Indonesia expects to clinch US$560 million Chinese loan for high-speed train soon

INDONESIA expects to conclude negotiations with China in coming weeks on an additional US$560 million loan for a high-speed rail project being built in the South-east Asian country, a senior minister said on Monday (Apr 10).

The cost of the line linking the capital Jakarta with the textile hub of Bandung has overshot, pushing Indonesia to seek a new loan from the China Development Bank to help cover a US$1.2 billion cost overrun.

The total cost of the most high profile Belt and Road Initiative (BRI) in Indonesia has now risen to more than US$7 billion, Indonesian officials have said.

Senior Indonesian minister Luhut Pandjaitan said during a trip to Beijing last week that China had cut the interest rate on a proposed additional loan to 3.4 per cent, from 4 per cent previously. The figure was, however, still above the 2 per cent rate Indonesia wanted, he added.

“We are finalising the interest rate. They’ve agreed below 4 per cent, but we want lower,” Luhut told a news conference.

The China Development Bank in 2017 had given a consortium of Indonesian and Chinese companies building the railway a US$4.55 billion loan with a 40-year tenure and a 2 per cent interest rate.

Negotiations would also continue on the loan’s maturity, deputy minister Sepian Hario Seto said, adding Indonesia wanted it be similar to the 2017 loan with a 10- to 15-year grace period.

Furthermore, China wanted the Indonesian government to guarantee the loan and pass it on to KAI, one of the state-owned companies behind the project, while Jakarta preferred to appoint a company as a guarantor, Seto said.

China Development Bank could not immediately be reached for comment.

Jakarta has insisted that Chinese finance for such projects be delivered on a business-to-business basis, amid accusations that some other countries hosting BRI projects have fallen into a debt trap.

Still, due to the cost overrun, Indonesia had to inject 3.2 trillion rupiah (S$285.3 million) of capital into KAI in January to help plug ballooning costs.

The railway is expected to operate commercially by August, Luhut said. REUTERS