W

e find it difficult to understand why President Joko '€œJokowi'€ Widodo has insisted on launching the construction of the US$5.5 billion, 150-kilometer high-speed railway project linking Jakarta and Bandung when most of the necessary permits have not been obtained. More worrisome yet is that the main economic, commercial and technical analyses for the project have not been completed.

Latest reports say the investor, PT Kereta Cepat Indonesia China (KCIC), a joint venture between four Indonesian state-controlled companies and China Railway, has not even obtained the building permit and concession license.

Jokowi'€™s main consideration in choosing China, instead of Japan, for implementing the project was based largely on the fact that China'€™s investors do not ask for government guarantees and the project is wholly a private business deal, financed mostly with loans from China, while Japanese investors demanded financial involvement by the government in the form of guarantees.

But the big question then is, would the Indonesian government simply sit on the sideline if the project ended in a failure and the joint venture company defaulted on its huge debts? Since the Indonesian partners in the joint venture are state-owned companies, wouldn'€™t their debt default also adversely affect the government'€™s credit rating?

We don'€™t think the government could simply avoid any responsibility in case the project failed, leaving behind big debts. And the risk of the project failing seems high, given the inadequate technical, commercial and legal preparations.

We don'€™t see any reason as to why the project should be rushed in such a way when the analysis of its social and environmental impact and commercial viability has not been comprehensive and complete. Moreover, since the railway project does not mention anything about freight services, it is difficult to fathom how the project would be able to recoup its capital investment within its 50-year concession period.

Without freight services, not only the commercial viability is in doubt, but also the impact of the project on the whole economy would be severely limited. In fact, instead of rushing with the Jakarta-Bandung high-speed railway, such a big investment in modernizing the existing Jakarta-Surabaya railway service would have greater multiplier impact on the economy, because this would expand both passenger and freight services between the western and easternmost parts of the most heavily-populated island of Java.

With transparency lacking, the public remains mostly in the dark about many aspects of the project. For example, the railway company will most likely not be commercially sustainable if it relies only on revenues from ticket fares. It should also depend partly on non-farebox income, such as advertising on structures, buildings or railway cars, rental fees from passenger lounges and retail shops and property development at the four stations. But we don'€™t know what other concessions the investors will get and who will be responsible for acquiring the 600 hectares of land needed for the whole project.

Hence, it is better for the government to tread carefully in handling the project.