Indonesia Rejects State Budget Bailout for Whoosh as China Opens Door to Debt Restructuring

A standoff over who pays for the train

Indonesia’s government has rejected calls to use the state budget to cover mounting debt tied to the Jakarta to Bandung high speed rail, known as Whoosh. Senior officials insist the obligations must be handled within the state enterprise ecosystem and its new sovereign wealth fund, while China has signaled openness to restructuring to keep the line operating. The debate goes beyond one project. It cuts to how Indonesia finances big infrastructure, how much risk state owned enterprises should carry, and what protections shield taxpayers when costs run ahead of plan.

Finance Minister Purbaya Yudhi Sadewa, who oversees fiscal policy and the state enterprise dividend framework, has been direct. He argues the country’s new sovereign wealth fund, Danantara, which manages the operations and dividends of roughly 1,000 state firms, is responsible for the project’s obligations.

Before offering a quote, he framed his view that Danantara already captures significant cash from state firms and should match that with accountability for liabilities.

“Whoosh is already managed by Danantara. Danantara has already taken over about 80 trillion rupiah in dividends from state owned enterprises. They should just manage it from there. Using the state budget to pay Whoosh’s debt is a bit ridiculous. All the SOEs’ profits go to Danantara, but the burden comes our way. If Danantara takes the dividends from SOEs, they should take everything, including the debt burden.”

Luhut Binsar Pandjaitan, chair of the National Economic Council and a key coordinator on strategic projects, has echoed that stance. He says the solution is a formal restructuring with lenders, not tapping the state budget. He also noted that a presidential decree is expected to authorize a negotiation team.

After detailing his consultations with Beijing on the issue, he summarized the government’s position on how to prevent strain on public finances.

“The real problem is only restructuring, and no one has ever asked to use the state budget for that.”

Beijing has indicated it is open to repayment talks. That could mean more time to pay, lower rates on the cost overrun portion of the loan, or new grace periods to align cash flows with ridership growth. The immediate goal on both sides is to keep trains running while restoring financial stability.

How the project was financed and why the bill grew

Whoosh began commercial service in October 2023. The 142 kilometer line cuts travel between Jakarta and Bandung from around three hours to roughly 40 minutes at peak speed. The project’s initial cost estimate was near 6 billion dollars. It climbed to about 7.27 billion dollars after delays, land acquisition hurdles, and pandemic era disruptions. About 75 percent of construction was funded by a loan from the China Development Bank at a 2 percent annual interest rate for the original tranche. An additional loan was arranged to cover the cost overrun at a higher 3.4 percent rate, raising annual debt service pressure.

The core financing model is a business to business structure. Instead of direct budget funding, a joint venture borrowed and built the line. The Indonesian side put in equity through state enterprises and their holding structures. That design limited explicit state budget exposure at the start, but it also concentrated risk in state owned companies that now face the cash flow test of covering operating and financing costs.

The consortium and what KCIC owes

The project company, PT Kereta Cepat Indonesia China, or KCIC, is a joint venture. The Indonesian side, grouped under PT Pilar Sinergi BUMN Indonesia, holds a majority stake through four state firms, Kereta Api Indonesia (KAI), Wijaya Karya, Jasa Marga, and plantation company PTPN VIII. The Chinese side includes state rail and engineering companies that provided technology, construction, and rolling stock. KCIC used CDB loans for roughly three quarters of the cost, then took a top up loan to handle the agreed 18 trillion rupiah cost overrun.

Losses have tested the structure. Company filings and official briefings show KCIC recorded a 1.6 trillion rupiah loss in the first half of 2025, with KAI absorbing about 951 billion rupiah of that through its shareholding. The broader state enterprise consortium also reported sizable losses in 2024, reflecting the gap between current revenue and the cash needed for operations and debt service. Operating performance has improved as more passengers adopt the service, but not enough yet to meet the full financing burden.

What Danantara can do

Danantara, set up to consolidate state companies and marshal their dividends, now sits at the center of the fix. The fund has authority over the operations and dividend flows of roughly 1,000 state firms. Officials argue it should handle Whoosh’s obligations because it already receives large dividend sums. The aim is to keep the line running, protect the balance sheets of key state enterprises, and avoid tapping the state budget.

Two strategic options are under review. The first is to inject new capital into the operating consortium so it can meet obligations without repeated rescue measures. The second is to shift the asset into full public ownership, with operations contracted out and debts handled through a centralized approach. Either path would likely be paired with a loan restructuring that stretches maturities and lowers the overrun interest rate to a more sustainable level.

Option 1 equity injection

Fresh equity could strengthen KCIC’s balance sheet and improve its ability to meet covenants. It may also help in negotiating softer loan terms. The drawback is that the cash must come from the state company ecosystem. That would tie up funds that could otherwise flow as dividends or support other projects.

Option 2 transfer of ownership

Acquiring the infrastructure into the public portfolio, while leaving operations under a separate company, could clarify accountability and long term planning. It would also concentrate liabilities under Danantara’s management, with safeguards to prevent any leakage to the budget. Critics caution that a transfer must come with transparent accounting and clear rules on who pays in downturns, to avoid moral hazard and protect taxpayers.

How much stress sits on the books

The financial strain is measurable. KCIC’s first half 2025 loss of about 1.6 trillion rupiah came after a year of heavy red ink across the shareholder consortium. Pilar Sinergi BUMN Indonesia, which pools the Indonesian partners, recorded losses of around 4.2 trillion rupiah in 2024, then about 1.6 trillion rupiah in the first half of 2025. KAI, the largest shareholder, bore the biggest share, including roughly 2.23 trillion rupiah in 2024 and about 951 billion rupiah in the first half of 2025. KAI also set aside a sinking fund in 2024 to ensure liquidity if KCIC faced another cash squeeze. On the debt side, the blended interest bill tied to the CDB loans is heavy, with the overrun portion carrying a higher rate that raises annual cash needs to roughly 121 million dollars per year before principal repayments.

Ridership is growing. The line carried about 2.9 million passengers in the first half of 2025. Recent daily volumes have ranged between 20,000 and 30,000 passengers. That is a solid base for a new service, but it has not yet closed the gap between ticket revenue and the combined cost of energy, maintenance, staffing, track access, and debt service. To reach breakeven, the project likely needs either a sharp rise in demand, a changed financing profile, or both.

KAI’s new president director, Bobby Rasyidin, told lawmakers that the size and structure of obligations present a serious risk if left unaddressed.

“The project’s financial and operational problems resemble a ticking time bomb.”

Rising sales help, but cost structure matters. The route is relatively short, which caps the revenue per passenger compared with longer corridors. Fares must balance affordability with the need to cover costs. Better last mile links and integrated ticketing can lift demand. Debt restructuring can reduce the cash drain. Long term stability likely requires progress on both sides of that equation.

What China signals on restructuring

Officials involved in talks say China is open to repayment restructuring to keep Whoosh operating. That openness reflects both commercial logic and diplomatic value. The line is Southeast Asia’s first true high speed service, and it is a flagship for cooperation. A scramble that hurts the operators or disrupts service would be costly for everyone.

In practice, restructuring could include extending maturities, lowering the interest rate charged on the cost overrun tranche, or introducing grace periods that delay principal payments while ridership ramps up. Another tool is to consolidate obligations into a new schedule that fits projected cash flows. For lenders, the goal is to stabilize performance and safeguard recovery. For the operator, the goal is to turn rising demand into steady service and predictable payments.

Danantara’s leadership has said an in depth evaluation is underway, and a presidential decree is expected to formalize the negotiation team. The process will likely require audited financials, new forecasts, and a term sheet that specifies interest, maturities, and security. Any plan would also define how state enterprise dividends are used to cover annual obligations without tapping the budget.

Will the debt block the Jakarta to Surabaya plan

The government wants the debt issue resolved without derailing plans to extend high speed service east to Surabaya. A longer corridor would unlock larger travel markets and could lift revenue per kilometer. It would also require careful coordination on land, stations, and integration with commuter rail and airports.

Coordinating Minister for Infrastructure and Regional Development Agus Harimurti Yudhoyono, known as AHY, underscored that message while acknowledging the need to solve the immediate finance challenge.

“Debt issues in the Jakarta to Bandung high speed rail must not hinder the planned expansion to Surabaya.”

Addressing the current balance sheet strain is a prerequisite for expansion. Investors will want clarity on the funding model and on how risks are shared. Demand modeling must reflect evolving patterns, including Jakarta’s rail network upgrades and the planned relocation of the national capital to East Kalimantan. If the extension moves forward, the commercial logic of the system could improve, but only if the financing design is reset to match realistic demand and clear guardrails for public exposure.

Regional lessons from Southeast Asia

Across the region, Chinese backed rail projects have produced mixed results. In Thailand and Malaysia, high speed rail proposals were renegotiated to reduce debt burdens and recalibrate risk. In the Philippines, several rail loans were cancelled amid shifting politics. Laos completed its cross border railway, but multilateral assessments describe it as a large contingent liability with uncertain returns. Cambodia is seeking support for a new line. Vietnam has approved Chinese loans for a new railway in the north and keeps alive an ambitious plan for a north to south high speed corridor that could cost tens of billions of dollars. The common pattern is that demand, cost control, and risk sharing shape whether a project creates value.

Indonesia’s experience offers a practical lesson. Promises to avoid budget exposure do not end debate if losses pile up at state companies. Structure matters. Well designed guarantees, realistic revenue forecasts, transparent reporting, and contingency reserves can protect both commuters and taxpayers. When assumptions shift, timely restructuring can restore balance without cutting service.

What it means for taxpayers and commuters

The Finance Ministry stresses that the state budget, known as APBN, will not cover Whoosh’s debts. The project was financed on a business to business basis, and the solution will come from state companies and their fund, Danantara. That stance aims to shield taxpayers from direct costs. The reality is more nuanced. State enterprise dividends are public assets too. If those companies absorb heavy losses, the fiscal space available for other priorities narrows. To keep risks contained, the government has separated SOE dividends from the state budget and is working to ring fence obligations within Danantara.

For riders, the service is a clear upgrade in speed and comfort. The key is getting more people to use it more often. That means competitive fares, reliable schedules, strong links to commuter rail, MRT, LRT, and bus networks, plus user friendly ticketing across modes. If ridership keeps climbing, operations become more efficient. If debt service is eased through restructuring, more cash can go into maintenance and frequency. That is how the line can build a stable user base while improving its finances.

Transparency will matter as much as engineering. Publishing regular performance and financial updates, clarifying how much of the dividend pool is earmarked for rail obligations, and defining when and how Danantara steps in will build trust. Clear rules reduce the risk that the burden drifts to the state budget during tough years.

What to watch next

Several milestones are in view. A presidential decree is expected to empower a negotiation team to reshape the loan profile with China Development Bank and other creditors. Danantara must present a detailed plan that weighs an equity injection against a transfer of ownership, with full accounting of costs and benefits. The treatment of the overrun loan’s higher interest rate will be a focal point. Investors will want clarity on whether any state guarantees exist and how they would operate.

Operational targets also matter. Watch for ridership growth, load factors on peak and off peak trains, on time performance, and fare adjustments. Plans to extend the line to Surabaya will be easier to finance if the current Jakarta to Bandung segment posts steady gains and if the restructured loan reduces cash stress. None of those steps require the state budget to make debt payments. All of them require disciplined execution and clear reporting.

At a Glance

• Indonesia’s government refuses to use the state budget to pay Whoosh’s debts, placing responsibility on state enterprises and Danantara
• Project cost rose to about 7.27 billion dollars after delays and a cost overrun of roughly 18 trillion rupiah
• About 75 percent of the build was financed by China Development Bank, at 2 percent for the original loan and 3.4 percent for the overrun portion
• KCIC posted around 1.6 trillion rupiah in losses in the first half of 2025, with KAI absorbing about 951 billion rupiah through its stake
• Danantara is weighing two main fixes, inject new equity into KCIC or shift the asset into full public ownership paired with loan restructuring
• Beijing has indicated openness to restructuring that could extend maturities or lower rates to stabilize operations
• Ridership reached about 2.9 million passengers in the first half of 2025, yet revenue still trails operating and financing costs
• Officials say debt issues should not delay plans to extend the line to Surabaya, though financing and risk sharing must be resolved first