Jakarta's MRT network set for US$40b expansion

Jakarta

INDONESIA is preparing to spend about US$40 billion to extend Jakarta's metro network, a bigger-than-expected outlay that's poised to boost the country's construction companies and re-ignite a rivalry between China and Japan over the building of the project.

The spending plan, detailed in an interview with the head of the capital's subway operator, is part of President Joko Widodo's ambitious roadmap to create a US$7 trillion economy by 2045.

While his administration has outlined a requirement to spend about US$455 billion on infrastructure over the next five years, policymakers have until now revealed few specifics.

MRT Jakarta is currently selecting financiers to help fund the expansion, said president-director William Sabandar.

It's seeking to add an additional six lines to the one that partially opened this year, he said of the system that could eventually rival the rail networks in Hong Kong and Singapore in length.

The decision to broadly extend the network may surprise some analysts, who were expecting the operator to work only on completing the first line.

Dr Sabandar said in an interview in Jakarta: "We have a target of building 230 km by 2030 - that's the masterplan.

"We only have 16 km right now, so the key is how we can do this in an accelerated way. We can no longer just build them one by one."

Improving the country's rail network is a crucial next step in President Joko's ambitions to develop the country's infrastructure, expediting the flow of goods and people and alleviating congestion, following aggressive spending in his first term to develop the toll road network.

But his efforts to date, which also include the construction of ports, dams and power plants, have put a strain on the banking system and the balance sheets of state-owned construction companies.

Indonesia will need assistance and funding from abroad for the plan to materialise, said Yayat Supriatna, a transportation analyst at Trisakti University in Jakarta. That opens the door for China and Japan to renew their rivalry in the country, something that Indonesia will have to navigate, he said.

"We have to acknowledge that Indonesia doesn't have the technical capabilities and the financial resources for this," he said in a phone interview.

By making Japan and China compete with each other, "we can make sure that we can pick the offer that gives us the best benefit". he added.

The two Asian powerhouses have both had success in winning rail-related projects in Indonesia. Japan was awarded the first subway line in the capital, while China secured the first high-speed train deal connecting Jakarta and Bandung.

"The Asian Development Bank and Asian Infrastructure Investment Bank are among those who are serious and have submitted financing commitments," Dr Sabandar said, adding that the Japan International Cooperation Agency (JICA) has also expressed interest in the new lines.

The plan has some overlap with an earlier goal to spend about US$43 billion to sort out the city's traffic, which includes extending the MRT, completing a 44-km light-rail project, rejuvenating the bus system and developing overpasses and other toll roads.

In September, Indonesia signed an agreement with JICA for a 60 trillion rupiah (S$5.81 billion) project to add an express line between Jakarta and Surabaya on the island of Java.

Indonesia has also commissioned a US$6 billion, 142 km high-speed train to connect Jakarta and Bandung, the capital of West Java.

The project, which was awarded to China Railway International Co and a consortium of Indonesian state companies, was scheduled to be completed last year but has faced several delays.

Indonesia is also planning to build train networks in Sulawesi and Kalimantan and to connect some of the country's key airports with nearby cities by rail, according to a document from the National Development Planning Ministry.

Indonesia's railway and subway expansion plans mean more opportunities for the country's construction companies, such as state-owned builders Waskita Karya, Adhi Karya and Wijaya Karya, said Jemmy Paul, chief executive officer of Sucorinvest Asset Management, whose equity fund has beaten 97 per cent of peers over the past five years.

"The revelation of these projects helped provide positive sentiment for construction and related companies today," said John Teja, a director at Ciptadana Sekuritas Asia. BLOOMBERG