China’s rail project in Indonesia gets construction permit

The Indonesian government issued a construction permit in early August for the full length of the Chinese-funded 142km high-speed rail line, seven months after the project’s groundbreaking ceremony.

The Indonesian authorities had earlier granted a construction licence to a joint venture formed by Chinese and Indonesian state-owned rail companies to build only the first 5km of the link connecting Indonesia’s capital, Jakarta, and the country’s third-largest city, Bandung, because the provincial authorities in areas the link would cut across had to give approval for the rest of the construction, several people with knowledge of the matter said.

The Chinese consortium, led by China Railway Corp (CRC), the state-owned railroad operator, had to negotiate with local governments “one by one” for permission to expropriate land, a person close to the Chinese bidders told Caixin. The joint venture was still in talks with local governments to buy land for the project, and the deadline to complete procurement is set for December 2017, Mr Prasetyo Boeditjahjono, director general for railway transportation at the Indonesian Ministry of Transportation, told Jakarta Post.

The permit will unlock funding from the China Development Bank for the project, slated for completion in late 2019, the source said. The Chinese lender will provide 75 per cent of the estimated US$5 billion (S$6.7 billion) investment.

The Jakarta-Bandung link saw several proposal changes before it was finally awarded to the Chinese consortium. Last year, when the South-east Asian nation floated a plan to build the country’s first bullet train line to upgrade its infrastructure, both China and Japan expressed an interest in the project. But the Indonesian government scrapped bids from the two sides in September, saying it wanted to build a rail link where trains run at less than 250kmh.

But in an unexpected reversal, Indonesia chose China’s bid over Japan’s in October to build a high-speed line with trains that could run at speeds of up to 300kmh due to the flexible funding options included in the Chinese bid. Japan had asked for a loan guarantee from the Indonesian government, said Ms Rini Soemarno, Indonesia’s Minister of State-owned Enterprises.

The groundbreaking ceremony in January, attended by Indonesian President Joko Widodo, was a “merely symbolic” move to secure the deal, said the person close to CRC. The licence comes after Chinese rail companies encountered a string of setbacks when expanding into foreign markets. American railway developer XpressWest called off a deal to develop a 298km, US$12.5 billion railroad linking Los Angeles and Las Vegas in June after the Chinese consortium failed to get relevant government approvals. A 2014 agreement between China and Mexico for high-speed line was derailed after rivals complained of discrepancies in the bidding process.

In addition to Indonesia, Chinese companies also won a bid to construct a 770km line connecting the Russian capital, Moscow, with the southwestern city of Kazan. Chinese companies are also bidding for a 330km high-speed rail line linking Singapore and Malaysian capital Kuala Lumpur. CAIXIN ONLINE