Indonesia High-Speed Rail: KCIC Consortium Seeks $1.03 Billion Additional Loan From China To Fund Cost Overruns Due To Project Delay

PT Kereta Cepat Indonesia China (KCIC), the consortium building the Chinese-funded high-speed railway in Indonesia, is seeking a $1.03 billion loan top-up from China Development Bank (CDB) to fund a budget overrun of the ambitious project.

The project has faced cost overruns due to a host of issues, including higher land acquisition costs, delays in construction due to the pandemic, and rising materials prices. Dwiyana Slamet Riyadi, the president director of the consortium, known as KCIC, told a parliamentary hearing.

KCIC was established as a consortium of four Indonesian state-owned companies and China Railway International, a subsidiary of China Railway Group (CREC). While Indonesian entities hold 60 per cent equity in the joint venture, the Chinese firm has the remaining 40 per cent equity.

The project is a part of China's strategic Belt and Road infrastructure initiative, with 75 per cent of the cost funded via a loan from the China Development Bank (CDB) for $4.55 billion to be repaid over 40 years along with a ten-year grace period. The remaining 25 per cent is the consortium's funds.

In August 2022, the Indonesian government announced a gap funding of $274 million to PT KAI to expedite the project's construction.

The Indonesian government chose China for the project due to its readiness to provide guarantee-free loans. Japan, which was also in the race, lost out as it requested Indonesian Government funding.

While the original cost estimate for the 142 km first phase of the high-speed rail network was $6.5 billion, the project cost has escalated by $1.45 billion. China's National Development and Reform Commission has agreed to fund 75% of the additional cost via a bank loan. The rest of the cost will be funded by an increase in stakeholder capital.

High-Speed Rail Project Developed In Phases

Once commissioned, the high-speed rail service will reduce the travel time between two cities from the current three hours to about 40 minutes. The train will run at an approximate speed between 200 kmph and 350 kmph. Daily passenger flow on the rail link is expected to be 44,000 on average, with this number set to increase in later years. More than 80 km of the total length of the railway line will be elevated, while the remaining will be through 13 tunnels and subgrades.

Nearly 90 per cent of the civil works related to the construction of subgrade, bridges, and stations are complete.

The overall project envisages the development of a 750 km high-speed train line that would cut across four provinces on the main island of Java and end in the country's second-largest city of Surabaya.

Delay in commissioning 

The construction work began in 2016, and the project was originally expected to be complete by 2019. However, it has been hit by delays due to disputes that involved the land acquisition and environmental issues.

Trial operations on the railway line are expected to be conducted in November 2022. The project is set to commence operations by June 2023.

In September, an initial set of Chinese-made train cars for the high-speed railway project reached Jakarta's port. The train cars were designed and built by China's CRRC Qingdao Sifang railway company.