TEMPO.CO, Jakarta- The mega rail project got off to a rocky start because of poor planning. And it looks like the project will miss its scheduled completion deadline set for next year. Even the first loan of US$170 million, or around Rp2.38 trillion, disbursed from the China Development Bank three weeks ago will not help much. It would be nearly impossible to complete such a massive amount of work in a short time: from land acquisition and construction to building residential and shopping centers around the four stations.
It's also important to ensure that the US$6.071billion project will start to make profit once construction is completed. The Kereta Cepat Indonesia China consortium must be able to maintain and operate "bullet trains" economically without tariff subsidies. Should the fast Jakarta-Bandung train operate at a loss, the consortium would find it hard to repay the loan.
Given the volatile exchange rates, taking into account revenues will be in rupiah, foreign-currency loans carry significant risks. The debt of principal loan plus interest would swell should the rupiah remain unstable. Four companies joined in the consortium-Wijaya Karya, Jasa Marga, Kereta Api Indonesia and Perekebunan Nusantara-must dig deeper into their pockets.
The problem is that the four state-owned enterprises (SOEs) are already struggling to pay obligations such as startup capitals, the majority of which were acquired through bonds. Wijaya Karya's obligation, for example, jumped 31 percent to Rp14 trillion last year, after joining the Jakarta-Bandung fast train and the Jakarta mass rapid transit projects.
According to recent news, if an SOE is unable to repay its debt or startup capital, the SOEs ministry must bear responsibility as a shareholder. This implicit guarantee was reportedly why the loan took some time to be disbursed. This scheme is highly regrettable as it contradicts President Joko Widodo's assertion that the project would function under a 'business to business' scheme. The government should not have given said guarantee and instead made sure that the project would not bleed a single cent from the state budget.
If the fast train project is not economically viable, the massive debt of Rp63.74 trillion will only serve as a future burden. But neither is pulling the plug on the project halfway a solution as the consortium has already poured out trillions of rupiah. The rational thing to do now is to come up with a well-designed transit-oriented development plan for each stop to ensure maximum revenues as the consortium cannot rely only on ticket sales.
Another solution is to alter the project's concept to medium-speed train or express train with many stops to drive local economies. If public transport services offer a comfortable, affordable and timely journey, commuters are sure to switch from the use of private vehicles. This would also be an efficient solution to curb fuel consumption.
All these implications should have been taken into consideration at the start. President Joko Widodo should not only pursue high profile projects. With the wrong move, he may end up leaving behind a massive financial burden.
Read the full article in this week's edition of Tempo English Magazine
