Whoosh Debt Problem

CAUGHT between a rock and a hard place. This is what has happened with the Jakarta-Bandung high-speed railway project, or Whoosh, operated by Kereta Cepat Indonesia China (KCIC). As well as covering the project’s debts, KCIC’s burden will increase because Whoosh continues to run at an operating loss. The negative impact of the ambitious project built by Joko Widodo during his presidency is becoming increasingly apparent.

The Whoosh project cost US$7.22 billion. Of this, 75 percent was funded by a loan from the China Development Bank. KCIC has to pay US$120.9 million, or around Rp2.01 trillion, every year for interest alone. The grace period ends in 2028. These interest payments will increase because the principal will have to be repaid.

The KCIC management claims that its finances are in positive territory, but data reviewed by Tempo shows exactly the opposite. KCIC will continue to make a loss for the next 35 years. Over this period, KCIC will require additional funding to cover operating losses amounting to Rp90 trillion to Rp130 trillion.

All of that must, of course, be paid. President Prabowo Subianto stated that the government would “be present” in the settlement of the Whoosh debt. There are several options for disbursing state funds, including providing a bailout for infrastructure construction debt or a kind of “subsidy” to cover operating losses. Another option involves the Daya Anagata Nusantara Investment Management Agency, or Danantara, the parent company of the four state-owned enterprises that are KCIC shareholders.

Of all these options, none is suitable because they all carry a risk of burdening the state and have serious drawbacks. Providing a “subsidy” to cover Whoosh’s operating losses, for example, goes against the sense of justice because Whoosh is not categorized as a means of transport that needs to be subsidized.

Allowing Danantara to take over Whoosh’s debt is also not a fair option because Danantara should be using state-owned enterprise dividends to invest in projects in line with the needs of the public. Imagine what would happen if SOE dividends, which used to be paid into state coffers to fund development, were now, under the management of Danantara, drained to pay for projects like Whoosh. The public would lose out, and the image of the institution would become worse in the eyes of its investors and business partners.

The government has now come up against a dead end in resolving Whoosh’s debts. It would be a mistake to go either backwards or forwards. The remaining options would almost be impossible to take, namely renegotiating the burden sharing or changing the composition of the KCIC shareholding with the consortium of Chinese companies. Or taking the most extreme measure of handing over the high-speed rail assets to creditors. Should this happen, Indonesia would be labeled as a debt defaulter.

It is time for Prabowo to admit that the Whoosh project was a monumental mistake by the government. He should not add to the problem by spending more state budget funds on this project. Even proposing the idea of paying the Whoosh debt using funds confiscated from corruption cases is illogical and reflects poor budget management.

The only remaining option, although it would be difficult, would be to renegotiate with China, both as an investment partner and a creditor, instead of continuing to pay out state funds and sacrificing the interests of the people.