Working on the Railway

Indonesia

Economic News

22 Jul 2010
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Indonesia's heavy gauge railway network is in line to get a boost in the coming few years, with a series of new projects designed to support major development schemes to be completed by 2013.



While there has been wide coverage in the media of proposals to expand passenger services in the country's major cities, with plans being drafted to spend up to $3bn to develop a metropolitan transportation network in the cities of Jakarta, Surabaya, Medan, Bandung and Yogyakarta, there has been less interest in efforts to strengthen Indonesia's rail freight capacity.



There are a number of large-scale rail projects in the pipeline, with the three biggest all having price tags above $1bn and all being integrated with the country's coal industry, one of Indonesia's leading export earners, bringing in nearly $15bn in 2009.



However, this revenue and the projected output of 280m tonnes for this year have the potential to be increased if Indonesia had the capacity to move its extracted coal quicker and in greater bulk. In order to achieve this, both state enterprises and the private sector are getting on board.



In mid-February, Agustin Teras Narang, the governor of Central Kalimantan province, announced that tenders would be called before the end of the year to build a 185-km rail line from Puruk Cahu and Bangkuang. The line, to be built at a cost of around $1.5bn, was essential to allow the efficient movement of coal, Agustin said.



"We see a railway as the only feasible option for transporting coal throughout the year," he said. "Coal from the area is currently transported by road and river. But the roads are only able to support trucks carrying up to eight tonnes, while river transportation is impossible during the dry season, even for small barges."



According to the governor, the project would be developed as a public-private partnership scheme, with private investors being responsible for building the line and in return being granted a 30-year concession to operate it.



One project that has received some media attention is the scheme to build a 130-km long railway in the province of East Kalimantan on the island of Borneo. The $1bn project is being carried out by MEC Holdings, a 50-50 joint-venture between the Ras Al Khaimah (RAK) Investment Authority and Indian firm Trimex.



Under the initial plan, the mine's output was supposed to be shipped to RAK to fuel a coal-fired power station. Now, with the scheme to construct the power station under review, MEC is looking to involve Indian companies in the railway, both as investors and as clients to buy the coal to be hauled.



Though it is unclear where the final destination of the coal extracted from the East Kalimantan mines will be, MEC officials say both the mine and the railway needed to shift the output will be operational on schedule.



Madhu Koneru, the executive vice-chairman of MEC Holdings, told reporters in mid-February that the first train should be running in 2011, with the initial phase of development expected to handle a coal capacity of 32m tonnes per annum.



"We have completed the land acquisition for the project and expect to sign the engineering procurement and commissioning contract for the rail corridor by May this year," he said.



Yet another rail project being driven by the coal industry is a $1bn development on the island of Sumatra, a scheme backed by state-owned mining company PT Tambang Batubara Bukit Asam. However, this project is far from being on track. Having been floated in 2006 as a joint venture between Bukit Asam, local firm Transpacific Railways and China Railway Engineering, the planned 300-km line from the Indonesian miner's Banko coal concession in South Sumatra to the port of Srengsem in Lampung is far behind schedule, with construction work yet to start and the completion date pushed back to 2013.



In mid-February, the Bukit Asam president-director, Sukrisno, confirmed earlier reports that the cost of the project was set to rise and that there would be further delays.



"We are finalising the engineering, procurement and construction contract with China Railway," he said in an interview with local press on February 14. "If it's not finalised then we can't start. There has been an increase in the project value, and therefore we have to evaluate and negotiate first."



Sukrisno said that when the rail project is operational, output at the Banko mine could be increased from the present level of 10-11m tonnes annually by 5m tonnes in the first year that the line is open, 10m the second year and 22m tonnes the third.



As demand grows, state railway company PT Kereta Api Indonesia is also stepping up investments to support the country's mineral boom, announcing plans in late February to buy a further 170 wagons to transport coal, part of $86m worth of new rolling stock to be acquired this year.



Kereta Api may have to invest in more rolling stock to serve the coal industry as a result of a decree signed by President Susilo Bambang Yudhoyono that came into effect in early February. The decree cleared the way for developments such as mines, transport projects, and power stations to be undertaken in areas previously deemed protected forests. In particular, the decree foresees both open-pit and underground mining being allowed in production forests – areas previously logged of natural coverage – and underground mining in protected forests, those regions that still retain their native cover.



Among the transport modes specifically mentioned in the decree were toll roads and railways. With rail the most cost-effective means of transporting large volumes of minerals by land, the further opening up of protected forest areas for mining activity could herald yet more rail projects, especially as much of the previously locked-up resources are in remote regions.



With billions of dollars being poured into rail infrastructure, and the possibility that far more track will be required to meet the haulage needs of the coal industry, Indonesia's freighting capacity is set to rise at an express rate in the coming years.

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