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.