The launch of Indonesia’s prestigious, $7.3 billion high-speed rail link between the capital Jakarta and the city of Bandung, the first of its kind and which was scheduled for completion in August, will likely have to be postponed due to funding problems.
Indonesia’s transport ministry and three consultants pushed for the Chinese to move forward with the plan, which is connected with Communist China’s Belt and Road Initiative (BRI), but construction developers said the demand was unfeasible.
The realization of this largest Belt and Road Inita project in Southeast Asia on the occasion of Indonesia’s Independence Day festivities on Aug. 17 would have been an excellent promotional stunt and political boost for the ruling party, the Indonesian Democratic Party of Struggle (PDI-P), about a year before the 2024 parliamentary elections.
“A further delay will only become ammunition for the opposition to attack,” said Teuku Rezasyah, an international relations analyst at Padjadjaran University, adding that mishaps would also harm China’s status as a developer and deliverer of significant projects in the region.
However, according to an internal 48-page report seen by Reuters, the project has been hampered by problems from the beginning, and the desired certified completion date in August will not be attainable, especially since one of the stations still needs to be completed.
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In contrast, the consortium of developers, consultants Mott MacDonald, PwC, local law firm Umbra, and the Ministry of Transportation are now aiming for a January 2024 start date, according to a May 14 progress report cited by the news agency.
“There is a risk that the target of commercial operations in August could be delayed to complete all construction by December 31,” said the report, written in Bahasa Indonesia, the official language in the multi-island state.
The railroad from Jakarta to Bandung, President Joko Widodo’s flagship project, has also already exceeded the budget by $1.2 billion.
In addition, the project, which is supervised by a consortium of Chinese and Indonesian state-owned enterprises, has already missed the planned completion date by four years.
Financial restructuring at PT Wijaya Karya Tbk (WIKA) – an Indonesian state-owned construction firm with an indirect minority stake in the consortium – is also hitting the working capital needs of the project, which has already accumulated at least $381.75 million in outstanding payments, another internal document shows.
According to WIKA corporate secretary Mahendra Vijaya, his company had sufficient liquidity to finish the job but was still waiting for the consortium to pay off the labor it had already accomplished.
Indonesia is negotiating with China on an additional $560 million loan to help cover a $1.2 billion cost overrun and asking for an interest rate of 2.8 percent for the portion of the loan in yuan.
The proposed interest rate is much lower than the China Development Bank (CDB) bid of 3,46 percent, according to another set of documents dated May 18.