Russian State Capitalism and Asian Infrastructure

The Russian state-owned rail monopoly is also planning to extend its international reach as far as Indonesia building a $2.5bn railway for south-east Asia’s biggest (and booming) economy.

Russian Railways is negotiating a turnkey contract to design and build a 300km railway on the Indonesian island of Borneo. Initially the railway will link northern areas of Kalimantan province with the east coast, to carry coal and provide an alternative export route for mining companies that are dependent on Borneo’s decrepit river and road transport infrastructure. Later the system may broaden the scope of its services to transport palm oil produced in large volumes in Kalimantan, and even carry passenger traffic.

Russian Railways hopes to complete a final feasibility study for the project and receive all necessary intergovernmental approvals by the end of this year. Indonesia wants the railway to be up and running by 2017. During construction Russian Railways will aim to source equipment and technology from its own manufacturing subsidiaries or other Russian firms wherever possible. Russian banks, including state controlled Vnesheconombank, will be invited together with international banks to provide financial support.

Indonesia is seeing a boom in foreign investment as firms from the Middle East and Asia pile into the country’s oil, mining and agriculture sectors. Russian investment has so far been negligible although Lukoil has considered joint projects with Pertamina, Indonesia’s state oil company, and Rusal, the Russian mining group has shown interest in Indonesian huge coal resources.


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