Regional Report: Asia-Pacific

By Helen Wright31 May 2012

Robust construction spending is expected to continue in Asia Pacific markets this year, particularly in the infrastructure sector.

Although the pace of growth has slowed throughout the region, Asia Pacific has remained relatively well insulated from the global financial crisis that has engulfed much of the rest of the world, and several large construction projects are planned or underway, led by the non-residential, energy and transport sectors.

In addition, reconstruction efforts after last year's devastating earthquake in Japan and floods in Thailand are also boosting output.
In Indonesia, meanwhile, the government has made infrastructure improvements a key priority in both its medium and long-term development plans in an effort to close the development gap between eastern and western regions of the country.

According to a report from the Asian Development Bank (ADB), Indonesian public infrastructure investment is expected to surge +48.6% year-on-year in 2012. Several transport projects financed through the budget are scheduled to get under way this year, including expansion of Jakarta's main airport, construction of highways and ports, and the building of transport infrastructure in eastern provinces.

Officials are also simplifying procedures and strengthening procurement capacity in government spending agencies in an attempt to ensure that projects get underway on time, while measures to improve conditions for private investment in construction are also being introduced.

Agreements were signed in October 2011 for private investors to build a US$ 3 billion power plant in central Java, guaranteed by the government. The Rajabasa and Muaralaboh geothermal projects, involving total investment of US$ 1.4 billion, were also approved under a similar agreement in March this year.

Meanwhile, public-private-partnerships (PPP) in Indonesia are also flourishing. According to a report from Urban Transport World Asia, the Ministry of National Development Planning has 17 priority PPP toll road projects currently underway, representing a total investment of US$ 8.2 billion.

The priority projects include a US$ 125 million toll road linking Palembang and Irdralaya in South Sumatra. Planned for completion in 2015, this 22 km road will run alongside an existing artery road that is in inadequate condition to cope with increasing traffic volumes as a result of the region's rapid economic growth.

Another priority is a 50 km toll road linking Tegineneng and Babatan in Lampung, South Sumatra, estimated to cost
US$ 318 million, while another, 15.8 km toll road costing
US$ 120 million has also been prioritised to link Medan and Binjai in North Sumatra.

In both cases, the plan is to alleviate existing, overcrowded routes that serve both the local community and long haul trucks.

And the Urban Transport World Asia report also highlighted a further eight potential PPP projects in Indonesia's transport infrastructure sector, planned to cost a total of US$ 6.5 billion. The pipeline of potential projects includes a US$ 3.8 billion plan to build a railway between North Sumatra and Riau.

The 246 km route between Rantau Prapat and Dumai could be put out to tender next year, with construction planned to take place between 2015 and 2018, and the link operational by 2019.

Other potential PPP projects include a US$ 140 million plan to develop the Pekanbary cargo terminal in Riau, and a US$ 134 million project to construct an integrated land, river and rail transport terminal in Palembang, South Sumatra.

Equipment optimism

Volvo Construction Equipment Asia Pacific president Vincent Tan highlighted Indonesia as a hot spot in the region.

"We are very excited about the market in Indonesia, where were at the ConBuild exhibition recently and launched some new machines," he said. "Indonesian demand for construction equipment really falls into two sectors - the bigger, general purpose equipment like excavators, haulers and wheeled loaders, which go to the resource sector, while the infrastructure drive produces demand for small-to-medium sized machines."

Mr Tan said Volvo was pushing to increase its distribution network in Indonesia, and planned to invest in a components repair centre. He also said the manufacturer was continually reviewing its manufacturing basis, but had no plans to make an announcement yet.

And, Mr Tan said that unlike in China and India where the greatest demand is for relatively unsophisticated, domestically-produced equipment, demand in the Asia Pacific region is for sophisticated imports.

He said, "Customers in Indonesia and the Asia Pacific in general are quite sophisticated - most of the countries are demanding world class product with similar technology and features in terms of hydraulics, electronics and power, etc., that we sell anywhere else in the world."

The exception is the emissions standards - the far stricter laws in the US and Europe mean more is invested in engine technology in these regions.

Mr Tan maintained that the Asian Pacific regional economy is on a strong footing.

"There will be ups and downs, but we're still working from a very strong base and are in a very strong position. These emerging markets also have growing populations, so economically I think in the medium and long term we will see growth. We are optimistic for the region, and are actively extending our coverage," he said.

Last year, Volvo also supplied 125 machines for use on a
US$ 15 billion liquefied natural gas (LNG) in Papua New Guinea - a project that is fuelling GDP growth in the country this year as the construction phase reaches its peak.

However, looking ahead to next year, the ADB said the country's construction market may weaken, highlighting how much one large project can skew output.

"The slowdown in 2013 will stem from the winding down of the LNG project construction, which will hit demand in a range of sectors, including construction itself, transport, and aviation."

Infrastructure partnerships

Meanwhile, in Malaysia, the government is pressing ahead with its Economic Transformation Programme, launched in 2010, to develop infrastructure in partnership with private investors.

The ADB said that, according to government officials, investments totalling US$ 58 billion have been committed through 2020 under the programme.

Several large projects will start construction this year, including an US$ 11.5 billion mass rapid transit system in Kuala Lumpur and the redevelopment of the Sungai Besi military airbase as well as a large site near the centre of the capital for residential and commercial purposes.

The government has also allocated US$ 136 million to upgrade the Pan Borneo Highway between the states of Sabah and Sarawak, with priority given to the 217 km stretch between Sibu and Bintulu in Sarawak and the 207 km stretch from Bintulu to Miri, also in Sarawak.

In addition, Malaysia and Bangladesh have signed an agreement to collaborate on the construction of the US$ 2.9 billion Padma Multipurpose Bridge, while a US$ 984 million mixed-use development in the Malaysian state of Sabah also began in February this year.

The need to improve energy infrastructure and the exploitation of commodities are the driving forces behind strong construction momentum in the region's smaller economies, such as Laos.

Construction is gathering momentum on the US$ 3.7 billion, 1878 MW Hongsa Lignite thermal power plant and associated coal mine, while building work is planned to get under way this year on Nam Ngum 3, 440 MW hydro power plant, joining eight other hydro plants under construction.

In the capital Vientiane, the government is also investing more than US$ 180 million building facilities for the 2012 Asia-Europe meeting of senior officials from 50 countries to be held in November 2012.

Throughout the Asia Pacific, construction is expected to strengthen this year, fuelled mainly by government infrastructure projects. However, to get the private sector more engaged, the region's authorities must reform foreign investment laws and legislation in order to attract fresh investment in the years ahead.

Nevertheless, commitments to improving the business environment and increasing the number of public-private partnerships for infrastructure projects are already underway in many Asia Pacific countries, so the future looks bright.

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