Workin’ on the railroad: Infrastructure developments will see more coal moved by rail

More than 1000 km of rail lines are being developed on the islands of Borneo and Sumatra to allow for the more efficient and timely transportation of natural resources. East Kalimantan has an estimated 19.56bn tonnes of coal, while Central Kalimantan has 8.67bn tonnes. South Sumatra has an estimated 22.24bn tonnes of coal. And all three provinces are lacking in infrastructure.

DEVELOPMENTS: Over the past few years, a number of projects have been planned and a few initiated to move resources from the mines to the ports and plants more efficiently. While they are at different stages of development, and it is not certain that all the projects will ultimately be built, the hope is that at some point in the near future, connectivity will be improved to ensure that regional resources can be transported more smoothly and at a cheaper cost to domestic users and international markets.

In July 2012 a declaration was signed to construct a 300-km railroad from Puruk Cahu through Bangkuang and on to Lupak Dalam in Central Kalimantan at a cost of Rp20trn ($2bn). It will be the first public railway project developed as a public-private partnership (PPP) and it will connect five districts in Central Kalimantan: Murung Raya, Barito Utara, Barito Selatan, Barito Tengah and Kapuas. The project has been under discussion since 2007 and will be completed by 2017.

BIDDING IN PROGRESS: According to the PPP development director at the National Development Planning Board, Bastary Pandji Indra, the original design called for running the line from Puruk Cahu to Bangkuang, but the plan was changed and now the line will run through to Lupak Dalam. The project is supported by infrastructure project guarantor Penjamin Infrastructure Indonesia, joint venture company Krakatau Posco, state-backed mining firm Krakatau National Resources and the state electric company, Perusahaan Listrik Negara. Users of the rail network will include coal mining companies Asmin Koalindo Tuhup, Billiton Indonesia, IndoMet Coal (operated by Billiton) and Indika Indonesia Resources.

Four consortia were shortlisted to build the line. They are: the Itochu Toll consortium; the Drydocks World MAP-Resources Indonesia consortium; the Bakrie-SNC Lavalin-ThyssenKrupp consortium; and the China Railway Group-Mega Guna Ganda Semesta-Royal Energi consortium. A winner will be named in early 2013. The total investment could rise to $3.2bn if the rail is built to carry 49m tonnes per annum (mtpa), rather than the original 30 mtpa.

RIVER RUNNING: The Barito Hulu River, which is now used to transport coal, has limited capacity. Only 4000 tonnes can be hauled per trip for a total of 17 mtpa, and the waterway is only open eight months of the year. The rail line will have the capacity to haul 7000 tonnes per trip. Meanwhile, the Barito Hilir River, which is also used to transport coal, has a capacity of 2000 mtpa.

The government considers the project economically viable, so it will not provide direct support, but it will offer political risk guarantees and restrict the use of the rivers so that freight will instead be shipped by rail. Users of the line have signed onto the project, further increasing its viability. The government believes that the rail will provide significant benefits to the region, estimated at $22bn of additional economic activity and $600m of royalty payments. There has also been mention of the rail possibly offering passenger services.

It is worth noting that the Puruk Cahu-Lupak Dalam line is not being pursued in isolation. A number of other rail lines are under discussion, and ultimately, a significant amount of track could be installed in the coal-rich regions of Indonesia.

A total of 10 rail projects may be developed through 2020 in Kalimantan as PPPs, according to Tundjung Inderawan, the director-general of railways at the Ministry of Transportation. These include a Banjarmasin-Pelaihari-Batakan line as well as a service that will connect Tanjung, Martapura, Banjarbaru and Banjarmasin Airport. In addition, there has been discussion of the Balikpapan-Samarinda and Tanjung Redeb-Lubuk Tutung lines in East Kalimantan.

OTHER PROJECTS: Other coal-related projects include the $2.4bn, 180-km East Kalimantan line planned by Russian Railways. A memorandum of understanding (MoU) was signed in February 2012 and completion of the project is expected in 2017. The line will have a capacity of 20 mtpa. In addition, Middle East Coal Holdings is building a Rp5trn ($500m), 135-km line that runs from Muara Wahau to Lubuk Tutung Port. The projects are part of the Kalimantan Island Railway Master Plan, a Rp600trn ($60bn) programme that involves 49 sections. In total, 5265 km of track will be built between 2015 and 2030 under the master plan.

In South Sumatra, Rajawali Asia Resources and Tambang Batubara Bukit Asam Persero, a state-owned coal mining company, are building a 300-km coal line from Tanjung Enim to Bandar Lampung. In November the line received $1.3bn in loans from the China Development Bank. It is scheduled to open in 2014 and will have the capacity to haul 20 mtpa.

In 2011 Adani Enterprises said it would build a $1.65bn project that will include a 185-km rail line to connect coal mines to a planned port at Tanjung Api-Api. The line will move an estimated 60 mtpa of coal when finished and a coal terminal with an estimated capacity of 50 mtpa will also be built at Tanjung ApiApi. An agreement was signed for the project in August 2010. The viability of these lines depends on a number of factors and it is not clear yet whether all the conditions will be satisfactory. Nor is it obvious whether the necessary pieces will fall into place for all the projects to be completed.

These construction targets are very dependent on the price of resources. If Chinese growth continues to slow or if the price of coal falls significantly, the rail lines may no longer make as much financial sense. Some have strong corporate and banking backers, and their viability will turn on the ability of these deep pockets to provide funding. Other projects are being implemented on a PPP basis, which comes with its own set of challenges. As rail lines, these projects face the same sort of difficulties that plague the development of toll roads; it is tough to get all the parties along the way to agree to allow the infrastructure to be implemented. While the new law on land acquisition (see Infrastructure chapter) might help, it still needs to be tested and does not cover all potential objections the public might raise.

MOVING FORWARD: The vision for coal rail in Borneo and Sumatra remains just that – a hopeful plan. And while the numbers seem to add up, that does not make it certain that the projects will happen. It will take quite a bit of work, along with some luck, to get them beyond the MoU and planning stages.


You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Indonesia 2013

Transport & Logistics chapter from The Report: Indonesia 2013

Cover of The Report: Indonesia 2013

The Report

This article is from the Transport & Logistics chapter of The Report: Indonesia 2013. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart