Capital's subway project hinges on financing: Minister

JAKARTA (JP): Minister of Communications Giri Suseno Hadihardjono said that implementation of the much delayed Jakarta subway project would depend on whether the government could secure the necessary financing.

Speaking on Thursday, he said that the government had to participate in the project because full private sector financing would result in very high passenger tariffs.

"The government has to participate in the project, but the scale of participation has yet to be decided. It will still be attractive to investors and not create too great a burden on the government," he told reporters after opening a seminar on the infrastructure sector.

He said the government initially agreed to award the subway project to a private consortium grouping Indonesian, Japanese and German investors.

But the decision was later retracted after the government decided that the price quoted by the consortium was too high and would result in excessively high ticket tariffs.

The minister explained that the subway project offered one of the best options for providing a mass rapid transportation system to serve Jakarta's 10 million population.

Chairman of the Indonesian Chamber of Commerce and Industry Aburizal Bakrie said on Tuesday that President B.J. Habibie had given the project the go ahead after a delegation from the Japanese Federation of Economic Organizations (Keidanren) met him and said they would help to build and finance the project.

Aburizal said that Keidanren would ask the Japanese government to provide the project with soft loan financing under the Official Development Assistance (ODA) scheme.

He added that the cost of the 14.5-kilometer subway project has been placed at US$1.5 billion, much less than the $2.4 billion proposal submitted by the consortium stripped of the project.

Giri declined to comment on the Japanese proposal, saying there had yet to be official conformation from the Japanese government. He also said the possibility of financing the project through Official Development Assistance, known as the Miyazawa Plan, requires further exploration.

He said that the government would open a bidding process for private sector participation in the subway project after the matter of government finance had been clarified.

The executive director of Asian Infrastructure Fund Advisers, Bruce C. Allen, said that developing a subway project would require major government participation.

"Subways around the world are generally very difficult to do from a purely private standpoint because they're very expensive," he told The Jakarta Post on the sidelines of the infrastructure seminar.

"There aren't enough examples around the world of successful private subways, that's a sector that is particularly difficult," he added.

He explained that foreign investors still had the appetite to invest in the country's infrastructure sector, provided the government provided a proper investment framework with transparent tariffs.

"If this issue is addressed foreign investment will come back to develop the infrastructure in Indonesia. We're willing to bear a lot of other risks, the one risk we can't control is tariff," he said.

He also added that political stability was a necessity. (rei)