With Indonesia's aviation market booming, government measures to support development of new airports will be welcomed by airport developers and users. Indonesia recently passed a new regulation, which, while essentially technical and hardly striking on its face, forms a part of what promises to be a broader effort to promote new airport construction in the country.

Projected to grow at nearly 20% per annum for years to come, Indonesia is the fastest growing emerging aviation market in Asia-Pacific, and possibly the world.  Congested airports operating beyond capacity threaten to constrain that growth and Indonesian economic growth more generally.

The new regulation, issued in June, addresses the location of new build airports .  It is chiefly of interest because it lays out comprehensive procedures for the government to determine airport locations, although it does not simplify this process1.  Importantly, it does not diminish the power of local government over airport siting, exercised through its permitting authority. The new regulation also smooths out a legal wrinkle that, while of marginal interest to any save lawyers, perhaps posed modest risk to airport development.

Why was the new regulation needed?

In Indonesia, a public airport requires the Minister of Transportation’s consent to its location before an airport developer can apply for an airport construction license2.  The Ministerial Consent to an airport's location itself requires that several conditions be met and actions be taken. The previous Minister of Transportation Regulation on Management of National Airports (No. KM 11/2010, revoked by the new regulation) was insufficient in regulating that Ministerial Consent of location because it did not set out a detailed application procedure for obtaining the Ministerial Consent. Absent guidance in the 2010 regulation, the practical solution had been for the Ministry of Transportation to continue to apply airport location approval procedures set out under an older regulation, Regulation 48/20023.

It is debatable whether the 2010 regulation's lack of guidance on the application process had any material adverse impact on the development of airports. This seems unlikely, as the 2002 regulation addressed these matters reasonably well. Other issues, such as budget constraints, land acquisition issues, lack of planning capacity and the rapid growth in budget air travel, are more likely to blame for the mismatch between demand for aviation services and supply of airport capacity.

However, the 2002 regulation was conceived as an implementing regulation for primary aviation legislation passed more than 20 years ago. That older law was not aligned with Indonesia's current plans to develop new airports using a public private partnership (PPP) model. It was an anomaly for PPP airport development to rely on a revoked law’s implementing regulation, and the new regulation fixes this.

The 1992 Aviation Law4  allowed private sector participation in airports, but only by way of joint ventures with the Government or state-owned entities through a cooperation agreement. Airports that would be wholly privately owned and operated using a long-term lease or concession model were not contemplated in the 1992 Aviation Law.

In 2009 the Government enacted a new Aviation Law5, which allowed for greater private sector participation in airports. Under that law, foreigners may own and operate an airport as a joint venture with a local partner through a local company with maximum 49% foreign ownership6. "Cooperation" with the State or state-owned enterprises is no longer required.

With enactment of the new Aviation Law, the 1992 Aviation Law was revoked. However, its implementing regulations, including Regulation 48/2002, remained applicable so long as they did not contradict the new Aviation Law and its implementing regulations.

By replacing the older implementing regulations related to the 1992 Aviation Law, the issuance of the new June 2014 regulation helps to “steam out” some of the legislative wrinkles of the previous framework and provides clearer guidance for airport developers in applying for the Ministerial Consent, in line with the spirit of the new Aviation Law.

Ministerial consent application procedure

To obtain a Ministerial Consent under the new June 2014 regulation, an airport developer must submit a written application and provide supporting documents to the Director General of Civil Aviation. As an "airport developer" for these purposes includes the national government and regional governments, the driving forces behind PPP airport projects, the regulation essentially establishes internal government procedures for siting of major airport projects. The new regulation also affects airport projects initiated by state-owned enterprises.

Supporting documents submitted to obtain the Ministerial Consent include (i) the airport master plan and "coordinate points" (ie., location), substantiated by a feasibility study (discussed below), (ii) the approval of the Director General on the feasibility of the airport location and (iii) materials addressing certain administrative requirements.

Helpfully, the new regulation sets time limits. Upon receiving an application, the Director General must evaluate and approve or reject it within 45 business days. If the application is approved, the Director General must forward it to the Minister of Transportation, who is then required to issue the Ministerial Consent within 15 business days. Airport developers should expect to see a decision within two months of making a submission, although it should also be noted that the regulation does not provide that the Ministerial Consent is automatically granted if the deadlines are missed.

Feasibility study requirement

As mentioned, airport developers are required to prepare a feasibility study for the purpose of determining location. This is quite a comprehensive document, and must at minimum address:

  • Regional development, which entails conformity with a range of spatial and transport plans, notably including the requirement of conformity with the regional development plan (this requirement raises important issues addressed below)
  • Economic and financial aspects of the project
  • Construction plan
  • Operational matters
  • Air transportation business potential
  • Environmental impact
  • Social impact

Airport master plan requirement

An airport master plan spanning 20 years, which forms part of the application, must include information on:

  • Estimated air transportation demand in relation to passengers and cargo
  • Estimated facilities requirements
  • Facility site plan
  • Construction stages
  • Land requirements and utilization
  • Operations area
  • Commercial areas
  • Recreational areas
  • The aviation operations safety area
  • Noise limits

Local government permitting power – the potential roadblock

At the heart of any effort to develop an airport in Indonesia is the need to convince local government of the value of the project. Even national government remains at the mercy of local government when contemplating an airport project of national importance. The June 2014 regulation does nothing to change this.

As noted, an airport developer – including the national government itself – needs to first obtain siting permission by way of the Ministerial Consent to location. The Ministerial Consent can only be obtained after a feasibility study and other supporting materials are submitted.

The feasibility study in turn must demonstrate that the airport project conforms with the relevant regional development plan.  The regional development plan, and the party that controls it, therefore becomes the linchpin on which airport projects, both PPP and state-owned, will depend.

Regional development plans are controlled by regional governments at the provincial level. The regional development plan of each province includes its Regional Spatial Layout Plan (locally known as the RTRW). Every proposed airport must be set out in the relevant provincial RTRW.

Achieving this may not always be easy. Local government may have airport development plans that are different from, and complete against, national government's plans. For example, this appears to be the case with the competing projects of Karawang International Airport (KIA), championed by the national government as a second major Jakarta airport, and Kertajati Airport, championed by the West Java government and planned for a site near Karawang that shares a catchment area with KIA. KIA can only proceed if the West Java government agrees to put KIA in its RTRW spatial plan, and West Java has hesitated to do so. (See "A new Jakarta airport: taking flight or grounded by delay", by Michael Horn).

Indonesia is caught up in a political debate over whether local government officials will continue to be elected by popular vote, or will instead be appointed by regional legislatures dominated by national political parties. Parliament supports appointment, but outgoing President Yudhoyono has stated that he will intervene in favour of direct election.

Parliament's decision on September 26 to return appointment power to regional legislatures, the system in place before 2005, may impact airport siting decisions. To the extent that mayors, provincial governors and district heads support the policies of government parties represented in these parliaments, this controversial electoral system change may ease national government's ability to obtain provincial government approval to a new airport's location, and may promote PPP projects generally. However, as nearly all regional parliaments are currently dominated by opposition parties, this change may frustrate the ability of the newly-elected government to pursue projects of national interest.

Commitment of the Indonesian government in developing airports

The lack of airport infrastructure is widely considered a major obstacle to aviation industry development in Indonesia. Airports across the country face problems in accommodating the demands of passengers, with many international airports, including Soekarno-Hatta International Airport (Jakarta) and Juanda International Airport (Surabaya) operating at 200-300% above capacity.

The Indonesian Central Statistics Agency recorded 68.7 million air passengers in Indonesia last year. This figure is forecasted to increase to more than 300 million air passengers by 2025, not including additional demand generated by the ASEAN Open Sky policy to be implemented in 2015.

The National Development Planning Agency announced that Indonesia needs to invest approximately USD 15 billion between 2015 and 2019 to develop and improve the airport sector. By comparison, between 2009 and 2014 the national government only allocated USD 2.6 billion for airport projects7. To address the large expected funding shortfall and meet its airport development target, the government has committed to involve private investors in airport projects by loosening the foreign investment regime and promoting PPP projects.

In 2014 the government announced plans to offer new airport development projects under the PPP scheme. These include the KIA project to serve Jakarta, Kulonprogo Airport (Yogyakarta), Kertajati Airport (West Java) and Buleleng Airport (North Bali), all of which are currently still in the preparation stage.The government also plans to offer regional airport management contracts for 10 existing airports to the private sector under the PPP scheme.