The Indonesian Railway Renaissance – The Diplomat


The train track near Kotabaru station in Malang, Indonesia, seen on May 31, 2021.

Credit: Depositphotos

PT Kereta Api Indonesia (Indonesian Railways Company, or KAI) is the country’s state-owned rail operator and they’ve been, if you’ll excuse the pun, on a roll lately. Like any company in the travel industry, KAI has been battered by the pandemic over the past two years, but it remains one of the most capable public companies in the country. And its trajectory over the past decade tells an interesting story of how state and economy intersect in Indonesia.

About ten years ago, KAI was a bit at an impasse. As operator of a national rail network of thousands of miles, it was sitting on a large amount of aging fixed assets, including infrastructure, rolling stock and land, mainly in Java and Sumatra. But revenues were stable and these assets were not optimized for growth. At that time, it was still somewhat difficult for some Indonesian state-owned enterprises to obtain financing, as the memory of the Asian financial crisis made lenders reluctant to extend credit to them. Decentralization also caused coordination breakdowns between national and local actors, which crippled costly infrastructure projects.

Despite these financial and operational constraints, passenger traffic was growing rapidly. In 2013, KAI welcomed 221.7 million passengers on all of its lines. Just six years later, in 2019, that number was 429.2 million. And during President Susilo Bambang Yudhoyono’s second term, KAI became an important player in a broader national vision of using state-owned enterprises to upgrade the country’s lagging transport infrastructure (a vision that Jokowi built on with considerable success). It has invested in an electronic ticketing system; in a system of airport rail links in Medan, Jakarta, Solo and Yogyakarta; began operating the Palembang light rail transit system; and became an equity partner in the country’s first high-speed rail line linking Bandung to Jakarta, currently under construction.

KAI will also become the operator of the Greater Jakarta LRT which is currently under construction and through its subsidiary, KAI Commuter, it operates the commuter rail network serving the Jakarta metropolitan area. This commuter network alone had 380 million passengers in 2019, and with the government seriously focusing on improving livability in major urban centers, we should expect KAI’s role in urban rail develop in the years to come.

They have also stepped up investment in freight capacity, with total freight volume increasing from 24.7 million tonnes in 2013 to 47.6 million in 2019. Most of this traffic is coal transported in the south of Sumatra, and the continued investment in this area is one reason why I think the recent coal export ban is less about coal supply and logistics and more about the state sending a message to private companies and to the market to find out who is really in charge. But that’s a discussion for another time.

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The breakneck pace of this growth is evident in KAI’s balance sheet and income statement. In 2011, the company had total assets of Rs 6 trillion. By 2019, that figure had risen to 45 trillion. Over the same period, revenues quadrupled from $6 trillion to over $26 trillion. These efforts have been financed by a combination of public capital injections, loans and bonds. In 2017, KAI successfully launched a 2 trillion rupiah bond and another in 2019. In general, this suggests less concern among investors and lenders about extending credit to Indonesian SOEs these days. this, or at least this one.

Despite the progress detailed above, KAI rarely pays many dividends to the state, which is its sole shareholder (in a good year, it might pay the equivalent of a few million dollars). Instead, KAI makes a modest profit and reinvests it almost entirely in operations and capital improvements. Some people might find this objectionable, especially since the state injects capital directly into KAI, subsidizes some ticket prices, and pushes public banks to provide short-term working capital loans. What’s the benefit to the state if it doesn’t get its money back?

The upside is that Indonesia has a more functional rail network that doesn’t actively lose money, can keep prices fairly reasonable, and reinvest profits in new projects such as improved city rail networks or airport connections. . When we look at shared public goods such as railways, municipal water, electricity, etc., the question is not whether privatization is somehow inherently better than state ownership. . The question is which model works best for a particular situation in a particular location. The success that KAI has had in leading the new revival of the Indonesian Railway shows that in this case a state-owned company was a good choice.


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