5 Reasons for the Cost Overrun of the Jakarta-Bandung High-Speed Rail Project

The Jakarta-Bandung High-Speed Rail (KCJB) project experienced cost overruns. Initially, the project's estimated cost was US$6.1 billion, with US$4.8 billion allocated for construction (Engineering-Procurement-Construction/EPC) and US$1.3 billion for non-EPC components. Later, Kereta Cepat Indonesia China (KCIC) estimated a cost overrun of US$2.5 billion, bringing the total to US$8.6 billion in November 2020. This was due to an increase in EPC costs to US$6.4 billion and non-EPC costs to US$2.2 billion.

Subsequently, KCIC management revised the cost overrun estimate downward to US$8 billion. This represents a US$1.9 billion increase from the initial estimate. Although the overrun amount decreased, EPC costs still rose to US$6 billion, and non-EPC costs to US$2 billion.

Five factors contributed to the project's cost overruns:

First, an increase in EPC costs of approximately US$600 million to US$1.2 billion. This was due to a price increase of US$500 million to US$1.1 billion, relocation of utilities, public facilities, and social facilities costing US$100 million, and additional labor costs of US$50 million to US$100 million.

Second, land acquisition costs increased by US$300 million. The total land area acquired increased by 31% to 7.6 million m², while the total cost increased by 35% from the initial budget. Furthermore, not all land acquisition was completed between June 2018 and 2019, causing delays in land handover to the contractor.

Third, financial costs swelled by US$200 million due to project delays, leading to increased interest during construction.

Fourth, costs for headquarters and pre-operations increased by US$200 million, also due to project delays. Furthermore, costs for financial consultants, taxes, and legal fees were not initially budgeted.

Finally, other costs, such as the GSM-R (Global System for Mobile Communication-Railway) system with Telkomsel for communication purposes, were not initially budgeted. These other costs increased by US$50 million.

Indonesia is estimated to bear Rp 4.1 trillion (approximately US$270 million based on current exchange rates, but the exact figure requires specifying the exchange rate used) of the project's cost overrun. This amount is proposed to be covered through State Capital Participation (Penyertaan Modal Negara/PMN).