US$1.2 billion cost overrun agreed: Indonesia still negotiating loan interest for high-speed railway
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Investor Daily - Cost overrun disepakati US$1.2 miliar: Indonesia masih negosiasi bunga pinjaman biaya kereta api cepat
11 April 2023
By: Arnoldus Kristianus
Jakarta - The Indonesian government is still negotiating with the government of China regarding the interest rate for the loan of US$560 million to cover some of the cost overrun of Jakarta-Bandung High-speed Railway (KCJB) project that reaches US$1.2 billion or around Rp18.2 trillion. The loan will be provided by China Development Bank (CBD).
Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan stated that, some time ago, technical teams from both countries have agreed on the cost overrun value of the KCJB project at US$1.2 billion. Besides negotiating the interest rate, his agency is currently finalising the loan structure and tenure.
“A detailed discussion between both parties agreed that the amount would be US$1.2 billion. Regarding the loan for KAI for the cost overrun, we are finalising the negotiation on the interest rate. The interest rate has been decreased from 4%. Now, we want it lower. Yes, we will see it. Inshallah (God willing), it will be handled,” Luhut said at the press conference on the latest development of the cooperation between Indonesia-China in Jakarta on Monday (10/4/2023).
Luhut revealed that the party from China has offered an interest rate of 3.4% for a total loan of around US$560 million. However, the government is expecting the loan interest rate to be lowered to around 2%. He is also targeting the negotiation on the total loan, the interest rate, and the tenure to be finalised around next week.
“Yesterday, they [China] were willing to go below 4%. However, we want it lower. The first offer is 3.4%, but we want it even lower,” he added. Luhut mentioned that the initial loan interest rate was 3.4%, which is already very low compared to the loan interest rate from other parties that can reach 6%.
The former Coordinating Minister for Political, Legal, and Security Affairs also said that the government had no issue and was capable of making the payment with that provision.
Below the US Treasury yield
Meanwhile, Mining and Investment Coordination Deputy of the Coordinating Ministry for Maritime Affairs and Investment Septian Hario Seto said that an interest rate of 2% was provided in 2017. The 3.4% interest rate offered by China Development Bank is actually already 0.2% under the 30-year US Treasure yield.
“So, the amount offered is lower than the yield from the US Treasury and the Indonesian government in US dollars. However, we still want to negotiate more,” Seto added.
Seto added that, regarding the loan, the Chinese government also wanted to be provided a guarantee from the government through the state budget (APBN). Meanwhile, the Indonesian government wants the guarantee to be provided by PT Penjaminan Infrastruktur Indonesia (Persero).
“We have always wanted PII to provide the guarantee. They want the guarantee to be provided directly [from the government]. We are negotiating it,” he said.
Luhut said that if the guarantee was provided using the APBN, the process would be longer. Hence, the Indonesian government is encouraging the guarantee to be provided by PT PII. However, the Chinese government wants the guarantee to be provided using the APBN. It is what is still being discussed in the negotiation.
“So, PT PII has a new structure that has been established by the government since 2018. It is the only issue. However, if they want [the guarantee] to be provided using the APBN, they need to go through a long process. We have reminded them about this. So, they are still considering it,” Luhut said.
Seto added that the guarantee would be provided to PT Kereta Api Indonesia (Persero) or KAI as Indonesia’s consortium leader in KCIC. The loan will be hand over to KCIC that is still responsible for KCJB.
From the cost overrun of US$1.2 billion or around Rp18.2 trillion, the government will provide a state equity participation (PMN) of Rp3.2 trillion. The rest will be covered by loans, including the US$560 million from China Development Bank.
According to Luhut, the US$560 million loan from China Develoment Bank has a tenure of 30 years. “If it can be 30 years, why does it need to be extended to be 40 years? We continue to pay for the interest. The ideal [tenure] is 30 to 40 years,” Luhut said.
Anniversary present
Luhut said that KCJB was expected to operate on 18 August 2023 so that it could be a present for Indonesia’s 78th Independence Day anniversary.
According to Luhut, the length of KCJB will reach 304 kilometres from Halim Station in East Jakarta to Tegalluar Station in eastern Bandung.
“I have laid the last track. The tracks that span 304 km have been completed. The trial will commence in May 2023. We hope that it can be used in May at the latest,” he said.
Luhut revealed that the Indonesian government wanted China’s leader to attend the inauguration of KCJB as there were always doubts that the project would be completed.
In accordance with the plan
Previously, Luhut said that the construction of KCJB and Jabodebek LRT would go as planned. “Everything is still going as planned. There is no meaningful issue. I highly appreciate Kereta Api [Indonesia], the Jakarta Governor, and the contractors,” Luhut affirmed after integrating KCJB and Jabodebek LRT recently.
With KCJB and Jabodebek LRT, the transportation ecosystem that is expected by Indonesia President Joko Widodo can be realised. Later, KCJB passengers can go directly to Dukuh Atas or Bekasi using Jabodebek LRT through the integrated stations. “With integration, the cost will be cheaper, travel will be faster, and everything will be more efficient,” Luhut stated.
Previously, the inauguration of the connection of all KCJB routes was conducted by Luhut at Halim KCJB Station. The tracks that span 304 km have been installed, which include 142.3 km of double-track railways, tracks at the 4 KCJB stations, and tracks at Tegalluar Depot.
The track laying process took 12 months from 20 April 2022. The work was carried out using the track laying machine that was used for the first time in Indonesia. The machine can install tracks by 5 km per day, which is faster compared to laying the tracks manually.
Luhut said that KCJB would be inaugurated by President Joko Widodo on 18 August 2023.
