After several weeks of speculation, uncertainties, and even the temporary cancellation of construction, China has become the chosen one to build the very first high speed Indonesia rail – a 150-km line connecting Jakarta and Bandung, the business hub in the West Java province.
Both of the Asian infrastructure construction powerhouses have been vying for this US$5 to US$6 billion contract ever since China joined the bidding game in April 2015.
There were a few dramatic developments before this contract was awarded. The Indonesian government was presented with many different views from many of its ministers. One of the topics that came up most frequent was the appropriateness of having a high-speed train in a corridor already well served by medium-speed trains and road transport.
The climax of this argument arguably took place when the Indonesian government abandoned the idea in early September. Minister Rizal Ramli held a press conference providing clarification that a high speed train was unnecessary and that a “medium-speed” train would do.
And now that the winner of this race has been decided, an analysis of how and why China won is in order. To start off, the terms proposed by both countries are further examined.
China to Build Indonesia Rail Faster and Cheaper
Looking at the time required to finish construction, China appears as the more attractive option promising to complete this project in just three years as opposed to Japan’s five. Bonus points were awarded for China for proposing that construction can begin just a month after the signing date.
In terms of the contract value, China proposed a much lower price of $5.5 billion when compared to $6.2 billion from Japan.
However, the time was a make-or-break factor, unlike the different financing terms proposed by both countries. Expert analysts agree that the Chinese financial package far exceeded the Japanese one for this ASEAN country. Even though both countries proposed to finance the construction, China was the only one that did not need a funding guarantee from the Indonesian government.
Ramli once also was quoted saying that the Indonesian government was not keen at all on using any state funds for the project. Japan’s bid was built around the fact that part of the funding would be from the Indonesian government and a low-interest loan offered by Japan. In comparison, China offered a loan and let Indonesian state-owned firms to provide for the remainder of the costs.
Consequently, it was indeed the financing question that became the deciding factor between the two countries. In fact, Indonesia’s National Development Planning Minister Sofyan Djalil was reported explaining to the secretary of the Japan’s chief cabinet that it was Indonesia’s wish to bring this project to life without any guarantee of funding from the state. This meant that the project will have to be completed under a B2B model, something that Japanese companies are unwilling to compromise on.
With the contractor finally selected after weeks of a highly intense bidding war and dramatic developments from within the Indonesian government, the beginning of the construction is here.
A project team from China has already been sighted in Jakarta and will break ground before the end of this year. With their deep expertise and wide experience in the construction of high-speed railways, the Chinese contractors are looking forward to deepening their relationships with Indonesia through more and more practical cooperation on infrastructure facilities and production capacities.
The Indonesia railway is scheduled to begin operations by 2019.