TEMPO.CO, Jakarta - The government should reject the planned Jakarta-Bandung high speed railway megaproject. The Rp80 trillion project is more of a showpiece than public transportation. Given the current uncertain economic condition, the government can ill-afford to do any grandstanding. Such a huge sum of money would be better spent building a 400-kilometer toll road in Sumatra, four ports in Kalimantan or railroads in Papua, Kalimantan and Sulawesi, as well as three dams. The multiplier effect on the people's economy from all of those projects would be far greater than that from the Jakarta-Bandung railway.
Clearly, the 150-kilometer distance from the capital city to Bandung would not allow a 350-kilometer-per-hour 'bullet train' to reach its maximum speed because it would have to stop at four stations down from eight stations as originally planned. This would mean the high-speed train would only operate at 'fairly fast' or 'normal' speeds. Moreover, the benefits from such a massive investment are not clear. It would be better to improve and upgrade the existing Jakarta-Bandung line, and to increase the speed of the conventional trains already in service. After all, the Cipularang toll road, which has greatly reduced automobile travel time, has been in operation since 2005.
Another important issue here is that of funding. From the outset, President Joko Widodo has been right to reject the use of state budget funds to pay for this project. Subsequently, State-Owned Enterprises (SOEs) Minister Rini Soemarno formed a consortium of SOEs to build and seek investors to underwrite it. It is this consortium that will enter into loan agreements with state enterprises from donor countries, strongest among them are China and Japan. Reportedly, the SOE consortium plans to borrow US$2.51 billion, or Rp35.14 trillion at the exchange rate of Rp14,000 to the US dollar.
The long, 40-year loans will come with sweeteners, such as a 10-year grace period before payments are due, along with attractive interest rates. Naturally, the SOEs will put some capital of their own into the project and provide the land for the railroad tracks and new housing as part of the Jakarta-Bandung railroad business.
If the project makes money, there would be no problem. But the business may incur losses if targets are missed. It will certainly not be easy for the consortium of four SOEs Wijaya Karya, Jasa Marga, Kereta Api Indonesia and Perkebunan Nusantara VIII under the banner of Pilar Sinergy BUMN Indonesia to achieve their target of 61,000 passengers per day.
According to data from the Transportation Studies Institute, every day around 145,000 people travel between Jakarta and Bandung. Of these, 85 percent use private vehicles. Only between 2,000 and 2,500 people travel by train. In fact, fewer than 20,000 people use public transportation. Even if 50 percent of public transport commuters switch to the high-speed train, this would only mean 10,000 passengers far below the consortium's target. And train tickets would be around Rp200,000-Rp220,000, which is not cheap compared to current public transportation fares.
If the passenger numbers target is not reached, the project will lose money quickly. If the losses are large and result in disruptions to the SOE's operations, the government, as its majority shareholder, will unlikely allow business to continue. Last week, for example, the government asked for approval from the House of Representatives (DPR) to provide more than Rp34 trillion of state asset participation funds to 23 SOEs, including loss-making government companies. So in the case of the Jakarta-Bandung railway, although the government has declared from the start that it will not use state budget funds, if the project does incur huge losses, it is bound to do something to bail the project out.
Additionally, the consortium may face problems servicing its overseas debts. With the rupiah exchange rate fluctuating, borrowing large amounts of foreign currency while revenues are in rupiah is a huge risk. The debt repayments could multiply in size if the rupiah continues to be as unstable as it is now.
The Jakarta-Bandung high-speed railway project should be canned and replaced with a longer route, such as Jakarta to Surabaya. With a distance of 1,000 kilometers, the 'bullet train' can truly become a super-fast train. It even makes better business sense, given the higher passenger numbers than on the Jakarta-Bandung route. (*)
Read the complete story in this week's ediion of Tempo English Magazine
