Is there light at the end of the tunnel? (How promising is KCJB?)
With the bad precedents mentioned earlier, the question is: will the construction of the Jakarta-Bandung High-Speed Railway (KCJB) suffer the same fate? The project, saddled with a Rp113.1 trillion price tag, can also potentially see lack of demand for two reasons. Firstly, the ticket price, estimated to be in the range of Rp150,000-Rp300,000, will be almost twice as expensive as other modes of transportation to the West Java metropolis.
Currently, the most expensive fare for a trip to Bandung using a shuttle bus (known locally as “travel”) is Rp188,000, with a travel time up to three hours. Then there is the executive train which costs Rp135,000 with a travel time of 2 hours and 40 minutes. The cheapest one is by bus, costing only Rp70,000. Of course, people can also use their private vehicles, at an estimated cost of Rp219,750 per trip. So, the KCJB ticket is relatively more expensive, if we don’t take travel time into account. (GRAPHIC 2)
Secondly, the construction of the southern section of the Jakarta-Cikampek II toll road, which will reduce travel time from Jakarta to Bandung from 3-4 hours to 1-1.5 hours. This national strategic project comes with a price tag of Rp13.4 trillion. With a shorter travel time, the option of using private vehicles becomes more attractive.
The availability of public transportation services serving the Jakarta-Bandung route is the main reason why the KCJB project will potentially suffer losses for an extended period of time. Boston Consulting Group (BCG), appointed by the government to conduct a feasibility analysis on the mega project, found that its fare is too expensive. If a ticket is sold at Rp300,000, people will tend to prefer using cheaper modes of transportation. Although they can get to Bandung in shorter time using KCJB (about 40 minutes), the access from the last station to downtown Bandung is still not as convenient.
In terms of passenger numbers, the government is still very optimistic, despite the fact that only 1.8 million people used the executive-class train in 2018. If we assume that 75 percent of them are passengers from Jakarta, the number of potential passengers would only be 3,800 or 7,600 for a round trip. The 30,000 daily passenger potential claimed by the KCJB management is too optimistic and over-ambitious. They are banking on the hope that the numbers of trips from Jakarta to Bandung will increase many times over. (GRAPHIC 3)
Using this assumption, KCJB management claims the project will be able to start making a profit after 40 years, double the initial projection of 20 years. But in my opinion, it could take up to 100 years for the project to break even, given the occupancy rate of the previous train project was less than 20 percent. KCJB’s daily passengers may only number about 6,000.
Riddled with woes
Construction of the KCJB project is not without its share of controversies and problems. Initially, the plan was to construct it under a business-to-business (B2B) scheme without the necessity of state budget, at a cost of Rp86.5 trillion. It was to be funded entirely by a consortium of several Indonesian SOEs and a Chinese company, with a 60:40 equity.
However, over time, the cost bloated to Rp114.2 trillion, a 32 percent jump. This time the government was asked to intervene, to finance the cost overrun using the national budget. The government was forced to walk back on its initial promise that not a cent from the national budget would be used. It finally agreed to inject Rp4.3 trillion from the national budget to cover the cost overrun. This U-turn, in effect, set a bad precedent for the development of infrastructure projects in Indonesia. The government has broken its promise.
KCJB project is known to be financed with Chinese loans through the China Development Bank (CDB). Even though it is a B2B venture, the government must also be vigilant, if the SOEs end up defaulting on these loans in the future.
The cost overrun and extra funding drawn from the national budget raised public concerns that the project will be mired in crippling debt. The recent chaos in Sri Lanka can teach us a valuable lesson. KCJB can only make a profit after at least 139 years, assuming a ticket price of Rp250,000 with an occupancy rate of 50 percent and a total of 30 daily trips. Under the most optimistic assumption of 100 percent occupancy rate at a price of Rp400,000, it will still take 33 years. If this project fails to make a profit, don’t be surprised if KCJB will fall under the full control of a Chinese company.
Therefore, the project must be urgently reviewed. At least there is pressure not to use the national budget in the construction of this high-profile project. The budget should be allocated to other programs, ones that are far more useful to a broader public.