Dubai Group Ready to Start $1b Rail Project in Indonesia

Jakarta Globe, Dion Bisara, March 25, 2010

Vice President Boediono calling for more private-sector investment in infrastructure in Jakarta on Thursday. (JG Photo/Yudhi Sukma Wijaya)

MEC Holdings, a subsidiary of the Dubai-based Trimex Group, said on Thursday that it had completed acquiring land for its $1 billion railway project in East Kalimantan and is ready to begin construction in the first half of this year.

The 130-kilometer railway is part of MEC’s plan to invest a total of $5.2 billion in the province, including in a coal terminal, an aluminum smelter and a power plant.

The projects will be developed by a joint venture with the Ras Al Khaimah Investment Authority and India’s largest aluminum producer, National Aluminium, MEC said in December.

The railway project will be run and operated by MEC Infra, a joint venture between MEC and Ras Al Khaimah. MEC Infra has obtained Indonesia’s first private railway license to develop a 130km integrated freight corridor from a mine site in Muara Wahau to a port in Bengalon, East Kalimantan.

Mashael Al Naimi, head of corporate communications at MEC, said in an e-mail to the Jakarta Globe that the major land acquisitions had been completed, with construction planned to start by the end of the first half.

MEC has said it expects the first commission of a cargo train in 2011.

Although many foreign developers have complained about the complex land-acquisition process and the frequent difficulties with local villagers, Madhu Koneru, the chief executive of MEC Holdings, said he did not find these traditional hurdles so severe.

“We were dealing with many stakeholders such as ministries in Jakarta, politicians, regional governments and villagers. The biggest concern they talked about was villagers who will not give up their land,” Koneru said.

He was speaking during The Economist’s Indonesia Summit in Jakarta on Thursday, which was attended by hundreds of prominent local and foreign business executives.

“But the truth is villagers are the easiest people to talk to. If you go to them and tell them that your plan will create jobs, they will give you their land,” he said, adding that government also proved especially cooperative in drafting the right policies.

Gita Wirjawan, the chairman of the Investment Coordinating Board (BKPM), said MEC’s experience demonstrated that the usual roadblocks deterring many foreign investors from investing in Indonesia have been reduced.

“Their ability to clear most of the land for the 130km corridor in just a few months goes against the traditional perception that land clearance is nearly impossible to do in Indonesia,” Gita said.

Foreign investors have long complained of the difficulties they face in acquiring and clearing land for large infrastructure projects. Part of the problem is that land owners tend to demand excessive prices for their property once they know that a major developer is interested.