Wrangling over Jakarta monorail bad for investment

Wrangling over Jakarta monorail bad for investment

Yop Pandie, Jakarta

Indonesia urgently needs new investment in infrastructure.
That was the clear message coming out of the "Infrastructure
Summit" held by the Indonesian government on Jan. 17-18. The need
arises as a result of years of neglect due to the pounding taken
by domestic investors in the country's economic collapse five
years ago and the reluctance of overseas investors to put their
money in an economy that has been slow to recover from that
crisis.

But if the Jakarta monorail project is anything to go by,
foreign firms must be wondering just how much trust can be put in
the country. In particular, the uncertainties surrounding
supposedly strategic alliances established to develop the
monorail system might well cause them to think twice about
entering into a partnership of any kind with Indonesian
interests.

Under a Memorandum of Understanding dated Aug. 28, 2003,
Indonesian firm PT Indonesia Transit Central (PT ITC) was
appointed by the Jakarta provincial government to establish a
joint venture with a strategic partner to develop and operate the
proposed monorail as a build, operate and transfer (BOT) project.
Given Indonesia's lack of monorail experience, it was obvious
from the outset that the necessary technology would have to come
from abroad.

PT ITC's first choice foreign partner was MTrans of Malaysia,
which had built and now operates the monorail system in Kuala
Lumpur. This venture fell through due to difficulties in raising
the necessary project financing.

Then, in December 2003, PT ITC turned to Omnico Singapore Pte
Ltd (Omnico), a consortium of Singapore, Malaysian, Korean and
other foreign firms with extensive design, manufacturing and
operating experience in mass rail transportation, including
monorail systems.

A foreign joint venture agreement was signed in March, 2004,
and a joint venture company, PT Jakarta Monorail (PT JM), was
established by the two parties to develop the monorail project.
Until recently, the shareholders of PT JM consisted of PT ITC
with 55 percent of the shares and Omnico with 45 percent. PT
ITC's stake has since been reduced to 46.9 percent with the sale
of 8.1 percent of the shares to Indonesian firm PT Citrayasa
Niagatama.

In February 2005, a new consortium, the Indonesian Consortium
for Monorail Industry (ICMI), indicated its interest in the
Jakarta project. ICMI comprises PT Bukaka Teknik Utama, state-
owned railway and electronics companies PT INKA and PT LEN,
together with the light mass transit rail management company MTRC
of Hong Kong. Subsequently, in August 2005, PT JM recommended
that the Jakarta administration accept the ICMI proposal. This
recommendation was hotly disputed by Omnico, which claimed that
the decision had been taken unilaterally and without its
agreement.

What lies behind all these changes in alliances? Ostensibly,
two issues have come to the fore: Technology and costs.

Under the arrangements with Mtrans, the proposed technology
was based on that developed by Hitachi of Japan. With the
collapse of that arrangement and under the JVA with PT ITC,
Omnico was specifically designated as the provider of technology
for the Jakarta monorail project.

Having studied various monorail systems, Omnico recommended
the magnetic levitation (maglev) system developed by South Korean
firm Rotem as being the most suitable for Jakarta's needs. The
estimated cost was $540 million, including $345 million for
electrical and mechanical (E&M) systems. Applied to the Jakarta
project, the total system costs would work out at $19.3
million/km.

Omnico claims it has secured firm commitments in principle
from leading Italian and Korean banks to provide the necessary
debt and equity financing. The project's funding would thus come
entirely from external sources and without the need for any
subsidy, loan or equity from the Jakarta authorities. The cost to
passengers would not be affected by development expenditures,
since the price of tickets would be set and regulated by the
Jakarta administration.

The entry of ICMI brought yet another proposal to use more
conventional "straddle" technology from Siemens. ICMI claimed it
would be able to secure monorail technology and civil works at a
lower estimated total system cost of $376 million, or $13.4
million/km.

The cost of monorail systems depends on many factors,
including technology, number of carriages and passengers, number
of stations, topography and geotechnical conditions.

A widely recognized and accepted international benchmark is
a cost of $22 million/km, which would result in a figure of
around $600 million if applied to the Jakarta project.

Launched with much fanfare in 2003 as a fresh initiative to
help relieve Jakarta's chronic traffic congestion, the near 28
kilometer, two-line mass transit monorail is a pet project of
Governor Sutiyoso, who has gone so far as to pledge his
reputation publicly on its successful completion. The first line,
running for some 14.3 kilometers through the city's central
business district, is scheduled for completion in 2007, while it
is hoped that the second, running 13.5 kilometers east to west
across the city, will be finished by mid-2008.

But, with the project already late in getting off the ground,
disputes between the main shareholders in PT Jakarta Monorail now
threaten to bring it to a grinding halt.

The uncertainties surrounding the monorail project will
assuredly give rise to doubts in the minds of foreign investors
and reduce Indonesia's ability to attract the foreign investment
in new infrastructure that it so urgently needs.

The writer is a journalist based in Jakarta.