Fast train project can be funded by State Budget
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 - Proyek KA Cepat Bisa Dibiayai APBN
11 October 2021
By: Thresa Sandra Desfika
Jakarta - The government opens an alternative financing option for Jakarta-Bandung high-speed railway project, namely by using the State Income and Expenditure Budget (APBN). It is set forth in Presidential Regulation (Perpres) No. 93 of 2021 regarding Amendment to Perpres 107/2015 regarding the Acceleration of Jakarta-Bandung High-Speed Railway Infrastructure and Facilities Provision stipulated by President Joko Widodo on 6 October 2021.
Special staff member to the SOE Minister, Arya Sinulingga explained that the alternative funding option using the State Budget was opened because the four SOEs involved in the project were hit by the impacts of Covid-19 pandemic which limited their ability to finance the Indonesian-Chinese cooperation project. The four SOEs involved in this project are PT KAI (Persero), PT Wijaya Karya (Persero) Tbk, PT Jasa Marga (Persero) Tbk, and PT Perkebunan Nusantara VIII.
“This [impact] is what leaves us with no choice but to ask the government to chip in, for the sake of proper completion of the high-speed rail project,” Arya told the reporters as quoted on Sunday (10/10).
Article 4 paragraph 2 of Perpres 93/2021 mentions that other funding as referred to in paragraph 1 sub-paragraph c may be in the form of State Budget financing in order to maintain the continuous implementation of national strategic projects with due observance of fiscal capacity and sustainability. Moreover, Article 4 paragraph 3 states that the financing from the State Budget shall be in the form of state capital participation (PMN) to the SOE consortium leader and/or liability guarantee of the SOE consortium leader.
Perpres 93/2021 appoints PT KAI as the consortium leader. Previously, it was PT Wijaya Karya.
“This [alternative option] is not for any other reason (but due to the fact that SOEs were affected by the pandemic). We see in other countries everywhere that the government is also involved in the high-speed railway project. Almost all countries have that kind of arrangement,” Arya explained.
He added that the progress of Jakarta-Bandung High-Speed Railway project has reached almost 80%. With the support of government funding later on, Arya continued, it is expected that the project could be completed sooner.
Furthermore, Perpres 93/2021 decides the establishment of Jakarta-Bandung High-Speed Railway Committee led by the Coordinating Minister for Maritime and Investment Affairs, with members including the Finance Minister, the SOE Minister, and the Transportation Minister.
The Committee is tasked with approving and/or determining the measures that need to be taken to handle the obligation portion of the SOE joint venture in the event of any increase or change in the project’s price.
Arya Sinulingga affirms that price change is possible and common with any project, especially those with long routes. This project’s route is 142 km long.
“Along the way, it is highly likely that there will be changes in design due to different geological and geographical conditions that have changed from their initial state. So we cannot say the progress will always match the initial planning, as land prices would certainly rise over time. This is common with any project,” he explained.
Additionally, Perpres 93/2021 stipulates the change in Jakarta-Bandung high-speed railway project route to Jakarta-Padalarang-Bandung from the previous Jakarta-Walini-Bandung.
KAI
Previously, the government revealed its plan to appoint PT KAI as the leader of SOE consortium that will invest in the Jakarta-Bandung high-speed railway project, namely the consortium of PT Pilar Sinergi BUMN Indonesia (PSBI).
Previously, the majority shareholder in this PSBI consortium was PT Wijaya Karya Tbk (Persero) or Wika with 38% ownership. The other three SOEs are KAI (25% ownership), Jasa Marga Tbk (25% ownership), and PT Perkebunan Nusantara VIII (12% ownership).
In handling the project, PSBI formed a joint venture with the consortium of a Chinese company, Beijing Yawan, called PT Kereta Cepat Indonesia China (KCIC). The portion of each consortium in KCIC is 60% PSBI and 40% Beijing Yawan.
Deputy SOE Minister, Kartika Wirjoatmodjo once mentioned that there are three issues pertaining to the high-speed railway project. The first one is related to the initial capital payment. In his opinion, the capital increase plan by PTPN VIII in the form of land in Walini, West Java, was not approved by the consortium.
“The capital increase by PTPN VIII in the form of Walini [was an issue]. In its development, the consortium did not want to receive contribution (inbreng) in the form of land; they wanted cash. PTPN VIII does not have that kind of financial capacity to make that much capital injection,” said Kartika Wirjoatmodjo in a working meeting recently between SOE Ministry and Commission VI of the Indonesian House of Representatives to discuss the proposed SOEs that will receive the 2022 state capital participation.
Moreover, he continued, Jasa Marga is also planning to make a capital injection in the form of right of way (ROW) of its toll road. However, the title to this ROW belongs to the Directorate General of State Assets at the Finance Ministry. According to the man who is more commonly addressed as Tiko, this misunderstanding about ROW was due to the lack of legal study in the preliminary stage.
Furthermore, he added, capital payment by Wika and KAI is also short in amount.
Based on the materials presented during the Commission VI working meeting, it was revealed that WIKA’s basic equity obligation was Rp240 billion short, KAI was Rp440 billion short, Jasa Marga was Rp540 billion short, and PTPN VIII was Rp3.14 trillion short.
To meet the said shortages in the capital participation amount, Tiko explained that KAI then was proposed to receive state capital participation (PMN) of Rp4.3 trillion this year, which was included in the 2021 additional PMN proposal scheme.
“We seek to have the culmination of (the shortage in capital payment by Jasa Marga and PTPN VIII) plus a little additional capital shortage from WIKA and KAI be included in the equity from the state capital participation,” Tiko explained.
He added that the PMN through KAI to smoothen the Jakarta-Bandung High-Speed Railway project implementation is desperately needed, as the companies are still struggling due to the impacts of the Covid-19 pandemic. Later on, KAI will become the consortium leader.
“We are also planning to make some changes in order for this consortium to be led by KAI later on. We are currently preparing the presidential regulation to make KAI the main player in completing and operating the high-speed rail,” Tiko explained.
Furthermore, Tiko mentioned that the second issue related to the high-speed railway project is the cost overrun.
In Tiko’s presentation material at the working meeting of House Commission VI, it was specified that the estimated cost overrun for Jakarta-Bandung high-speed railway project is US$1.4-1.9 billion.
“We are currently discussing the cost overrun. I think it would not be [included in] this year(‘s PMN) but the next,” Tiko said.
The third issue, he explained, is related to cash deficit. According to Tiko, joint discussions are still underway at the time with the Chinese about business continuity in the context of negative operating cash flow that is going to occur in the early stages of Jakarta-Bandung High-Speed Railway operation.
“We are looking to solve this through bank financing scheme, in this case the CDB (Chinese Development Bank),” Tiko explained.
