Pacific Money | Economy | Southeast Asia

Indonesian Capital Plan Throws China-Backed Rail Link Into Disarray

The Chinese-Indonesian consortium building the Jakarta-Bandung High-Speed Rail line says that projected demand has fallen by nearly half.

Indonesian Capital Plan Throws China-Backed Rail Link Into Disarray

Indonesian Muslim women pose for a photo near the model of the high-speed train which will connect the capital city of Jakarta to the country’s fourth largest city, Bandung, during the groundbreaking ceremony for the construction of its railway in Cikalong Wetan, West Java, Indonesia, Jan. 21, 2016.

Credit: AP Photo/Dita Alangkara
, Dwiyana Slamet Riyadi, the president director of KCIC, told a parliamentary hearing on Monday that the projected demand for the railway, based on a recent third-party review, had fallen to just 31,215 passenger trips per day, just over half of the 61,157 estimated in a 2017 feasibility study.

“Looking at the investment value, number of passengers and ticket prices, it’s very difficult to follow the earlier feasibility study where the assumption of a return on investment will occur within 20 years,” Riyadi , noting that the time taken to reach the break-even point for the project was now projected to take around twice as long.

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Riyadi also confirmed by the state-owned railway operator Kereta Api Indonesia (KAI), which is part of the KCIC consortium, that the project faces a serious cost overrun, with its total price tag likely to come to $7.9 billion, more than $2 billion more than the $5.5 billion expected  when the project was first agreed in 2015.

Delays and cost overruns have plagued the Jakarta-Bandung High-Speed Rail project since Jokowi awarded the contract to a consortium of Chinese state firms in 2015, over a competing Japanese bid. In October, the Indonesian government announced that it would use the state budget to cover the ballooning costs on the project, prompting calls for the government to renegotiate the project with Chinese leader Xi Jinping. Most of the price changes are due to the rising prices of materials and machinery, COVID-19-induced labor shortages, and delays caused by the complex process of land acquisition along the railway line.

According to KCIC, the control of which is split 60-40 between Indonesian and Chinese state-owned enterprises, the project was nearly 80 percent complete as of the beginning of this year. Reuters that KCIC plans to commence a trial run on part of the line by the end of this year and to complete the project by June 2023 – just in time for the tenth anniversary of the BRI.