February 10, 2014

Private pioneers

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The rush is on to develop new heavy-haul railway infrastructure on Indonesia's resource-rich islands of Borneo and Sumatra. David Briginshaw and Kevin Smith profile the latest projects.

INDONESIA is the world's leading exporter of seaborne thermal coal and the fastest growing supplier to markets in India and China. However, while it has some of the largest mines in the world, domestic and international mining companies are struggling to move these vast resources quickly and effectively to port for export.

Aided by the government's reforms to land acquisition law and desire to support infrastructure developments that will boost economic development, a number of railway schemes are now on the verge of getting started or are already underway.

Among the most advanced projects is the $US 1.7bn scheme to develop a 190km railway and coal terminal in East Kalimantan, linking Balikpapan Bay with the Kutai Barat region on the border with Central Kalimantan. Front-end engineering design is beginning, and land acquisition and surveying is underway on the first phase of the project. A second phase to extend the railway to Central Kalimantan could add at least 60km at an estimated cost of $US 700m, but with the potential for extensions totalling around 200km.

Plans to build a railway in an underdeveloped but resource-rich part of Kalimantan were first mooted in 2010 with the support of Russian Railways (RZD) and Russia's Foreign Ministry. Political backing for the project was confirmed with the signing of a statement of support by the Indonesian and Russian governments on October 27 2011.

This was followed by the signing of a memorandum of understanding (MOU) between Russia's Vnesheconombank and PT Kereta Api Borneo, an Indonesian special operation project company set up to implement the project. A second MOU was signed on February 7 2012 between the East Kalimantan provincial government and Kalimantan Rail. The project will be implemented by RZDstroy, the construction arm of RZD, and local partners.

"We have started land acquisition and this should be finished by the end of the year," says Mr Andrey Shigaev, head of the Kalimantan Rail Project and a director of PT Kereta Api Borneo. "A lot of the alignment is in the so-called conversion area under Ministry of Forestry supervision. The project has high-level political support, so we expect the ministry to grant approval."

First phase

The first phase comprises the new railway, rolling stock, and maintenance facilities, which account for around 75% of the total investment, plus the coal terminal at the port and a coal-fired power station. The railway will be standard-gauge and single track with passing loops with a maximum axleload of 25 tonnes.

"It is quite a simple project compared with other heavy-haul railway schemes proposed in Kalimantan where typically there are a lot of mountainous areas or swamps," says Shigaev. "The line will cross a dry area which is not subject to flooding and there is good access to all river crossings. The line will rise to around 50m above sea level."

The new railway is expected to carry 8 million tonnes of coal in the first year of operation rising to 20 million tonnes by year four. However, the line could be upgraded to carry 45 million tonnes a year by increasing the length and number of passing loops. The formation will be prepared for conversion to full double-track when traffic warrants it.

Sumatra-coal3"We will only be allowed to carry coal but the government is keen to revise the legislation relating to the new railway to enable us to carry other types of freight," says Shigaev. "Given that the government doesn't want to fund 100% of projects like this, the primary objective is to extract coal, but this paves the way to carry other traffic which would give remote areas of Kalimantan access to the port and other facilities. We have already looked at the potential for other traffic."

The project will be funded with an equity to debt ratio of 30:70. "RZD will put in around 5% of the total funding which will eventually allow RZD, as an early investor, to control 25% of the railway through substantial voting rights on the board," Shigaev explains. "Currently we have more offers for equity than we need, so we are negotiating the timing and amount of equity required from each partner. We also expect the local state government to invest in the project. We are looking at rates of return on the investment of at least 15% but not more than 20%."

One of the challenges facing RZDstroy in constructing the new railway is that there are no clear regulations yet regarding the construction and operation of private railways in Indonesia. "There are very broad Indonesian standards at the moment," Shigaev explained.

Considerable attention is being paid to the environmental and social impact of the project. The new line will bypass a protected forest and the construction of the railway will obviate the need to build roads to extract the coal.

The project is expected to create 2500 jobs directly and up 10,000 jobs in related industries. The preference will be to recruit local people wherever possible, including engineers trained in Indonesia.

In the longer term, the new railway should act as a catalyst to develop other forms of infrastructure in the area such as power supplies and telecommunications.

Other projects

Elsewhere in Kalimantan, work is progressing on the 130km line from Muara Wahau to Bengalon on the coast which is being developed by Mineral Energy Commodities (MEC), United Arab Emirates, following a $US 1.5bn investment. The line is expected to carry up to 34 million tonnes of coal per year on trains consisting of three locomotives and 120 wagons.

These projects could eventually link with a 425km line from Puruk Cahu to Batanjung which will connect mines in Puruk Cahu, Bangkuang and Lupak Dalam. Four potential investors - Itochu, Japan, China Railway, Bakrie Indo Infrastructure and MEP Dubai - have submitted proposals for the project to the provincial government ahead of a tendering process, which was expected to be concluded last month. The line will carry 20 million tonnes of coal annually and is expected to be completed by the end of 2017.

In addition, the Indonesian government confirmed in 2012 that a further 10 railway projects worth up to $US 62.4bn could commence by 2020 to develop a network in Kalimantan. Feasibility studies for the undertakings said to be progressing, with 20 out of 49 potential sections having the potential to be developed as PPPs.

On Sumatra there are four major projects currently underway or in the latter stages of planning.

In the north of the island the Sei Mangkei railway development is proposed. This project consists of building a 25km line to Kuala Tanjung port from the Sei Mangkei industrial area, a new special economic zone established by the government as part of its economic masterplan, and home to a palm oil processing plant with a capacity to produce 400 tonnes per day.

In the coal-rich south there are currently three proposed projects:

• the 285km line from Tanjung Enim to Lampung being developed by the Bukit Asam Transpacific Railway consortium of state-owned mining company PT Bukit Asam, its subsidiary Transpacific Railway Infrastructure and China Railway Engineering Corporation, which is projected to carry 40 million tonnes of coal per year

• the 260km Tanjung Enim - Bengkulu line which is being developed by a consortium of Mandela, Indonesia, and Samsung, Korea; and

• a 160km line from Tanjung Enim - Lino, which is headed by an Indonesian consortium.

Studies also began in 2012 to develop the Trans-Sumatra railway, a 2856km cross-island 1067mm-gauge network that would involve rehabilitating existing and building new infrastructure between the island's three existing separate networks for both passenger and freight services which would connect Ache and Lampung by 2030.

Again private investment is being sought due to the expected cost of Rupiah 65 trillion ($US 5.4bn). The first stage consists of track-doubling the existing line from Medan to Kuala Namu International Airport and Belawan International Port, with deputy transport minister Mr Bambang Susantono saying he expects work on this project to begin this year.

Eventually the network will link the cities of Aceh, Medan, Pekanbaru, Padang, Jambi, Palembang, and Bandar Lampung, while providing links to ports at Belawan, Dumai, Tanjung Api-api, Dumai and Teluk Bayur dan Panjang. The masterplan envisages the network utilising a fleet of 145 passenger locomotives and 1435 coaches, and 760 freight locomotives and 15,170 wagons.

"The Trans-Sumatra railway is a priority," deputy transport minister Mr Bambang Susantono says. "We will be looking at Medan and Sei Mangkei as well as South Sumatra and other growth centres as starting points for the project."

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