Romora Edward Sitorus and A. Prasetyantoko – Indonesia's first high-speed train project is historic but its government now has to prevent it going off the rails as costs spiral and boomerang onto the state and taxpayers.
Indonesia's "Whoosh" is Southeast Asia's first high-speed train, running a 142-kilometre route connecting Jakarta to Bandung. It was initially envisioned to showcase Indonesia's modern transport infrastructure financed through a pure business-to-business (B2B) scheme. Under this structure, the project was expected to proceed without state budget support or sovereign guarantees, with private partners bearing the full financial risk. However, it has since become the acid test for Indonesia's fiscal discipline, exposing whether the 'no state budget' promise remains credible under financial pressure.
The government of Indonesia under then President Joko Widodo awarded in 2015 this mega-project to a Chinese-led consortium. For the Chinese government, it has served not only as a flagship symbol of the Belt and Road Initiative but also as proof of concept for China's ambitions to export its high-speed rail technology. Whoosh's original financing structure consisted of 75 per cent debt and 25 per cent equity, provided through PT Kereta Cepat Indonesia – China (KCIC), a joint venture between a consortium of four Indonesian state-owned enterprises (SOEs) under Pilar Sinergi BUMN Indonesia (PSBI) and the Chinese consortium, Beijing Yawan HSR Co. Ltd. The train was originally expected to start operating in early 2019 but was officially launched only in late 2023 due to land acquisition difficulties, bureaucratic hurdles, and the COVID-19 pandemic.
By the time Whoosh began operations, its project cost had swelled to around US$7.2 billion, making it one of the costliest (per-kilometre, or km) rail projects in the world. Officials calculate the line's cost at roughly US$50-52 million per km, nearly triple that of similar high-speed lines in China and costlier than Spain's high-speed rail line (US$16-18 million/km). Whoosh is cheaper than the United Kingdom's HS2 (around US$250-$300 million/km) and the California High Speed Train (around US$160-180 million/km).
Cost overruns forced the consortium members to plug the financing gap by raising additional equity. Therefore, Indonesia's SOE consortium, PBSI (led by PT KAI), needed to meet their share of the new equity. In 2023, the Indonesian state provided a subsidy of 3.2 trillion rupiah (US$210.66 million) via a capital injection to PT KAI, which amounted to more than one-tenth of the project's total equity, effectively making the state a major equity holder in Whoosh. For context, the 2023 national budget totalled 3,061 trillion rupiah (US$180 billion), meaning the Whoosh subsidy accounted for around 0.1 per cent of national spending. To further support this overrun-related financing, the government issued Finance Ministry Regulation No. 89/2023, allowing state budget funds to be used to guarantee new loans for the project. These steps effectively reversed the project's no-fiscal-risk promise, turning a supposed private venture into a contingent public liability.
The Whoosh project highlights a series of governance weaknesses.
Yet the financial strain did not end there. Despite rising ridership in 2025, Whoosh remains far from being financially viable. The rail service carried 2.9 million passengers in IH2025, up 10 per cent from 2024, but revenues still fell short given its high operating costs and heavy debt burden. Thus KCIC posted a US$98.3 million loss in 1H2025, with PT KAI – holding 58 per cent of the equity stakes – absorbing more than half of it. Since 2024, KCIC has posted losses related to Whoosh's operation. The mounting pressure has pushed the Prabowo Subianto government to now seek more favourable financing terms.
The Whoosh project highlights a series of governance weaknesses. First, the feasibility study contained overly optimistic assumptions and unrealistic cost estimates, yet Indonesia's review and approval process failed to rigorously check them. This created an adverse selection risk, with the winning bidder being the one offering the most unrealistic proposal. The Chinese bid assumed a ridership of 60,000 passengers per day (nearly full occupancy), but actual demand has averaged only 16,000- 21,000 passengers. The bid also omitted key expenses, such as for the GSM-R communications system and land-acquisition taxes, and downplayed competition from existing transport options.
Second, the project's B2B structure masked the reality that Indonesian SOEs were effectively financing a political mandate on their balance sheets. Political pressure to deliver this project led KCIC Board members to keep taking on new, high-interest debt, further deepening the long-term debt burden. This reflects a principal-agent problem, where political principals overrode the SOEs' official commercial mandate.
Third, the project suffered from moral hazard: all major parties behaved as though the Indonesian government would ultimately backstop the debt. Chinese lenders, Indonesian SOEs, and contractors continued to sign off on expensive loans expecting that the state would absorb any shortfall. By converting an implicit guarantee into explicit guarantees and promising state capital injections, the government shifted credit and refinancing risks from lenders and project sponsors to Indonesia's taxpayers. Whoosh's experience makes clear that without disciplined governance and well-designed risk management, even a private project can move substantial fiscal exposure back to the state. As Indonesia pursues larger public-private undertakings, avoiding similar vulnerabilities will require, among other things, stronger fiscal governance. Otherwise, Indonesia's next wave of mega-projects risks repeating the failures seen in Whoosh.
[Romora Edward Sitorus is a Fellow at the School of Government, Economic Research Institute for ASEAN and East Asia (ERIA), Jakarta. A. Prasetyantoko is a Senior Fellow at the Atma Jaya Institute of Public Policy (AJIPP), University of Atma Jaya, Jakarta.]
Source: https://fulcrum.sg/private-investment-public-burden-indonesias-whoosh-lesson