Long way to go before Indonesia sees rail revival

Rail is making a global comeback but in Indonesia the logic behind its rejuvenation is undeniable for one simple reason: For decades on the drawing board, the 615km trans-Java highway has stalled, stymied by land acquisition issues that defy a solution.

That means a three- to five-day trip for the trucks plying between Jakarta and the East Java port city of Surabaya. Negotiating traffic-choked two-lane roads, they are a critical impediment to the efficient movement of cargo in a modern economy.

With fewer right-of-way issues, Kereta API’s two east-west railway lines are  – particularly next year when the government finishes laying a US$1-billion, 844km second track along the northern coast – to carry an extra 10,000 standard-sized containers a week.

There is one small obstacle. The rail-head in Jakarta ends 600 metres from the port of Tanjung Priok, the country’s busiest. Why?

Ask the powerful people who control the trucking firms that enjoy exclusive access to the docks. As a result, with factory owners and freight forwarders anxious to avoid the additional cost of double handling, barely 100 of the 4,000 to 5,000 containers the Java rail network now carries each week to Tanjung Priok are actually destined for the port itself.

Logistics costs are already estimated to add 20 per cent to the prices of Indonesian goods, compared with an average 10 per cent elsewhere in Southeast Asia. It is one of the reasons the country struggles to be competitive.

With the Asean Economic Community’s single market due to be implemented in 2015, Indonesia was ranked 59th out of 155 countries in the World Bank’s 2012 Logistics Performance Index, ahead of Myanmar, Cambodia and Laos.

The Tanjung Priok anomaly is one of the many frustrations faced by Jonan, 49, a former Citibank banker who has transformed Kereta API into a marginal money-making entity since taking over as president director in 2009.

“The port authority does not have the appetite to allow us access to the seaway,” he said with a sigh, noting that railways make the most profit when they own an entire logistics chain, from warehouses to distribution networks. Railway should not be just about rail.

Kuntoro Mangkusubroto, head of the presidential monitoring unit, calls rail revival a must, but he says only strong political will can overcome the web of influential truckers, rent-seeking land developers and corrupt officials who stand in the way.

“Infrastructure is a key priority,” he said. “We need a political breakthrough to solve the problem.”

All nine sections of the US$6-billion trans-Java highway, ranging from 36km to 116km, are listed as being under construction. But Kuntoro said land difficulties have ensured little or no progress on them.

Adding to the mess is the impotence of the newly enacted 2012 Property Law. Specifically designed to overcome such barriers to public infrastructure projects, the legislation inexplicably does not apply to contracts that have already been signed.

Holding his head in his hands, Kuntoro said the only way around it is to cancel all the road contracts, take government teams out of the equation and leave land purchasing to the new contractors, driven as they will be by commercial imperatives.

The same situation applies to rail. “There’s no point in having a railway unless you have an efficient port operation at the other end,” said Bryan Nye, head of the Australasian Railway Association, which is helping to improve Kereta API’s services.

As it is, an estimated 35,000 containers a week are moved across Java by truck at a time when road congestion is growing worse, subsidised diesel consumption is blowing out the national budget and freight movement is forecast to double by 2020.

This is when railway should be coming back into its own. While infrastructure and capital costs may be high, new technologies have produced a quantum leap in rail’s competitive efficiency and economies of scale.

Tracing its origins back to the Dutch colonial era of the 1880s, Kereta API last year moved 203 million passengers and 23 million tonnes of freight (about 55 per cent of which is coal) on three separate networks that it operates in north, west and south Sumatra.

In Jakarta, its suburban rail services carry 550,000 passengers a day from outlying suburbs, 60 per cent of whom pay subsidised fares under a government-imposed public service obligation (PSO).

And therein lies Jonan’s other major headache. The government reimburses only 30 per cent of what Kereta API loses under the PSO scheme, a shortfall that also impacts several other state-owned enterprises providing public services.

In other words, don’t look for high-speed train services between Jakarta and Surabaya any time soon. Just building overpasses for the 4,000 unattended level crossings would cost a conservative US$4 billion.