Indonesia's China-backed high-speed railway unlikely to be profitable, say observers

Indonesia's high-speed railway, a delayed multibillion-dollar project backed by China, is unlikely to be profitable, said observers, citing the line’s far-out station locations and the high maintenance costs expected in future. 

On Monday (Oct 2), Indonesia launched Southeast Asia's first high-speed railway. The 600-capacity train, which reaches speeds of up to 350kmh, can get between the capital Jakarta and Bandung in 45 minutes.

This will require the project to plan ahead for the long term, said Dr Siwage Dharma Negara, senior fellow and co-coordinator of the Indonesia Studies programme at the ISEAS-Yusof Ishak Institute. 

 “It's not easy because there are a lot of competing transportation means from Jakarta to Bandung, and the high-speed train has to compete with these other transport means.”

OVER US$7 BILLION TO BUILD

The Chinese-made bullet train, called “Whoosh”, is part of China's Belt and Road infrastructure initiative.

Built by a joint Chinese-Indonesian venture PT Kereta Cepat Indonesia China (KCIC), which is made up of four Indonesian state companies and Beijing's China Railway International, it has cost more than US$7 billion. 

“In order to shift public behaviour, the government needs to provide some kind of incentive including setting the right price for the high-speed train,” Dr Negara told CNA’s Asia Now. 

The ticket prices have not been finalised. Free trial rides on the bullet train, which have been underway since the second week of September, will be extended and fees will be implemented in the middle of October.

According to reports, tickets will range from 250,000 to 300,000 rupiah (US$16 to US$19). But observers believe prices will likely go up with time. 

“Ensuring that the price is affordable is important, but at the same time, the operator also has to ensure cost recovery because this project is quite expensive,” said Dr Negara. 

“There's a need to make sure that the operator can cover the operational and maintenance costs for the high-speed train, and, of course, they cannot rely on government subsidies for the long term. Eventually, the project has to generate some profit.”

SAFETY, LOCATION CONCERNS

This comes as safety is a concern, he added. 

“If the government can make sure that the operation of this train will be conducted or implemented in a safe way, people become more confident, then we will see that there will be more passengers taking this train going forward.”

There are also other issues that could potentially affect the high-speed railway’s profitability. 

Observers pointed out that the line’s four stations are poorly located. 

For instance, passengers going to the central area of Bandung will still need to take a feeder train from the Padalarang station.

Mr Achmad Sukarsono, associate director of global risks analysis (asia pacific) at strategic consulting firm Control Risks, is worried that the project is unable to entice the supposed target market - weekday middle-class commuters and business executives who need to make day visits to avoid having to stay overnight in a different city. 

These commuters might feel that the high-speed train is not a viable transport alternative, he told CNA’s Asia Now. 

“None of the four stations are located in commercial areas that are easily accessible by these priority users,” he added. 

“So if Indonesia fails to build convenient connections between these stations, the main users of the (high-speed rail) will continue to drive to Bandung or use mini shuttle buses, which is the preferred option.

“Because although they will spend more time on the main leg, it is still more convenient for those who live and work in the core of Jakarta and Bandung.” 

Yet, analysts said the economic benefits also need to be considered. 

Dr Negara said these include job creation, improving transportation connectivity, and the transfer of technology. 

“Eventually, it is hoped that this project can stimulate economic growth in Indonesia,” he added.

“So, the cost and the economic benefits need to be carefully evaluated, before we come to the conclusion whether this is a debt trap or not.”

DELAYS DUE TO CONSTRUCTION ISSUES, COVID-19

Observers said Indonesia and China can expect stronger bilateral cooperation, especially infrastructure project development, after the completion of the high speed rail. 

The train line was initially slated to be operational in 2019, but was delayed due to a slew of issues such as waste dumping, damages to homes and the COVID-19 pandemic. 

“While initially a lot of people are sceptical that this project will be completed, eventually even with some delays, it has been completed. So I think this is a good sign for both countries to further their bilateral cooperation,” said Dr Negara. 

“But I think Indonesia also needs to diversify its infrastructure investment source, not just rely on China, and also look at other alternatives, given that there are so many big projects.”

The rail deal was signed in October 2015 after Indonesia selected China over Japan in a fierce bidding.

“China did not require a state guarantee, Japan did. So China gave a more attractive option,” said Mr Achmad, adding that while Indonesia is sliding towards Chinese investment, it is not entirely dependent on China. 

“Why is Indonesia welcoming Chinese investment? Because China delivers, when others do not. But at the same time, there are healthy checks within Indonesia to avoid falling into overdependence or having the economy being dominated by a country.”

He added that social movements occur often in Indonesia to respond towards Chinese investments that “are not convenient” for the locals.

“As long as there are checks and balances by public groups, I think the Indonesian government will be alerted to stay away from any kind of debt trap or overdependence on a country,” he noted. 

Indonesian President Joko Widodo has lauded the project for the fast ride it will provide between the two cities, saying “it is a symbol of our modernisation in public transport”.

JOKOWI’S LEGACY AND THE NEXT CHAPTER

Under his leadership, the country has made huge strides in infrastructure development. Mr Widodo, who took the top job in 2014, will complete his second and final term next year. 

Indonesia is set to hold a presidential election in February next year. 

On the legacy that Mr Widodo is leaving behind as a leader, Mr Achmad said: “We cannot deny that Jokowi has built more roads, more airports, more infrastructure than any other Indonesian president. 

“The problem now is whether his replacement can continue the programmes and his policies, and that will be decided by the election next year. And that is why Jokowi is quite active in trying to shape the election, through a lot of backroom deals.”

Mr Achmad stressed that the high-speed rail project still requires development. 

“It needs to be developed, so that these stations are attractive for users. And I heard that the plan is to develop these stations into commercial centres, into economic hubs,” he added. 

“But this is a great plan that needs thorough execution and that execution should be done by the next president. And Jokowi is very hopeful that the next president, his replacement, can actually take on this challenge.”