Indonesia’s mega fast-rail project runs into trouble

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Indonesia's creaking railway network desperately needs to be upgraded. Photo: iStock

What China wants these days, it usually gets. But not, it seems, in Indonesia and not when it involves buying land for infrastructure ventures, particularly when money fails to talk.

After being pushed out of the 142-kilometer Jakarta-Bandung fast-rail project for seeking sovereign guarantees, the Japanese must be smiling behind their hands now China finds itself hamstrung by an issue it should have seen coming.

As much as President Xi Jinping complains to Indonesian counterpart Joko Widodo about the slow progress, the US$5.9 billion venture will not be going anywhere until PT Kereta Cepat Indondesia-China (KCIC) acquires at least 210 hectares of prime industrial land on Jakarta’s eastern outskirts.

Overall, the joint-venture developer needs at least 550 hectares spread across nine cities and districts along the route of the planned rail link. This was originally supposed to have been completed in time for the 2019 legislative and presidential elections.

But it is not the first time a major project has suffered long delays over land acquisition. Japanese developers Adaro Energy spent three years haggling over the price for a 10% stake in the site of a $4 billion, 2,000 megawatts coal-fired power station on Java’s northern coast.

Transport experts believe buying the land is crucial, not only to secure the right of way for the rail track, but more importantly for the sort of associated commercial and residential development that is necessary to make the project financially viable.

With fares unable to cover costs, so-called transit-orientated development has been incredibly successful in building Hong Kong’s Mass Transit Railway (MRT) network and other similar projects around the world, which otherwise could not have survived without state subsidies.

Under Indonesia’s 2012 Property Law, the concept of eminent domain can only be applied if acquiring land is in the public interest. In this case, the rail track may qualify, but the property needed for a money-making commercial development is not.

Apart from the property around Cikampek and Karawang, which will be utilized for both the right-of-way and associated development, another 330 hectares of rice paddies, forest and residential land has still to be acquired at the Bandung end of the line.

Industrial estates are already complaining about the railway cutting across their access, while land-owners refuse to accept the low prices they are being offered. And the firm hired to make the acquisitions is not even registered with the Justice Ministry.

A China Development Bank loan will cover 75% of the total funding, with 60% of the 20 trillion Indonesian rupiahs ($1.5 billion) in equity coming from four state-owned construction, railway, toll-road and plantation companies. The rest is from the Chinese consortium Beijing Yawan High Speed Rail.

But now, $800 million has been added to the original cost and Widodo wants the Chinese to boost their equity stake from 40% to 90%. This is obviously a clear admission that state firms are struggling financially after taking the lead role in this ambitious infrastructure program.

Even a third of the Rp12 trillion those four companies are now committed to is in-kind, representing land made available by plantation firm PT Perkebunan Nusaantara, and state-run toll road operator PT Jasa Marga, along various sections of the route.

Both sides are still talking about the change in stake-holding, but as one senior Indonesian official told Asia Times: “Acquiring the land is a nightmare. It was all too optimistic. I can’t see how Rini (State Enterprise Minister Soemarno) can solve this problem. It might take four to five years.”

As with the framework agreement reached with mining giant Freeport, which never touched on the key issue of valuation, the Indonesians are indulging in the now familiar practice of making it appear progress is being made.

In January 2016, Widodo attended a ground-breaking ritual that was meant to launch the project, even though it was clear then there were many obstacles to overcome. Last July, Soemarno attended a similar ceremony marking the start of construction of a rail tunnel 25 kilometers west of Bandung.

A presidential favourite who actively pushed for China’s involvement after Widodo at one point canceled the whole project in 2015, Soemarno has denied reports the China Development Bank is withholding loan disbursements until the land procurement process has been completed.

But government sources familiar with the project say the Chinese are currently providing only bridging funds to cover the cost of the detailed engineering design, which has widened the right of way from 4.5 to five meters, and other preparatory work.

Japan’s original 2008 study had the new link starting at central Jakarta’s Gambir station and proceeding underground through the inner city. Once above ground, it would follow the existing rail track to Cikampek, 75kms east of Jakarta, before turning south through the mountains to Bandung.

But the complications involved in running fast-rail through urban areas has forced the Chinese-led joint venture to move the departure point southwest to Halim. The site is an airbase which doubles as a second international airport in the southern suburbs.

That will be a deterrent to many potential passengers traveling to and from Bandung, Indonesia’s fourth biggest city. Braving heavy traffic to Halim from other parts of the overcrowded city will multiply travel time and make alternative modes of transport more attractive.

Although the design speed is now expected to be reduced to an average of 250 kilometers per hour, the straighter alignment demanded by fast-rail means the railway will run on new tracks, with 71.6kms at ground level, 53.5kms elevated and 15.6kms underground tunnels.

Even then, there will be major engineering challenges, most of them presented by the tunneling and deep cuts required in unstable mountain soil. In the early 2000s, for example, a landslide carried away a 300-meter stretch of a newly-laid double track.

The delays also mean it will fall well behind other complementary projects in the Cikampek-Kawarang area, including the $2.6 billion Kertajati International Airport, the new container port of Patimban and the Lippo Group’s state-of-the-art Meikarta city.

The airport is expected to open next year, relieving some of the pressure on Jakarta’s main Soekarno-Hatta airport, which is already undergoing a major expansion to handle 60 million passengers a year. But that is still short of the 100 million expected in 2020.

As for Japanese investment, it is already concentrated around manufacturing plants in the Cikarang-Cikampek-Karawang industrial corridor. In fact, Japan is funding the $1 billion first phase of the new port that is scheduled to be completed in early 2019.

Yet still on hold is a proposed $25 billion medium-fast rail link between Jakarta and Surabaya, offered to the Japanese earlier this year as compensation for missing out on the Jakarta-Bandung project, which outraged the Tokyo Government.

The new line is designed to cut the time for the 685-kilometer journey to Indonesia’s second biggest city from 12 hours to five hours, but at least 70 percent of the track might need to be elevated to avoid nearly 1,000 level crossings along the route.

The good news is if it ever goes ahead, it will likely follow the same right of way as the existing double-track rail line, without the need for acquiring large parcels of land. In that, the Japanese could have the last laugh.

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