Railways Sector in Indonesia: An Overview

Railways are found only on Java and Sumatra. The total rail network in Indonesia consists of 5,824 km, but only 4,337 km are operated. Java has a bigger network than Sumatra.
The major rail corridors in Java are Jakarta-Bandung, Jakarta-Semarang-Surabaya- Banyuwangi (known as the North Route) , Bandung-Kroya-Yogyakarta-Surabaya (known as the South Route) with the connector route Cirebon-Purwokerto-Kroya. Most of the railway system is single-track.
The government intends to improve the capacity and quality of the Jabotabek rail network, which comprises of nearly 266 km of double-track. Suburban and intercity trains use the Jabotabek network.
On Sumatra, there are three separate rail networks: Northern Sumatra, Western Sumatra and Southern Sumatra.

Rail transportation in Indonesia has declined during the last five years. Only 29 percent of the track is less than 10 years old, with more than 25 percent older than 70 years old.
The GOI realize that railways is the most energy efficient land transport available now, and does not require much land.
Law 13/1992 on Railways and PP 69/1998 are the governing legislation. The draft law, submitted to Parliament, is expected to be passed in 2007. Law 13/1992 underlines the policy of unbundling the rail business and management structure, whereby government is responsible for infrastructure development and maintenance, while KAI manages the rail services. PSP in the provision of rail services is possible, but under a joint venture with KAI3.
The implementation of the PSO-IMO-TAC policy framework has neither improved the efficiency, quality and safety of railway services nor the financial performance of KAI.
The problem is due in particular to the complexity of railway operations and the lack of reliable data on costs (for cost allocation purposes).4 The relationship between the government and KAI, the operator is, as follows: The government will provide an operating subsidy to KAI for PSO economy class train travel; The government will finance the maintenance and operation of the railway infrastructure i.e. pays KAI an IMO fee (Infrastructure Maintenance and Operation); KAI will pay a charge (TAC) to the government for the use of the railway infrastructure.
Although the financing scheme for PSO, IMO and TAC has been developed, its implementation has not been a success.
The PSO, IMO and TAC concepts need to be applied properly if the government intends to implement PSO (with KAI sub-contracting to the private sector) –the government’s PSO policy framework remains to be developed, which would set out the “rules of the game” for the private sector.
PSO implementation presupposes the existence of private companies that would compete for PSO contracts. This is unlikely to materialize if KAI is still designated as the sole railway operator (although PP 69/1998 does stipulate that operation is possible under a joint agreement with KAI). The draft law removes this restriction.
3 Article 6, Law 13/1992 on Railway.
4 The mechanism of institutions activities for PSO, IMO and TAC is: KAI submits a realisation report regarding the implementation of PSO and IMO proposals in every 3 month to DGLC. DGLC will evaluate the realisation report and will give approval. DGLC will submit application to MOF for PSO and IMO monies. Based on the application, MOF will issue an Authorisation Decision letter in which MOF instruct relevant official of MOF to transfer PSO and IMO fund to KAI. In practice, the funds will be transferred quarterly from MOF to KAI.
At a technical level, the lack of accurate data has led to no agreed basis for costing and cost allocation between KAI and the MOT.
The allocation of common cost needs to be agreed (rail infrastructure is used by freight, subsidized and non-subsidized transportation). Calculations by KAI are often disputed by the MOF. Insufficient payments, according to KAI, have prevented it to develop commercially, and over the years, it has built up a backlog of maintenance because of the lack of funds.
An assessment of the sector regulatory framework identifies the following issues: Tariff and its adjustment appear to be in line with Perpres 67/2005, as noneconomy class fares are based on market forces. According to the February 2006 Policy Package on Infrastructure, a regulation on tariffs is to be issued by the end of 2006. However, it is not clear whether TAC and IMO will form part of the new regulation. They should, as the determination of a “commercial” tariff for a PSP and PSO project is necessarily dependent on TAC and IMO5.
A government subsidy (PSO) is provided to KAI for economy class travel. Under the draft law, it is possible that a private company could provide a PSO service, and so be a recipient of fiscal support.
The draft law stipulates that procurement will be regulated through a future PP. There is a need to ensure that the PP will be consistent with the spirit of Perpres 67/2005.
No specific regulatory body exists in the rail sector. The regulatory role is shared between the MOT and KAI. The draft law does not refer to setting up a sector regulatory body. A functionally independent rail regulator is required.
The institutional arrangement is far from the ideal international best practice, as KAI performs a triple role: as operator, regulator and contracting agency. The draft law allows the private sector to provide and operate both rail infrastructure and services. This will be a significant improvement to the regulatory framework. However, more needs to be done, for example on the institutional front, if PSP in the sector is to materialize.
The MOT has established a P3 node to oversee PPP implementation in the sectors under its jurisdiction.

Source: KKPPI, Sector Review 2006