Indonesia’s $ 40 Billion on Rail Expansion

The Indonesian Government, under the leadership of President Joko Widodo, announced plans to invest $ 40 billion in the construction of the country’s railway network on December 5, 2019.

The plan is a part of Joko’s “ambitious roadmap” for building the country’s infrastructures and creating a $7 trillion economy by 2045. As reported by BloombergQuint, “Joko Administration has outlined a requirement to spend about $455 billion on infrastructure over the next five years.”

The plan for building new railway networks is likely to worry for the domestic construction companies in the country. China and Japan are competing to invest in this venture.

Construction of Additional 6 Railway Lines

PT MRT Jakarta (Perseroda), a state-owned corporation based in Jakarta, is inviting certain investors to fund the railway expansion. Under this plan, the country is likely to construct six more railways lines in addition to the existing phase-1 construction, which was started on March 24, 2019.

The decision for additional lines was a little surprise to the domestic constructors, as they expected the plan for expansion would come on the completion of the phase-1.

According to William Sabandar, the Director of PT MRT Jakarta, “We have a target of building 230 kilometers by 2030, that’s the master plan. We only have 16 kilometers 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.”

The building of Massive Infrastructure in Indonesia

The plan for expanding rail networks is a key foundation for the development of Indonesia’s infrastructures. This will help commercial businesses to grow by facilitating easy movement of the goods and the people.

With this expansion, the country can compete with its rivals Hong Kong and Singapore, in terms of trading through railways, and aim at dominating the trade market in Southeast Asia.

Expansion of $ 40 billion is not only about the construction of railways but also building massive infrastructure including the construction of ports, dams, and power plants. This, in turn, is likely to increase pressure on the country’s banks and state-owned construction companies.

Competition for funding Between China and Japan

Indonesia is likely to take assistance from countries such as China and Japan for funding, which is likely to cause confrontation between the two. Indonesia is likely to leverage the competition between China and Japan.

As Yayat Supriatna, a transportation analyst at Trisakti University in Jakarta explained, “We have to acknowledge that Indonesia doesn’t have the technical capabilities and the financial resources for this expansion. By making Japan and China compete against each other for the investments, we can make sure that we can pick the offer that gives us the best benefit.”

These two countries had already won many different railway-related projects in Indonesia. Japan won the project for the first subway line construction in Jakarta, while China won the project for high-speed train construction that connected Jakarta and Bandung.

In addition to the Japan International Cooperation Agency, several regional banks including the Asian Development Bank and Asian Infrastructure Investment Bank have shown interest in funding the project.

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