China vies with Japan for rail deal in Indonesia

THE Chinese have muscled in on the Japanese for Indonesia's multibillion-dollar bullet train project, and looks likely to make even bigger inroads elsewhere once the Asian Infrastructure Investment Bank (AIIB), a China-mooted institution, gets off the ground.

Indonesia's high-speed train project stretches 750km and cuts across three provinces as it zips through Jakarta-Bandung-Cirebon- Surabaya and back.

It is estimated to cost 150 trillion rupiah (S$15 billion) and would trim travel time between Jakarta and the country's second largest city of Surabaya to 2 1/2 hours from the 10 to 12 hours by train now.

In the initial stage, the project would cover the 150km Jakarta- Bandung leg, which takes two hours one way currently.

The Chinese are committed to an equity stake in the project, while the Japanese have offered a 140 billion yen (S$1.6 billion) soft loan.

Both expect returns once the train is running, although the Chinese offer appears to be more favourable since they will absorb the loss if the project turns sour.

"China is just about to start its feasibility study. We will then compare the feasibility studies from Japan and China," Mr Anggoro Budi Wiryawan, director of railway traffic and transport at Indonesia's transport ministry, told The Straits Times.

High-speed rail is expected to boost Indonesia's manufacturing sector and create hundreds of thousands of jobs.

The project is as part of an ambitious push by President Joko Widodo to improve infrastructure.

A source told The Straits Times that in March, senior Japanese embassy officials told presidential chief of staff Luhut Pandjaitan that the Japan International Cooperation Agency (Jica) had completed a US$6 million (S$8 million) feasibility study on the train project.

But when the Japanese asked why they had not been granted the project, they were told that Jakarta had yet to decide on the matter, the source said.

The meeting took place just days before Mr Joko took off for his Japan-China trip.

While in Beijing, State-Owned Enterprise Minister Rini Soemarno, who was in the presidential entourage, met Chinese officials and both sides agreed in principle to work together to build a high-speed train line in Indonesia.

Observers said the meeting upset the Japanese.

Last month, on the sidelines of the Asian-African Conference in Jakarta, Ms Rini had another meeting with Chinese officials.

They agreed that Indonesia would share topographical, geological and seismological data, among other things, and in return, the Chinese would conduct a feasibility study on the high-speed train project and complete it by July 20, 2015.

Responding to China's moves, Mr Muraoka Hiromichi, senior representative of Jica Indonesia, said in an e-mail reply to The Straits Times: "Jica understands that China is preparing its feasibility study.

We, however, do not have a future picture as it depends on the government of Indonesia."

Some analysts see a bright spot for crucial infrastructure spending in South-east Asia judging by the rivalry over the high-speed rail project in Indonesia.

ANZ's chief economist for South Asia, ASEAN and the Pacific, Mr Glenn Maguire, noted that there was "a little bit of competition emerging" in the infrastructure financing space.

"I don't think the response of the Asian Development Bank (led by the United States and Japan) to the AIIB is going to be static. I'm sure it will be moving to deploy funds to sponsor projects at a faster pace," he said on April 25.

This article was first published on May 6, 2015.
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