In recent years, Indonesia’s public transportation infrastructure has undergone a major transformation. The long-awaited high-speed rail (HSR) connecting Jakarta and Bandung is currently undergoing public trials and will begin commercial operation in early October. Last month, the Greater Jakarta Light Rail Transit (LRT) system began operation. The first stage of the Jakarta Mass Rapid Transit (MRT) has been open for a few years and is currently being extended to the historic Kota Tua district.
These efforts have not been without controversy. Costs, planning, design, land acquisition, environmental impacts, reliance on external debt, and the role of domestic business and industry have all been hotly debated. As these large-scale projects come to an end, it seems like a good time to look back and take stock of the alphabet soup of Indonesia’s public transportation systems.
Investing in transportation has several objectives. The most obvious is to move goods and people more efficiently. In theory, this improves business competitiveness, reduces emissions and traffic, and generally boosts economic activity. A second objective is the acquisition of new technologies and know-how.
This goal is particularly important for emerging markets like Indonesia, as it creates the foundation for long-term growth. Transportation systems require a lot of technology and skills. They involve a qualified workforce, mastery of technologies such as signaling systems and a certain level of competence in industrial and construction techniques.
Indonesia doesn’t just want foreign companies to come and build transportation systems. When planning, building and operating these systems, Indonesian companies are keen to acquire new operational and production capabilities from foreign development partners. The aim is for Indonesian companies to eventually be able to carry out all, or at least most, of these complex transport projects themselves.
The Jakarta MRT is a Japanese-backed project. It is owned and operated by the Jakarta Municipal Government and is financed by concessional loans provided by Japanese development banks at very low interest rates. Japanese engineering and construction companies played an important role in the planning, design and construction of the MRT system. Several Indonesian state-owned companies, such as Adhi Karya, are participating in the construction process as minority partners in joint ventures with Japanese companies. Many of the more complex components, such as rail management systems and rolling stock, have been primarily managed by Japanese construction and engineering companies.
The Jakarta-Bandung TGV is, as everyone probably knows by now, developed in tandem with China. Costing more than $7 billion, it is financed by non-concessional loans from Chinese banks, meaning the interest is closer to the market rate. Another difference is that HSR is structured as a joint venture in which Indonesian companies are the majority partners, with a 60 percent stake.
The idea is that such a structure would facilitate more transfers of technology and know-how between Chinese and Indonesian companies. This project has attracted a lot of attention due to its high cost, questionable planning choices, deadlines and environmental issues. But if this results in Indonesian SOEs acquiring new skills and capabilities, the tradeoffs could be worth it. Of course, that’s a big if.
The Greater Jakarta LRT is a local project managed by state-owned enterprises. Adhi Karya did most of the construction. INKA, the state-owned rolling stock company, manufactured the wagons. PT Len worked on the signaling system and the KAI railway company will operate it. Siemens has been working on software, but overall it is an LRT made in Indonesia.
It has also been plagued by delays and problems. During testing in 2021, two trains collided. When the line finally began operating in August, numerous operational problems arose, including reports of harsh braking, delays and long queues. The design and construction has been criticized, as the wagons must travel very slowly on one section.
But look at the trajectory of the last decade: from a Japanese-funded MRT in which Indonesian construction companies participated as junior partners, to a HSR in which Indonesian companies are majority shareholders, to an LRT where Indonesian state-owned enterprises have taken the lead in the sector. design, build and operate a complex system in a challenging urban environment. What these companies are trying to do is acquire and develop local capabilities, and the long-term success of these efforts should actually be judged by how and to what extent this happens.
The problems with TLR are not that surprising given the limited experience with such complex systems. The more important question, in my opinion, is whether companies like INKA, Len and Adhi Karya are learning from this. Will the techniques, skills, and knowledge acquired during the process of building and operating these systems result in iterative improvements over time? We’ll have to wait and see. But given that there’s no shortage of demand for more public transportation systems in Indonesia, I don’t think we’ll have to wait long to find out.