Why Indonesia Should be Cautious in Extending its High-Speed 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 basic 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 the 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. At the moment, 4 ministers are finishing up the feasibility research, 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 predominant 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 principle 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 research 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 have a look at it now, China is the one which produces essentially the most high-speed trains on the earth, with 40,000 kilometers,” he mentioned.

Luhut believes that Chinese language companies can be less expensive than their predominant rivals, and even prompt that the development of the extension might price lower than the Bandung-Jakarta line, given the talents and know-how that had been transferred to Indonesia throughout the building 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-Pace Railway remains to be mounting with none clear signal of when it is going to be paid off, as a result of delays and value overruns.

Chinese language companies accomplished the feasibility research for the undertaking in simply 4 months (from Might to August 2015), and Indonesia initially hoped to finish the undertaking by 2019. It shortly grew to become obvious that this is able to not be doable. 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 charge 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-about able to constructing the railway at an affordable worth, because of the unpredictability of the worldwide provide chain and Indonesia’s dependence on imports, the undertaking’s price has risen, putting extra pressure on Indonesia’s economic system. Whereas different nations comparable to Zambia and Malaysia have efficiently renegotiated their money owed with China, the Indonesian authorities has didn’t 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 might attain 6 p.c.

Whereas initially the federal government had promised to not use the state funds 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 individuals 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 obtainable cheaper and well-liked 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 can be pressured 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 sensible, and many individuals will profit from such a route, particularly provided that quick trains make extra sense over lengthy distances. On the identical time, Indonesia must be cautious in transferring ahead with an extension.

The federal government wants to check whether or not the undertaking is actually in step with the wants of the group, notably provided that different modes of transportation are already obtainable 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 up initiatives 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 initiatives shouldn’t solely be undertaken for political causes alone. As an alternative of solely partaking with its conventional companions like China or Japan, the Indonesian authorities ought to take into account partnering with different nations which have efficiently developed quick trains. The last word alternative should be supported by an affordable monetary evaluation that doesn’t hurt the Indonesian folks or the nation’s fragile atmosphere and has long-term advantages.