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September 1, 2015

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China favorite for Indonesia rail bid

INDONESIA is leaning toward China over Japan in an aggressive bidding battle to build the Southeast Asian nation’s first high-speed railway, according to government sources involved in making the decision.

The two Asian giants have both sent envoys to lobby Indonesian officials over the past two weeks, each “sweetening” the terms of their bid for a contract worth about US$5 billion.

Analysts believe that whoever wins will likely become the frontrunner for other high-speed rail projects in Asia over the coming years, including one linking Kuala Lumpur and Singapore.

Tomorrow, a committee led by chief Economic Minister Darmin Nasution will recommend which country should build the rail line between the capital, Jakarta, and the textile hub of Bandung, Nasution said.

Indonesian President Joko Widodo is expected to announce the winner within days.

“Indonesia is leaning toward China because their proposal is less financially burdensome on the Indonesian government and because the issue of safety has been adequately addressed,” a source told reporters.

A second government source said Indonesia wanted to strike a balance between the two powers in handing out high-profile infrastructure projects. Japan already holds contracts to build Jakarta’s mass rapid transit system and a huge coal-fired power plant.

Both sources declined to be identified due to the sensitivity of the issue for Jakarta and the economic stakes. Japan is Indonesia’s second-largest investor, China its top trading partner.

“We have two partners and it will be good if we can maintain both of them. We have to be smart when taking this decision,” Luky Eko Wuryanto, Indonesia’s deputy minister of infrastructure and regional development, told reporters last Friday after meeting China’s ambassador to Indonesia.

The 150-kilometer rail line should cut the journey between Jakarta and Bandung to 35 minutes from about three hours. Trains are expected to reach speeds of more than 300kph.

Indonesia hopes to extend the line later to connect Jakarta with the city of Surabaya.

Japanese Prime Minister Shinzo Abe last week sent an envoy to offer a more attractive deal ahead of yesterday’s deadline, Japan’s second revision in two weeks.

The last-minute move brought protests from China, which said it was unfair Japan had been allowed to submit a new offer so close to the deadline.

China is said to has sweetened its offer earlier in August.

Japan initially believed it had won the contract after completing a more than US$3 million feasibility study, but in March Widodo invited other offers in order to get the best deal.

“This is a tight competition between China and Japan, and the more competitive the better,” Rizal Ramli, Indonesia’s chief maritime minister, told reporters. “What is important is that it benefits our people.”

China is offering a 73.92 trillion rupiah (US$5.27 billion) loan with a 50-year tenure and an interest rate of 2 percent in US dollars.

Japan is offering a 60.14 trillion rupiah repayable over 40 years at an interest rate of 0.1 percent in yen, with a 10-year grace period.

Its latest proposal also offers finance guarantees and increases the percentage of local content.




 

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