Pressure Cooker October 2015 Final Report

Transcription

1 The development of The Jakarta Port Concept Pressure Cooker October 2015 Final Report

2 Colophon This report was prepared by Witteveen+Bos and RoyalHaskoningDHV. The authors would like to express their gratitude to DKI BAPPEDA, PT Jakarta Property Indo and PT Pembangunan Jaya for their support, as well as the Royal Netherlands Embassy and The Netherlands Enterprise Agency. We would like to thank all participants for their in-kind contribution during the week. A special thanks to YannPleindoux(Rebel Group) for his work on the business case. We thank Sam Kapper(intern) for the work on the cost estimates and GIS files. Also a special thanks to Chris Jones of KuiperCompagnonsfor the illustrations.

3 Introduction to the Pressure Cooker Week Currently, under the coordination of DKI Jakarta, three reclamation islands east of Tanjung Priokport (so-called O,P&Q islands) are planned and designed. The islands will contain a mixed use of port, industries, logistics and residential areas. The governor of Jakarta, MrBasukiTjahajaPurnama, requested the Netherlands to support Jakarta in accelerated development of these islands On 18 August 2015 an Indonesian-Netherlands Round Table meeting was held and first set of recommendations were provided The Netherlands Top Sector Water offered additional support to DKI Jakarta for elaboration of the plans. From 26 October until 30 October 2015, a so-called Pressure Cooker week was held a the City Hall of Jakarta aimed at elaborating ideas on the development of these islands This report aims to provide the main conclusions from this pressure cooker

4 The Pressure Cooker Approach Indonesian and Netherlands experts jointly developed a plan and an outline of a business case within one week The pressure cooker contained a mix of plenary meetings and working groups A field visit to the project area was also included At the end of the week, the tentative results were presented to Governor Basuki Tjahaja Purnama ( Ahok ) and Ambassador Rob Swartbol of The Netherlands The week in keywords Monday Understanding the project Tuesday Shortlist with scenarios Wednesday Outline business case for preferred scenario Thursday Preferred scenario elaborated Friday The report presented

5 The main stakeholders The partners DKI Jakarta PT Jakpro PT Pelindo II PT. Pembanguan Jaya KBN Merunda Bekasi province Coordinating Ministry of Economic Affairs Ministry of Marine Affairs and Fisheries RoyalHaskoningDHV (lead partner) Witteveen+Bos (lead partner) Rebel Group PT BITA Enarcon(Indonesia) KuiperCompagnons BAM Van Oord Boskalis Arcadis Rabobank Asia Value Partners Strukton Deltares Royal Netherlands Embassy Netherlands Ministry of Infrastructure and Environment Netherlands Enterprise Agency

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7 II The Jakarta Port Concept explained

8 Visit Governor Ahok to Rotterdam. Lessons Learned: Successful international ports integrate port side development with industrial hinterland developments and connect them Applied in Jakarta: Fully integrate the development of the islands O, P and Q with the development of Tanjung PriokPort and adjacent coastal zone Thus: the Jakarta Port Concept

9 The Port of Jakarta Concept in keywords Fully integrated port-industry developmentof the TanjungPriokport area, the O,P&Q islands and adjacent coastal zone (KBN) Synchronized design and planning of the whole port-industial zone One development authority to ensure efficient management and fast implementation Excellent connections(multi-modal) both internally and to hinterland Diversity in development by adding new industries (petrochemical, processing) Creating added valueby relocating industries from residential areas and developing public facilities (power generation, waste processing)

10 Added value of the Port of Jakarta Concept Excellent location for integrated concept:direct access to sea and main shipping lanes, good access to hinterland industries and large consumer markets Concept creates new opportunities: with quays for dry and liquid bulk, together with the development of islands, new types of industries can be attracted Benefits for investors: one authority, connections between port and industrial areas The development of dry and liquid bulk quays will complement the development of Kalibaru container port and create new dynamics in the port area of Jakarta. Why not a stand-alone development of O, P&Q? Stand-alone development of O,P&Q lacks benefits of synergy:no shared services, no jointly developed infrastructure, port related investors have to negotiate with separate entities, etc. Limited diversity in development:kalibaruis mainly container terminal, limiting the variety of industries on O,P&Q (no petrochemical, no large processing industries) Preconditions Close cooperation, good synchronization of plans and excellent connections are pre-conditions: The Port of Jakarta Concept

11 Economic and commercial aspects of Port of Jakarta Concept Major macro-economic benefits:port of Jakarta is a boost to the economic development of Jakarta. This development fits into the national maritime strategy However, commercially not fully feasible: industrial development does not create enough revenues to match the high cost of land reclamations. Support from public funds upfront is required to kick-start development How to close the financial gap? Attract high-end and added-value industries: Ensure excellent, direct connections to both sea and hinterland Facilitate investors (one authority) Create financial sweeteners Focus on commercial land use only: limit the green and other non-commercial zones But.. upfront investment by the government will still be required See also Chapter V (business cases)

12 Justifying public spending Upfront government funding is only meaningful (feasible) when sufficient socio-economic added value is created, by Creating jobs and spin-off industries Adding additional added value, like relocation of industries from residential areas (land swaps) Recommendation Thus onlyallow industries which are labor intensiveor create sufficient downstream spin-off to make upfront government funding possible.

13 III Spatial aspects of the Jakarta Port Concept

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15 Existing conditions are different from RTRW Jetty/Pipe rack from Marunda center Navy Port requires good connection to sea KBN development extending from mainland SEZ Marunda(or KEK Marunda) Water intake canal for power plant at Muara Tawar Existing conditions require adjustment of O,P&Q layouts Pipe rack & jetty Cooling water intake N1-reclamation Port extension Conclusions 1. Stakeholders have master plans overlapping in area of islands O, P and Q 2. These plans differs from RTRW and are not integrated (yet). Fishing ports Navy Outflow East Banjir Canal

16 Existing concessions 17 islands in RTRW

17 Development of Marunda Center overlaps with O,P&Q

18 NCICD: Waduk East is potential needed in 25 years If subsidence in East Jakarta is not stopped, rivers will stop flowing and large offshore retention lake is necessary to keep Jakarta safe

19 IV Scenarios evaluated in the Pressure Cooker

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21 Two main scenarios were evaluated in Pressure Cooker Week: 1. RTRW compliant-focus on O, P & Q Complimentary to Kalibaru but no new port development on islands Distribution/logistics and industry 2016: start construction of islands O and P including eastern access road. 2. The Jakarta Port Concept High-end, port-depended industry + terminals on O, P Joint Jakarta Port Development Company 2016: combined construction of island O and new port quay including eastern access road New quay: dry bulk & liquid bulk. Is directly related to industries on island O. No containers on new quay to avoid competition with Kalibaru

22 The scenarios visualized Scenario 1 has two options: 30% green area and 5% green area

23 Scenario 1a: according to RTRW Explanation Comply with RTRW Maintain OPQ shape and location Facilitate eastern access to N1 No port activities on islands Program: Public functions: 60% 30% green 10% social housing 5% surface water 15% infra Leasable land: 40% 35% industry 2,5% mid level housing 2,5% offices

24 Scenario 1b: Optimized scenario Explanation Scenario 1a as basis Land swap Program: Public functions: 30% 0% green (mitigate and to be realized in North Jakarta) 10% social housing 5% surface water 15% infra Leasable land: 70% 65% industry 5% offices

25 Scenario 2: The Port of Jakarta Concept Explanation Port related and port depended activities Anticipate long term developments of outer seawall and further port development Phased implementation Phase 1: new quay and O development Phase 2: further expansion of port and islands driven by market demands, in parallel Program: Public functions: 10% 0% green (mitigate in North Jakarta) 0% onshore 10% surface water + infra Leasable land: 90% 37,5% port 37,5% supporting industry 7,5% mid-level housing 7,5% offices

26 Scenario 2. Design Phasing steps

27 Scenario 2. Design Programming

28 Scenario 2. Design Connectivity

29 Design of borders eastern waduk(closure if needed)

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31 V Results from the Business Case

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33 Business case: Starting points & Assumptions Key figures used are based on high level estimates only The Financial Business Case is mainly intended to give a global view on viability/expected returns Input assumptions are compiled from various sources, such as individual expertise and experience of participants, previous studies and publicly available information The Financial Business Case is not taking into account external economic benefits = objective is to evaluate viability under alternatives scenarios, purely from a financial standpoint The Financial Business Case covers the 3 islands (consolidated)

34 Core principle of the Financial Business Case III. Macro Level Public Stakeholders Economic IRR? IRR Developer II. Consolidated O+P+Q I. Individual BuCa Industries / (Future) Tenants ROI? What are the socioeconomic benefits? O =IRR P =IRR Financiers/ Sponsors ROE Business Case of O,P,Q that is : Commercially viable Financially bankable

35 Key assumptions in the Financial model Good connections and well developed locations lead to higher lease and land sales prices Costs of development of reclaimed land ranges from 360 USD/m2 (base) to 600 USD m2 (for port reclamation land), all inclusive (land, sea-defense, infra&utilities) Inflation = 5% p.a. Cost of Financing = WACC of 12% (weighted avg. cost of capital) mix of debt/equity Land Prices (Sale USD/m2 Or Lease USD/m2/month) Threshold for commercially viable projects is 15% Return on Investments (IRR) Value (Sale) Lease Price Housing (low) $88 $1.3 Housing (mid) $882 $13.2 Offices (high) $2,500 $37.5 Industry $280 $4.2 Port Related * $500 $7.5* * Capturing additional from port traffic, reflected in the yield per m2

36 Observations = Scenario 1a + 1b (no government funding) Both scenarios similar in investment costs But different outcome: in terms of land use (30% versus 5% green) and revenue generation in terms of potential macro-economic impact Scenario 1b yields 65% more revenue, together with higher value economic spin-offs Scenario 1a Scenario 1b Project IRR (Return)** 10.8% 14% Average Revenue/m2 69 USD/y* 71 USD/y* * Unindexed ** Threshold for commercially viable projects is 15% Return on Investments (IRR)

37 Observations Scenario 2 versus Scenario 1 (no govt funding) Scenario 2 is different technical solution = different cost Scenario 2 has substantially higher land size, but at an average revenue of 159 USD/sqm Difference in Project IRR: Scenario 1a = 11% Scenario 1b = 14% Scenario 2 = 14% Scenario 1a+b Scenario 2 Total Investment 4,6 Bln USD 9,85 Bln in IDR 62 Trnl IDR* 134 Trln IRD* *1 USD = 13,600 ISD

38 Suggested contribution by Government Public Supportis essentialfor kick-starting the project, in form of Cash Support to improve viability Institutional and Political Support to drive implementation Government support is commonin this type of large, complex projects worldwide, which needs the coordination of multiple stakeholders Government creates momentumby taking the initial risk and creating an initial demand, which can drive the future value and demand This will be reflected in lower Risk Premium, translated into higher value Illustration of impact of governmental funding Assuming 1 BlnUSD cash contribution to initiate the project, under Scenario 1b and 2, project can meet a hurdle rate of 15% IRR Scenario 1a Scenario 1b Scenario 2 Project IRR no govt funding 11% 14% 14% Incl 1 Bln USD upfront govt subsidy 11% 15% 16% Difference - +1% +2%

39 Conclusions from Business Case Scenario 1a fit in regulatory requirements (RTRW-30% green), but makes the project financially constrained (lower revenue potential) Scenario 1b (optimized for industry-5% green) significantly increases the prospective return; regulatory requirements (RTRW) can be met via alternative mechanisms (land swap) Scenario 2 is a very different in nature and size of investment, but combines a higher potential returns and fits into the broader strategy of developing a maritime hub Macro-Economic benefits can be multiplied significantly ( in nature as well as in monetary value), mainly through scenario 2

40 Example socio-economic benefits: Port of Rotterdam -MaasvlakteII Future Proof design bigger ships demand driven design National economical spin off Final Phase(2035): ha new jobs ± 3.5 Bnannualextra revenues

41 Example socio-economic benefits: Hong Kong Master plan 2020 Expansion 8 MioTEU in 2020 (Kalibaru= 12 MioTEU) Added economic value: 11 billion USD new jobs

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43 Recommendations for accelerated development Draft MoU with relevant stakeholders for developing integrated masterplan Jakarta port + islands Prepare a development company for the Jakarta port concept with IPC/Pelindo II, DKI/Jakpro and Port of Rotterdam Use funding support of relevant stakeholders to kick start project in 2016 Start in 2016 with detail design + construction of island O and eastern access road from Kalibaruvia island O and P to mainland Extensive connections to hinterland are needed