Indonesia presses China for more investment in high-speed railways

Jakarta — One year after the opening of Indonesia's first high-speed railway that connects Jakarta to Bandung, named Whoosh, Indonesia is courting China to invest in an extension of the line eastward to the port city of Surabaya in East Java.

The rail service is one of former President Joko Widodo's flagship infrastructure projects and part of China's Belt and Road Initiative. The Whoosh attracted over 4 million passengers in its first year, and the government has added more trips.

Currently, the government is carrying out a feasibility study to extend the Jakarta-Bandung line to Surabaya in hopes of increasing use of the rail service. The extension would cut the journey from Jakarta to the port city from eight hours to only four.

Danang Parikesit, professor of transport policy at Gajah Mada University, said the extension to Surabaya would have a positive economic impact, especially on cities where high-speed rail stations are located. "This will further push the economic integration of Java and maintain the growth momentum for Indonesia in the service and trade sector."

Indonesia pitched three major railway projects during a rail expo in Shanghai in June. The projects include interconnecting the high-speed train, Whoosh, to urban railway systems in Bandung, an airport line in the future capital city of Nusantara, and an urban railway connecting Nusantara to neighboring cities.

Transportation Ministry and Railways Director General Risal Wasal said these projects were part of the ministry's strategic plans for 2024-2029.

The Bandung railway is projected to have an investment return rate of 11.9% and the government will support it with a viability gap fund covering 49% of the costs, according to the ministry.

"With such potential, we invite you to participate in the Bandung Urban Railway project through a public-private partnership (PPP) scheme with a concession period of up to 30 years," Risal said in a statement to potential private investors.

Danang added, "Our transportation infrastructures face a backlog for many years and reduced our competitiveness in goods and services, both domestic and international.

"Indonesia's long-term development plans will be able to cut logistical costs by half. That's why we need international partners to invest and improve our highways, railways system, ports and airports as well as other infrastructures like gas pipes and floating storage."

Chinese investment in Bali and Nusantara

In August, an Autonomous Rail Rapid Transit system, or ART, funded by China, was showcased at Indonesia's 79th Independence Day celebrations in Nusantara.

Other growing urban cities, such as Bali, are also courting China to build its first Light Rail Transit, or LRT, system. The state-owned China Railway Construction Corporation (CRRC), involved in the construction of the Jakarta-Bandung high speed railway, is set to participate in building Bali's LRT system.

However, Danang warned that over-dependence on China's investment will not be sustainable.

"Diversifying and extending partnership with other countries will provide a better base for our future transportation development. So I believe, we need to balance between the urgent need for our transport investment and to diversify our partnership, taking the best of what different countries can offer," he explained.

China overtaking Japan in Indonesia's railway sector

China is not only making strides in building new railways but is also playing a growing role in replacing the aging fleet of the Greater Jakarta Commuter Line, according to some experts.

Research done by the University of Malang found that Japan, through official development assistance loans, has helped Indonesia in rail modernization projects in Jakarta, Bogor, Depok, Tangerang and Bekasi (Jabodetabek) areas.

But Fadlan Muzakki, a researcher at the ASEAN-China Research Center of Universitas Indonesia, said China is now surpassing Japan in developing the nation's railway sector.

"Indonesia chose China because China offered to transfer technical knowledge to Indonesia without any condition or complicated requirements and they were persistent in their lobby efforts," he said.

Fadlan's research indicates that Japan was willing to fully transfer knowledge of its train technology if Indonesia had paid 25% to 30% of its debt. That means Indonesia would have needed to wait at least five to 10 years before the technology transfer was completely provided.

As a result, in February, PT Kereta Commuter Indonesia, a subsidiary of PT Kereta Api Indonesia, signed an agreement with China's CRRC to purchase three complete trains for $49.15 billion. Five months later, it decided to procure another eight trains.

Fadlan warned that Indonesia should not become overly reliant on Chinese investment in the transportation sector. He suggested that Indonesia diversify its investment sources, allow for public fundraising, and implement strong risk assessment and negotiation strategies when dealing with Chinese investors.

According to Mark Green, president of the Wilson Center, 10 years into the Belt and Road Initiative, 80% of China's government loans to developing countries have gone to nations in debt distress, further exacerbating economic problems such as inflation, currency depreciation and rising poverty levels.

Djoko Setijowarno, a transportation analyst, agreed that Indonesia should further develop the state-owned train manufacturing company, PT Industri Kereta Api (INKA), to meet Indonesia's growing demand for trains rather than merely importing trains from China. INKA has exported trains worth $72.39 million to Bangladesh and worth over $26 million to the Philippines.

Danang pointed out that Indonesia has set its next 20-year development plan with hopes to become a high-income country in 2045. He said that increased transport investment that will boost the country's competitiveness in the global market and reduce economic disparities among regions and social classes will be instrumental to achieve this target.