Infrastructure requirements of Indonesian railways-
Efficient railway connections are pivotal to unlocking the full potential of Indonesia’s emerging economy, as the focus of business and trade activity gradually shifts from the industrial heartland of West Java to far-flung regions of the archipelago. Infrastructure development is the focus of the Indonesian government’s long-term development roadmap, called the Masterplan for Acceleration and Expansion of Indonesia’s Economic Development. The objective is to enable Indonesia to become a developed economy by 2025, and railroads play a crucial role in this plan, because costly logistics have held back industrial projects in the past. Rising budgetary spending and recent regulatory reforms will help get projects off the ground faster in the future. Authorities are banking on large-scale private engagement, which spells opportunities for domestic and foreign investors.
Burgeoning demand
Currently, Indonesia has a very low railway density in comparison to its peers – 0.25 km per square km as compared to 0.79 km per square km in Thailand. Investments worth $17.4 are required for Indonesia’s rail infrastructure projects during the period between October 2016 and 2019. New inter-urban railway tracks spanning 2,159 km are required to meet the medium-term rail infrastructure development goals. Further, 1,099 km of new urban railway tracks are required to meet the medium-term infrastructure goals for densely populated areas. In addition, mass rapid transit (MRT) networks are scheduled to be delivered across six metropolises and 17 large cities to ease land transport congestion.
Major upcoming projects
Jakarta-Bandung high speed rail project
The Jakarta-Bandung high speed rail project, funded by Chinese investment, spans 142.3 km and has four stations, namely, Halim, Karawang, Walini and Tegalluar. Based on the concession agreement, PT Kereta Cepat Indonesia China has the right to operate the Jakarta-Bandung railway line for 50 years, starting from May 31, 2019. The company estimates that it will break even within 40 years. The Ministry of Transportation has also set a three-year time limit from the date of issue of the construction permit for the construction of infrastructure. The Jakarta-Bandung line is part of a 750 km HSR project that will cut across four provinces on the main island of Java and end in the country’s second largest city of Surabaya.
Jakarta MRT system
Another major project currently under way is the Jakarta MRT system. Seven above ground and six underground stations are being constructed under Phase I of the MRT project, with eight further stations to be built in Phase II. The MRT, which has both a north-south and an east-west line, has been delayed due to land acquisition and funding issues. The 15.2 km being constructed under Phase I is expected to be opened to the public in 2019 at the earliest, and the entire $1.7 billion project is expected to be opened by 2027.
Supporting the MRT system is the Jabodetabek railway network, which combines the existing track with the MRT and was originally planned to be connected to the Jakarta monorail. However, the latter scheme is facing certain issues on account of which the government has put the plans on hold in order to reassess the project.
Rail connectivity to airports
The Indonesian government also plans to establish rail links to 13 airports nationwide by end-2019. These will include links to be built at Padang, Batam and Palembang in Sumatra; Makassar in Sulawesi; Banjarmasin in Kalimantan; and Jakarta, Yogyakarta, Surabaya and to Kertajati Majalengka airport on Java.
National railway network plan
Indonesia has finalised its plan for “a national railway network”, which will beef up land connections and support all its seven key seaport hubs. The network will also include a separate circle line around Bali to offer better access to untapped parts of the island where new tourism developments can be built.
With more than 3,200 km of railway tracks that will criss-cross the islands of Sumatra, Java, Kalimantan and Sulawesi, it has been touted as the most extensive railway project in Indonesia. Once completed, the project is expected to not only drive trade and economic growth, but also improve interconnectivity to help reduce inequality between developed and less developed regions.
The railway plan, which will facilitate the movement of both people and goods, will complement existing sea lanes and toll roads, and offer more seamless transportation links between cities, towns as well as industrial and tourism areas. The railway, toll roads and ports will eventually be interconnected with the seven international and domestic port hubs. The seven ports are Kuala Tanjung in North Sumatra, Batam in the Riau Islands, Tanjung Priok in Jakarta, Tanjung Perak in Surabaya, Makassar and Bitung in Sulawesi, and Sorong in West Papua. In addition, the government has identified 14 industrial zones for priority development. In order to transform the project into reality, there is need to work in coordination with local governments to estimate demand and prioritise funding for the project.
Role of the private sector
Till date, the role of the private sector role has been constrained by the unviability of projects due to the lack of public subsidy and the absence of commercial flexibility, particularly in the case of special railway concessions. For public-private partnership projects, where financial viability is a challenge, viability gap funding may be needed. It is also important for the government to provide clarifications with regard to the role of the private sector.
The use of PPP schemes for railways is a new development. The private sector can participate in passenger railways under such schemes and can invest in freight railways as well. For now, the public sector and state-owned enterprises are still likely to be the major developers of conventional passenger rail projects.
For urban rail, the outcome will depend on project-by-project progress. For example, the MRT project in Jakarta is the first MRT project in Indonesia. As a result, the country has not yet developed strong technical and project management expertise for such schemes. In addition, land acquisition may potentially cause a delay since the project requires considerable amount of land in urban areas. Other cities that are in the process of developing light rail transit are likely to face similar issues due to lack of expertise.
The way forward
A good institutional framework among related institutions is needed to accomplish various targets and goals aimed at improving the state of Indonesia’s heavy rail sector. There is need to establish a regulatory framework that encourages pro-market approaches to spur healthy development of the country’s railway industry. The market needs to be given some level of flexibility. Further, regulations need to be framed in a manner that they mitigate market risks and at the same time promote efficient and effective transportation systems. The industry needs to advocate public transportation safety through continuous service improvement of the operator, infrastructure, rolling stock and management.
