Ride to profitability for China-backed Indonesian rail project may take 40 years

Move to new capital in Borneo would drastically reduce the number of potential riders on high-speed rail line.
2022.02.14
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Ride to profitability for China-backed Indonesian rail project may take 40 years A passenger train crosses a bridge as it travels from Jakarta to Bandung near Padalarang, West Java, in Indonesia Aug. 25, 2015.
Reuters

China’s flagship high-speed rail project in Indonesia is expected to become profitable 40 years after completion – not 20 as earlier projected – partly because plans to shift the capital to Borneo could sharply reduce the number of riders, a consortium building it said Monday.

Moving the seat of government away from Jakarta would nearly halve the projected number of passengers using the railway connecting Jakarta to Bandung in West Java because many government employees are expected to relocate to the new capital, said a spokesman for the project. As it is, construction of the railway, which has been dogged by criticism and delays from the start, has gone U.S. $2 billion over budget and swollen to $8 billion.

One way for the company to reach profitability faster would be by optimizing other revenue streams, said Rahadian Ratry, who represents PT Kereta Cepat Indonesia China (KCIC), a joint venture of Indonesian and Chinese consortiums building the railway.

“For profitability, we will not only rely on farebox revenue,” Rahadian told BenarNews, referring to revenue from people who pay the fares.

“There are also other non-farebox components that can be optimized,” he said, citing commercialization of space at stations as a potential source of revenue.

If other avenues are not explored “it’s very difficult to follow the earlier feasibility study where the assumption of a return on investment will occur within 20 years [of construction],” Dwiyana Slamet Riyadi, president director of PT KCIC, told a parliamentary hearing on Feb. 7, according to the Reuters news agency.

Last month, Indonesia’s parliament passed a law to move the national capital from traffic-clogged and crowded Jakarta to a forested region in Kalimantan, the Indonesian section of Borneo Island, as President Joko “Jokowi” Widodo had first announced in 2019.

The National Development Planning Agency projected that by 2045, the new capital Nusantara would have a population of 1.9 million – about 10 times the area’s current number. The population of surrounding East Kalimantan province is expected to grow to 11 million, from 3.7 million today, according to the agency.

A large chunk of that future population would be government employees who are expected to move to the new capital from Jakarta and its surrounding areas. Many of these people who would have used a portion of the Jakarta-Bandung high-speed railway would have no use for it once they move to Nusantara.

A recent study conducted by the Center for Engineering Services at the University of Indonesia has projected the demand for the railway at 31,215 passenger trips per day – around half the company’s initial estimate of 61,157 made in 2017 – spokesman Rahadian said.

The new study also said that one-way ticket costs should be set at 150,000-350,000 rupiah ($10.48-$24.4) for the rail line to be commercially viable in 40 years.

The 89-mile (143.2 km) Jakarta-Bandung rail line is expected to slash travel time between the Indonesian capital and Bandung to 40 minutes from three hours, officials said. Jokowi said last month that the project was about 80 percent finished and expected to be operational next June.

The project is part of Beijing’s estimated $1 trillion-plus Belt and Road Initiative infrastructure program to build a network of railways, ports and bridges across 70 countries.

‘Another financial burden’

Djoko Setijowarno, an expert at the Indonesian Transportation Society (MTI), said it was not unusual for a transportation project to take a long time to turn a profit.

“In fact, railways built during the Dutch era were only profitable 100 years later,” Djoko told BenarNews, an RFA-affiliated online news service.

“My prediction is it will only be profitable in 70 years.”

But Eko Listiyanto, an economist at the Institute for Development of Economics and Finance (INDEF), said the long road to profitability should not be used an excuse for government subsidies.

“If that happens, it will become another financial burden for the government,” he said.

Eko said that the government should have taken into account business viability before deciding to inject the project with more money from state coffers.

In October, President Jokowi decided to allow the government to share the cost of the railway project, contradicting an earlier pledge and decree in 2015 that prohibited the use of state funds for it. A presidential spokesman said Jokowi’s directive would allow the project to be completed.

A month after, the finance minister told a parliamentary panel that the government had decided to inject 4.3 trillion rupiah ($299 million) to the project. Critics had expressed concern that the move could deplete state coffers and lead Indonesia into a debt trap.

Meanwhile, The Jakarta Post reported last week that more capital needed to be injected into the project to deal with the cost increases, but such a request was pending an audit from the Development Finance Comptroller.

Separately, the consortium building the Jakarta-Bandung high-speed rail has appointed the China Railway Design Corporation (CRDC) and international auditing firm KPMG International to update the project’s feasibility by taking into account the changes over the last five years. The post reported.

Reported by BenarNews, an RFA-affiliated online news service.

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