Remedy period over, Kanci - Pejagan toll road is being repaired

In my maiden blog post, I wrote about how the MNC group had been called in default of their obligations under their concession agreement by Indonesia's Toll Road Regulatory Authority (BPJT) and had been given a 90 day rectification period. In the articles I linked to in that blog post, the MNC Group seemed to be trying to deflect blame for the poor condition of their road, even though, under their concession agreement, they alone are responsible. reports that the rectification period ended on the 17th of May and PT Semesta Marga Raya--the holding company for the road--seems to still be in control. reports that the road surface is still not in great condition and that substantial works are ongoing, but the fact that they are still in control suggests that they have either met the minimum required standards for road quality, or they have convinced BPJT that they will do so within a reasonable timeframe. The President Director of PT MNC Infrastruktur Utama, Syafril Nasution, confirmed that works are ongoing and that they have spent IDR 80 billion on rehabilitation of the road so far.

I haven't seen a public record of what the MNC Group spent buying this toll road, but it was most likely something on the order of the IDR 2 trillion. If they hadn't foreseen this expense, they're looking at something like a 4% loss, even more if the IDR 80 billion doesn't include all the spending they will need to do to get the road up to standard. This is a pretty significant loss in the infrastructure business.

It seems like, in this case, BPJT has done their job well. They identified a problem and used the remedies available to them under the contract to force their concessionaire to solve the problem. I'm sure this is disappointing for the MNC Group, but this is how the infrastructure business is meant to work.

To me, this is an encouraging sign of Indonesia's growing maturity as a recipient of private investment in its infrastructure. BPJT, as the regulator, is establishing precedents for how it acts in holding concessionaires responsible for their obligations under their concession agreements*. A consistent track record of fair and balanced regulatory judgments is a very valuable thing in attracting the kind of infrastructure investors Indonesia wants when it finally gets around to tendering the next round of PPP toll road projects.

*Of course, we need to look at how BPJT acts in situations where the penalties or benefits are in the concessionaire's favour too. I hope they are as quick to enforce the contract in those instances!