Anticipating Default, IPC Should Allocate Global Bond for Proper Projects

By: Harijanto, Executive Director of Himpunan Masyarakat Peduli Maritim

On May 5, 2015, Indonesia’s leading port operator, PT Pelabuhan Indonesia II/IPC took a monumental action, issuing global bond with fantastic number of USD1.60 billion or more than Rp22.02 trillion. The global bond is divided into two series: obligation with 10 years tenor until 2025 with interest rate at 4.25% and 30-years grace period until 2045 with interest rate at 5.37%. The repayment due date for both principal loan and interest is on May 5, 2025.

IPC has to anticipate this due date very carefully. In many cases, default has become a spectre due to incapability to pay back. Worries of default arise whenever the issuers have no clear guarantee. Though recognizing its risk of default, but many still take it through issuing obligation (bond) as it has lower interest rate than bank credit.

We don’t mean to justify weather IPC’s issuance of global is a right or wrong. What is most fundamental is how IPC will allocate the global bond properly. IPC is expected to take conservative step in selecting the works and projects in which this global bond will be invested. The projects should be potential to create high income and profits, supporting IPC’s financial capability for paying it back and to create more profit, of course.

Hence, IPC is expected to again do review and evaluation weather it has been properly allocated. The global bond, according to its initial plan, would be allocated to some IPC strategic projects, including: Kalibaru (New Priok), Sorong Port in Papua, Kijing Terminal in West Kalimantan, Cirebon Port (West Java), and Inland Waterway Cikarang Bekasi Laut (CBL).

But, of the total five projects only New Priok and Kijing Terminal are potential to create high income and give high profits. The three others of Sorong, Cirebon, and CBL are poorly potential. Hence making review and re-evaluation to pour some global bond for the three projects are very crucial.

New Priok has proven its high contribution to IPC income. According to former IPC Finance Director Widyaka Nusapati, New Priok’s Container Terminal 1 (NPCT1) has contributed as much as USD 56 million/year to IPC. In the other words, New Priok has contributed to IPC income and profit. This has significantly helped IPC’s financial capability, including in paying back the global bond.

Kijing Terminal is also promising. The prospect of this terminal in creating income will come from its high volume of both liquid and dry bulk. Two leading cargoes of crude palm oil (CPO) with potential volume of 4 million ton a year and bauxite of more than 2 million ton/year, will give much income to IPC. Kijing Terminal will become the biggest in Kalimantan Island.

Meanwhile, Sorong Port, in view of business, is less prospective. Moreover, this port is facing some challenges, including the problem of land acquisition.

Just like Sorong, Cirebon is also less prospective. In 2002, let us say, Cirebon opened container ship direct call to Singapore. But it failed due to some factors, including call uncertainty, term of trade, uncompetitive tariff, expensive tariff, service uncertainty, and so on. This is not interesting for shippers. So, its first call then became the last call.

Cirebon ever became the main port to unload log from Kalimantan. But then the government strictly stood against the illegal logging, causing the drop of log volume from Kalimantan. And finally, the log cargo from Kalimantan totally stop, making Cirebon loose cargoes.

Then, Cirebon took focus on coal unloading. But it didn’t run smooth, facing protest from community as process of unloading caused pollution to the surroundings. And, the last one was to make Cirebon as a heritage port. But it was also not easy. Cirebon needed to change its port master plan. Cirebon was planned to be completed with tourism facilities of food court, playing yard live music, and other facilities. But, this plan is also ironic since until now it is still serving the cola loading/unloading.

And the last of the five projects planned to be funded by the global bond is CBL Inland Waterway. This is included in the national strategic project, according to the President Decree (PP) No 3/2016. Another PP No 58/2017 also included this project to support national transportation and logistics. However, this project is even harder to be implemented since it will face some challenges and constraints, including:

  • To start the CBL Inland Waterway, government’s Jabodetabek Transportation Management Boddy (BPTJ) has to revise the Tanjung Priok Port Master Plan in which it has to include CBL into the master plan.
  • CBL will face problems from Bekasi Spatial Plan (Perda No. 12/2011) West Java Spatial Plan (Perda No. 22/2010). According to those spatial plans, the area for CBL Inland Waterway is agricultural zones. It also needs agreement from Ministry of Agriculture as CBL Inland Waterway will trigger the land use around the waterway from agricultural function to industry.
  • It needs a clearer role of BPTJ. According to PP No 55/2018, as a project executor, BPTJ will initiate KPBU that should involve any infrastructure provider.
  • CBL Inland Waterway still need approval relating environment analysis impact (AMDAL) from Ministry of Environment (KLHK).
  • This project will have to do land acquisition of human settlement, demolition and replacement of some bridges at Cibitung and Babelan, needing approval from Ministry of Public Work.
  • It needs approval from Ministry of Agrarian and Spatial Affairs/National Land Agency (ATR/BPN) relating land conversion from human settlement to industrial zone.
  • It needs permit from Ministry of Energy and Mineral Resources (ESDM) to move Permina’s fuel pipe, PGN’s gas pipe, and PLN’s electric cable.
  • It needs high cost for canal maintenance due to high sedimentation.
  • Since the location of Terminal CBL is not rightly on the industrial zone, it needs truck as feeder to transport containers. This is double handling and high cost.

Until now, the project of CBL is unclear, weather it will go according to the initial plan. But, for sure, it has been delayed from operational plan this year 2020.

But for sure, we have to appreciate the conservative step of IPC direction board in managing the global bond, including not allocating it for the projects of its subsidiary companies. IPC has encouraged its subsidiaries to get fund from other sources, including from bank syndicate. Global bond is not for business expansion of IPC subsidiaries, but for IPC’s strategic projects that have been plan before. Furthermore, some subsidiary’s projects are run without a good feasibility study.

Based on some analysis of business investment and the contribution of NPCT1 after its operation, IPC will get more revenue if NPCT2 & NPCT3 are operational, so will terminal Kijing. The income from these terminals can help IPC to payback the global bond.

Moreover, based on the IPC financial statement, NPCT1, together with Jakarta International Container Terminal (JICT) and TPK Koja, has contributed high income to the holding (IPC). NPCT1 contributes at least USD 56 million/year, while TPK Koja and JICT contribute USD120 million/year in total from rental fee only, not including the dividend from its 49% share of IPC at those terminals. Their contribution is equivalent with IPC net profit of Rp 2.4 trillion in 2018.

This year, the three terminals are expected to contribute higher in view of their increasing productivity. So, why not allocating the global bond to build NPCT2 and 3 that are very feasible to create more income to help IPC from default threat?

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