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T Bukit Asam Transpacific Railways (BATR) signed on Friday a financing deal worth US$1.3 billion from the China Development Bank (CDB) to kick-start the long-delayed railway construction in Sumatra.

BATR president director Rudiantara said the project was part of an integrated plan consisting of coal mining, coal transportation infrastructure and port logistics.

“With the deal, we’ll have funding certainty,” Rudiantara said on the sidelines of the 19th ASEAN Summit and ASEAN Business and Investment Summit.

He also said total funding needed for the railway project was $2 billion, with the remaining $700 million coming “from equity, and from the initial paid-up capital from shareholders”.

CDB chief planning officer Chen Jianying said the debt to equity ratio was 70:30.

Three other Chinese lenders participating in the $1.3 billion syndicated loan are the Industrial and Commercial Bank of China (ICBC), Bank of China and Exim Bank.

The railway will span some 300 kilometers from Tanjung Enim in South Sulawesi to Bandarlampung in Lampung, passing through eight regencies and one city.

BATR is controlled by the Rajawali Group, which is owned by tycoon Peter Sondakh, with minority shareholders including state-run coal miner PT Tambang Batubara Bukit Asam (PTBA) and the China Railway Group.

The construction of the railway is expected to start in 2013, and operation commencement in 2016, according to Rudiantara.

The railway will transport coal mined by PT Bukit Asam Banko (BSB), which is a joint venture between PTBA and PT Rajawali Asia Resources, which is a unit of the Rajawali Group.

PTBA controls 65 percent of BSB while Rajawali owns 35 percent.

BSB will produce around 25 million tons of coal annually for 20 years.

Around 50 percent of the coal from the Banko mine will be purchased by Chinese companies, 30 percent by other international buyers and the remaining 20 percent by domestic buyers, including state power company PT Perusahaan Listrik Negara (PLN).

PTBA president director Sukrisno said the project had been delayed since 2005, and was expected to resume soon, after the company received a new license from the government for the railway operation in 2009. He said the company was currently preparing to acquire the land needed for the construction of the railway.

Many infrastructure projects in Indonesia have run aground due to difficulties in land acquisition as owners often demand very high prices for their land.

The project was part of the government’s master plan for the acceleration and expansion of Indonesia’s economic development (MP3EI), which will need thousands of trillions of rupiah in investment for infrastructure through 2025 in order for the country to be counted among the world’s 10 largest economies.

“This project represents China’s involvement in developing Indonesia’s infrastructure in MP3EI. China is committed to increasing its investment here,” said China Ambassador to Indonesia Zhang Qiyue.