Indonesia’s 11th-hour decision to scrap plans for the nation’s first high-speed railway has sown confusion among top investors China and Japan, potentially undermining the strong foreign investment that has been a rare economic bright spot.
China and Japan had been battling over the multibillion-dollar contract, until it was abruptly pulled in what appeared to be the latest in a series of regulatory flip-flops and erratic policymaking moves by the administration of Indonesian President Joko Widodo.
Indonesian Minister of Economics Teten Masduki yesterday was left to explain to the two Asian giants the reason Jakarta decided at the last minute that a bullet train was no longer viable for Southeast Asia’s largest economy.
Photo: Reuters
“It looks like a sudden move because the recommendation was made after a review of both proposals, but the recommendation is in the best interest of the country,” the presidential chief of staff told reporters.
Tokyo and Beijing had lobbied heavily for the US$5 billion contract, each sweetening the terms of their bids up until Monday’s deadline.
Analysts believed that whoever had won would likely have been the front-runner for future high-speed rail projects in Asia, including one linking Kuala Lumpur and Singapore.
“It was the recommendation from independent consultants that suggested to the government that a medium-speed rail was a better option because the cost is cheaper and the time of the journey is not much longer,” Masduki said.
Widodo announced late on Thursday that a bullet train between the capital, Jakarta, and the textile town of Bandung was unnecessary, since it would never reach its maximum speed of more than 300kph in between station stops.
The administration instead advocated a slower train for the 150km journey and asked China, Japan and others to submit new proposals.
“Consequently, both proposals extended by our government and the Chinese government are not accepted,” Japanese Ambassador to Indonesia Yasuaki Tanizaki said. “I have expressed my regrets.”
The train was initially intended to be the first installment of a 763km rail link connecting Indonesia’s two biggest cities, Jakarta and Surabaya.
The presidential palace said it still wanted to build a bullet train covering the entire Java Island.
A Chinese embassy official in Jakarta declined to comment until more information was provided by Indonesia.
“The project was a priority for China because it would have been one of the first and most visible manifestations of [Chinese] President Xi Jinping’s (習近平) ‘one belt, one road’ overseas investment drive,” said Tom Rafferty, Beijing-based analyst at the Economist Intelligence Unit.
“Chinese firms have not always been sensitive to political risk in foreign markets, but on this occasion the lobbying and marketing effort was extensive. The decision therefore seems likely to dim China’s confidence in the Indonesian market,” Rafferty said.
Tanizaki said he did not think the decision would affect Japan’s investment in the country.
He said Tokyo was waiting for details on the medium-speed rail project before deciding whether to participate.
The road to Thursday’s decision was particularly bumpy for Tokyo, which had initially believed it won the contract in March after completing a more than US$3 million feasibility study.
However, Indonesia invited other offers to get the best deal.
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