Insight: Japan at Risk of Losing the Next Big Thing

January 12, 2016,

Japan, Indonesia’s biggest creditor, may still be struggling to swallow the bitter pill it was handed last year, namely the iniquitous treatment it received that led to its loss against China in a contest to secure Indonesia’s first high-speed rail project.

And now Japan faces the risk of another loss, this time in the race to acquire a port project whose value and importance will make it one of the most hotly contested in the archipelago.

For Japan, a two-strike loss is definitely not an option. The project is considered the next big thing after the Jakarta Mass Rapid Transportation (MRT) railway, which is being financed through US$1 billion in loans from the Japan International Cooperation Agency (JICA).

The pivotal project in question is a new deep-sea port that will replace the scrapped Cilamaya port in the West Java regency of Karawang, one of the country’s largest manufacturing hubs.

With initial investment of more than $1.2 billion for the first phase of construction, the new port will have the capacity to serve 3.75 million 20-foot equivalent units (TEUs) containers, or more than two-thirds the capacity of Indonesia’s largest port, Tanjung Priok in North Jakarta.

The construction of the port is aimed at supporting Tanjung Priok by facilitating the flow of goods to and from industrial estates in regencies east of Jakarta that house automotive, electronics, machinery and IT manufacturers.

Japan was initially thought to have the Cilamaya project locked and secured after the administration of then president Susilo Bambang Yudhoyono commissioned JICA to conduct a feasibility study, with a projected financing scheme similar to that used for the MRT.

However, Vice President Jusuf Kalla axed the project in April, despite having many friends in Japanese high places, notably through certain big cheeses at Toyota Motor Corp. and Mitsubishi Group.

Kalla decided to relocate the project to another area over concerns that the planned port would disrupt the nearby offshore operations of state oil and gas company Pertamina.

The project is to be moved further east to a new site in West Java, presumably still in Karawang or neighboring regency Indramayu. Kalla announced on Dec. 23 that the government had found a new location for the project, but refused to make it public over concerns the information would be misused by land speculators.

Kalla instead sent Transportation Minister Ignasius Jonan to meet the latter’s counterpart in Tokyo in December to announce the new location, as well as the new cooperation scheme, given that Japan remains the preferred partner to develop the port.

Despite canceling the Cilamaya project, Indonesia is still required to fulfill its commitment to Japan to prepare a flagship project under the stipulated Metropolitan Priority Area (MPA) for Investment and Industry bilateral agreement.

However, while things still look pretty well for Japan, some elements within the government have voiced dissenting opinions on Japan as the preferred partner, as well as on the financing scheme.

Recently, there have been growing demands for the project to be financed entirely by private companies without taxpayers’ money or direct overseas government loans, such as those provided by JICA.

If the dissenters were to get their way, the project would have to be offered to interested parties through a bidding process that could commence in the first half of this year, according to several officials.

Showing interest in the project are not only investors from the Netherlands and United Arab Emirates; Japan’s arch rival China is also said to be gearing up for the challenge, including by readying state companies to join the bid.

Should the government opt to take the project to open bidding, the ensuing decision is predicted to be more political than economic.

With the high-speed rail project serving as just the latest example, any large-scale project in Indonesia is inevitably muddied by competing interests and attracts hordes of opportunists, each with their own list of politicians, bureaucrats and businesspeople.

Infighting among Cabinet members over the development of the gas-rich Masela Block, operated by Japan’s Inpex, may serve as a more salient recent example.

With planned investment of more than $14 billion, regulators and Inpex agreed that the country’s largest deepwater gas project should be developed offshore.

However, following advice from several political kingpins, President Joko “Jokowi” Widodo late last year asked various parties to look into bringing the operation onshore with the assumption doing so would benefit local businesspeople despite the inevitable rise in cost of development.

Jokowi pledged last month to make an immediate decision on the Masela operation scheme to prevent further delays.

The Masela fiasco does a good job of highlighting the contempt shown toward fair play and transparency in this country, with stakeholders forced into disgraceful brokering and lobbying and personal and political interests forever triumphing over the good of the nation.

Winning and losing is solely determined by each party’s relations with those close to Jokowi; and China has so far gained the upper hand over other nations when it comes to gaining influence and interest in Indonesia’s elite circles.

It is particularly through Jokowi’s most trusted ally, State-Owned Enterprises Minister Rini Soemarno, that China has reaped the benefits of its power play. Alone among all Cabinet members, Rini has an exceptional place in Jokowi’s tight circle of trusted individuals.

Rini, known as the key figure behind China’s success in winning the high-speed rail project, was recently appointed by Jokowi as a “liaison officer” between Indonesia and China.

The Japanese are less fortunate; their Cabinet “liaison officer” is Sofyan Djalil, who is a member of Kalla’s inner circle, but rarely has the ear of the President.

As signs abound that this administration harbors little affection for Japan, what lengths will the Japanese government go to in order to stop it falling out of favor entirely? – See more at:

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