CHAPTER 1 INTRODUCTION

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1 CHAPTER 1 INTRODUCTION 1.1 Background of the Study For many years, Tanjung Perak port plays significant roles not only as a gateway to East Java s economy but also the economy for eastern Indonesia. Considering forecasting from Ministry of Transportation of Indonesia that in 2030, the container traffic projection at Tanjung Perak Port will rose to over 9.4 million TEU, which is increase approximately 400% of container traffic comparing to It shows clearly that with this massive growth, without development of a new terminal, it will lead to several issues, for example, increasing in vessel congestion to enter into Tanjung Perak Port. In the past years port development could not keep up with the swift economic growth in Indonesia. As a result, 90 percent of Indonesia s import andexport is transshipped through international hubs ports in neighboring countries (BPS, 2009). Figure 1. 1 Tanjung Perak Position and International Container Traffic Source: Pelindo III 1

2 Currently, there is important issue of density distribution of containers and goods, also overcapacity of land and equipment of Tanjung Perak Port. Inadequate port capacity and navigational aids, bunching of vessels, limited cargo handling facilities, high down time of equipment, low labor productivity and shortage of storage space, all contribute to the low efficiency of Tanjung Perak port. This condition will affect the sea transportation flow of west shipping corridor which means it will have numerous consequences for economic growth for regions like East Java, Kalimantan, Sulawesi, and Papua. In order to solve this issues, Pelindo III and Ministry of Transportation of Indonesia as operator and regulator of Tanjung Perak Port has develop a project of new multipurpose terminal to create additional capacity. The Teluk Lamong port project aims to increase container capacity in Surabaya by developing a new container terminal in Lamong Bay, separate from existing terminal operated by Dubai World Ports and Pelindo III in Tanjung Perak port. The project is given a high priority by Ministry of Transportation and the provincional and local governments, as the existing port is literally overflowing, with containers stacked on the road outside. Teluk Lamong multipurpose terminal project development itself is one of infrastructure development included in the Master Plan Acceleration and Expansion of Indonesian Economic Development (MP3EI) which is intended to accelerate and foster economic developments across the nation through 6 economic development corridors. With 14 meter deep water, this terminal can serve the international large ship and will be supported by Automated Stacking Crane (ASC) that will reduce dwelling time and increase the effectiveness and efficiency of port. The development of Teluk Lamong multipurpose terminal aims to reduce the density distribution of goods and increase the economy not only in East Java, but also in Indonesia especially in east region. 2

3 This study is to investigate the assessment of the Teluk Lamong multipurpose terminal on economic criteria as development of Tanjung Perak Port, Surabaya, Indonesia and to assist the public authorities in increasing the effectiveness in the use of financial resources for public work. 1.2 Problem Statement The problem is that the existing capacity of Tanjung Perak port already reach its limit which can be seen from container traffic. The capacity of Tanjung Perak port is around 2.1 million TEUs whereas in 2014, container traffic reached 3.1 million TEUs. Similar thing also occur in dry bulk commodity. The current installed capacity is around 6.7 million tonnes and in 2014, dry bulk traffic was reach around 7.7 million tonnes. To increase the capacity of the port, Pelindo III as port operator proposed to expand physically by Teluk Lamong Project. Yet, it is still questionable if the project is feasible in economic which is needs evaluation by economic feasibility study. 1.3 Research Aims and Objectives The primary purpose of the study is to employ cost benefit analysis of relevant data, including traffic and container volume data, to estimate the existing capacity of Tanjung Perak port and the future demand of this port. The data will be analyse to determine whether Teluk Lamong project is justified by economic feasibility study. Furthermore, the secondary purpose of this project is to discuss the project implications for various stakeholder of Tanjung Perak port. This study will analyse how the new terminal development will affect the stakeholders in positive and negative criteria. 3

4 1.4 Research Question Accordance to introduction and problem statement above, specifically the research question are: Research Question 1: Do freight demand projection of Tanjung Perak port justify the needs of Teluk Lamong Multipurpose Terminal project development? Research Question 2: Do Cost Benefit Analysis of Teluk Lamong Multipurpose Terminal project justify Tanjung Perak Port s development? Research Question 3: Do Stakeholders Analysis of Teluk Lamong Multipurpose Terminal project justify Tanjung Perak Port s development? Research Question 4: What are the policy implications if economic feasibility study s model is either justified or not justified? 1.5 Thesis Structure The study is combination of qualitative and quantitative in nature. The statistical model used in the study will be described and justified in greater detail in the third chapter, which comprises the study s methodology. In addition, the study is applied. While theory used to frame the policy recommendations, and also to help make sense of the importance of economic feasibility to evaluate a project by quantify the advantages (benefits) and disadvantages (costs) associated with the project, viz., how Pelindo III as port operator to address limitation of Tanjung Perak port capacity. As such, the study is focused on addressing this empirical problem through data analysis, with theory played a supporting rather than leading role. 4

5 1.6 Thesis Outline This chapter contained a discussion of research problem, suggested an approach to resolve the problem, and set a provisional context for the problem. Chapter two, the literature review, will discuss these items in particular: (a) description of project, (b) Port Planning and development (c) Feasibility Study, and (d) Economic Benefit from port. The third chapter discuss about thesis theoretical framework. The fourth chapter will contain the methodology of the study, in particular a discussion of how data was obtained, what procedures were carried out on the data, and what the strengths and limitations of these procedures are. The fifth chapter is the presentation and discussion of results. The sixth chapter is the conclusion, comprising (a) a summary of the main findings; (b) recommendations to government and Pelindo III as port operator. And the last chapter will be contain of conclusion and a relation of these findings to past scholarship, future research, and current policy directions. The appendices will contain the raw data used in the study, along with the full output for any calculations and forecasting that did not appear as tables in the study. 1.7 Thesis Outline This chapter contained a discussion of research problem, suggested an approach to resolve the problem, and set a provisional context for the problem. Chapter two, the literature review, will discuss these items in particular: (a) description of project, (b) Port Planning and development (c) Feasibility Study, and (d) Economic Benefit from port. The third chapter will contain the theoretical framework of the study, to get better understanding of the theory. Meanwhile, the fourth chapter discuss about methodology of the study, in particular a discussion of how data was obtained, what procedures were carried out on the data, and what the strengths and limitations of these procedures are. The fifth chapter is the presentation and discussion of results. The sixth chapter is the conclusion, 5

6 comprising a summary of the main findings; and recommendations to government and Pelindo III as port operator. And the last chapter will explain about conclusions of the study and future research. The appendices will contain the raw data used in the study, along with the full output for any calculations and forecasting that did not appear as tables in the study. 6