March 24, 2016, Jakarta Post

The government is set to use the state budget to fund a new deep sea port project in West Java to handle exports and imports for Indonesia’s manufacturing hub — a plan that has strayed from the initial proposal to have private investors fund the entire project.

Indonesia is currently negotiating with Japan for a loan worth US$2.49 billion for the project, which will be constructed in Patimban, Subang, West Java.

Around $600 million will also be allocated in the state budget for land procurement and road construction around the port, according to the Transportation Ministry.

“We will eventually use the state budget to cover all the funds needed for the project,” the Transportation Ministry’s port and dredging director, Mauritz HM Sibarani, said recently.

Mauritz said that the use of the state budget was intended to make the port fully owned by the government and that private counterparts would just operate the port after it was completed.

The ministry was still awaiting the Japanese decision on the project, as it just recently sent letters to the Japanese government to inform it of the development of the Patimban port project and to discuss the loan offer.

The interest rate on the loan is expected to be 0.25 percent and its term would span 40 years, including a grace period of 10 years. The total cost of the project is estimated to reach $3.09 billion.

Should the funding mechanism be agreed to, it will be the biggest project funded by the Japanese government in Indonesia.

Mauritz said that should the Japanese government approve, the developer of the port was “very likely” to come from Japan.

“We will do a bidding process, but they [Japan] are likely to bring their own workers. There is a big chance that if they give us the loan, they will win the tender,” he said.

The scheme resembles the Jakarta Mass Rapid Transportation (MRT) railway project, which is being financed through a soft loan from the Japan International Cooperation Agency (JICA) amounting to ¥125 billion ($1 billion).

A number of Japanese enterprises grouped under the Metro One Consortium were chosen as the winners of the bidding process for the railway system and track work for the project last year, while a joint operation between Japanese firm Sumitomo Mitsui and state construction firm Hutama Karya was chosen to do a part of the underground work for the project.

According to the ministry, the loan agreement is expected to be signed by the end of 2016, with groundbreaking scheduled for 2017. Ideally, the port will begin its first phase of operations by 2019.

The port will have a container capacity of 250,000 twenty-foot equivalent units (TEUs) in 2019, which will then be expanded to 7.5 million TEUs by 2037.

It will benefit many Japanese manufacturing giants, such as Toyota and Honda, as their factories are located in the Bekasi and Kerawang manufacturing centers, which are located not far from the planned port.

The Patimban port is to be a replacement for the planned Cilamaya port in Karawang, West Java, which was scrapped because of concerns it would affect the expansion of state-run oil and gas firm Pertamina’s nearby offshore operations.

Patimban was selected because it was thought to tick off all the necessary boxes in terms of legal issues, expected demand, low soil sedimentation and thus low dredging maintenance, safety and how it effects Pertamina’s offshore operations.

Mauritz previously stated that the government would look for other investors if the Japanese turn down the offer.

He downplayed the possible impact of not involving Japan in the project, despite the bilateral agreement between the two countries on the Metropolitan Priority Area (MPA) for Investment and Industry, in which the Cilamaya port was one of the flagship projects.