Indonesia Scraps Bullet Train, Seeks Fresh China, Japan Bids

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Indonesia is scrapping a $6 billion plan for a high-speed train because it’s not commercially viable, and is asking bidders China and Japan to submit new proposals.

The government now wants a slower train capable of traveling at 200-kilometers (120 miles) per hour between the capital Jakarta and the third-biggest city Bandung, Rizal Ramli, the minister coordinating policy for transport told Bloomberg News Thursday. The need for new proposals, which could be 30 percent to 40 percent cheaper, will delay the decision by several weeks, he said in his first interview with international media since taking office last month.

China and Japan have been lobbying Indonesia’s government for the contract for a high-speed train, which would be the biggest infrastructure project started by President Joko Widodo. The president, who took office last year vowing to overhaul railways and ports in the world’s largest archipelago, has made little progress.

“We don’t need a high-speed train but a medium-speed one,” Ramli said. “Japan and China are competing very hard, we should let them compete to the maximum.”

Indonesia wants to develop places on the route to Bandung and a medium-speed train with more or lengthier stops would achieve this better than a high-speed train, Ramli said. The route should also be linked with a light rail project through Bandung’s city center to avoid travelers zooming to the city and then getting stuck in its traffic jams.

China’s Push

China has been pushing aggressively to sell its rail technology overseas, using it to project diplomatic and economic clout as Premier Li Keqiang inks rail deals on trips around the developing world. That has put China in competition with Japan, which sees high-speed rail as a promising export as Prime Minister Shinzo Abe fights to revive the economy.

China’s proposal for the Indonesian line involved funding through a Chinese loan and Indonesian state companies, whereas Japan’s proposal was to be funded through the Indonesian budget and a low-interest loan from Japan. Ramli said the government doesn’t want to use the state budget for the train so it can focus instead on projects outside the main island of Java.

A high speed rail line between the capital and second-biggest city Surabaya was a future possibility, Ramli said. A link to Bandung could be offered to private companies under a business-to-business agreement without any government guarantees, Transport Minister Ignasius Jonan told reporters.

Second Bidder

A high-speed train would cut travel times between the capital and Bandung to about half an hour from the current three hours on a line that winds its way through mountains and rice paddies on Java island. The trains would have been supplied by either China’s CRRC Corp. or Japan’s Kawasaki Heavy Industries Ltd., according to the Bisnis Indonesia newspaper.

CRRC dropped 0.5 percent to HK$8.58 in Hong Kong, matching a similar decline by the benchmark Hang Seng Index. The stock had earlier fallen as much as 2.7 percent. Kawasaki Heavy declined 1.2 percent to 431 yen.

After more than five years of feasibility studies and high-level lobbying, Japanese officials expected to bring bullet trains to Indonesia, until Indonesia announced in April that it also was talking to China about the project. Jokowi’s government has been more open to Chinese investment than its predecessor as it seeks infrastructure funding.

Indonesia’s State-Owned Enterprises Minister Rini Soemarno favored the Chinese proposal because it didn’t require Indonesia to provide funding guarantees. The government has invited envoys from both countries to discuss the future of the project, Darmin Nasution, coordinating minister for economic affairs, said on Friday.

Indonesia estimates it needs to spend $450 billion on roads, railways, ports and power stations to revive an economy growing at its slowest pace since 2009. The state budget can only cover about 30 percent of that amount, according to the country’s investment board.