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 liable for the development and operation of recent methods. This consists of the Higher Jakarta Mild Rail Transit system and the Chinese language-backed high-speed rail line connecting Jakarta with Bandung, which turned operational final 12 months.
Because of this exercise, KAI has seen speedy development. In 2014, when Jokowi took workplace, KAI had simply over $1 billion in whole property (at present trade charges). Final 12 months, the corporate’s whole property 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 financial statements final week, so we are able to now get a greater sense of how well-founded these issues are.
It’s true that KAI has been incurring debt in an effort to fund large tasks. On the finish of 2023, that they had $1.2 billion in long-term loans, and $275 million in excellent bonds, a bit over $100 million of which will likely be coming due this 12 months. Additionally they owe the federal government $159 million from a particular mortgage that was allotted through the pandemic, and owe state-owned building firm Adhi Karya $257 million for building companies associated to the Higher Jakarta LRT. Whole liabilities in 2023 have 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. Web revenue final 12 months 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 price range. Final 12 months, the state injected almost $200 million into KAI to assist cowl prices associated to the high-speed rail venture.
The truth is, have been it not for this high-speed rail venture there would in all probability be lots much less scrutiny of KAI’s funds. The venture was initially anticipated to value $6 billion, however overruns put the ultimate determine nearer to $7.2 billion. As a result of the venture was financed primarily by Chinese language loans, it has turn out to be a politically delicate flashpoint highlighting the potential threat 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 companies. The Indonesian facet, by a consortium known as Pilar Sinergi BUMN Indonesia (PSBI), holds 60 p.c possession of the venture. KAI is the first investor in PSBI, proudly owning 51 p.c. In 2023, the primary 12 months wherein the practice was operational, KAI’s participation on this three way partnership had a guide worth of round $350 million, after a internet lack of $30.5 million.
On condition that KAI had $5 billion in property and optimistic internet revenue and money stream in 2023, this in and of itself in all probability doesn’t pose a significant threat within the brief time period. However finishing the venture got here with a catch. To be able to cowl mounting value overruns, earlier this 12 months the China Improvement Financial institution prolonged mortgage services to KAI price almost $543 million. KAI now has over $500 million in new international currency-denominated debt for a high-speed rail venture that misplaced tens of hundreds of thousands of {dollars} final 12 months.
Is that this trigger for concern? It could be, if the high-speed rail operates at a loss for lengthy sufficient and if KAI have been a typical business enterprise. However it’s not. It’s owned by the state, and its major objective is to not be worthwhile however to hold out varied capabilities 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 lots of direct and oblique levers the state can pull to make sure that KAI stays a going concern together with subsidies, capital injections, reduction from monitor entry costs, or rolling over liabilities incurred from different state-owned corporations.
This case 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 chance from the railway firm onto the federal government. Additional state capital injections are additionally probably within the subsequent price range.
I wrote final week that incurring public debt will not be as vital 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 in an effort to put money into city transit and high-speed rail, they usually have taken steps to make sure Kereta Api Indonesia can operate 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.
