Doubts have risen over talks to form a joint venture (JV) company between state railway firm Kereta Api Indonesia (KAI), the project’s investor, and both Adhi Karya — the project’s contractor — and state infrastructure financing firm Sarana Multi Infrastruktur (SMI) to ease KAI’s financial burden in the project.

The cost of the project has reportedly ballooned from around Rp 27.5 trillion (US$2 billion) to approximately Rp 31.8 trillion due to technical issues.

The idea to establish a JV company was sparked by State-Owned Enterprises Minister Rini Soemarno’s request for KAI to retreat from being the project’s investor, as stipulated by a presidential regulation, because of concerns over the high costs. Under the JV plan, Adhi Karya would also act as an investor in the project.

Adhi Karya finance director Haris Gunawan said that the firm did not have any issues with the JV proposal.

“Any additional funds will still be shouldered by KAI. Adhi Karya will continue constructing the LRT,” he said.

Adhi Karya’s initial estimates conclude that KAI is expected to contribute Rp 4 trillion to the JV’s capital, while SMI will contribute Rp 3.6 trillion. Meanwhile, Adhi Karya is expected to contribute Rp 1.4 trillion from a state capital injection (PMN) endowed to the firm from the government back in 2015. The JV’s accumulated capital will be used to secure funding by loan from state and private lenders.

So far, Haris explained, Adhi Karya had spent Rp 5 trillion on the project’s development, which is 26 percent complete. The firm expects the project to reach 30 percent completion by the end of the year, with a total spending of Rp 6.5 trillion.

The LRT construction will be divided into two phases: the first phase will span from Bogor in West Java to Jakarta along a 43.3 kilometer-long track including the sections Cibubur-Cawang, Bekasi Timur-Cawang and Cawang-Dukuh Atas. It is expected to be finished by 2019. The second phase will be a 38.5 km-long track including the sections Cibubur-Bogor, Dukuh Atas-Palmerah-Senayan and Palmerah-Grogol.

Even so, Haris reiterated that Adhi Karya still expected the financing scheme to be concluded soon by both the Transportation Ministry and investor.

“LRT construction will continue using the working capital we have allocated. However, we still hope the government will provide certainty on the realization of the LRT [cost] payment, remembering that Adhi [Karya] is a publicly listed company,” Haris said.

Adhi Karya’s share price increased slightly to Rp 1,770 at market close on Thursday, from Rp 1,750 at open. However, the price is down from Rp 2,200 recorded on Nov. 23, before the hubbub over KAI’s financing capacity arose.

The government initially planned to use the state budget to finance the project, but later assigned KAI to invest through a presidential regulation. It was originally only designated as the LRT’s future operator.

The government plans to equip KAI with Rp 7.6 trillion in PMN, with Rp 4 trillion secured this year. Funds outside of the PMN are to be sourced from syndicated loans from banks, potentially from state lender Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and private lenders like CIMB Niaga and Bank Central Asia (BCA).

Despite Rini’s request for a JV company, Transportation Minister Budi Karya Sumadi was firm that KAI would remain an investor in the project.

“[The JV] will be discussed this week and be finalized through a shared agreement among all ministries. So far it is still the three, KAI, Adhi [Karya] and SMI,” he said, adding that the existing presidential regulation will not be amended.

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