructure industry, this intervention might
include, but is not exclusive to, new investments across sectors or cancelled projects; general investment
climate and business environment changes; changing domestic or regional trends; macroeconomic
indicators; and regulatory changes.
Example Of Construction Value Model
(Construction value)
t
=
0
+
1
*(Gross Fixed Capital Formation)
t
+
2
*(inflation)
t
+
3
*(lending rate)
t
+
4
* (population)
t
+
5
*(government expenditure)
t
+
6
*(construction value)
t-1
+
t



A number of principal criteria drive our forecasts for each construction and engineering variable:
Construction GDP And Infrastructure Spending
Figures for construction GDP and infrastructure spending are based, where possible, on national accounts
as published by relevant central banks, as well as primary government/ministry sources and official data.
Where these are unavailable, construction GDP forecasts are based on a range of variables including:
Stated infrastructure and development programmes;
Likely increases owing to related urban or industrial sector developments;
Political factors (such as an electorally motivated public works programmes).
Construction as a percentage of GDP is calculated using BMIs own macroeconomic and demographic
forecasts.
Employment Within The Construction Industry
These figures are forecast based on:
The growth or otherwise of the construction industry;
Company results and expansion plans.
Data Methodology
Construction
Construction Value
Our data is derived from GDP by output figures from each countrys national statistics office (or
equivalent). Specifically, it measures the output of the construction industry over the reported 12 month
period in nominal values (i.e. domestic currency terms). As it is derived from GDP data, it is a measure of
value added within the industry (i.e. the additional contribution of the construction industry over other
industries, such as cement production). Consequently, it does not measure the nominal value of all inputs
used in the construction industry, which, for most states would increase the overall figure by 50-60%.
Furthermore, it is important to note that the data does not provide an indication of the total value of a
countrys buildings, only the construction sectors output in a given year.
This data is used because it is reported by virtually all countries and can therefore be used for
comparative purposes. However, it is important to note that, where we are able to locate them, data
released by national statistical offices or industry groups or associations for the overall value of the
construction sector also taken into account and published by us.


Growth
Our data and forecasts for real construction measures the real increase in output (rather than nominal
growth, which would also incorporate inflationary increases). In short, it is an inflation adjusted value of
the output of the construction industry year-on-year. Consequently, real growth will in virtually all
instances be lower than the nominal growth of our construction value indicator.
Construction Industry, % Of GDP/Construction Value (US$)
These are derived indicators. We use BMIs Country Risk teams GDP and exchange rate forecasts to
calculate these indicators.
Capital Investment
Total Capital Investment
Our data is derived from GDP by expenditure data from each countrys national statistics office (or
equivalent). It is a measure of total capital formation (excluding stock build) over the reported 12 month
period. Total capital formation is a measure of the net additions to a countrys capital stock, so takes into
account depreciation as well as new capital. In this context, capital refers to structures, equipment,
vehicles etc. As such, it is a broader definition than construction or infrastructure, but is used by BMI as a
proxy for a countrys commitment to development.
Capital Investment (US$), % Of GDP, Per Capita
These are derived indicators. We use our Country Risk teams population, GDP and exchange rate
forecasts to calculate them. As a rule of thumb, we believe an appropriate level of capital expenditure is
20% of GDP, although in rapidly developing emerging markets it may, and arguably should, account for
up to 30%.
Government Capital Expenditure
This is obtained from government budgetary data and covers all non-current spending (i.e. spending on
transfers, salaries to government employees, etc.). Due to the absence of global standards for reporting
budgetary expenditure, this measure is not as comparable as construction/capital investment.
Government Capital Expenditure, US$bn, % Of Total Spending
These are derived indicators.
Construction Sector Employment
Total Construction Employment
This data is sourced from either the national statistics office or the International Labour Organization
(ILO). It includes all those employed within the sector.


Construction Employment, % y-o-y; % Of Total Labour Force
These are derived indicators.
Average Wage In Construction Sector
This data is sourced from either the national statistics office or the ILO.
Infrastructure Business Environment Ratings
BMIs Infrastructure Business Environment Ratings (IBER) provide a numerically based evaluation of
prospects for the infrastructure sector in each state that we cover. Our approach is threefold. Firstly, the
risks rated capture the operational dangers to companies operating in this industry globally. Secondly, we
attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were
previously evaluated on a subjective basis. Finally, we use BMIs proprietary Country Risk Ratings
(CRR). Overall, the ratings system which is integrated with those of all the industries covered by BMI
offers an industry-leading insight into the prospects and risks for companies across the globe.
Ratings Overview
Conceptually, the ratings system is divided into two distinct areas:
An evaluation of sectors size and growth potential in each state and also broader industry/state
characteristics that may inhibit its development.
Risks To Realisation Of Returns
An evaluation of industry-specific dangers and those emanating from the states political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
IBER a weighted average of the total score. Importantly, as most of the countries and territories
evaluated are considered by BMI to be emerging markets, our IBER is revised on a quarterly basis. This
will ensure that the IBER draws on the latest information and data from across our broad range of
sources, and the expertise of our analysts.


Table: Infrastructure Business Environment Indicators
Indicator Rationale
Limits to potential returns
Market structure
Construction expenditure,
US$bn
Objective measure of size of sector the larger the sector, the greater the opportunities
available
Sector growth, % y-o-y Objective measure of growth potential rapid growth results in increased opportunities
Capital investment, % of
GDP Proxy for the extent the economy is already oriented towards the sector
Government spending, % of
GDP
Proxy for extent to which structure of economy is favourable to infrastructure/
construction sector
Country structure
Labour market infrastructure
From BMIs Country Risk Ratings (CRR). Denotes availability/cost of labour. High
costs/low quality will hinder company operations
Financial infrastructure
From BMIs CRR. Denotes ease of obtaining investment finance. Poor availability of
finance will hinder company operations across the economy
Access to electricity
From BMIs CRR. Low electricity coverage is proxy for pre-existing limits to
infrastructure coverage
Risks to potential returns
Market risk
No. of companies
Subjective evaluation against BMI-defined criteria. This indicator evaluates barriers to
entry
Transparency of tendering
process
Subjective evaluation against BMI-defined criteria. This indicator evaluates predictability
of operating environment
Country risk
Structure of economy
From BMIs CRR. Denotes health of underlying economic structure, including seven
indicators such as volatility of growth; reliance on commodity imports, reliance on single
sector for exports
External risk
From BMIs CRR. Denotes vulnerability to external shock principal cause of economic
crises
Policy continuity
Subjective rating from BMIs CRR. Denote predictability of policy over successive
governments
Legal framework
From BMIs CRR. Denotes strength of legal institutions in each state security of
investment can be a key risk in some emerging markets
Corruption
From BMIs CRR. Denotes risk of additional illegal costs/possibility of opacity in
tendering/business operations affecting companies ability to compete
Source: BMI



Project Finance Ratings
BMIs Project Finance Ratings (PFR) provide a globally comparative, numerically based assessment of
the risks facing major infrastructure projects in the power, transport, and commercial construction sectors.
It evaluates the degree of uncertainty facing projects that are generally characterised by the following:
long construction period; high construction costs; difficulty in redeploying project assets (e.g. power
stations) to other uses; earnings generated only after construction completed. The PFR draws on BMIs
broad analytical expertise. The methodology incorporates our industry-leading Country Risk Ratings
(CRR), drawing on our 25-year expertise in assessing political, economic and business operational risk, as
well as our in-depth knowledge of the global infrastructure industry.
While we believe the resulting scores are a reliable guide to project finance risks, it should be emphasised
that the PFR assesses broad industry risks, not individual projects. This has several implications. First,
there will be instances where the risk profile, for example the supply of inputs, of particular projects is
markedly different from general risks in the industry. Second, the PFR will not take into account
measures by private sector project participants to mitigate risk when structuring finance for example, by
securing a substantial equity involvement from the sponsoring agency or government. The PFR is best
used to evaluate the breadth and depth of risks facing major infrastructure projects, which will in turn
affect the source, availability and cost of finance. Thus, in an environment of limited global finance for
such projects, it provides a leading indicator for the cost of financing major projects and the pace at which
infrastructure development will occur in each state.
Ratings Overview
To reflect the life-cycle of infrastructure projects, the PFR is divided into two distinct sub-ratings:
Design And Construction Risks
This evaluates risks in the broad assumptions underpinning construction cost projections. Specifically, it
assesses uncertainty in the political, economic and regulatory environment, and input cost volatility.
Sector Operational Risk
This evaluates risks in revenue projections during the operational period of a project. It assesses
uncertainty regarding supply and cost of inputs, and sale of outputs, including the regulatory, market and
political environment.
Ratings Components
The rating uses 10 subjectively measured indicators and around 40 separate indicators/datasets. The
weighting of each indicator and group of indicators (inputs, regulatory, market risks, etc) reflects their
relative importance, and the relative risk level that they pose for sponsors and equity holders. The relative
influence of each indicator and group of ratings on the final score can be found below. The score next to


the segment sub-heading indicates the weighting of the segment in the final rating, and the score next to
each indicator shows each indicators influence within the segment.
Table: Design And Construction Phase
Indicator Definition Rationale Weighting
Inputs 20% (segment)
Domestic:
inflation
Average consumer inflation 2002-2009,
adjusted for standard deviation
High and uncertain inflation raises risks
to input cost projections 60%
International:
long-term
currency volatility
Standard deviation of monthly average
of past 12 months of data, plus
standard deviation of moving average
Currency volatility increases risks to
cost projections of imported goods 40%
Political environment 25% (segment)
Market orientation
Measure of government intervention in
economy, using data for government
expenditure and revenue from state-
owned enterprises; average trade tariff
rates; tax levels; trade bureaucracy;
and history of FDI inflows
Governments with strong commitment
to free markets are unlikely to make
sudden changes to the
investment/trade regime 20%
Security risk
Measure of level of security threat
(external and internal) facing a country
The higher the security risk, the higher
the risks to infrastructure assets in
terms of physical security (as they tend
to become targets) and insurance
premiums, which rise with security
risks, increasing costs to sponsors 20%
Long-term policy
continuity
BMIs evaluation of level of broad
governmental policy consistency over
past decade
Strong policy continuity between elites
(within or across parties) minimises
risks that new legislation will alter the
business environment 20%
Characteristics of
polity
BMIs evaluation of system of
government and constitutional
framework against ideal type
Democratic governments with strong,
independent institutions are less prone
to sudden policy shifts 20%
Rule of law
Evaluation of breadth and depth of
governments ability to protect
individuals and property
Strong rule of law reduces direct threats
to assets during construction 20%
Legal/regulatory risks 20% (segment)
Corruption
Subjective measure of level of
corruption
Transparency is essential to planning of
predictable input delivery and cost and
the predictability of officials decisions 50%
Contract
enforceability
World Bank Index of cost, procedures
and time taken to recover a bad debt
Confidence in the legally binding nature
of contracts is essential to minimise
domestic counterparty risk 50%
Economic/financial risks 35% (segment)
Domestic:
economic stability
BMIs long-term economic rating, which
incorporates 20 indicators to assess
risk of an economic crisis
Economic stability reduces risks to
project activity (e.g. due to financial
problems at suppliers) 30%
International:
availability of
US and eurozone average interest
rates, adjusted for Chicago BOE VIX
Project finance is mainly raised
internationally. Price and availability
70%


Table: Design And Construction Phase
finance index depend on US and eurozone interest
rates and investor risk appetite (VIX is a
proxy). A global, rather than country-
specific, indicator
Source: BMI

Table: Commissioning And Operating Phase Commercial Construction
Domestic:
inflation
Average consumer inflation 2002-2009,
adjusted for standard deviation
High and uncertain inflation raises risks
to input cost projections 30%
Domestic: power,
imports as % of
consumption
As stated. Power is used as proxy for
all utilities
Supply of utilities is essential to
functioning of asset and revenue
generation 25%
International:
long-term
currency volatility
Standard deviation of monthly moving
average of past 12 months of data, plus
standard deviation of moving average
Sale of outputs
Regulatory 20% (segment)
Supply risk
BMIs subjective view of transparency
of government planning policy
Clarity regarding future market supply
essential to forecast demand for asset 20%
Price risk
of government policy regarding price of
service related to asset
Clarity over policy/regulations covering
price are essential to projecting income 20%
Contract
enforceability
Confidence in legally binding nature of
contracts is essential for minimising
Market risks 30% (segment)
Economic stability
risk of economic crisis
An economic crisis would cut projected
demand, potentially greatly
Long-term
currency stability
average of the past 12 months of data,
plus standard deviation of moving
average
Sharp currency movements introduces
risks to value of income in international
currency 50%
Political risks 20% (segment)
Market orientation
to free markets unlikely to make sudden
changes to investment/trade regime 10%


Table: Commissioning And Operating Phase Commercial Construction
Security risk
Measure of the security threat (external
and internal) facing a country
Policy continuity
BMIs evaluation of level of policy
consistency over past decade
Rule of law
to assets 40%
Source: BMI

Table: Commissioning And Operating Phase Energy And Utilities
Inputs* 30% (segment)
Inflation
Average inflation, 2002-2009, and its
standard deviation
Volatile inflation risks unanticipated cost
increases that may be impossible to
pass on to asset users 30%
Crude price costs
BMIs Brent Crude forecasts for next
five years, adjusted for standard
deviation of prices over past three
years
Gas and other fuel prices correlate
closely with oil. Price stability is
desirable, as are anticipated future
trends. This is a global, rather than
country-specific, risk 25%
Long-term
currency volatility
average
cost projections of imported goods or
goods bought in US dollars (i.e. fuel
feedstock) 45%
Sale of outputs
Demand risk
BMIs subjective view of government
energy policies and implications for
industry demand
Transparency regarding government
energy policies is essential for
evaluating demand 20%
Price risk
of government policy regarding power
prices
price essential to projecting income 20%
Contract
enforceability
contracts is essential to minimising
60%


Table: Commissioning And Operating Phase Energy And Utilities
domestic counterparty risk
Economic stability
demand, potentially greatly 50%
Long-term
currency stability
average
currency 50%
Market orientation
to free markets internally and
internationally unlikely to make sudden
changes to investment/trade regime 10%
Security risk
Policy continuity
past decade
Rule of law
to assets 40%
* No distinction between internal and domestic risks. This reflects BMIs view that all projects would have fuel feedstock
contracts in place prior to construction. Source: BMI

Table: Commissioning And Operating Phase Transport
Domestic:
inflation
Average inflation, 2002-2009, and its
standard deviation
Volatile inflation risks unanticipated cost
increases that may be impossible to
pass on to asset users 40%
International:
long-term
currency Volatility
average
Sale of outputs


Table: Commissioning And Operating Phase Transport
Demand risk
BMIs subjective view of government
regulation and its record in supporting
substitutes etc
Transparency regarding government
policy essential for evaluating demand 20%
Price risk
of government policy regarding price of
service related to asset
price essential to projecting income 20%
Contract
enforceability
contracts essential to minimising
Economic stability
demand, potentially greatly 50%
Long-term
currency stability
average
currency 50%
Market orientation
to free markets are likely to refrain from
sudden changes to the
investment/trade regime 10%
Security risk
Policy continuity
past decade
Rule of law
to assets 40%
Source: BMI

Sources
BMI uses publicly available information to compile the country reports and collate historical data.
Sources used in Infrastructure reports include UN statistics; national accounts; infrastructure, public


works, transport, energy and economy ministries; officially released company results and figures; trade
bodies and associations and international and national news agencies.
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Indo Infra Report

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Indo Infra Report

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Q3 2010

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