A transit system that works for Jakarta

The Jakarta Post

Montty Girianna, Jakarta

The first steps have been taken toward a mass rapid transit (MRT) system in the capital city, Jakarta. There are pros and cons to the busway, but we must remember that this is not the end of the process. It is merely a strategic move toward introducing a convenient, large-scale, and affordable transit system for the people of Jakarta.

Efforts to deal with the city's legendary traffic by expanding its highway network have proven to be only a palliative. After a very short time the roads become just as congested again.

The real source of the transportation problem lies in institutional and conceptual deficiencies in the management of transport services. These deficiencies have contributed substantially to the endless transportation problems, not to mention the economic retardation of the city and excessive and unproductive fuel consumption. Thus, one must see the problem from a broader perspective and work through a decision process in order to deliver a well-defined mass transit system.

The development of mass transit takes time. After an integrated system of busway and monorail systems along busy corridors is developed, Jakarta must start making fundamental decisions on the planning process for a larger-scale MRT, before designing and building it. These decisions must address the definition of transit modes, the layout of the network, facilities and equipment, the level of service, fuel and energy efficiency, and funding.

A conceptual design will define the features of an MRT system that will be acceptable to both the city and investors (if any), and will also be affordable for most Jakartans. This further provides a starting point for public-private partnership in the overall planning process of MRT development.

The size and complexity of MRT development for Jakarta may inevitably preclude effective management and control by a single entity. It is, therefore, necessary to encourage several participants with different financial strengths and areas of technical expertise to set up a consortium, probably teaming up to form a project company.

Public transportation must be subsidized. It is also important, therefore, to define a benchmark for the subsidy level required for MRT development. This subsidy, which would be provided by either the Jakarta Special Capital District (DKI) or the central government, could be direct or indirect.

Indeed, it will be a necessary to inject a direct subsidy into project equity during the construction period to leverage MRT development for lenders. An efficient level of subsidy can be difficult to define. Indirect subsidies can be provided through miscellaneous undertakings, including revenue support, tax exemptions, congestion pricing and raising the price of downtown parking to attract more MRT riders. All these schemes must be assessed so that MRT development can gain a commercial credit rating.

The likely growing cost of MRT development will require applying a complex process of financing beyond conventional funding sources. This includes the adoption of project finance; i.e. funding the project based on its cash flow or future revenue. Project finance will be a key factor in successful MRT development for Jakarta because it provides a means to use private resources for public infrastructures.

The MRT can qualify for project financing with private investors if it is used to finance a profitable and well-defined project. When it is in the operational stage, the MRT must generate adequate cash flows. The prospective lenders can claim only the assets and cash flows of the project itself, with no recourse to other assets of parent entities or the Jakarta DKI.

The relationship among the participants in the consortium must be spelled out in a security package that reflects the project risk management agreed upon by all parties. To give up recourse to Jakarta's assets, lenders must be protected against the possible failure of MRT development.

The legal framework for the management of transport development must be strengthened.The relevant laws must be clarified and consolidated. Regulations for the implementation of the laws must be reformatted systematically. This will provide more precise instruments for the implementation of laws and avoid some of the confusion that exists when different agencies independently apply their own regulations to the same law.

Improving legal procedures in order to protect individual rights and the public interest, resolve conflicts in land use, and recognize environmental rights and responsibilities is also crucial.

An MRT for Jakarta will be a reality, but it requires a considerable investment and firm policies to ensure adequate maintenance and reinvestment.

It is anticipated that the private sector will contribute to MRT development, but a majority of the funds will be basically governmental. Therefore, legislation and regulations to facilitate private participation have to be developed, including model forms for partnership, franchise or other arrangements and guidelines. A new governor must see this as a challenge, not a constraint.

The writer is the director for energy and mineral resources and mining at the National Development Planning Agency. These are his personal views.