Boston, MA -- (SBWIRE) -- 12/10/2013 -- As expected, quarterly data on Indonesia's construction sector was supportive of our view that there is limited scope for construction growth in 2013 and 2014 to outperform its 2012 level. Furthermore, the downside risks we had previously highlighted - namely a deepening fiscal deficit (brought on by ballooning subsidies), rising inflation, bottlenecks in project execution and the 2014 presidential elections -are manifesting and are set to adversely affect near-term construction activity. As such, we have revised down our construction growth forecasts in 2013 and 2014, with growth reaching 6.7% in 2013 (previously 7.4%) and 6.3% in 2014 (previously 6.9%).

The key factors that will facilitate growth are:

- In July 2013, Japanese trading company Marubeni expressed interest to bid for the construction of a 1,000MW coal-fired power plant in West Java. The proposed plant, offered by Indonesia's state utility Perushaan Listrik Negara (PLN), is expected to cost US$1.5-2.0bn and will be located next to an existing power plant owned by Marubeni. In October 2012, Marubeni, through its minority-owned subsidiary Cirebon Electric Power (CEP), completed a US$850mn, 660MW coal-fired power plant in Cirebon, West Java. CEP currently operates the Cirebon plant under an independent power producer (IPP) scheme, with electricity generated sold to PLN at US$0.0443/KWh. Besides Marubeni, CEP is owned by Indonesia's Indika Energi (20%), South Korea's Korea Midland Power (20%) and Samtan Korea (27.5%). Marubeni is expected to submit the tendering documents for the project soon.
- In August 2013, the government of Indonesia received pre-qualification bids from eight companies, including local operator Bakrie & Brothers and state-owned port operator Pelabuhan Indonesia III, for the development of a terminal at the Tanah Ampo cruise port in the province of Bali, reports Jakarta Post, citing the public private partnership procurement Director of Indonesia's National Development Planning Board. The government would announce the selected bidder by end-2013, after conducting the proposals evaluation process. The estimated cost of the project is between US$15mn and US$20mn. The construction of the terminal is expected to start in 2014.
- In August 2013, the Asian Development Bank (ADB) announced that it would provide a US$49.5mn loan to Indonesian state-owned utility Perusahaan Listrik Negara (PLN) for the construction of new transmission and distribution (T&D) infrastructure in West Kalimantan. The ADB would also help to administer additional loans of US$49.5mn from the French development agency Agence Francaise de Development and US$2mn from the Clean Energy Fund. The funds would be used to improve the reliability and capacity of the West Kalimantan grid by building a 145km distribution line, a distribution feeder extension and a new substation in West Kalimantan.

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