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As Xi visit draws near, delays haunt Jakarta-Bandung rail project

Jakarta Post - November 4, 2022

Vincent Fabian Thomas, Jakarta – Years behind schedule, the high-speed railway link to connect Jakarta with Bandung is set for a trial this month in preparation for commercial operations planned to commence in June of next year. However, experts have not ruled out further delays.

The dry run is to commence on Nov. 16, coinciding with the Group of Twenty Summit and allowing the government to showcase the Indonesian-Chinese project to leaders from major economies.

The stakes are high, with Chinese President Xi Jinping set to personally oversee the event online from Bali.

Just days ahead of the trial, however, a protracted discussion on cost overrun still plagues the project, with the Indonesian and Chinese sides presenting different figures.

Presentation material from the State-Owned Enterprises (SOEs) Ministry puts the cost overrun at US$1.45 billion based on two assessments from the Development Finance Comptroller (BPKP).

According to separate document seen by The Jakarta Post, that figure could jump to $1.9 billion if a third assessment were conducted to include more factors, like interest rate hikes. The same document states that the Chinese side put the figure at $982 million.

The cost overrun is on top of the initial project cost estimate of $6 billion.

"The numbers vary, because China and Indonesia each have different assumptions on what things to count as costs. Talks [to resolve the discrepancy] are underway," Rahadian Ratry, spokesperson of PT Kereta Cepat Indonesia China (KCIC), the consortium responsible for the project, told the Post on Oct. 27.

For instance, China has dedicated frequencies for its high-speed railway system that operators can use free of charge. In Indonesia, such frequencies have price tags, and there are costs to set up a specified frequency free of interference, as the railway signals use similar technology to mobile networks.

Other elements added in the Indonesian calculation are the costs to build new electricity transmission lines and to clear land for public facilities.

The Development Finance Comptroller (BPKP), which has been tasked with reviewing the project, said the first two assessments accounted for the project's multiple delays, tax exposure and the effect of the introduction of new rules.

Aryanto Wibowo, director of supervision of business entities, connectivity, tourism, industrial estates and housing at the BPKP, told the Post on Oct. 27 that his office had yet to receive a formal request for a third assessment.

The unresolved discrepancy has made the Indonesian government reluctant to proceed with another state capital injection, which has been estimated to amount to at least Rp 3.2 trillion ($205 million).

House of Representatives Commission VI, which oversees state-owned enterprises (SOEs), withheld support for the injection during a meeting in Nov. 1.

Deputy SOEs Minister Kartika Wirjoatmodjo admitted that KCIC may run into cash flow problems as early as this month and said that, without the injection, the project would almost certainly be pushed back beyond June of next year.

"We need to speed up [the disbursement]. If the process does not start now, so that the injection can be disbursed by June next year, then the project will be pushed back to the end of 2023," Kartika told lawmakers at the House on Nov. 1.

Didiek Hartantyo, the CEO of state-owned railway company PT KAI, issued a similar warning on July 6, saying the project may face more delays if no state capital injection was made this year.

The agreed scheme for plugging the cost gap is to source 25 percent from KCIC's own equity and the rest from loans. If KCIC were in financial distress, China Development Bank (CDB) would be unable to provide more loans.

To make the project more economically attractive, the government has announced considerations to extend the railway connection to Surabaya and provide loan guarantees.

According to unconfirmed reports, it may also prolong the concession period from 50 years to between 70 and 80 years.

KCIC's Rahadian did not deny the latter, but said the consortium still needed to wait for confirmation as the matter was related to ongoing talks.

Rionald Silaban, state assets director general at the Finance Ministry, told reporters on Nov. 1 that he was unable to confirm when the injection might take place, saying that the BPKP's evaluation would be reviewed first by the high-speed railway committee.

Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan, who also heads the high-speed railway committee, claimed on Oct. 28 that the cost overrun issue had been settled and the project was proceeding well, despite other ministries saying otherwise.

"Not really, we already found the number [to solve the discrepancy]," Luhut told reporters, adding that he was sure the current schedule would be met.

Given the cost overrun and financing issues, experts have expressed doubt that the project will meet the now-targeted 2023 deadline.

"From the outset, it was not well planned. We can see signs of recklessness and that it was carried out too hastily," Wilmar A. Salim, senior lecturer at Bandung Institute of Technology's (ITB) Regional and City Planning Department, told the Post on Oct. 27.

Even once all cost overrun problems were settled, Wilmar noted, Indonesia and China would need to think about how to cover the cost of operating the railway in the long run.

He said the project could face prolonged challenges to achieving the ridership needed to support itself and might require sustained funding from the shareholders to keep it running for a lengthy period of time.

He argued that toll roads and existing railway services were an affordable option for most people traveling in the corridor between Jakarta and Bandung.

Moreover, Tegaluar, the final station of the high-speed line, was still an hour's drive from Bandung. Djoko Setijowarno, a transportation expert from Soegijapranata Catholic University, said on Nov. 1 that the line might have a surge of passengers in the early days of operations as people would be keen to try it out, but more needed to be done in the long run.

The government might want to consider reducing the capacity of conventional railway services between Jakarta and Bandung to get some passengers to shift to the high-speed trains, he said, adding that drastically improving public transportation around Bandung and Tegaluar was equally urgent.

Siwage Dharma Negara, co-coordinator for the Indonesia Studies Program at the Singapore-based ISEAS-Yusof Ishak Institute, said Indonesia and China would strive to prevent the project from failing at all costs, or at least create the impression of success.

He argued that China saw the project as a way to demonstrate its technological prowess, given the fact that the line in Indonesia would be the first of its kind in the ASEAN region.

As for Indonesia, the success of the project would benefit those currently in power ahead of the 2024 elections.

"We could see from the start that the project was politically driven. Despite many knowing it would be problematic from the economic side, the project carries on," Siwage told the Post.

"Now, both will do whatever it takes to save the project, or risk hurting their image," he added.

Chinese Ambassador to Indonesia Lu Kang told reporters on Oct. 28 that both parties would walk together to address any difficulties in the project through mutually beneficial consultation.

"Actually, all problems are being discussed between the two governments, between all parties concerned, including construction firms. Don't worry," he told reporters.

Source: https://asianews.network/as-xi-visit-draws-near-delays-haunt-jakarta-bandung-rail-project