Indonesia and China have reached an agreement on the cost overrun for the Jakarta-Bandung High Speed Train (KCJB) project of US$ 1.2 billion, or IDR 18.24 trillion, from the previous estimation of IDR 113 trillion to IDR 131 trillion.
“We agree on a cost overrun of US$ 1.2 billion. This is what we are currently working on. So they [China] really want to conduct studies related to taxes, clearing frequency and so on, but they have agreed on the number,” State-Owned Enterprises Deputy Minister Kartika “Tiko” Wirjoatmodjo told a hearing with the House of Representatives (DPR) Commission VI overseeing industry, investment and business competition on February 13, 2023.
After reaching the agreement, Wirjoatmodjo said that the subsequent step would be submitting a loan or debt application to the China Development Bank (CDB).
During the KCJB Committee meeting, the members agreed that the cost overruns for the project would be covered by 25% of the equity from the Chinese and Indonesian consortium, with the remaining 75% through loans or debts.
Indonesia and China have agreed to split the loan portion of the cost increase, with the Indonesian consortium providing 60% and the Chinese consortium 40%. Wirjoatmodjo said the total loan to be submitted by the Indonesian consortium to CDB is US$ 550 million.
Concerns over debt trap
The KCJB project is a major high-speed railway infrastructure project in Indonesia, and a significant portion of its funding is expected to come from loans from the Chinese government and the China Development Bank.
Some critics argue that the high levels of debt could become unsustainable, leading to a situation where Indonesia is unable to repay the loans and becomes trapped in a cycle of debt. This could have a significant impact on Indonesia’s economic growth and development and limit its ability to invest in other important areas.
Additionally, there are concerns that the project is overly reliant on Chinese technology and expertise, which could limit Indonesia’s ability to develop its own domestic capabilities in these areas. These concerns have led to some controversy and debate surrounding the KCJB project and have prompted some stakeholders to call for greater transparency and accountability in the project’s financing and implementation.
Controversies
The high-speed train project was first proposed in 2008 to connect Jakarta and Bandung, which is only 150 kilometers away. It is a joint venture between the Indonesian government and a consortium of Chinese state-owned enterprises.
Over the years, the KCJB project has been mired in controversies, including concerns about the selection process for the Chinese consortium, as well as issues related to land acquisition and environmental impact. In addition, there have been questions raised about the project’s economic viability and the level of involvement of local businesses.
The KCJB project has also been the subject of a competitive battle between China and Japan, two major players in the global high-speed rail industry. Japan had originally been a strong contender for the KCJB project, offering a package that included the Shinkansen bullet train technology and a lower price tag than the Chinese consortium.
However, in 2015, the Indonesian government ultimately chose the Chinese consortium, which offered a faster construction timeline and a higher level of funding. This decision was seen by many as a blow to Japan’s ambitions in the Southeast Asian high-speed rail market, as well as a sign of China’s growing influence in the region.
Despite these challenges, the KCJB project has continued to move forward, with construction officially beginning in January 2016. As of 2023, the project is currently in the finalization stage, with the target completion date set for June or July 2023.
Pros and cons
These are some of the pros and cons of KCJB project that could be considered, including:
- Pros
- Improved transportation: The KCJB project aims to provide a high-speed rail link between Jakarta and Bandung, which could significantly improve transportation options for people traveling between the two cities.
- Boost to local economy: The project could also have a positive impact on the local economy, by creating jobs and stimulating economic growth in the areas around the railway.
- Partnership with China: The project is a major partnership between Indonesia and China, which could help to strengthen economic and political ties between the two nations.
- Use of advanced technology: The KCJB project incorporates advanced high-speed rail technology, which could be a source of pride for Indonesia and help the country to develop its engineering and technical capabilities.
- Cons
- High cost: The KCJB project has seen significant cost overruns, with the budget increasing from an initial estimate of IDR 60 trillion to IDR 131 trillion. This has led to concerns about the economic viability of the project and the potential burden it could place on Indonesian taxpayers.
- Land acquisition issues: The KCJB project has faced challenges related to land acquisition, with some residents and landowners expressing concerns about the compensation they have received and the impact of the railway on their communities.
- Environmental impact: There are also concerns about the potential environmental impact of the KCJB project, particularly with regards to the disruption of ecosystems and natural habitats along the railway’s route.
- Political controversies: The selection of the Chinese consortium for the KCJB project has been criticized by some, who allege that the decision was influenced by political considerations rather than technical or economic factors. This has led to questions about the transparency and fairness of the selection process.
