Middle East investors back Indonesia’s first private railway

MEC Holdings, a mining joint venture backed by interests from the United Arab Emirates, will build $5bn worth of infrastructure projects in East Klimantan on the island of Borneo, including a $1bn railway that will connect a coal mine with an industrial complex.

A company backed by investors from the United Arab Emirates will spend $5 billion to develop industrial infrastructure in Indonesia, including the populous Southeast Asian country's first private railroad – a move hailed by President Yudhoyono as a sign of more Middle Eastern investment to come.

The Indonesia Investment Coordinating Board, the agency in charge of promoting investment in the country of 240 million, said Singapore-based mining conglomerate MEC Holdings will develop the infrastructure, which includes a $1 billion railway and a $4 billion industrial complex.

Both will be located on Borneo, the largest island in the archipelago that makes up Indonesia and neighbouring Malaysia, which share the island's territory.

The 130 kilometre railway will connect an inland coal mine in Borneo with a marine port in Borneo's province of East Kalimantan. The project is aimed at transporting raw materials and finished products in and out of the province, which is rich in resources but lacking in the industrial infrastructure necessary to access them.

Borneo: about to get $5bn of infrastructure investment.
Source: Nature.org

On the other end of the railway, MEC will develop an integrated industrial facility that will include a power plant, an aluminium smelter, a fertilizer plant and a port terminal for shipping the coal.

The project, whose total cost is estimated at $5 billion, is ultimately backed by Middle Eastern investors. MEC Holdings is a a joint venture between Dubai-based mineral and metal conglomerate Trimex Group and Ras Al Khaimah, the UAE emirate. Susilo Bambang Yudhoyono, Indonesia’s president, said in the statement that their Middle Eastern-Indonesian partnership “sets a positive tone for future investments from the Middle East”.

Other countries will also be involved in the massive development. NALCO, an Indian aluminum manufacturer, will invest in the $2 billion aluminum smelter alongside MEC. IL&FS Transportation Networks, a subsidiary of India’s Infrastructure Leasing & Financial Services Group will provide MEC with financing for the development's transport infrastructure, railway network and port facilities. Canadian railway and transportation services company CANAC will partner MEC for the operations and maintenance of the railway and port.

Additionally, MEC will invest $2 billion to build a 1,250 megawatt captive power plant for the smelter. The power plant will be fuelled by coal from MEC Coal, also a part of MEC. MEC will also put in $250 million for the industrial complex's coal terminal, which will able to handle Cape-size ships, or ships large enough to fit through the Cape of Good Hope, a major shipping corridor in South Africa. 

MEC said in a statement that the project is on schedule and will create 5,000 jobs locally in the next five years. MEC Infra, the MEC subsidiary in charge of developing the railway, has already acquired and cleared the land for the rail corridor.

The project has been in the planning stages for over a year. According to MEC’s website, the company originally presented plans for the railway to the Indonesian government in July 2008.