Why Indonesia Must be Cautious in Extending its Excessive-Velocity Railway – The Diplomat

Not too long ago, Indonesia’s Ministry of Transportation introduced plans to increase the high-speed railway linking Jakarta and Bandung. Risal Wasal, the director normal of railways on the ministry, mentioned that with the China-backed Jakarta-Bandung Quick Practice slated to start operations on August 18, it ought to later be prolonged to town of Surabaya in East Java.

Whereas Risal didn’t give a timeframe for the extension, the Indonesian authorities has been severely contemplating the plan because it was first introduced final 12 months. Presently, 4 ministers are finishing up the feasibility examine, specifically, Minister of Maritime Affairs and Funding Luhut Binsar Pandjaitan, Minister of State-Owned Enterprises Erick Thohir, Minister of Transportation Budi Karya Sumadi, and Minister of Public Works and Public Housing Basuki Hadimuljono.

Whereas it’s nonetheless unclear which nation would be the primary investor within the undertaking, there are a number of causes to consider that Indonesia will as soon as once more companion with companies from China, which have helped construct the 142-kilometer Jakarta-Bandung line.

In an interview in June of this 12 months, Luhut Binsar Pandjaitan, the primary proponent for China’s involvement within the railway undertaking, acknowledged that PT Kereta Api Indonesia China (KCIC), the three way partnership agency that accomplished the undertaking, is able to conduct a preliminary examine for the extension of the railway path to Surabaya. He argued that China’s expertise in high-speed rail made it the apparent candidate. “If we take a look at it now, China is the one which produces probably the most high-speed trains on the planet, with 40,000 kilometers,” he mentioned.

Luhut believes that Chinese language companies might be cheaper than their primary rivals, and even advised that the development of the extension might price lower than the Bandung-Jakarta line, given the abilities and expertise that had been transferred to Indonesia through the development of the latter. One other determine who has hinted at China’s involvement within the extension of the road is Transport Minister Budi Karya Sumadi.

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Nonetheless, reflecting on the challenges of the Jakarta-Bandung high-speed rail undertaking, which was coloured by controversies and sudden price overruns, Indonesia ought to be cautious in as soon as once more signing on with Chinese language companies.

The very first thing to notice is that the debt to finance the development of the Jakarta-Bandung Excessive-Velocity Railway continues to be mounting with none clear signal of when it is going to be paid off, attributable to delays and value overruns.

Chinese language companies accomplished the feasibility examine for the undertaking in simply 4 months (from Might to August 2015), and Indonesia initially hoped to finish the undertaking by 2019. It shortly turned obvious that this could not be attainable. The undertaking is now scheduled to launch subsequent month, leading to a considerable price overrun from $6.07 billion to $7.27 billion. These whole prices have now gone past the Japanese authorities’s preliminary proposal of $6.2 billion, which additionally carried a decrease fee of curiosity of 0.1 p.c over 40 years. Initially, the Chinese language bid proposed a decrease whole price of $5.5 billion.

Whereas the Chinese language proposal ended up beating out the competing Japanese bid as a result of it was thought of able to constructing the railway at an inexpensive worth, attributable to the unpredictability of the worldwide provide chain and Indonesia’s dependence on imports, the undertaking’s price has risen, putting further pressure on Indonesia’s economic system. Whereas different nations akin to Zambia and Malaysia have efficiently renegotiated their money owed with China, the Indonesian authorities has failed to persuade Chinese language authorities to lower rates of interest from 3.4 p.c to 2 p.c for the fee overrun of the Jakarta-Bandung megaproject. Beijing feels that the pegged mortgage rate of interest given to Indonesia is already inexpensive compared to what it lends to different nations, which may attain 6 p.c.

Whereas initially the federal government had promised to not use the state price range to fund the undertaking’s ever-increasing price, in 2021, President Joko “Jokowi” Widodo issued a presidential regulation that changed the phrases of the undertaking’s financing. Whereas it’s nonetheless unclear whether or not Indonesia will fall right into a Chinese language “debt entice,” the undertaking has considerably raised Indonesia’s international debt to China, which now stands at 315.1 trillion rupiah ($20.8 billion).

The potential monetary loss can also be paramount. Provided that sufficient persons are enticed to board the trains can the undertaking’s projected breakeven level of 38 years be achieved. If they’re discouraged by skyrocketing ticket costs, which might attain 150,000-350,000 rupiah (between $10 and $23), they could not achieve this. The federal government is planning to discontinue the already accessible cheaper and fashionable choices such because the Argo Parahyangan practice service, which additionally serves the Jakarta-Bandung route for simply 80,000-120,000 rupiah ($5.30-$7.95) so that individuals might be compelled to take the high-speed choice. At the least 5,000 folks have signed a petition opposing the plan on Change.com.

The extension of the high-speed rail eastwards to Surabaya is smart, and many individuals will profit from such a route, particularly provided that quick trains make extra sense over lengthy distances. On the similar time, Indonesia must be cautious in shifting ahead with an extension.

The federal government wants to review whether or not the undertaking is de facto consistent with the wants of the group, notably provided that different modes of transportation are already accessible and have been comparatively profitable over time. The federal government can also be suggested to conduct extra thorough feasibility research, to keep away from the drama and value overruns which have attended the Jakarta-Bandung undertaking.

When taking over tasks of this magnitude, Indonesia ought to train stronger due diligence and decision-making procedures than it did within the case of the Jakarta-Bandung line; billion-dollar tasks shouldn’t solely be undertaken for political causes alone. As an alternative of solely participating with its conventional companions like China or Japan, the Indonesian authorities ought to contemplate partnering with different nations which have efficiently developed quick trains. The final word selection should be supported by an inexpensive monetary evaluation that doesn’t hurt the Indonesian folks or the nation’s fragile atmosphere and has long-term advantages.