It’s been dubbed the JJJ.
When the Dutch founded Batavia in 1619, they didn’t give much thought to how, four hundred years later, it might cope with 10 million inhabitants. (Greater Jakarta includes 20 million more.) Infrastructure planning didn’t even start well in that it was the communal fountain in Fatahillah Square which gave the earliest colonists cholera. Today, inadequate water supply, both fresh and waste, persists. 40% of the city depends on ground water and excessive extraction of this has led to parts of the city sinking by an astonishing 25 cm / 10” per year. 40% of the city lies below sea level.
On New Year’s Eve, a record 377 mm / 15” of rain fell in a single day; water levels rose 8 m / 26 feet; 67 people died of drowning, hypothermia or electrocution and 400,000 fled their homes. Even Soekarno – Hatta airport closed, its runways 80 cm / 2 feet below the waves.
So Something Must Be Done. President Widodo recognises this. The most radical plan is to move the seat of government to a whole new capital city in Borneo. After all, Australia managed to move its capital in 1911, Brazil in 1960, Kazakhstan in 1998, Malaysia in 1999 and Egypt is trying it right now. It is not a new idea in Indonesia, either: Presidents Sukarno and Soeharto both proposed moving to Palangkaraya in Central Kalimantan back in the 1950s.
This time round, a new site has been selected in East Kalimantan where the government already owns 180,000 hectares / 695 square miles between Balikpapan and Samarinda and where there is some existing infrastructure; it comes with an auspicious name – Bukit Soeharto; a winning design was announced in December – see below – which looks smart, green and Pancasila compliant; and a steering committee of the Great and the Good has been unveiled this week – I get Abu Dhabi Crown prince Mohammed bin Zayed al-Nahyan, even SoftBank Chief Masayoshi Son but Tony Blair? Construction is due to start next year with first arrivals in 2024 – maybe …
Apart from relieving the stress in Jakarta, the plan would bring other benefits such as reducing the wealth imbalance between Java and the rest of the country. But there are several all too obvious obstacles to this ambition: where to find $33 billion? How to persuade up to one million civil servants to relocate to the middle of nowhere? What impact would the new arrivals from Java have on the human inhabitants, flora and fauna of East Kalimantan? And how would this help the poor, non-civil servants who would still be underwater back in Jakarta?
With a huge amount of support, it might just work. But there must be other quicker, cheaper solutions even if none is exactly straightforward. For the moment, I offer some high-level thoughts on the financing challenge.
A feasibility study has not been released; and we do not know how the figure of $33 billion was arrived at but we can be sure that it will increase. The government is hoping to contribute only 19% of the funding costs. This might be possible but the government should be under no illusions that, even if it doesn’t provide all the funding, to begin with and for some time to come it will need to assume all of the risk. In August last year, the provincial governor, Isran Noor, opined that deals should put no burden on the government’s shoulders. I trust that he has since been disabused of that.
This is because a new city of government offices generates no revenues, as I pointed out when advising one of India’s smart cities recently.
Indonesia has long courted Public Private Partnerships in the mistaken belief that the private sector would finance projects which the government or its State-Owned Enterprises wouldn’t. (Remember the Sunda Straits bridge featuring panoramic views of Krakatoa? Thankfully, Jokowi canned it in 2014.) Utilities need sufficient customers to build for / supply to. And the real estate sector will take years to establish a secondary market such that civil servants are prepared to buy residential properties confident that later they can sell, commercial real estate likewise.
Other sources of funds, be they rich friendly sovereigns (such as the UAE and, no doubt, Malaysia), development banks (the ADB, the AIIB), Export Credit Agencies (Japan has long been the biggest investor in Indonesia, China has its Belt & Road Initiative, the US has just rebooted USEXIM / International Development Finance Corp) – all, will ultimately look to the provincial, and very quickly the central, government to assume performance and credit risk until the city can stand on its own two feet in several decades’ time.
So how should the government provide this enormous amount of support? After all, $33 billion would add 11% to 2018 government debt lifting this to 33% of GDP. A while back, I advised the MOF in Indonesia on a mere $10 billion of support for its SOEs, particularly PLN, so it can be done. Essentially, the government’s support needs to be rigourously allocated, address only the risks which the funders won’t and be structured so as to fall away once it is no longer needed so as to be recycled to the next project. Behind that support, however, the government needs to perform (e.g. get the staff to relocate) so that the support does not get cashed in.
On the other hand, less ambitious projects could be quicker and cheaper, for example moving individual government departments to the outskirts of Jakarta and building transport and telecoms links back into town. Then there would be money left over to deal with the inundated residents of northern Jakarta. But, pluviophile or not, that’s for another day.
Here is the winning design:
Indonesia has picked a winning design for its new capital pic.twitter.com/QHPhYoB3Yw
— South China Morning Post (@SCMPNews) December 27, 2019
