Name: Jakarta–Bandung High-Speed Railway
Location: Jakarta to Bandung, West Java Province, Indonesia
Type of Project: Transportation
Project Developer(s): PT Kereta Cepat Indonesia China (KCIC), a 60–40 joint venture between a consortium of Indonesian state-owned enterprises (SOEs) through PT Pilar Sinergi BUMN (PSBI) and a consortium of Chinese SOEs through Beijing Yawan HSR Co. Ltd.
Main Contractor(s): High-Speed Railway Contractor Consortium (HSRCC), a consortium between Indonesian company PT Wijaya Karya (30%) and several Chinese companies (70%), including China Railway International Co. Ltd, CREC, Sinohydro Corporation Limited, China Railway Design Corporation (another subsidiary of CR), CRRC Sifang Co. Ltd (a subsidiary of CRRC), and CRSC.
Known Financier(s): China Development Bank
Cost: 6.1 billion USD (estimate as of 2021, from an initial estimate of 5.5 billion USD)
Project Status: Under construction
The idea of a fast train project in Indonesia dates back to 2011, when the Japanese International Cooperation Agency (JICA) together with the Indonesian Ministry of National Development Planning (Bappenas) carried out a feasibility study for a possible Jakarta–Surabaya HSR, the first phase of which would connect Jakarta to Bandung.
The Jakarta–Surabaya medium–high-speed railway was listed as a priority project in 2013. The original plan did not explicitly mention the Jakarta–Bandung HSR, but it suggested the Jakarta–Cirebon route via Bandung section would be prioritised in part due to its higher economic internal rate of return. However, when President Joko Widodo (Jokowi) came to power in 2014, he shelved the plan to build the railway and reallocated the budget to development projects outside Java. Much to the surprise of everyone, not least the Japanese, in March 2015, Jokowi asked both Japan and China to bid for the Jakarta–Bandung section of the railway. In September 2015, both countries presented their proposals, which were relatively balanced. The Japanese proposed five stations along a 140-kilometre track (that is part of the Jakarta–Cirebon route), while the Chinese side planned eight stations along a 150-kilometre track. Though China had a higher interest rate of 2% compared with Japan’s 0.1%, China offered a longer maturity period for the loan (50 years as opposed to 40 years), a shorter time frame for completion of the project, and waived the state guarantee.
After a fierce bidding war between China and Japan over the project, which China won, Indonesian Minister of State-Owned Enterprises Rini Soemarno was given a mandate to determine the fate of the railway, including the establishment of the joint-venture company to lead the project. In September 2015, a state-owned fast train consortium was formed, named PT Indonesia China Fast Train (or Kereta Cepat Indonesia China, KCIC).
KCIC is a consortium of Indonesian and Chinese SOEs. Indonesia is represented by PT Pilar Sinergi BUMN Indonesia (PSBI), a consortium of four SOEs—namely, PT Wijaya Karya (38%, active in construction), PT Jasa Marga (12%, toll road builder), PT Kereta Api Indonesia (25%, railways), and PT Perkebunan Nusantara VIII (25%, plantations). Meanwhile, the Chinese side is represented by a consortium led by Beijing Yawan HSR Co. Ltd, which comprises China Railway International Co. Ltd, CREC, Sinohydro Corporation Limited (a subsidiary of Power Construction Corporation of China), China Railway Design Corporation, CRRC Corporation Limited, and China Railway Signal & Communication Corporation.
The initial deal included debt financing from the China Development Bank (CDB)—for 75% of the total 5.5 billion USD cost—which was granted with a 10-year grace period and a 2% interest rate for the dollar-denominated loan. The remaining 25% of the project’s cost will be funded by equity provided by KCIC. After the establishment of KCIC, the railway route was revised. The train was expected to reduce the 142-kilometre trip between Jakarta and Bandung from three hours to less than 40 minutes, with a maximum speed of 350 km/h. Four main stations are planned along the route: Halim (East Jakarta), Karawang (West Java), Walini (West Java), and Tegalluar (West Java).
Soon after the establishment of KCIC, the ground-breaking ceremony for the Jakarta–Bandung HSR was held in Walini, West Java Province, in the presence of President Jokowi, on 21 January 2016. However, the project was already embroiled in controversy, with critics expressing concerns over the risk of default and the irregularities in the concession of the building permit. Then Transport Minister Ignasius Jonan did not attend the ceremony, and instead became one of the staunchest critics of the project. On 26 January, Jonan revealed that he had not issued the railway infrastructure operation permit as his ministry was still waiting for the required documents and negotiating basic terms for the concession agreement with KCIC. Despite the lack of permits and support from key ministries and lawmakers, in late January 2016, Jokowi issued a regulation containing a list of about 200 strategic projects including the HSR, signalling the strong backing of and attention from his office for this project. Many pundits believe that by backing the project, Jokowi was attempting to build his political legitimacy, with the project connecting the two largest metropolitan areas and located in the most populated province in Indonesia, cementing Jokowi’s claim to be the country’s ‘Infrastructure Father’. From this point of view, China’s initial commitment to complete the project before 2019 was critical to Jokowi’s government as it provided the president with political capital for his campaign for re-election that year.
After several delays, including a stoppage owing to the COVID-19 pandemic, construction of the railway fell way behind schedule. As of December 2020, the project was said to be 64% complete. In April 2021, Indonesian media quoted senior management at KCIC as saying the project would be operational by the end of 2022. In May 2021, President Jokowi inspected the project during his visit to West Java Province and announced the project was 73% complete, with trial runs expected to commence at the end of 2022.
The Jakarta–Bandung HSR has led to various concerns regarding the financial sustainability of the KCIC and Indonesian SOEs in general. With Indonesian finance accounting for a major share of total investment in the project (60%), economists and policymakers voiced concerns about whether the country was at high risk of falling into debt distress. This was especially so because the Indonesian SOEs joining the consortium are debt-heavy entities and, before the inception of KCIC, were already struggling to meet their repayment obligations. To develop these major projects, the SOEs are frontloaded with debt and will only get cash flow back years into the future, which is why delays are so costly. Some Members of Parliament called on the government to halt the project amid increased concerns that a bailout would be necessary should KCIC default on its debt. In particular, Prabowo Subianto, a challenger to Jokowi’s presidency during the 2019 general election, built his campaign on the claim that Indonesia’s economic shortfalls were due to Chinese exploitation, and he even staged a protest against the HSR. As part of the campaign, Prabowo’s team promised to renegotiate—if not cancel—the project, claiming that Indonesia ‘must get a better deal’, given that Chinese investment had eroded national interests.
During the COVID-19 pandemic, pundits and the media regularly questioned the project’s sustainability. In June 2020, the Jokowi government began discussions with Japan to join the project and suggested integrating the Chinese-built HSR with a separate Japanese-funded railway project linking Jakarta and Surabaya along a different route. Some in the Indonesian Government argued that only by integrating the two projects could they both become economically viable. However, integration would be difficult as the Japanese-built section uses a different railway gauge and speeds.
The restructuring of KCIC management and the appointment of a new chief executive in March 2021 have been interpreted as clear signs of the worsening financial outlook for the company. Adding to this, the following month, Indonesian SOEs also suggested that China take up a larger stake in the project to bear the cost overrun. This remains unresolved and, according to the corporate secretary of KCIC, who was quoted by Reuters in April 2021: ‘Until now, details regarding additional unexpected costs are still being discussed and negotiated at the shareholder level. Also, consultations between the Government of Indonesia and China are continuing.’
According to an interview conducted by the author with one human resources manager, KCIC has employed a majority of local staff in the construction of the project, but top-level management is mostly dominated by Chinese expatriates, despite the fact the Indonesian side has a 60% share in the consortium. KCIC also claimed it has provided vocational training for domestic staff and local engineers to become the ‘first HSR technicians’ in Southeast Asia.
While generating more than 2,400 job opportunities, the project has faced multiple problems and technical challenges in its construction phase. In April 2016, vendors tasked by KCIC to carry out land investigations—including five Chinese nationals—were detained by the Indonesian Air Force for trespassing at the Halim Perdanakusuma Airport. In October 2019, a construction mishap caused Indonesia’s state-owned Pertamina oil pipeline to erupt in flames. In January 2020, the breach of an embankment allegedly caused by KCIC led to flooding in the West Bandung Regency. In March 2020, flooding caused by improper landfill and waste dumping blocked the Jakarta–Cikampek toll road, which is one of the busiest routes in the greater Jakarta region.
These incidents have sparked public suspicion about the quality of the project’s technical assessment, given the environmental impact assessment (AMDAL) was completed in just seven days before the ground-breaking ceremony, according to NGO Walhi, which has been questioning the AMDAL submitted by KCIC since early 2016. Following the recent construction mishaps and environmental degradation caused by the project, Walhi staged a series of protests demanding the Indonesian Government and KCIC reassess the project, but they have been met with no response. The project continues without any further information being made public about plans to revisit the AMDAL or actions to minimise the risks.
The land acquisition process has been no less problematic. Although KCIC secured a concession for the project in April 2016, progress was slow in the first two years. The inadequate preparation of land acquisition procedures and the involvement of ill-informed Chinese companies that overlooked the complexity of landownership in Indonesia have led to many controversies. There was a tendency on the part of the Chinese companies to assume public ownership of all land, as is the case in China. Moreover, the CDB made funding conditional on Indonesia securing all the land needed for the railway, making the delay even more challenging. Acquisition of land for the project finally reached 99% in late 2019, after the Indonesian Government intervened in the process.
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Featured Image Credits: @muhammadpascalfajrin (CC), on Flickr.com