Business

Russian firm signs MoU
to build $2.4 billion railway

From Russia with cash: East Kalimantan Governor Awang Faroek (second left) and Kalimantan Rail PTE Director Andrey Shigaev sign a memorandum of understanding (MoU) in Jakarta on Tuesday over rail development and construction in East Kalimantan. JP/P.J. Leo

Russia’s state railway firm Joint Stock Company (JSC) Russian Railways will build a railway line in East Kalimantan to deliver coal, in an investment of approximately US$2.4 billion, an official says.

East Kalimantan Governor Awang Faroek said in Jakarta on Tuesday that the construction was expected to commence in 2013, while the operation would be started in 2017.

“The first stage of the railway line will be meant for coal, but hopefully we can also use it for crude palm oil, plantation harvests, rubber and people,” he said following the signing of a memorandum of understanding (MoU) document with the Russian company.

Indonesia is the world’s largest exporter of thermal coal and the world’s largest producer of palm oil. Both commodities are mainly located in Kalimantan. Its thermal coal output is estimated to reach 350 million tons this year, according to industry association estimates, driven largely by surging demand from China and India.

The construction of the railway to connect East and Central Kalimantan will be conducted in two phases, with the first phase to link an area near Balikpapan port to Kutai Barat regency in East Kalimantan in a 183-kilometer line and is estimated to cost about $1.8 billion.

In the second phase of the project, the Russian company would connect the railroad to Murung Raya regency in Central Kalimantan with a 60-kilometer line with an estimated investment of $600 million.

The railway will be able to annually accommodate 20 million tons of coal in the first phase, according to Andrey Shigaev, a director of the project, which will be funded by private investors and Russian state development bank Vnesheconombank.

JSC Russian Railways is one of the world’s largest rail companies, operating a 85,100-kilometer railway worldwide, with more than 20,000 locomotives and 1 million train carriages. It controls 85 percent of railway networks in Russia, which carries 950 million passengers and 1.2 billion tons of goods annually.

Besides the Russian project, MEC Holdings of the United Arab Emirates will reportedly build a 135-kilometer railway from Muara Wahau to Lubuk Tutung port in Bengalon, Kutai Timur regency in East Kalimantan to transport coal, with a total investment of Rp 5 trillion ($560 million). Leading Indian conglomerate Reliance ADA Group plans to invest between $5 billion and $10 billion in mining infrastructure.

Infrastructure development in Indonesia has slowed down in the past decade due to difficulties in land acquisition. However, last December the House of Representatives passed the long-awaited land acquisition bill to speed up the development of public infrastructure, including railway and ports, in order to solve major bottlenecks in the country.

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