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Indonesia – A New Jakarta Airport: Taking Flight Or Grounded By Delay?

27 May, 2014

 

Legal News & Analysis – Asia Pacific – Indonesia – Energy & Project Finance

 

When should a city burdened with a congested, undersized airport not welcome planned airport construction? Surprisingly, when there is too much of it. If competing planners have their way, Jakarta, Indonesia, a megacity in dire need of additional airport capacity, may find itself with too much planned capacity. With two major, and competing, West Java airport projects under discussion, the planned expansion at Soekarno-Hatta International Airport (SHIA) and the Air Force’s Halim Airport now open for domestic commercial flights, one might conclude that long-suffering Jakarta may one day be spoiled for choice. A full copy of this report is available on request; detail can be found at the foot of this introduction.

 

Too Much Of A Good Thing

 

A classy problem indeed. Passengers used to enduring SHIA’s overcrowded conditions may struggle to see this state of affairs as a problem at all. However, airport operators, PPP investors and airlines know that too much capacity from duplicative airports presents serious risk to their business models.

 

If too much is planned, demand will be diluted and nothing might get built. If too little is planned, Jakartans will be underserved. Planners will need a Goldilocks touch to assure investors can make money, financiers will lend it and airlines don’t lose it.

 

Monopoly Good, Competition Bad

 

Airports deliver essential public services that are monopolistic in nature. Undermine the natural monopoly at the planning stage with projects proposed for the same area, and the private sector will avoid the huge multidecade risks that airports present.

 

The competing West Java projects give rise to the greatest concern. If dueling projects threaten to poach from the same catchment pool, neither might look commercially viable, and both might fail to take wing.

 

These airport projects, Karawang International Airport (KIA) and Kertajati Airport (also known as West Java International Airport,or Majalengka Airport) for several years have been the subject of a behind-the-scenes collision between national and regional ambitions. Consistent with Indonesian cultural norms, the competition between them can be difficult to detect, but occasionally surfaces in contrasting public statements.

 

Clyde & Co

 

For further information, please contact:

 

Michael Horn, Partner, Clyde & co

michael.horn@clydeco.com


Energy & Project Finance Law Firms in Indonesia

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