Boston, MA -- (ReleaseWire) -- 06/10/2014 -- We expect growth in Indonesia's construction and infrastructure sector to continue to slow down in 2014 and underperform growth seen in 2012 and 2013. This quarter, we have revised down our near-term forecasts for Indonesia's construction sector due to the growing possibility for a significant change in political leadership in Indonesia and the lack of policy certainty that comes with this change. We are forecasting construction growth in 2014 to reach 5.9%, down from our previous forecast of 6.3%. Our bearish near-term outlook can also be attributed to the limited scope for government capital spending to increase, higher borrowing costs, declining purchasing power for companies, and bottlenecks in project execution.
The key factors that will facilitate growth are:
- In February 2014, Hyundai E&C signed a memorandum of understanding with Russia's RZDstroy to participate in a USD1.6bn project to build a 192km railway line from a coal mine in the Kalimantan region to the eastern coast of Kalimantan. RZDstroy has already received a licence for the project from the regional government and will partner with Hyundai E&C to carry out construction of the project. An actual construction agreement for the project is planned for 2015, following the design phase planned for 2014, according to a Hyundai representative.
- In April 2014, the local government of North Sumatra disclosed that several investors from China and Saudi Arabia expressed interest in participating in the tender to build the Kuala Namu-Tebing Tinggi toll road. The road will link Kuala Namu International Airport to the city of Tebing Tinggi, about 30km from North Sumatra's capital city of Medan. The new toll road is expected to relive infrastructural troubles and benefit 21,000 daily passengers that travel to the airport. The tender is likely to open in mid-April. Earlier, the construction of the road had been postponed due to land acquisition issues. The local government has not yet disclosed whether these land acquisition concerns still form a bottleneck to the project.
- In April 2014, Indonesian state utility Perusahaan Listrik Negara (PLN) stated that it will partner with 30 Japanese investors to build power plants equipped with ultra supercritical coal (USC) technology. The aim is to reduce coal consumption. The Indonesia-Japan Joint Crediting Mechanism (JCM) will comprise large firms such as Mitsubishi, Shimizu, Yokogawa, Mitsui and Kyushu Electric. The firm expects to launch a tender for construction of the USC plants in 2014, with construction expected to start in 2015, reports kompas.com. The plants will be built in Sumatra, Sulawesi, Java and Kalimantsan, with commercial operations planned for 2019.
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