Jakarta Monorail Fate In Doubt

Indonesian state-owned construction company Adhi Karya has withdrawn from the Jakarta monorail construction project, with the first line being a 14.3km route linking Semanggi in Central Jakarta to Kuningan in South Jakarta. We believe that this latest development leaves the fate of the Jakarta monorail project in doubt.

This withdrawal came about after Jakarta's new governor Joko Widodo asked Adhi Karya to team up with Jakarta Monorail (JM) to develop the project. Adhi Karya, which previously owned a 7.5% stake in JM, rejected this option as it had already formed a new consortium with other state-owned companies to revive the project, while JM had partnered with other private companies (cited from the Jakarta Post). JM is now expected to carry out the project on its own as Widodo does not want to delay the project by selecting a new consortium. As for Adhi Karya, the company is now proposing to build a 90.65km monorail project that links East Bekasi in West Java to Cibubur and Cawang in East Jakarta.

Lack In Financing Regulations
Indonesia - Key Indicators For Construction Project Completion

We believe that this latest development leaves the fate of the Jakarta monorail project in doubt, and that there are valid reasons for Adhi Karya's reluctance to team up with JM. Construction works on the project had previously started in 2005, but were halted in March 2008 because JM, the consortium in charge of the project, could not garner sufficient financiers to fund the project and had also encountered legal problems with the project ( see our online service, September 21 2011, 'Monorail Failure Due To Business Environment Issues'). As a result, it was unable to pay Adhi Karya for the pillars it had constructed for the monorail.

This time around, we believe that there are still significant uncertainties surrounding JM's ability to finance the project. Although Widodo has claimed that 'JM had secured solid funding' (cited from the Jakarta Post), no specific information was provided about these financing sources. Meanwhile, Indonesia is still significantly lacking in legal frameworks (such as collateral and bankruptcy laws) that protect the interests of borrowers and lenders and we believe this deficiency is a key obstacle deterring investors from providing any form of long-term financing for the monorail project ( see our online service, August 10 2012, 'Financing Remains The Issue For Jakarta Monorail'). Lastly, Adhi Karya is demanding that JM first pay INR120bn (US$12.4mn) for the completed pillars before JM can move forward with the project.

Politics A Risk
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The financial viability of the Jakarta monorail project is also in doubt as the current design for the project could have complemented and connected with a new mass rapid transit (MRT) system, significantly increasing its accessibility and coverage. This MRT project, originally scheduled to start construction in 2012, is still in a limbo even though Widodo had agreed to carry out the project in November 2012 ( see our online service, November 30 2012, 'Political/Fiscal Risks Knock Jakarta MRT Off Rails'). The project was initially supposed to be funded by a loan from Japanese ODA coordinator Japan International Cooperation Agency, and was to be repaid by the central government and the Jakarta administration under a 40:60 ratio. However, Widodo wants the central government to bear a larger share of the cost for the project, and has only recently gotten the government to revise the terms in his favour.

This article is tagged to:
Sector: Infrastructure
Geography: Indonesia

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