Chinese Infrastructure Projects in Indonesia Face Fresh Delays

Recent Features

ASEAN Beat | Economy | Southeast Asia

Chinese Infrastructure Projects in Indonesia Face Fresh Delays

Indonesia’s government should tread cautiously when green-lighting large-scale Chinese infrastructure projects.

Chinese Infrastructure Projects in Indonesia Face Fresh Delays

High-speed trains at a station in Beijing, China.

Credit: Flickr/The United States Army Band

On March 23, the Indonesian news magazine Tempo reported that the Jakarta-Bandung High-Speed Rail project, one of China’s main Belt and Road Initiative (BRI) projects in the country, has been delayed due to financial and environmental considerations.

This is not the first time that the project is facing issues and delays. Last year, it was reported that the project was suspended as Indonesia’s Ministry of Public Works and Housing argued that the construction of the project was disrupting the flow of traffic along the Jakarta-Cikampek toll road, the Purwakarta-Bandung-Cileunyi (Purbaleunyi) toll road, and other non-toll roads in the vicinity of the rail line.

The piling of construction materials on the shoulder of the road is considered to have disturbed drainage around the project site. The joint venture PT Kereta Cepat Indonesia China (KCIC) — between a consortium of Indonesian State-Owned Enterprises (BUMN) through PT Pilar Sinergi BUMN Indonesia (PSBI) and Beijing Yawan HSR Co. Ltd, a consortium of Chinese railway companies — was also late in constructing the drainage system for the project. As a result, floods spilled over to the toll road bodies in early January. Similar incidents repeated at the end of February, creating traffic jams.

The $6 billion high-speed rail project has also experienced a series of delays, most recently due to the COVID-19 pandemic. Similar delays have beset key BRI projects in other countries, including Pakistan and Sri Lanka.

China’s Deputy Foreign Minister Ma Zhaoxu argued last year that “the impact of the outbreak on BRI development is only temporary” and that Beijing remained “willing to work with all parties to continue to promote high-quality BRI development. We have full confidence in this.”

In reality, however, many Chinese projects were stalling long before the COVID-19 pandemic. Similarly, the constant delays in the completion of the Chinese rail project serve as a reminder for Indonesia to take additional measures to address potential problems before signing up to large-scale BRI infrastructure projects.

The implementation of BRI projects in Indonesia began with the creation of a comprehensive strategic partnership between the two nations in 2013. Then-President Susilo Bambang Yudhoyono, said, “We have once again made history by agreeing to forge a comprehensive strategic partnership. I believe that under the leadership of President Xi Jinping we will be able to improve our bilateral cooperation in the future.” The same year, Xi announced the creation of the Maritime Silk Road, the maritime leg of the BRI, in a speech to the Indonesian parliament.

The agreement gave birth to several large projects, such as the Jakarta-Bandung High-Speed Railway project, the Morowali Industrial Park, the Probolinggo-Banyuwangi highway, and the Weda Bay Industrial Park.

Many of these projects have prompted controversy inside Indonesia, the railway project included.

When the deal was signed in 2016, for instance, Faisal Basri, an economist at the University of Indonesia, criticized the government’s decision to approve the construction of the railway project even though it is being carried out without state funds. There have also been accusations about corruption attached to the project. According to Basri, “We all know that there are many ‘under table’ cooperation with China. Don’t expect to be clean if you are still cooperating with China.”

A year earlier, the former Indonesian Economy Minister Emil Salim raised questions about the economic prudence of the project. Salim stated that Indonesia’s main concern “about the U.S. dollar is outflow, so we must encourage government projects not to push the U.S. dollar out. This means that there should be no development that eats a lot of dollars. Like the high-speed train, half of the investment is in dollars, so you have to buy dollars to build a fast train.”

Despite the criticisms, the government remains determined to continue the project. But pessimistic predictions came into reality where the project was stopped in early 2020 for 14 days due to some environmental problems it caused to surrounding areas. State-Owned Enterprise Minister Erick Tohir explained that he had asked China “to thoroughly evaluate all project managerial deficiencies, especially those that cause environmental and social harm to the community.”

Although in the end it was resumed, the project was again in trouble. Scheduled to begin operations in early 2021, the project is now believed to be $1.39 billion over budget, largely due to land acquisition challenges and work incidents. An example was the burning of the fuel distribution pipe of PT Pertamina (Persero) in Cimahi City, West Java, in October 2019, as it collided with the construction of the train line, causing a lengthy work stoppage. Another factor is the change in prices during project work. A source quoted by Tempo said that in the evaluation of all aspects of the project, a cost overrun was found, amounting to 23 percent of its initial projected cost.

This project’s challenges should be a warning for the Indonesian government to be careful in rushing into large-scale infrastructure developments with the Chinese government – or any other outside power.

The timelines of several other Chinese projects in Indonesia have also been extended, including the construction of the Batangtoru Hydroelectric Power Plant 3 in North Sumatra, a project being built by China’s Sinohydro Corporation Limited, which was temporarily suspended in June last year due to manpower issues. The company in charge remains unable to bring in Chinese workers due to Indonesia’s COVID-19 restrictions. The completion of the $1.5 billion dam has now been pushed back from 2022 to 2025.

In the short term, the government in Jakarta should sit and discuss with its Chinese counterparts on the next steps necessary to revive these stalled projects. The two countries should seek to jointly resolve these situations in a way that is mutually beneficial for both parties. Over the longer term, Indonesia needs to ensure that proper feasibility studies are conducted before signing any agreements, and that it addresses the various practical, financial, and environmental impacts that they have.

Jokowi’s administration would do well to remember that Indonesia has considerable bargaining power with China. While Indonesia may need Chinese investments to fire up its economy, China needs Indonesia to reach its economic and strategic goals overseas. The BRI’s planned maritime route from China to Rotterdam would not be possible without Indonesia’s participation – a fact that Jakarta should use to its full advantage.