Economic Update

Published 22 Jul 2010


Due to the holiday season, Oxford Business Group will temporarily postpone its service of online economic briefings. Service will resume on January 8.


Public transportation in Indonesia’s capital was the target of significant overhaul in the past few weeks, with progress logged on several projects aimed at easing congestion in high-traffic city arteries.

Late last month, Japanese funding for a full-fledged mass rail transit (MRT) system for Jakarta came closer to fruition, and early last week, the Indonesian federal government provided support for a privately developed city monorail project.

The Jakarta city administration announced that it would launch four busways (purpose-built bus lanes) by the beginning of 2007, while investor interest for the construction of a rail link from the city centre to Sukarno-Hatta International Airport has been strong.

PT Railink, a joint venture between the national railway company PT Kereta Api and airport operator PT Angkasa Pura II, reported a positive response to a call for proposals to build the 30-km-long route between the airport and Manggarai station in the city centre. As of early December, more than 10 potential investors had already submitted proposals for the approximately $100m project, with the deadline for submissions still two weeks away.

The railway is expected to be operational in 2009, potentially serving the currently 30m passengers that travel through the airport every year.

With some 3.5m motorcycles, 2.5m cars, 400,000 cargo and 250,000 passenger vehicles, Jakarta’s traffic is notoriously known for its jams, increasing travel time significantly. 

Jakarta’s Governor Sutiyoso estimates that while the city road network only grows at an average pace of 1% annually, the growth rate of the number of motored vehicles is around 11%. An integrated solution is thus necessary to prevent traffic in the city from coming to a standstill.

Last week, President Susilo Bambang Yudhoyono gave the green light for a limited guarantee letter by the finance minister, Sri Mulyani Indrawati, for the monorail project.

PT Jakarta Monorail, the company that has initiated the $650m project in coordination with the city administration, secured a $500m loan from the Dubai Islamic Bank (DIB). The company will also operate the monorail after completion for a period of 30 years before handing it over to the local administration.

One of the conditions set by DIB for disbursement of the loan was that the government would guarantee minimum passenger numbers of 160,000 per day. Some analysts doubt if these numbers could be reached, especially during the early stages after the launch of operations, when integration and links with other modes of transport will have not been fully completed. Other analysts expect that passenger numbers will exceed 160,000 within five years.

The regional administration, which is one of the chief proponents of the project, was not in a position to provide such a guarantee due to regulations. The central government initially refused to provide any kind of backing because the project was not publicly tendered, one of the requirements for a public guarantee.

With the signing of the presidential decree, the finance minister is expected to issue the official guarantee letter soon. This would be the next step towards getting the city administration to approve its part of the bid. Both central and city authorities have agreed to take equal responsibility of the potential guaranteed costs if passenger numbers fall short of projections.

During the president’s visit to Japan in November, the Japanese government agreed to finance a feasibility study for the development and planning of an MRT system in Jakarta. A 40-year, 1.87bn yen ($16.1m) loan agreement was signed at an interest rate of 0.4%, aimed at preparing the construction of a 15.5-km railway track, mostly underground, linking the northern and southern ends of the city.

An ”exchange note” was also signed as part of the official visit, with both parties agreeing on a loan to finance the construction, provided that 30% of the total project would be funded through the Japan Bank for International Cooperation, 30% by the Indonesian government and 40% to be tendered publicly.

After signing the documents, Transportation Minister Hatta Rajasa expressed his expectation that construction could start as early as the end of 2008, with the project up and running in 2012.

In the meantime, outgoing Governor Sutiyoso has come up with a low-cost temporary solution, the busway. The administration has already created three of these corridors by annexing lanes from existing roads for larger buses that stop at fixed stops, as opposed to existing buses in Jakarta that stop at any point in the road, causing serious unnecessary congestion.

While four additional busways were originally scheduled to become operational this week, Sutiyoso promised that these would be operational by January 15, 2007.