Jakarta may offer China larger stake in high-speed rail project

A worker walking along a tunnel inside the Mass Rapid Transportation (MRT) project in Jakarta.
A worker walking along a tunnel inside the Mass Rapid Transportation (MRT) project in Jakarta.PHOTO: THE JAKARTA POST DIGITAL

Move being studied as costs rise; it will reduce risks for Indonesia

Indonesia may offer China a majority stake, possibly up to 90 per cent, in the Jakarta-Bandung high-speed rail (HSR), to speed things up and reduce its risks.

President Joko Widodo told his Cabinet on Tuesday to evaluate the viability of offering the Chinese consortium involved in the joint venture the larger stake, said a media report yesterday.

Public Works Minister Basuki Hadimuljono told Katadata, a Jakarta-based online business-economic research firm: "Now, 60 per cent is held by state-owned enterprises and 40 per cent by the Chinese, so the President suggested why not Indonesia just take 10 per cent and 90 per cent can go to China, to reduce the risk on Indonesia's side?"

This comes after the cost of the HSR, which will cut travel time between the two cities from about two hours by car to just 36 minutes, rose from US$5.2 billion (S$7.1 billion) to almost US$6 billion. As a result, construction has been at a snail's pace since its launch in late 2015.

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The plan is for the 142.3km rail line to be completed by 2019 to become the first HSR in South-east Asia.

According to the Katadata report, Mr Basuki said Mr Joko asked Coordinating Maritime Affairs Minister Luhut Pandjaitan and State-Owned Enterprise Minister Rini Soemarno to work on a detailed calculation of the revised shareholding, and report back within a week.

Mr Joko also asked for a more thorough study of how prospective revenue for the project will be derived, particularly from its transit-oriented developments, which refer to the commercial space that will be built at each train station and leased out, under the joint venture.

Mr Basuki said these developments are important because, if the rail business is the project's only revenue stream, it will break even in only 10 years to 15 years.

The Jakarta-Bandung railway is part of Mr Joko's ambitious infrastructure development plan, which includes the building of major dams, toll roads and sea ports.

The Jakarta-Bandung line is expected to boost Indonesia's manufacturing sector and create hundreds of thousands of jobs.

A loan from China Development Bank takes care of 75 per cent of the project cost, while the Indonesia- China joint venture, Kereta Cepat Indonesia China, covers the rest.

China has been keen to export its HSR technology, making it a major plank of its One Belt, One Road initiative to revive trade from Asia to Europe.

If the Chinese investors increase their stake, as suggested by Mr Joko, they will have to contribute more cash towards the venture's higher costs.

On Tuesday, a government official told The Straits Times on condition of anonymity that costs had gone up due to the need to build a major tunnel for trains to pass through "a high-ground area", elevate parts of the tracks and acquire more land from private parties.

Giving Chinese investors the majority stake would be a breakthrough to move the project along, he said, adding that Indonesia's state-controlled firms have been tasked to build other infrastructure projects and find it hard to inject more cash into the rail venture.

"There should not be any issue in giving China a majority stake because it's not as if they can take with them this railway project back to China," the official said.

"Besides, the project is on a Build-Operate-Transfer arrangement, meaning in this case, after 50 years, the full ownership of the project will be transferred to the Indonesian government."

On Tuesday, Mr Luhut said the Japan International Cooperation Agency will work with Indonesia to conduct a feasibility study on a second HSR linking Jakarta to Indonesia's second-largest city, Surabaya.

The Indonesian government is mulling over whether the train will be powered by diesel, which will cost US$2.2 billion, or electricity, which will increase the cost to US$5.9 billion.

A version of this article appeared in the print edition of The Straits Times on July 27, 2017, with the headline 'Jakarta may offer China larger stake in high-speed rail project'. Print Edition | Subscribe