Russian Railways to Build $2.4b Coal Line in Indonesia

Jakarta Globe, February 07, 2012

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State firm Russian Railways plans a $2.4 billion train line on Indonesia’s Borneo island that will initially be used to transport coal, an Indonesian government official said on Tuesday.

The line in East Kalimantan province is expected to start operating by the first quarter of 2017, and will help improve the decrepit infrastructure on the island that has hampered exports of key commodities and put a strain on economic growth.

“The first stage of the railway will be meant for coal, but hopefully we can also use it for crude palm oil, plantation harvests, rubber and people,” Awang Faroek, the governor of East Kalimantan, told a news conference in Jakarta.

The first phase of development, which will cost $1.7 billion, will be for 185 kilometers of railway, with another 60 kilometers added during a second phase.

The railway’s capacity is expected to be 20 million metric tons of coal per year for the first phase, added Andrey Shigaev, a director at the project, which will be funded by both private investors and Russia’s state development bank Vnesheconombank.

Southeast Asia’s largest economy is the world’s top producer of palm oil, the biggest exporter of refined tin and thermal coal, a major nickel miner and home to the world’s second-largest copper mine and largest gold mine. The country’s coal and palm oil assets are mostly located in Kalimantan.

The railway will connect an area close to the Balikpapan port through the Kutai Barat regency to the border to Central Kalimantan province, where the railway is expected to be expanded in the second phase of the project.

“The Russians have expertise in heavy haul rail lines,” said an Australia-based analyst. “Russian Railways are a pretty big operator of rail infrastructure, so I would guess it’s the rail company looking to expand.

“Russia itself doesn’t need to buy coal from anyone, they have a lot of coal of their own so from a strategic point of view, they don’t need to do it.”

Indonesia’s thermal coal output is seen at 350 million metric tons this year, according to industry estimates, fueled in large part by power demand in China and India.

The UAE’s MEC Holdings is currently building a railway to export coal from its Kalimantan mine project, and leading Indian conglomerate Reliance ADA Group is set to invest between $5 billion and $10 billion in mining infrastructure.

“Traditionally, coal in Indonesia has been transported by pretty fragmented means — trucks, small private short railways, barges,” the analyst added.

“It does signal that the producers there and the government is getting a bit more serious in terms of their commitment to scale infrastructure.”

Infrastructure development in Indonesia has been slowed in the last decade because of uncertainties in acquiring land.

However, in December the parliament passed a land bill designed to speed up land acquisition for state projects deemed in the public interest as a way to address the problem.

Economic growth in Indonesia was 6.5 percent last year — it’s highest level since 1996 — while the country attracted record foreign direct investment of close to $20 billion.

Reuters