Jakarta. Good news for domestic construction companies: the government has proposed a record-high infrastructure spending for next year.
The government earmarked Rp 419 trillion ($29 billion) for infrastructure in the 2020 state budget – submitted to the House of Representatives last week – up by 4.9 percent from Rp 399.7 trillion this year.
Most of the money will be spent on building 837 kilometers of new roads, more than double this year’s target of 406 kilometers, Finance Minister Sri Mulyani Indrawati said last week.
The government will also build 6.9 kilometers of new bridges, 238.8 kilometers of railroad, three airports, 49 dams, 5,224 apartments and 2,000 homes for the poor.
It will also fund financing tools to encourage private companies and state-owned enterprises to collaborate on infrastructure projects under the public-private partnership (PPP) scheme.
The PPP scheme includes a project development facility for projects still in the preparation stage. A viability gap fund is available for improving a project’s feasibility.
The government will also provide another scheme called availability payment, in which investors pay for all the construction costs upfront. Once the project is completed, the government can pay for the finished infrastructure in installments.
Sri Mulyani said the government has 11 PPP projects in the pipeline for 2020 with a potential value of Rp 19.7 trillion.
Danareksa Sekuritas, a state-controlled securities firm, said increased infrastructure spending will boost construction companies’ finances, including that of state-controlled Wijaya Karya.
“We reiterate our ‘Overweight’ call on the sector given the government’s continued commitment to infrastructure development in 2020,” Danareksa said in a research note on Monday.