February 15, 2017 1:30 pm JST

Indonesian high-speed rail project stalls, waiting on land

Surging prices, local objections hinder acquisitions needed for Chinese financing

JUN SUZUKI and HIROSHI KOTANI, Nikkei staff writers

Indonesian President Joko Widodo, center, inspects a model of the high-speed train which will connect the capital city of Jakarta to the country's fourth largest city, Bandung, during a groundbreaking ceremony for the construction of its railway in Cikalong Wetan, West Java, Indonesia in January 2017.

JAKARTA/BANGKOK -- A more than $5 billion high-speed rail project in Indonesia is stuck in the station amid difficulty obtaining land along the planned route from Jakarta to Bandung, potentially derailing Chinese financing for the endeavor.

Several loaders and trucks were hard at work in late January turning a patch of dense forest near Bandung, in the province of West Java, into a swath of bare earth. The area is to house Walini Station, a key site along the route planned to link Bandung to the nation's capital. But a year after a groundbreaking ceremony for the railway attended by Indonesian President Joko Widodo, neither stone nor steel marks the future station as construction has clearly fallen behind schedule.

The high-speed railway is expected to debut by May 2019, offering a 45-minute trip covering a roughly 140km route. A consortium of Chinese and Indonesian companies will build and run the project after being chosen over a Japanese team, which had put together a proposal including a feasibility study to bring shinkansen bullet-train technology to the Southeast Asian nation.

Kereta Cepat Indonesia China, as the consortium is known, includes state-owned Indonesian builders such as Wijaya Karya as well as a subsidiary of state-owned China Railway Group. The venture is to bear 25% of the project's cost, with China financing the rest. But this arrangement has yet to be put in writing, despite initial plans to ink an agreement in November 2015. For now, the companies involved are paying for construction out of their own pockets, Wijaya chief Bintang Perbowo said.

Tough bargain

China made funding conditional on Indonesia securing all of the land needed for the railway. At the end of January, only 85% of the property was in hand.

The sheer cost of land is the first major hurdle. Industrial property on Jakarta's outskirts has skyrocketed in value over the past several years as the country's economy has developed. The same is true in Karawang, the West Javan city where a station is to be built. Plans for housing and commercial developments have proliferated there of late, and the price of land has quadrupled over the past five years by some calculations.

Local resistance poses other barriers. Under the dictator Suharto, who ruled Indonesia until 1998, the government developed infrastructure by fiat. But some of the central government's power was shifted to local authorities during the ensuing democratization process, making unilateral development more difficult.

Indonesia's air force has objected on security grounds to building Halim Station, near Jakarta, on land bordering Halim Perdanakusuma International Airport, which combines military and civilian functions. The rights of those who own and use land intended for public works have come into the spotlight as well. Talks to evict residents on land near the railroad's Bandung terminus, currently owned by Indonesia's national rail operator, are taking longer than anticipated.

The final hurdle is political. Widodo successfully forged compromises as governor of Jakarta, spearheading a plan to relocate the capital's street vendors and turn them into legitimate business owners. The now-president seems to have been confident in his ability to apply those skills in land talks. Rumors emerged in December that Widodo would visit various disputed sites as a mediator, for example.

That plan apparently faded away. The Jakarta governor's election Wednesday kicks off a prolonged political season in Indonesia. Widodo himself faces re-election in 2019. Deep-seated anti-Chinese sentiment among many Indonesians makes the railway project potentially unpopular, and thus tough to justify politically.

With fundraising prospects dim, Wijaya is spending 2.4 trillion rupiah ($180 million) of its own funds on construction. The builder's earnings are strong for now, but there is a limit to how far the company can go alone.

Lack of flexibility

These delays hurt China's plans as much as Indonesia's. Funding high-speed rail across Southeast Asia is a large component of Beijing's "Belt  and Road" initiative to create intercontinental trade links and export infrastructure. Chinese President Xi Jinping apparently told Widodo during a meeting in September that he hoped the project would proceed smoothly -- phrasing aimed to light a fire under the government in Jakarta, according to a diplomatic source.

Other rail projects involving China have encountered missteps. Plans for a high-speed railway in Thailand have been altered repeatedly since groundbreaking in December 2015, and gaps remain between the Thai and Chinese camps on how construction should proceed, Thai Transport Minister Arkhom Termpittayapaisith says. Though bidding to build one section of the railway could be held as soon as March, according to Arkhom, that 3.5km segment represents just 0.4% of the total.

Though low costs give Chinese companies an edge when competing for such projects, few countries can impound land as forcefully as China does. Indonesia may yet overcome this issue: The land appropriation process could wrap up as soon as this month, a source at Wijaya said. But keeping China in the lead as a high-speed rail partner will require acknowledging that some things are done differently overseas.

Asia300

PT Wijaya Karya Tbk

Indonesia

Market(Ticker): JKT(WIKA)
Sector:
Industry:
Industrial Services
Engineering & Construction
Market cap(USD): 1,344.16M
Shares: 8,969.95M

Get Insights on Asia In Your Inbox

To read the full story, Subscribe or Log in

Get your first month for $0.99

Redeemable only through the Subscribe button below

Once subscribed, you can…

  • Read all stories with unlimited access
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

Resubscribe now to continue reading.
BEST OFFER:
Only US$ 9.99 per month for a full-year subscription

To read the full story, Subscribe or Log in

Once subscribed, you can…

  • Read all stories with unlimited access
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.