Indonesia turns to state budget for rail project on cost overrun

Indonesia plans to allocate the budget to help fund the Jakarta-Bandung fast train project as investment costs jump, reversing a decision six years ago to not use state money when it granted the contract to a China-led consortium.  

In a decree signed by President Joko Widodo on Oct. 6, the government will inject more capital, or provide financial guarantees to the Indonesian state-owned companies that are part of the consortium led by China Railway International Co. 

The change in funding plan is required for the project to be completed on schedule, as redesign and land acquisitions led to a $1.9 billion increase in investment spending and state companies were unable to bear the additional costs due to the pandemic, Kontan newspaper reported on Wednesday, citing Arya Sinulingga, a special staff at the State-owned Enterprises Ministry. The initial investment cost was estimated at $6.07 billion.

Under the original plan, China Development Bank was to cover three quarters of the funding, and the project didn’t need an Indonesian state guarantee. The train would run at 250 kilometers an hour, with eight stops and a fare of around $16. 

The new decree also stated that railway operator PT Kereta Api Indonesia is leading the state firms in the consortium, replacing state builder PT Wijaya Karya. It named Coordinating Minister for Maritime Affairs and Investment, currently held by Luhut Panjaitan, as head of a committee assigned to ensure state companies meet their capital obligations when needed.

Finance Ministry plans to inject 6.9 trillion rupiah ($485 million) of capital into Kereta Api this year, which will form mainly the base equity in PT Kereta Cepat Indonesia-China, the operator of the Jakarta-Bandung fast train project.