Monday, 15 November 2010

Toll road builders face loss of contracts for abandoned projects

According to the Jakarta Globe, the Indonesian Ministry of Public Works has threatened to nullify the contracts of eight contracting companies responsible for building toll road concessions in the country.  It has been reported that the projects have been idle since 2005, as the contracting companies argue that the projects have become too costly due to material costs and land acquisition issues.   

The problem appears to be that the companies underbid for the contracts or did not adequately take out hedges or insurance against price inflation of inputs.  Given the Indonesian Government's strong interest in developing intercity highways through toll financing, it is likely the projects will proceed, but that procurement processes will be significantly strengthened.  Due diligence of financing requirements and tighter legal commitments for progress towards milestones would seem to be some of the measures that the Indonesian Government might take for future such contracts.

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