Indonesia to seek fresh bids for Labuan Bajo airport refurbishment project

Labuan Bajo is a fishing town that is the gateway to the Komodo National Park. It also hosted the Asean summit in April 2023. - ST PHOTO: GAVIN FOO

JAKARTA: Indonesia will seek new bids for refurbishment works at the Labuan Bajo airport on Flores island, after a deal reached in 2019 – involving Changi Airports International (CAI) and a Jakarta-based partner – fell through due to pandemic-related disruptions.

In an interview with The Straits Times on Wednesday, Minister of State-Owned Enterprises Erick Thohir said the government was open to any party interested in the airport project, while acknowledging that a Singapore investor would be the best fit.

The project to increase passenger traffic would see the extension of the airport runway and improvements to the ground facilities.

The minister declined to give a timeframe for the project’s completion.

Labuan Bajo is a fishing town that hosted the Asean summit in April. It is also the gateway to the Komodo National Park, home to Indonesia’s famed komodo dragons.

“We are seeking partners that can create added value to help build our airports... If Singapore wants (to work on) Labuan Bajo, they are welcome, as long as they can deliver value creation, promise higher traffic,” the minister said.

CAI and its Indonesian partner Cardig Aero Service – grouped under the Cinta Airport Flores (CAF) consortium – in late 2019 won a competitive bid to refurbish the airport, pledging to spend 1.2 trillion rupiah (S$105.5 million) in return for a 25-year concession to run the facility.

The plan fell through as the Covid-19 pandemic caused passenger traffic at the airport to plunge to around 6,400 weekly in 2020 from around 13,700 in 2019.

CAF renegotiated with the Indonesian government in 2022 the terms for the refurbishment project, using a force majeure clause as stipulated in the contract.

This did not yield any results and CAF pulled out of the project in December 2022.

CAI and Cardig did not respond to queries from ST on Friday.

The consortium and the government were negotiating over lower capital spending by investors, as well as their expected rate of return, which was set at around 16 per cent previously, according to a government document obtained by ST.

CAF requested lowering the required capital spending to around 750 billion rupiah; but the government signalled that any adjustment must be paired with a comparable adjustment for expected returns on investment.

This means that some parts of the renovation work would have to be handled by the government. The proposed revision took into consideration that the airport would probably see passenger traffic recover to 2019 levels only in 2026.

The Indonesian government is expected to invite again the five consortiums that participated in the earlier competitive bid, including the Cardig-Changi consortium. The others were Aeroports de Paris, GMR group, Jakarta-based Astra Infrastructure and the Indika group.

When asked about the government inviting new bids for the Labuan Bajo airport project, Astra’s head of investor relations, Ms Tira Ardianti, said: “We may look at it. We are always exploring infrastructure business opportunities.”

Commercial airports are typically run by Indonesia’s state-owned enterprises (SOEs), with some of them inviting strategic partners to help improve facilities.

The government in 2021 granted a concession to a joint venture backed by Indian airport developer GMR Group to refurbish and operate for 25 years North Sumatra’s Kualanamu airport.

Speaking about the fresh tender bids, a foreign company executive who is involved in contract negotiations in the energy sector told ST that Indonesian officials have increasingly been overly cautious when negotiating government deals for fear of being wrongly suspected of corruption or giving undue favours.

Local media have reported a rising number of cases where state prosecutors and the Corruption Eradication Commission were cited as being over-eager in their anti-corruption drive.

Officials have been jailed for making regular policy decisions in good faith when those decisions caused financial losses to the state due to uncontrollable external factors. - The Straits Times/ANN

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