With construction already well behind schedule and the project billions of dollars over budget, the company behind the Chinese-led effort is warning that the 142km rail link, which connects Jakarta to the West Javan city of Bandung, could take twice as long to break even as originally thought, with one of the factors being the relocation of the capital out of Jakarta.
“In the 2017 feasibility study review, the breakeven point was estimated to be 26 years. But recently there was an adjustment back to 40 years,” Dwiyana Slamet Riyadi, president director of KCIC, told a parliamentary hearing last week.
“This is also not final, and continues to be evaluated to see the potential for revenue streams and other business strategies that can be explored, so that (breakeven) can be achieved in less than 40 years,” he added.
Kereta Cepat Indonesia China, commonly known as KCIC, is a consortium of Indonesian and Chinese state-owned companies that are building the rail line and will operate it.
Riyadi’s comments came just days after the sixth anniversary of the project’s groundbreaking ceremony in 2016.
The president director said adjustments to demand estimates were made in the recent feasibility study, taking into account the Covid-19 situation, as well as “the relocation of the capital city”.
A previous study assumed daily passenger volume of 61,000; the most recent study assumes 31,000 passengers a day will use the line, he said.
Riyadi said construction is 79.9% complete, with service scheduled to start in June 2023. The Indonesian government originally planned to get Southeast Asia’s first high-speed train rolling in 2019.
The China-Laos high-speed railway connecting the Laotian capital of Vientienne with Kunming in southern China opened in December. Its trains reach a maximum speed of 160kph.
Indonesia is slated to move its capital to the island of Borneo in 2024, aiming to spread economic growth beyond the most populous island of Java, which currently accounts for nearly 60% of the country’s gross domestic product.
The move is also designed to ease congestion in Jakarta, a sinking megacity of 10 million that suffers from chronic pollution.
While Jakarta will likely remain the country’s commercial capital, about 1.5 million civil servants are expected to relocate to Nusantara in the coming years, which could trigger a mass exodus from Jakarta if they take their families with them.
“It is necessary to review further whether the current toll road users are also the same group who will move to the new capital city,” said Harun Al-Rasyid Lubis, a professor of civil and environmental engineering at Bandung Institute of Technology, on the high-speed rail’s potential customer numbers.
He added that one way of ensuring ample passengers on the railroad could be “setting a toll road capacity quota” whereby authorities would impose a limit on the number of cars allowed on the toll road connecting Jakarta and Bandung, currently the most popular mode of travel between the two cities.
“This will automatically force people who want to go to Bandung to switch to the fast train. This scheme is quite common in other countries where high attention is paid to maintaining the quality of (toll road) infrastructure,” he said.
The admission from the KCIC president director is the latest in a string of hiccups the project has faced since it was awarded to a Chinese consortium in 2015, including disputes over land ownership and the project’s environmental impact, as well as Covid-19 induced construction delays.
The biggest problem has been cost overruns. Indonesia originally expected construction to cost US$5.5 billion but increased its estimate to US$6.07 billion last year. A more recent review by KCIC pegged the cost at no less than US$7.97 billion.
When the project was awarded to the Chinese consortium in 2015, construction was to be completed by 2018, with Indonesia chipping in no money or financial guarantees.
But in September last year, President Joko Widodo issued a decree authorising the government to contribute public funds to the project, negating one of the biggest selling points of the Chinese proposal over a Japanese alternative.
In December, a pillar collapsed at one of the project’s construction sites, calling into question the consortium’s safety standards. No one was hurt in the incident.
Before China won the bid, Japan had proposed building a shinkansen-style rail link from Jakarta to Bandung at a cost of ¥600 billion.
Of this, ¥450 billion was to be funded through 40-year official development assistance loans at a rate of 0.1% much lower than the typical commercial rate of at least 1%.
But Widodo ultimately chose the Chinese option, which promised the transfer of high-speed rail technology and kept Indonesia off the hook for any costs or debt repayments.