A tale of two systems in city transportation

A tale of two systems in city transportation

This is the second of two articles on transportation in Jakarta
by Heru Dewanto, who heads the Center for Technology and Industry
Development. He is also CEO of the Jakarta-based Rekainfra
International company which is among the consultants involved in
the city's mass transit project.

JAKARTA (JP): The subway on the other hand would rely on
government subsidy and other government support. Yet, the main
source of income would come from the farebox and this should
cover 60 percent of total revenue. The remainder would be from
government indirect subsidies.

These subsidies were planned to be achieved primarily from a
road pricing scheme for private car users along the Blok M in
South Jakarta to Kota in West Jakarta corridor. These revenues
would be exclusively earmarked for financing the mass rapid
transit (MRT) system in the form of government subsidies.

Other sources of subsidies could be obtained from other taxes:
betterment tax for properties along the corridor, fuel tax, car
ownership tax, parking charges. Again, these taxes would be
channeled to fund the subway as government subsidies. In
addition, there are land development potentials to be
incorporated in the investment structure. This is different from
toll roads investment, for instance, that may not include
property development in their investment schemes.

On top of those subsidies, the government would still have to
provide other support measures such as guarantees for soft loans,
exemptions from import duties and provision of hedging against
foreign currency risks. The bottom line is that a huge investment
of this kind requires government involvement in many ways.

To minimize costs, the combination of three different
structures was explored -- a system of underground, road surface
and elevated structures. Costs were to be cut to about one-third
of the funds needed for the original plan, though this meant
compromising on visual intrusion, traffic distraction during
construction and the other negative impacts of an elevated
structure.

The political crisis added to economic turmoil has led to
further uncertainty surrounding these projects. Jakarta public
transportation finds itself in a dilemma -- while public
transportation has been neglected and left to deteriorate due to
poor maintenance, the system must nevertheless carry the city's
commuters operating at only a fraction of its capacity.

Despite having completed studies and designs and obtaining all
the required approvals, implementation is another story. So is
the crisis solely responsible for holding up the progress?

Learning from those initiatives, it is quite obvious that the
fundamental structure of mass transit investment has not been put
in place. Each tries to overcome the financial shortcoming by
developing its own approaches that in many cases may not be based
on transportation rationales or best practices. There is no such
standard policy of investment structure on mass transit yet.

What next?

The important question is whether Jakarta's mass transit
development has ended with the crisis and, if not, how it can
bounce back. The options are simply do-nothing or do-something.

The economic slow down actually offers an opportunity to re-
assess and reformulate the structure of mass transit investment.
Such a cost-minimum preparation should have been undertaken over
the last three years.

The real benefit is that when the crisis is mitigated and the
country starts to bounce back, the infrastructure will be ready
to support growth. On the contrary, delay would lead to the
transportation infrastructure further hampering economic growth.
Further delay would prove to be very expensive. Obviously we have
missed three valuable years in a do-nothing option.

The do-something option should have covered the following
issues. There is a need to improve the balance of risk between
government and private sector. There is a need to provide more
equal competition between the rail and the road by, for example,
internalizing the externalities. This means, for instance, road
pricing and betterment tax for the landlords within the area
concerned, property development, parking and telecommunications
along the corridor.

A mechanism for earmarking these pricing policies and taxes
needs to be prepared. What is mostly needed is a new robust and
integrated pricing policy applied to the transportation sector
and also to other related sectors.

Assessment of potential funding schemes should be extended to
other government undertakings and multi-sources funding support
from the government. Further government commitment and support in
the form of policy would be required to integrate the mass
transit with other public transportation services, including bus
rerouting. Likewise, concurrent land use policy is badly needed.

This conducive environment should be applied to other
infrastructure, whether in the form of toll roads, power and
water facilities or others. The city and the country cannot
afford to repeat the old approach: moving on with huge projects
that are often associated with flaws, yet based on a fragile and
unsustained basis.

The mass transit system and infrastructure as a whole
desperately needs new approaches based on a more sustained and
efficient basis. A consensus among the government, private
sector, users and the public is needed to agree to a new
principle of approaches in the provision of mass transit. This
consensus could be achieved through the setup of a city
transportation council.

This can be followed by changes in the legal and regulatory
framework.

Finally, we would agree on one thing: In a few years
Jakarta must begin work on its first mass transit system.