STUDY ON ECONOMIC PARTNERSHIP PROJECTS IN DEVELOPING COUNTRIES IN FY2011

STUDY ON THE LARGE-SCALE BRIDGE OVER THE STRAIT OF SUNDA AND ITS SURROUNDING COMMUNITY DEVELOPMENT IN THE REPUBLIC OF

SUMMARY

February 2012

Prepared for: The Ministry of Economy, Trade and Industry

Prepared by: 第1章 JGC CORPORATION 第2章 Value Planning International, Inc. 第3章 ORIENTAL CONSULTANTS CO.,LTD. 第4章 NIPPON KOEI CO.,LTD. NIPPON STEEL CORPORATION (1) Background and Necessity of Project In recent years, Indonesia has had high economic growth at around 6%, with concentration of the economy in the area, regional imbalance of energy resources and increasing economic disparity between the capital region and rural areas becoming issues. In order to achieve further economic growth in the future, it has become more important to use latent potential within the country and make economic linkages between wider economic regions based on the Indonesia Economic Development Corridors (IEDC) plan and Master Plan of Acceleration and Expansion of Indonesia Economic Development (MP3EI).

The IEDC plan in Indonesia was arranged with support from the Japanese government, and it has been decided to proceed with the construction of the Bridge from the Domestic Connectivity menu of the IEDC. Therefore cooperation and participation in this project is consistent with the topics of political discussions between Japanese and Indonesian governments up to this point, and continuing support is not only highly valuable, but also has the chance of providing Japanese businesses with meaningful and significant business opportunities.

The roads around the industrial areas in Merak and , where many Japanese businesses operate, are in poor condition due to heat, torrential rains, heavy vehicle traffic and poor maintenance, with frequent traffic jams. For Merak harbour, it has become common for freight trucks to have to wait several days, making improving area infrastructure an urgent issue. Once this project is completed, it will not only contribute to the growth of existing Japanese businesses currently plagued by unreliable logistics, but will also encourage new Japanese businesses to expand to areas on both islands around the bridge.

Considering the situation, the importance of the to connect and has been pointed out for some time and with the announcement of Pre-feasibility study results in 2009 by and provinces which are located on each coast, organizations have been created in the central government to work towards beginning construction.

With the cost of bridge construction and related projects said to require investment of a massive sum of upwards of 2 trillion yen, the cost is not something that can be covered by the Indonesian government and local corporations, so participation by multiple governments and private companies is a prerequisite. Currently Chinese companies are showing significant interest in this project, and are aggressively approaching to the Indonesian side, making it urgent that Japanese businesses and government start appealing their case as well. Also, due to the difficulty of recovering investment costs from bridge tolls alone, it has been suggested that the project should be carried out strategically by including regional development in the area.

(2) Studies Necessary to Determine Project Specifics It is not realistic to payback construction cost by only toll fee according to the sample of Honshu-Shikoku bridges. The government support for construction cost and combination of EX-1 surrounding area development are necessary. The item for future study to realize the bridge plan are shown as follows .・Significant decrease in the cost of bridge construction ・Government support loan for bridge construction ・To reduce the interest rates of loan for the bridge construction ・Using profits from local development projects to supplement payments for bridge construction costs

(3) Project Overview 1) Related projects After examining what kind of project would play to Japan’s strengths, while keeping in mind a progressive construction timeline, projects that create benefits in the short-term will also be considered in order to help appeal to Indonesia (for instance, a short-term project to improve road and port infrastructure (larger, faster ferries) in industrial areas as a prelude to the long-term goal of building the bridge).

The projects selected in this study based on local studies and surveys of related institutions are listed below.

Table 1: Planned projects list Project Current PJ Goal & Uses Target entities Referre Plan (local) d in

SSB SSB (*) BSM carried Joint development to join Lampung -BAPPENAS 3.2 out preliminary and Banten. -Economic study. Coordination Bridge Minister Office -BAPPEDA in Banten and Lampung -Public Project Ministry Port Current Since the current facilities are over 3.3 (2) Revamping (*) capacity is capacity, it is vital to improve the mostly full current port before the bridge is

Port with freight finished. trucks. There is a plan for a 5th berth, but the site is an issue. Lampung New Port (*) None When building the bridge, jetties -BAPPEDA in 3.3.2 will be necessary for aquatic Lampung (2) Port transportation, and creation of a -Local new port is necessary along with Traffic/Traffic turning the fabrication area into an Planning Bureau industrial area. -DGST EX-2

Project Current PJ Goal & Uses Target entities Referre Plan (local) d in

Road Available There is a project for a toll road -BAPPEDA in 3.4 (Provincial (Bakauheni – Lampung). Lampung expansion Maintenance of all roads, not just -Road Bureau of Road/ Rail project exists) the toll roads, is necessary, and it is Public Project important to create a repair plan Ministry considering life cycle cost. -DGLT Rail Available There are projects for creating -BAPPEDA in 3.4 (Provincial more lines and passenger lines. Lampung expansion Maintenance is necessary for use -DGR project exists) as a long-range freight system. Industrial Some exist, but As part of a provincial project, -BAPPEDA in - Township factories are maintenance of industrial areas Lampung scattered, and exists. This project will develop local industrial areas and the infrastructure surrounding area as industrial such as power, townships water and roads is weak * Provincial project exists Industrial City, None When building the bridge, areas for -BAPPEDA in 3.5.4 (Fabrication fabrication and storage will be Lampung necessary, and a main base will be Regional development area) (*) made on the Lampung side. Progressive development as an industrial area will also be carried out. O&M Center None For operating and maintaining the -BAPPEDA in 3.5.4.4 bridge, continual monitoring and Lampung maintaining the state of the bridge is necessary, and creating an O&M center near the bridge is vital. Airport Airport with The provincial project involves -BAPPEDA in - (Lampung) domestic turning it into an international Lampung connections airport. available * Provincial project exists Airport city None In addition to adding international -BAPPEDA in 3.5.5 routes to the Lampung Airport, Lampung developing the area around the airport into a city is necessary to encourage airport demand for both people and goods. Electricity Available In addition to existing power -BAPPEDA in 3.6 (Provincial generation, there is a project for Lampung expansion geothermal energy. Considering -PLN

Energy Energy project exists) the future large increase in demand for power, creating more efficient power facilities and power network is necessary. For efficient use of resources, geothermal and low-grade coal power in particular should be emphasized.

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Project Current PJ Goal & Uses Target entities Referre Plan (local) d in

Logistics Base None There is a provincial project to use -BAPPEDA in - (Provincial Terbanggi Basar as a logistics hub. Lampung project exists) When positioning it, there is a need to consider the surrounding infrastructure (road, rail, airports) and production centers.

Other Water for SSB None Since water will be necessary for -BAPPEDA in - (Desalination) construction of the SSB, facilities Lampung will be made by RO and will be used to provide industrial areas in the future. Water Supply Available With water supply being vital for -BAPPEDA in - (River industrial areas in Lampung, Lampung available for having a water source for each area industrial uses) is important.

Banten Road Available Maintenance is necessary for all -BAPPEDA in 3.4 (Provincial roads, not just the toll roads, and it Banten expansion is important to create a repair plan -Road Bureau of

Road/ Rail project exists) considering life cycle cost. Public Project Ministry -DGLT Rail Available There are projects for creating -BAPPEDA in 3.4 (Provincial more lines and passenger lines. Banten expansion Maintenance is necessary for use project exists) as a long-range freight system. -DGR

Industrial Available There are industrial areas in -BAPPEDA in - Complex and near . Banten However, they haven’t been integrated as complexes (utilities, -Krakatoa lending materials), and they are

Regional development also behind the curve on reduced energy methods. For continual future growth, they should be remade as complexes to operate at maximum efficiency. SMART City / None As part of Jakarta growing as a -BAPPEDA in - Eco. City metropolitan city, a new city plan Banten that is greener and has reduced energy use is vital.

Water front None There is a provincial project, but as -BAPPEDA in - city, Sports * Provincial mentioned above it should be Banten project exists developed as an environmentally city, Maja city that conserves energy.

Water Available With water supply being vital for -BAPPEDA in - Other (River industrial areas, having a water Banten available for source for each area is important. industrial uses)

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Project Current PJ Goal & Uses Target entities Referre Plan (local) d in

Agriculture Available Development of agriculture and -BAPPEDA in - (Existing food industries is vital not only as Banten agriculture) the background supporting Jakarta, but also to shift from high-energy to low-energy production. Food Industries None -

Tourism Around Anyer, Tourism development taking -BAPPEDA in - there are advantage not just of Anyer, but Banten several hotels also proximity to Jakarta is on international necessary. lines Tourist Village As part of tourism development, -BAPPEDA in - complex development as townships Banten with consideration for regional characteristics is necessary.

New Airport None (Project The necessity of a new airport must -BAPPEDA in - exists) be studied along with tourism Banten development.

(*)Project whose costs are roughly estimated Source: Study Team

2) Bridge Specification and cost A survey has not yet been performed for the ground in the strait area. As a result, it is currently impossible to provide an estimate of bridge specifications and cost. Therefore, based on experience gained from the Akashi Strait Bridge, the base case, optimistic case and pessimistic case shown below are set for this survey.

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Table 2：Bridge Specifications Base case Case-1 Case-2 (Optimistic Case) (Pessimistic Case) Total distance 25km 25km 25km Central span 2,500m 2,500m 2,500m Number of suspension 2 2 3 bridges Suspension bridges 10km 10km 15km (km) Marine approach (km) 15km 15km 10km Water depth 70m 70m 70m Notes Slide of Akashi Strait Reduce cost for Addition of one Bridge suspension bridge suspension bridge in portion area where seabed is weak Source: Study Team Based on experience gained from the Akashi Strait Bridge, costs for the base case, optimistic case and pessimistic case are set as shown in Table 3. Table 3： Bridge project cost Base case Case-1 Case-2 (Optimistic case) (Pessimistic case) Construction cost 2 trillion yen 1.5 trillion yen 2.5 trillion yen Maintenance cost 1st year： 0.04% 2nd year： 0.08% 3rd year： 0.12% … 50th year： 2.00% *The ratio listed above will be applied to construction cost each year (increase of 0.04% per year) Notes Slide of Akashi Strait Reduce cost for Addition of one Bridge suspension bridge suspension bridge in portion area where seabed is weak Source: Study Team

3) Overall development projects in surrounding areas Some reginal development projects of areas surrounding the Sunda Strait Brdige are picked up in this Report and reviewed in Table 1. Among these projects, the focus is placed on the following four projects from the viewpoints of the strength of Japanese companies, stepwise development accoridng to the timeline, and short-term contribution: (i) Port rennovation project (in Banten and Lampung） 35 billion yen (ii) New port development project（in Lampung） 13.4 billion yen (iii) Factory complex development with bridge construction（in Lampung） 8 billion yen (iv) Airport rennovation project（in Lampung） 12 billion yen EX-6

4) Financial and Economic evaluation Economic internal rate of return (EIRR) was used to conduct economic analysis for the bridge itself and will be estimated by the utilization of the input-output table.

The final demand will be determined based on the Sunda Strait Bridge construction cost, regional development cost, industrial park construction cost, and geothermal development cost. The induced production value will also be estimated by the utilization of the input-output table. (The Sunda Bridge’s construction cost of 2 trillion Japanese yen will be used for the current estimates, according to the base case cost estimation of the study.)

After considering the province’s GRDP per capita and the sector ratio, as the regional characteristics, production inducement cost amounted to the figures shown in Table 4. The ratio of the total effect (direct effect + primary effect + secondary effect) from the direct investment will be 1.69.

Table 4 Production Inducement Costs (billion yen)

Sunda Strait bridge Effect construction cost

Direct effect 2,000

Primary effect 765

Secondary effect 610

Total effect 3,375

Source: Study Team

The number of new jobs created from the bridge investment (2 trillion yen) will be 238,894 people as gleaned from the direct effect. The sum of direct and primary effects will be equivalent to 486,447 people, while the overall effect (direct effect + primary effect + secondary effect) will be 809,164 people.

Financial internal rate of return (FIRR) was used to conduct financial analysis for the bridge itself. The calculation results are shown in Table 5. Toll fees are set in 1,000 yen and 3,000 yen, and the ratios of assistance funds to the initial investment (the amount of assistance funds divided by the total investment) are set in four cases. The assistance fund ratio of 0% is the case in which there are no public subsidiaries and income from the development right. As for other assistance fund ratios (25%/50%/75%), public subsidiaries and income from the development right are expected in the amount equal to 25%, 50%, or 75% of the total investment.

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Table 5 Results for financial analysis of bridge Analysis Case-0 Case-1 Case-2 Toll fee Supportive (Base case) (Optimistic case) (Pessimistic case) capital ratio 1,000 yen 0% -2.24% (-) -1.41% (-) ― 25% -1.87% (-) -0.86% (-) ― 50% -1.20% (-) 0.10% (-) ― 75% 0.48% (-4.60%) 1.97% (2.48%) ― 3,000 yen 0% 1.20% (0.50%) 2.15% (2.83%) 0.53%(-7.34%) 25% 2.00% (2.52%) 3.10% (4.59%) 1.22% (0.60%) 50% 3.34% (5.04%) 4.57% (7.29%) 2.41% (3.33%) 75% 6.08% (10.05%) 7.63% (12.71%) 4.92% (8.00%) * Value: Project IRR by DCF (Equity IRR). Source: Study Team

As shown by the results, even when assuming a cutoff rate of 5%, this project is only financially feasible in Case0-3000-75、Case1-3000-75. Even for the investment amount shown in Case1, support capital of 50% or more is required for a toll fare of 3,000 yen.

Based on the above results, the following items must be reviewed in order to increase the feasibility of the Sunda Strait Bridge. ・ Significant reduction in bridge construction costs. ・ A gratuitous loan from the government for bridge construction costs. ・ Restricted interest on interest-bearing support for bridge construction costs. ・ Apply profit from development in surrounding areas to repayment of bridge construction costs.

5) Environmental aspects The related authorities and/or project operators shall implement the following tasks and duties promptly to realize the projects: ・Survey and investigation required for plan and design of projects’ plants and facilities such as route and site, soil investigation, sea water depth, sea conditions, etc. ・To implement feasibility studies, FEEDs, etc. to determine the project operators. ・Finalization of SEA and/or EIA by governments or project petitioners or operators to obtain SEA and/or EIA approvals from Central and/or regional governments. ・ Preparation of LARAPs to start land acquisition for the projects if required ・ Start of negotiation about fisheries compensations, etc. with fishermen and persons affected by the projects

(4) Planed Project Schedule In this project, stepwise development is suggested, assuming the timeline of surrounding

EX-8 development plans, based on the project schedule of the bridge.

It takes a long time to construct a bridge. In the case of Akashi Bridge, which is one of the largest bridges in the world, it took 11 years. In the case of Sunda Strait Bridge , it is difficult to estimate the construction period, because we have not conducted the assessments of ground and tidal currents, etc. for design and construction. In this survey, we referred to the case of Akashi Bridge.

As for the surrounding development plan, the first step is to improve the ports between Merak and Bakauheni, which are essential for bridge construction. The second step is to develop airport cities and industrial complexes along with the construction of the bridge, and improve transport infrastructure. The third step is to develop energy resources like geothermal energy, etc. as energy infrastructure.

The following shows the provisional schedules of individual projects related to the construction of Sunda Strait Bridge and surrounding area development.

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Figure 1: Project schedule 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Step 1 Step 2 Step 3 Step 4 Bridge F/S *1 Design Civil work Tower Cable Installation Operation Area development Port Industrial area*2 Airport *3 Road/Rail Energy City development : construction : operation *1 Feasibility study by initiators (including soil survey, etc.) and Basic architecture *2 Developing industrial city based on temporally construction area. *3 Renovation of Lampung Airport Source: Study Team

(5) Feasibility regarding application/implementation for international yen loan According to Presidential Regulation (No. 86/2011), a preliminary survey regarding construction of the Sunda Strait Bridge is scheduled to be initiated by a consortium composed mainly of provincial corporations from Banten Province and Lampung Province. We envision implementation through a PPP (Public-Private Partnership). Regarding the form of the PPP, it was expected that the survey, construction and securing of capital funds will be led by the private sector. The planned role of the government was limited to supervising implementation and providing the minimum required amount of capital.

However, as shown by the results of financial evaluation conducted for this survey, the project will EX-10 not be feasible unless there are significant reductions in construction costs, restricted interest on loans, and publicly provided capital support. Even as a PPP led by the private sector, this project requires large-scale public support. The preliminary survey for the bridge and development in surround areas is scheduled to be implemented by the consortium and completed by 2014. It is necessary to wait for the results of this preliminary survey and conduct careful debate regarding an international yen loan from Japan.

Furthermore, in addition to construction of the Sunda Strait Bridge, this project includes proposals for nearly 30 items for regional development. A PPP scheme is not conventionally used for some of these items, such as renovation of the port, and an international yen loan can be considered as one method of capital procurement. Conversely, basic infrastructure (access roads, water, sewage, electricity, etc.) for the construction of an industrial park will be conducted through development planning and capital procurement by the central and municipal governments. Even so, it is possible that the actual construction of the industrial park will be led by private corporations and there is sufficient possibility of a PPP. The possibility of capital procurement for proposed items will depend on the result of F/S by the initiator.

(6) Technical Advantages of Japanese Companies 1) Bridges Japanese firms’ advantages regarding bridges are significant. Through a large number of large bridge projects, including the one for Akashi Strait Bridge, the world’s longest suspension bridge, Japanese firms have the cutting-edge advanced bridge technologies for the planning, analysis, designing, materials, construction, and management of cable-stayed and suspension bridges. Accordingly, the potential of Japanese firms is considered high.

The materials that could be supplied from Japan are lightweight, high-strength steel cables (for suspension bridges) and steel plates for bridges, which are produced with the Japanese latest technology. The construction technologies for shortening a construction period include the base part construction using caissons, antiwashout concrete, and the underwater placement method; prefab towers, cable installation, and coating techniques. Japanese firms also have the environmentally-friendly design, aseismic measures, and lifecycle-conscious operation and maintenance, including the system for preventing the corrosion of the inner parts of cables, girders, and towers using dry air.

As for the activities of other countries, China, South Korea, Italy, France, and Denmark, etc. are approaching the Indonesian government. In this circumstance, in order to use our technical advantages, it is necessary for the public and private sectors to collaboratively appeal to the Indonesian government and enlist continuous support from them such as the host by the Japanese government of seminars selling Japan’s high-quality bridge construction technologies.

2) Port EX-11

Technical advantages to the Japanese companies may be as follows: a) New port The targets of the project are regular port facilities. In previous projects, it was common for Japanese companies, as well as Western consultants and construction companies, to be included. Recently, however, with the enhancement of the competency of local companies in Indonesia, renovation can be completed by local consultants and construction companies. Therefore, it seems that Japanese companies are not so advantageous in terms of technologies.

Port construction work does not require special equipment or materials, and all the materials can be procured locally. With this, almost no merits can be obtained if materials are supplied from Japan with transportation costs.

If a new port is constructed at once as part of tentative facilities during the extended construction work going with the construction of the bridge, there are a lot of merits. Particularly, it is possible that Japanese companies can maximize knowhow on tentative yards for the construction of long-span bridges, the area of thier specialty.

With this, it is important to for the public and private sectors in Japan to collaboratively appeal to the Indonesian government and to sell their technical strength in the construction of a bridge itself and their advantage in tentative yards, as well as the scheme to convert tentative facilities into a factory complex upon the completion of the construction of the bridge.

b) Ferres From the fact that the majority of commercial ferries in service between Meark and Bakauheni are second-hand Ro-Ro ships made in Japan, it can be considered that Japan has advantage in the deployment of commercial ships.

Indonesia seems to continue to eye not new ships but cheap, second-hand ships. However, there is possibility that the introduction of second-hand ships will pose problems to the effective handling of traffic demands until the completion of the bridge because there is gap between second-hand ships in their sizes, capacity of loading cars, performance including navigation speeds, and ship conditions. New ships are more desirable because their performance conditions are homogenous. With this, as major equipment supplied from Japan, Japan-made ships with advanced energy-saving technology can be considered.

For the supply of new Japanese ships reflecting our high-level shipbuilding technology, the use of the grant aid scheme is considered to be realistic. This system, however, cannot be used for Indonesia because it has already become unqualified as target nations of regular grant aids. As mentioned in Chapter 3, Indonesian government officials pay attention only to the positive side of the bridge construction and seem to be unaware of the negative byproducts, such as problem that if EX-12 appropriate measures are not be introduced, local ferry services, which compete with the bridge service, will face danger of bankruptcy, not to mention that development investment until the completion of the bridge will go to waste.

From this, it can be recommended that the public and private sector in Japan will cooperate to appeal to the Indonesian government and to sell Japanese technologies by incorporating the following three points into the bridge construction package: i) the supply of new ships, ii) surveys on the development of the networks of long-distance ferries after the completion of the bridge, and iii) operational cooperation built on Japanese companies’ expertise and knowhow on the operations of long-distance ferries.

3) Road & Railway In the road and railway sector, Japan is not so advantageous in terms of technology because the planning, architecture, and construction of roads and rails are also possible in Indonesia. Japan, however, can boast the high reliability of its roads featuring the state-of-the-art anti-seismic technology, knowhow on operational and maintenance management for the minimization of life-cycle costs, and safety equipment such as ATS (the automatic train stop system). Also, Japan can offer support in terms of advanced technology, such as ITS (Intelligent Transport Systems), as well as the development of commercial areas, such as highway rest areas, and urban development near railways.

With the introduction of the ETC（electronic toll collection）system, the supply of ETC-related equipment is expected. As for railways, with the introduction of the ATS, the supply of equipment and materials combined with signal and communication facilities is expected.

ATS- and ETC-related facilities manufactured by Japanese companies have advantages in terms of safety and performance. Overseas companies, on the contrary, are more competitive in terms of prices. For the enhancement of possibility of Japanese companies’ winning of orders, it is necessary not only to constantly sell high-level technical competence of Japanese companies but also to promote the trainings of Indonesian personnel in charge of maintenance and management through technical cooperation, etc. so that they will prioritize safety, as well as cost-effectiveness. Also, Indonesian personnel should be informed that ATS- and ETC-related equipment can be effective only with appropriate maintenance work. With this, it is recommended that the package shall include maintenance work, as well as initial investment.

4) Regional development a) Development of Urban City and industrial city Japan’s advantages regarding regional development and industrial complexes are element technologies of sensors, batteries, information systems, and optimum designs for the development of advanced cities, such as SMART cities, eco cities, and airport cities.

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For planning and designing stages, Japanese firms have the know-how to design and optimize integrated cities, such as SMART, eco, and airport cities, the technologies to dynamically simulate and optimize distribution, and the know-how to minimize lifecycle costs considering operation and management technologies. For industrial complexes, Japanese firms have the know-how to design and optimize cities where industrial and residential areas are integrated, the technologies for advanced control and optimal design with information systems, the know-how to optimize industrial complexes (including utilities and materials) based on the energy-saving technology, the technologies to dynamically simulate and optimize distribution, the know-how to minimize lifecycle costs considering operation and management technologies, and the know-how for one-stop services prioritizing customer services.

The fields of regional development and industrial complexes are considerably swayed by development plans in each country, and so it is important to approach the country from the stage of a master plan. When producing a master plan, it is necessary to approach the country under the private initiative, and enlist assistance from the Japanese government. b) Airports and Airport Cities Japan’s advantages regarding airports include the experience of developing many airports, the know-how to operate airports for a long time, and the know-how to design and manage for urban development integrating surrounding areas.

This project requires not only the technology for optimizing the entire airport, but also the technologies for designing airport cities, energizing surrounding areas, optimizing the distribution networks around the airport, operating and managing the airport, and minimizing lifecycle costs. Thus, there are many areas where Japanese firms can contribute.

In Indonesia, an airport will be developed based on PPP. In order to conduct the above-mentioned large-scale project for an airport city, it is indispensable to produce a master plan considering surrounding areas and enlist cooperation from not only Indonesia but also the Japanese government.

5) Energy Japan’s advantages regarding energy are outstanding technologies in reliability, efficiency, and energy-saving, including highly-efficient gas/steam turbines, efficient power generation systems, including combined cycle and cogeneration systems, and optimal design and control technologies for minimizing transmission loss. The utilization of these technologies would contribute to the development of reliable power generation systems and transmission networks in Indonesia.

As for coal-using power generation, Japan has the unique technologies to reform low-rank coal. In Indonesia, coal ash is recognized as a hazardous substance, and difficult to dispose of, and so coal ash is not utilized there. Japan uses coal ash in the fields of cement, civil engineering, construction,

EX-14 agriculture and forestry, etc. and has various technologies to utilize coal ash.

Japanese firms are competitive also in the field geothermal power generation. There is a high possibility that Japanese firms will receive orders for the research and development of resources, the construction of power plants, and the supply of power generators, as they have the technologies for preventing corrosion and digging at high temperatures.

Japanese companies can boast their distinctive techniques for refining low-rank coal. The possible benefits of these distinctive techniques include license fees, the winning of the all-in-one orders, including the design of facilities, the supply of equipment, and installation work, and business income. Also, Japan has a high share of geothermal power generation plants, and the supply of power generation facilities is expected.

The utilization of low-rank coal is accompanied by risks in technological development, while geothermal power generation is accompanied by risks in the development of underground resources. In order to reduce these risks, it is necessary to conduct highly precise prior researches. We expect cooperation in such researches from the Indonesian and Japanese governments.

(7) Specific schedule until project implementation & risks hindering implementation The core of present activities is specified by Presidential Regulation (No. 86/2011). A consortium composed mainly of provincial corporations from Banten Province and Lampung Province is specified as the initiator of the project, including the bridge and development in surrounding areas. A preliminary survey is scheduled to be implemented by the consortium and completed by 2014. The preliminary survey will include a plan for development of surround areas, also known as the “strategic area’. It is important for Japan to focus on the progress of this preliminary survey. At the same time, Japan must hold continuous discussions between Indonesian and Japanese government, and must make an appeal for technical and capital superiority of Japan.

On the other hand, this project depends on the implementation capacity of related institutions (government, private) in Indonesia. The following section summarizes future risks in terms of technology, finance and organizations.

1) Technical aspect According to the Ministry of Public Works, comprehensive examination on Sunda Strait Bridge has not been conducted. Main activities are limited to information collection, workshop/seminar, study conducted individually. In addition, survey necessary for construction (e.g. topography, soil) has been conducted by the private sector in a limited scale so the quality may not be high enough to satisfy requirement for design work. From those activities, some information regarding bridge construction and regional development is available but since comprehensive examination that is specific to Sunda Strait Bridge has not been conducted, according to PU personnel, it is necessary

EX-15 for technical and operational support.

2) Financial aspect Since Sunda Strait Bridge project is planned to be implemented through PPP scheme, cost for survey, design, construction, has to be borne by the Consortium, which is one of the criteria mentioned in the Presidential Regulation. According to the information from BAPPENAS, public sector can provide financial support but maximum is limited to 20% of the total construction cost, and cost of F/S and DED is estimated to be about US$ 150 million and all cost has to be provided by the Consortium.

Cost of construction, on the other hand, is estimated to be 2 trillion yen (US$ 25 billion) and the Consortium will be given right to develop Sunda area (or strategic area for Sunda), but it is difficult to cover the construction cost from toll fee and development rights alone.

3) Operational aspect Role sharing between the public sector and the Consortium in general terms is instructed in the Presidential Regulation. For the public sector responsibility as supervision of the project, establishment of development board, its structure and members and securing budget for the activities of the board, and regular reporting responsibility to the President are instructed. For the consortium responsibility, preparation for the project (feasibility study, basic design, implementation organization, securing budget source, implementation mechanism and schedule) are instructed. After the Presidential Regulation is approved, detail instruction is planned to be instructed by another regulation and cooperation agreement for project implementation, through which operational aspect and technical aspect (work items, schedule) and risk management will be defined.

In addition, operation of ferry has to be considered. For setting tariff on toll for the bridge, existence of ferry becomes one of constraints. If ferry operation continues, demarcation between bridge and ferry has to be examined in order to secure traffic volume of the bridge.

(8) Overview map of Projects The projects selected and examined in this study are shown as below.

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Figure 2: Overview map of projects

Source: Study Team

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