T

he government is poised to see private investment support Greater Jakarta’s light rapid transit (LRT) system when it unlocks the project’s commercial potential. There is now new interest from global investors, such as American global investment management firm BlackRock Inc.

Coordinating Maritime Affairs Minister Luhut Pandjaitan said the government’s move to be more meticulous in the commercial aspects of the project would lure in private entities to participate in the project and save more than Rp 6 trillion (US$450 million) in the state budget.

“The project’s IRR [internal rate of return] is in double digits, so it’s really bankable. The private sector can step in to provide the funds,” he said recently, highlighting the new estimate from a study by financial consulting firm PricewaterhouseCoopers (PwC).

Previously, state railway firm PT Kereta Api Indonesia (KAI) — which serves as the main investor for the LRT project — in its initial calculation reported that the IRR for the project would be 8.6 percent.

Luhut mentioned that upgrades in the moving block would allow more train traffic — instead of the conventional fixed-block technology with fixed distances between trains — and help jack up the number of passengers.

Thus, the number of LRT passengers is expected to soar to 260,000 passengers in the first year and 420,000 passengers in the twelfth year. In its initial study, KAI expects to see 116,000 LRT passengers daily in the first year of operation.

The number of passengers could increase by 10 to 15 percent annually, Luhut said, adding that the availability of more than 10 locations of transit oriented development (TOD) around the LRT stations also increased the project’s business feasibility.

One leading investor interested in the project is BlackRock, which he expects to join in the financing side.

“They have shown an interest and have requested a negotiation. They are happy that the government has prepared the [LRT] project with the detailed figures,” Luhut said.

The LRT construction is divided into two phases. The first phase will span Bogor in West Java to Jakarta in a 43.3 kilometer-long track across Cibubur-Cawang, Bekasi Timur-Cawang and Cawang-Dukuh Atas.

Meanwhile, the second phase will go along a 38.5 km-long track from Cibubur-Bogor, Dukuh Atas-Palmerah-Senayan and Palmerah-Grogol. The first phase is expected to be finished by 2019.

The government scrapped its previous plan of using the state budget as the sole source of funding for the Rp 26 trillion project and instead appointed KAI as the main investor with a 12-year subsidy totalling Rp 16 trillion and a Rp 7.6 trillion state capital injection (PMN) for the firm.

Recently, KAI has secured approval from the House of Representatives for Rp 2 trillion on PMN this year, to add to the existing Rp 2 trillion in 2015. With the capital injections, KAI will have to lure in around Rp 18 trillion from banks and financial institutions to pay for the rest of the project.

State lenders Bank Mandiri and Bank Negara Indonesia (BNI) and private lenders such as Bank Central Indonesia and CIMB Niaga are said to have expressed interest in taking part in the project.

State construction firm Adhi Karya has been building the first phase of the project and has so far spent Rp 4 trillion on it, without any certainty as to how and when it will be paid back. The project was 17 percent complete as of Friday last week.

Adhi Karya president director Budi Harto also confirmed that the company would be involved in the TOD for the Greater Jakarta LRT.

“We will develop office areas, apartments, malls,” he said.

A transportation expert from the Indonesian Transportation Society (MTI), Darmaningtyas, said the LRT project was commercially promising with its high potential for passengers and the TOD concept.

“As long as the TOD is developed around the stations, yes [it is a profitable project],” he said. (dea)