The final a number of years have been eventful ones for Indonesia’s state-owned railway firm, Kereta Api Indonesia (KAI). All through Jokowi’s 10 years in workplace, Indonesia has considerably stepped up funding in rail infrastructure, with KAI being one of many major brokers answerable for the development and operation of latest methods. This contains the Better Jakarta Mild Rail Transit system and the Chinese language-backed high-speed rail line connecting Jakarta with Bandung, which turned operational final yr.
Because of this exercise, KAI has seen speedy development. In 2014, when Jokowi took workplace, KAI had simply over $1 billion in whole belongings (at present trade charges). Final yr, the corporate’s whole belongings got here in at $5 billion. But there have been lingering doubts in regards to the monetary viability of a few of these high-profile tasks, and about KAI’s steadiness sheet and skill to incur and carry massive quantities of debt. The corporate launched its audited 2023 monetary statements final week, so we will now get a greater sense of how well-founded these considerations are.
It’s true that KAI has been incurring debt so as to fund huge tasks. On the finish of 2023, they’d $1.2 billion in long-term loans, and $275 million in excellent bonds, a bit over $100 million of which shall be coming due this yr. In addition they owe the federal government $159 million from a particular mortgage that was distributed throughout the pandemic, and owe state-owned development firm Adhi Karya $257 million for development providers associated to the Better Jakarta LRT. Whole liabilities in 2023 had been $3 billion.
Is that this trigger for concern? In all probability not. Regardless of elevated liabilities, KAI has round $1.9 billion in fairness and stays worthwhile. Internet earnings final yr was $116 million on $2.1 billion in income, together with $177 million in authorities subsidies. And since the state is the only shareholder of KAI, they often do direct capital injections utilizing the nationwide finances. Final yr, the state injected practically $200 million into KAI to assist cowl prices associated to the high-speed rail undertaking.
In actual fact, had been it not for this high-speed rail undertaking there would in all probability be rather a lot much less scrutiny of KAI’s funds. The undertaking was initially anticipated to price $6 billion, however overruns put the ultimate determine nearer to $7.2 billion. As a result of the undertaking was financed primarily by Chinese language loans, it has turn out to be a politically delicate flashpoint highlighting the potential danger of utilizing international capital to finance nationally strategic growth tasks.
The high-speed rail is a three way partnership between Indonesian and Chinese language state-owned corporations. The Indonesian facet, by means of a consortium known as Pilar Sinergi BUMN Indonesia (PSBI), holds 60 p.c possession of the undertaking. KAI is the first investor in PSBI, proudly owning 51 p.c. In 2023, the primary yr wherein the practice was operational, KAI’s participation on this three way partnership had a e book worth of round $350 million, after a internet lack of $30.5 million.
Provided that KAI had $5 billion in belongings and constructive internet earnings and money circulate in 2023, this in and of itself in all probability doesn’t pose a significant danger within the brief time period. However finishing the undertaking got here with a catch. With the intention to cowl mounting price overruns, earlier this yr the China Growth Financial institution prolonged mortgage amenities to KAI price practically $543 million. KAI now has over $500 million in new international currency-denominated debt for a high-speed rail undertaking that misplaced tens of tens of millions of {dollars} final yr.
Is that this trigger for concern? It is perhaps, if the high-speed rail operates at a loss for lengthy sufficient and if KAI had been a typical business enterprise. Nevertheless it’s not. It’s owned by the state, and its major function is to not be worthwhile however to hold out varied features which can be within the nationwide curiosity.
KAI is closely depending on the federal government of Indonesia and different state-owned enterprises for income and credit score. This implies there are a lot of direct and oblique levers the state can pull to make sure that KAI stays a going concern together with subsidies, capital injections, aid from observe entry prices, or rolling over liabilities incurred from different state-owned firms.
This example will turn out to be extra difficult in 2024 because the Chinese language debt begins to point out up on the steadiness sheet, however even right here KAI has entry to particular privileges that insulate it from typical market dangers. On this case, the Indonesian authorities has offered a assure for the $543 million in new debt, which shifts a lot of the danger from the railway firm onto the federal government. Additional state capital injections are additionally possible within the subsequent finances.
I wrote final week that incurring public debt isn’t as essential as whether or not or not that debt is used to fund productive investments. Clearly, the Indonesian state believes it’s price it to tackle these money owed so as to put money into city transit and high-speed rail, they usually have taken steps to make sure Kereta Api Indonesia can perform as the first conduit for such tasks. Over the following few years, we’ll get a greater sense of whether or not or not these bets are paying off.
