Indonesia, explained.
Locomotives at Dipo Lokomotif in Bandung: The Indonesian government hopes that Kalimantan may eventually boast its own extensive rail network (Algi Febri Sugita via Getty Images)
China built Indonesia’s last railway on a loan Jakarta still repays – so the next deal should spread the risk further.
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Kalimantan railway: After Whoosh, Indonesia can’t afford another rush jobKalimantan railway: After Whoosh, Indonesia can’t afford another rush job
China is being approached again as a possible lender and builder for a new Indonesian railway. The new lines would cross Kalimantan, Indonesia’s share of Borneo, the world’s third-largest island, close to the size of France yet home to only a small share of Indonesia’s people. Unlike the last one China worked on with Indonesia – the high-speed Whoosh line on Java – the new network would be conventional rail. But getting the partnership right starts with being honest about what China’s last big rail project in Indonesia actually amounted to.
Kalimantan holds huge coal, palm oil, timber and mineral reserves, but little of the transport network built up on Java, and closing that gap is why Jakarta wants a railway there.
President Prabowo Subianto has ordered state railway operator Kereta Api Indonesia (KAI) (Opens in new window) and the transport ministry to move ahead. Planners are studying a route as long as 2,772 kilometres (Opens in new window), linking ports, industrial areas and Kalimantan’s resource regions. Jakarta wants private investors, not the state budget, to fund it, and has been talking to Chinese and Russian companies (Opens in new window) about building it.
It is Indonesian borrowers, not Chinese banks, who have to worry whether a railway earns enough to service its debt.
Beijing’s main reference point is Whoosh, the Jakarta-Bandung line that became Southeast Asia’s first high speed railway in 2023, cutting a three-hour trip to under an hour and carrying more than 16 million passengers since (Opens in new window). But Whoosh was never a Chinese-funded gift. Chinese contractors built it, financed mainly through a loan from the China Development Bank (Opens in new window) to the joint venture that runs it, PT KCIC, majority-owned by Indonesian state firms. About 75% of the cost came from that loan, the rest as equity from the venture’s shareholders. China’s role was lender and builder, not investor absorbing the risk.
That role is also smaller in scale than it can look from outside: Chinese state-linked lenders provided about US$70 billion in financing to Indonesia between 2000 and 2023 (Opens in new window), over 90% as loans, according to research group AidData, a fraction of the country’s total infrastructure spending.
Whoosh’s real lesson sits mostly with Indonesia. Costs ended up around US$7.3 billion, well over budget, for reasons that were not simple: slow land purchases, moved utility lines, rising construction costs and delayed financing all added to the bill. Debt grew heavy enough that Indonesia’s finance ministry announced it will take a 60% stake in KCIC (Opens in new window) this year to keep it stable. Chinese lenders were repaid regardless. It is Indonesian borrowers, not Chinese banks, who have to worry whether a railway earns enough to service its debt, and who absorb the shortfall if it does not.
That is one reason Kalimantan should be built differently from the high-speed line on Java. Whoosh worked because two dense cities needed a fast link, competing with buses and flights the whole way. Kalimantan has no such pair of cities, and its cargo has no such substitute: coal, palm oil, timber and minerals will keep filling wagons as long as demand exists, in a way passenger traffic never guarantees.
All aboard (Aman Rochman/NurPhoto via Getty Images)
An earlier plan shows a realistic starting size: 203 kilometres on Indonesia’s list of national priority infrastructure projects (Opens in new window), linking resource-rich areas to Balikpapan, Kalimantan’s main port on the Makassar Strait, priced at roughly US$3 billion. It stalled and was finally abandoned in 2022 after its original investor, Russian Railways, pulled out (Opens in new window). No official cost exists yet for the full 2,772-kilometre version. Scaling that smaller project’s price across the whole route, as a rough calculation rather than a forecast, lands near US$40 billion, a figure meant only to show the scale involved.
Given numbers that size, Jakarta should stage the work, starting with corridors where freight demand is already strong. Indonesia often builds large infrastructure without binding contracts from the companies that would use it, trusting demand will follow, a heavy gamble at this size. Locking in long-term freight agreements before construction starts would give any lender real security.
The financing structure deserves as much scrutiny as the schedule. If a bank lends to the project, KAI guarantees the loan, and an Indonesian state fund guarantees KAI in turn, the ultimate risk still sits with Jakarta, whatever the paperwork calls it. Spreading that risk more widely, among Indonesian banks, state firms, and the mining and plantation companies that would benefit directly, would leave Indonesia less exposed than it was with Whoosh.
Beijing has faced a contest like this before. In 2015, it beat a Japanese bid for the Whoosh contract (Opens in new window) partly by offering to skip the guarantee Tokyo wanted (Opens in new window), a concession that later left more risk with Indonesia. This time Russia, not Japan, is the rival, and Jakarta should use that competition to negotiate the best terms it can.
China’s other Indonesian projects offer a workable model for sharing construction and operations. The Makassar-Parepare railway in South Sulawesi (Opens in new window) was built through a public-private partnership including a Chinese construction firm alongside Indonesian companies, with the consortium handling operation and maintenance for years afterward while Indonesian staff took on a growing share of the work.
Kalimantan is also where Nusantara, Indonesia’s new capital, is taking shape, adding to Jakarta’s reasons to get this right. The sequence that matters most is Indonesia’s to set: cargo commitments first, binding contracts second, financing third, construction last. Get that order right, and Kalimantan could gain a railway built to last. Get it wrong, and Indonesia, not any single foreign partner, will be the one paying for it.
About the author
Muhammad Zulfikar Rakhmat
Muhammad Zulfikar Rakhmat Director of China-Indonesia Desk at Center of Economic and Law Studies (CELIOS) in Jakarta.
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