RM PRESS

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INDONESIAN RAILWAY INDUSTRY The Ultimate Mass
Transportation in The Future
MINISTRY OF STATE OWN ENTERPRISE GOVERNMENT OF
INDONESIA
MINISTRY OF TRANSPORTATION GOVERNMENT OF INDONESIA
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Introduction The First Indonesia Infrastructure
Summit January 2005, focussed on accelerated
infrastructure development for Indonesia through
Private and Public Partnership (PPP) arrangements
including all modes of transport
covered. Legal certainty was addressed -
Indonesia is moving to improve the legal and
regulatory regime. Corrupt practices addressed
The New Presidency is pursuing aggressive
anti-corruption policies and implementation,
demonstrated by many recent high profile cases
and convictions, which are well reported but a
long way to go as is the case elsewhere we have
the opportunity to discuss good governance
matters with the Indonesian delegation. Stated
policy exists to accelerate move of freight from
road to rail and open up State-owned Railway
Company to strategic, commercial
partnerships. Owner of State-owned Railway
Company is the State of Indonesia through
Ministry of State-Owned Enterprises
(Shareholder) Regulator is the Minister of
Communications through Director General for
Railways Operator is the Rail Company (PT.
Kereta Api). PT Kereta Api until now, is the
monopoly and the only major player in rail
transportation and services. Where there is
opportunity there is risk, and where there is
risk there is opportunity manage both.
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Indonesian Delegation

• Invited by ARIC.
• Owner, Regulator and Operator represented at
  highest level this week demonstrates
  commitment.
• Role of Ernst Young Indonesia invited by KAI
  to act as an interface and a bridge to assist
  in its mission.
• Delegation
• Mr. Harry Susetyo Nugroho, Deputy to Minister for
  State-owned Enterprises (Shareholder)
• Mr. Danang Sotyo Baskoro, Senior Assistant to Mr.
  Harry (Shareholder)
• Mr Julison Arifin (Sony) KAI Director Strategy
  Business Development (representing the
  Operator)
• Todays Speaker
• Mr Julison Arifin (Sony) KAI Director Strategy
  Business Development (representing the
  Operator)
• 25 year railway professional
• Phd in Railway Systems Engineering (UK).

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Vision Mission Indonesia Railway

• VISION
• To improve the mass transportation capability of
  rail in Indonesia, focusing on safety and
  services, by involving Private Sector
  Participation.
• MISSION
• To increase KA capacity as a public service, a
  freight backbone and a pioneer in establishing
  integrated transportation throughout Indonesia,
  with future development aimed at fuel
  substitution through electrification generated by
  independent energy generation.

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Indonesia Railway Strategy

• Safety improvement increase infrastructure and
  rolling stock reliability and develop human
  resources.
• Enhance carriage capability moving freight from
  road to railway.
• Service level improvement accelerate
  infrastructure development.
• Increase line capacity develop partial double
  track in intersecting areas.
• Enhance integration of inter-modal transportation
  commence planning and implement hub and spoke
  development.
• Increase private sector participation involving
  private sector in optimizing profitable sectors
  (particularly freight).
• Accessibility develop new rail networks.
• Increase freight and passenger capacity during
  recovery period after the crisis, seek additional
  investment.

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Current State Grand Strategy Indonesia Railway
POLICY
ENHANCE KA AS A MASS TRANSPORT MODE WITH PRIVATE
SECTOR PARTICIPATION
CONDITION OF INDONESIA RAILWAY
GUIDANCE
STRATEGY

• POTENTIAL
• INFRASTRUCTURE AND CAPACITY
• ROLLING STOCK
• MARKET

• TEPAT
• T TRANSPARENT
• E EFFECTIVE EFFICIENT
• P PUBLIC SERVICES
• A ACCOUNTABLE
• T TECHNOLOGY
• Aims of TEPAT
• OBJECTIVE (EFFECTIVE)
• BUDGET (EFFICIENT)
• TIME
• AVAILABLE WHEN NEEDED

• IMPROVEMENT
• SAFETY AND SERVICES
• QUALITY
• LINE CAPACITY
• ESTABLISHMENT AND DEVELOPMENT (ACCESSIBILITY AND
  INTEGRITY)
• SPEED gt 250 KM/JAM
• GAUGE 1435 MM
• JAVA PASSENGER
• OUTSIDE JAVA FREIGHT

• PERFORMANCE
• PASSENGER 150 MILLION
• VOLUME 17.4 MILLION
• REVENUE Rp2,480 BILLION

• PROBLEM
• ACCIDENT
• LOW QUALITY SERVICES
• LOW SPEED TRAIN
• REDUCE ECONOMIC TRAIN
• LIMITED FLEET
• UN INTEGRATED WITH OTHER TRANSPORTATION MODE
• LAW NO 13 YEAR 1992
• KAI AS A SINGLE OPERATOR

OBJECTIVE

• IMPROVEMENT
• LINE CAPACITY
• DISCIPLINE SCHEDULE
• SAFETY
• SERVICES
• ACCESSIBILITY
• INTEGRATION INTER TRANSPORTATION MODE
• MEDIUM AND LONG TERM
• HIGH SPEED TRAIN FOR COACH SERVICES
• HIGH CARRY CAPACITY

NOTE READ FROM CENTER TO THE LEFT THEN CLOCKWISE
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Need For Follow Up Action

• With assistance from ARIC and interested parties,
  we will arrange follow up actions for further
  discussions.
• We have opportunity for one-on-one
  meetings/discussions Friday and Saturday 25-26
  November in Sydney with Pak Sony, Director of
  Strategy and Business Development
• We appreciate your attendance today.

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INDONESIAN RAILWAY INDUSTRY The Ultimate Mass
Transportation in The Future
MINISTRY OF STATE OWN ENTERPRISE GOVERNMENT OF
INDONESIA
MINISTRY OF TRANSPORTATION GOVERNMENT OF INDONESIA
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AGENDA

• History of PT Kereta Api (Persero) or KAI
• Profile of KAI
• Current State
• Business Opportunity
• SWOT Analysis
• Regulation
• Human Resources
• Performance Comparison within region

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Corporate Evolution
Limited Corporate (Persero)
Perusahaan Umum Kereta Api (Perumka)
Established
Djawatan Kereta Api (DKA)
Perusahaan Kereta Api Negara (PNKA)
Perusahaan Jawatan Kereta Api (PJKA)

• 1862

• Jan 6, 1950

• May 1963

• Sept 15, 1971

• Jan 2, 1991

• Jun 1, 1999

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Corporate Profile

• KAI is the one and only train operator in
  Indonesia. Until now, KAI has operated a number
  of passenger transportation and freight
  transportation in 92 lanes in Java and Sumatra
  with 525 locomotive, 1,831 passenger train, and
  8,228 freight train. KAI has operated an active
  rail web for about 4.564 km, 3,231 lies in Java
  and 1,333 lies in Sumatra.
• The Government of Indonesia owns all railway
  tracks, tunnels, bridges, signaling and
  communication equipments, currently operated by
  KAI. Associated land is also a government owned
  asset which has been legally certified for use
  and exploitation by KAI. In very recent times,
  new tracks and associated infrastructure that has
  been built, has been exclusively established
  because of increasing demand for freight
  capacity.
• KAI also owns supporting assets such as train
  stations throughout Indonesia
• Through this company profile, includes a train
  history trip in the country, an increase services
  performance to the society, a number of growth
  from time to time, the prospect and business
  potential that expected can be a discourse for
  Indonesia society so that it can support the
  development in the country.

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KAI Service lines
North Sumatra 481 Km
Total length 4,564 Km
Divre I
Divre II
Divre III
West Sumatra 196 Km
Jakarta
Cirebon
Semarang
Surabaya
Bandung
South Sumatra 656 Km
Jember
Purwokerto
Madiun
Yogyakarta
Java 3,231 Km
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REGULATOR, OWNER, OPERATOR
Asset of KAI

Government (Regulator Owner)

KAI (Operator)

• Infrastructure track, station, depot,
  telecommunication facility.
• Rolling stock locomotives, wagons.
• Other equipment.

Maintains

• Provides, owns, and maintains rolling stock,
  facility and supporting equipment.
• Operates and maintains infrastructure scheme,
  through the IMO mechanism.
• Provides economy class passenger rail services
  through the PSO scheme.
• Pays for the usage of track to the Government
  through the Track Access Charge (TAC) scheme.

• Provides, owns, and maintains infrastructure
  (track, station and others).
• Provides compensation to the Company for its
  efforts in maintaining infrastructure through
  Infrastructure Maintenance and Operation (IMO)
  scheme.
• Provides the Company with subsidies on economy
  class passenger rail services through the
  implementation of the Public Service Obligation
  (PSO) scheme.

The operations of the railway sector is
stipulated under Law No.13, Year 1992

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Position Mapping KAI 2005 - 2009
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Development of KAI 2005 - 2009

• Enhance Indonesian railway safety and security
• Improve and enhance management
• Improve competitive transportation service
  through innovation and sound business development
  planning
• Enhance Indonesian railway efficiency

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Corporate Objective
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Corporate Objective Reduction in delay time
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Development Guidance KAI
Stable Growth
2009
HEALTHY TRANSPORT SERVICES

• Image KA as transport option
• Good finance performance

Aggressive Maintenance
2008
TRANSPORT SERVICES INNOVATION COMPETITIVE
BUSINESS DEVELOPMENT

• Strategic partnership
• Integrated services
• Service innovation, market and technology
• Enhancing private sector participation
• Potential business management

Selective Maintenance
2006 SM II 2007
ENHANCE MANAGEMENT OF SERVICES

• Continue structuring HR
• Current market Intensification
• Integrated information system improvement
• Enhance non core business supporting role

• Continue improve infrastructure rolling stock
• Increase safety service quality
• Management system implementation

Turn Around
2005 2006 SM I
IMPROVE MANAGEMENT OF SERVICES

• Safety services improvement
• Infrastructure rolling stock improvement
• Good Corporate Governance implementation

• Restructuring Human Resources
• System management control
• Built innovation and creation environment

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Growth Assumption Long Term Corporate Planning
2005 2009
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Demand Analysis
In Millions
Number of Population in KAIs main operational
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Demand Analysis
PDB transportation sector
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KAI Line Business
COMMUTER SERVICES
Airport Link
Hi-Speed Train
Advertising
CORE
Data Conduit Provider
Modern
Fluids
KAI
Classic
FREIGHT
IT
Passenger
NON CORE
Property
Retails
Chain Store/ Integrated travel point
Logistics
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INFRASTRUCTURE DEVELOPMENT OPPORTUNITY Core
Business

• TRACK NETWORK
• Partial Double track Cirebon Semarang (226 km)
• Partial Double track Cirebon Kroya (158 km)
• Increasing track network Semarang Yogyakarta
  (112 km) take out
• Partial Double track Kroya Yogyakarta (140 km)
• Partial Double track Tanjungenim baru Tarahan
  (411 km)
• Partial Double track across Jakarta Tanah Abang
  Serpong (23 km)
• AIRPORT LINKS
• Airport Link to Soekarno Hatta Airport
  (Jakarta)
• Airport Link to Adi Sucipto Airport (Yogyakarta
  Central Java)
• Airport Link to Juanda Airport (Surabaya East
  Java)
• Airport Link to Medan baru Airport (Medan North
  Sumatra)
• Airport Link to Minangkabau Airport (Padang
  West Sumatra)

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INFRASTRUCTURE DEVELOPMENT OPPORTUNITY Core
Business

• JAKARTA MASS RAPID TRANSPORT SYSTEM
• HARBOURS ACCESSABILITY for export / import
  efficiency
• PRODUCTION ENHANCEMENT
• Electric and Diesel Locomotive procurement
  (Locos, MUs DMUs)
• COMMUNICATION NETWORK
• Establish digital network in Java and south
  sumatra (2 GHz to 8 GHz)
• RAILWAY DEVELOPMENT IN OTHER ISLANDS
• Trans Kalimantan
• Trans Sumatra
• Trans Papua

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INFRASTRUCTURE DEVELOPMENT OPPORTUNITY Core
Business
JAVA SEA
HARBOUR
HARBOUR
HARBOUR
JAKARTA
MERAK
TJ.PRIUK
CIKAMPEK
CIREBON
SEMARANG
DAOP 1
RANGKAS BITUNG
BOGOR
HARBOUR
DAOP 3
JABOTABEK
BANDUNG
GAMBRINGAN
SURABAYA
DAOP 2
TEGAL
CICALENGKA
DAOP 4
DAOP 8
PADALARANG
PRUPUK
WONOKROMO
CIBATU
GUNDIH
MADIUN
BANJAR
PURWOKERTO
DAOP 7
TASIK MALAYA
PANARUKAN
DAOP 5
KERTOSONO
DAOP 6
SOLO
KLAKAH
KROYA
MALANG
BANYUWANGI
YOGYAKARTA
JEMBER
DAOP 9
HARBOUR
INDIAN OCEAN
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INFRASTRUCTURE DEVELOPMENT OPPORTUNITY Core
Business
HARBOUR
BESITANG
BELAWAN
MEDAN
BINJAI
TEBINGTINGGI
KISARAN
TG.BALAI
SIANTAR
DIVRE I SMATERA UTARA
RANTAUPRAPAT
PADANGPANJANG
SAWAHLUNTO
LBK.ALUNG
PADANG
INDARUNG
HARBOUR
DIVRE II SMATERA BARAT
PRABUMULIH
KERTAPATI
LUBUKLINGGAU
HARBOUR
MUARAENIM
BATURAJA
LAHAT
TAMBANGLOAP
INDIAN OCEAN
TG.KARANG
DIVRE III SMATERA SELATAN
TARAHAN
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Information Technology Development

• Organization and Personnel Information System
  (Payroll Transaction, Planning, Development,
  Termination of Human Resource)
• Passenger Transport Information System
  (Executive, Business, and Economy Ticketing
  Transaction)
• Freight Transport Information System (Waybill
  Transaction, daycoach / coach activities)
• Train Operation Information System
• Rolling Stock Maintenance Information System
  (Loc, train, coach, KRD at Balai Yasa and Depot
  Maintenance Transaction)
• Infrastructure Maintenance Information System
  (Railway, bridge and Sintelis Maintenance
  Transaction)
• Asset and Property Information System
  (Transactions Land, Building, and official house
  Facility, Movement Facilities)
• Logistic and Procurement Information System
  (Facility, Infrastructure and General Goods
  Transaction)
• Financial Information System (Accounting
  application, budgeting, and basic documentation
  Transaction)
• Management Information System, Decision Support
  System, Executive Information System

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Business Opportunity Non Core Business

• ASSET COMMERCIALIZATION
• Based on the corporate income condition, it is
  expected there is another income sector that can
  give profit to support the operational and the
  increase of train facility that belongs to KAI.
• KAI have a large of assets with a strategic
  location. With this condition the stations has a
  very profitable potential especially to
  collaborate with the private retail investor.
• Therefore, commercialization of the assets can be
  proceed, especially for the stations in Java and
  Sumatra.

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Business Opportunity Non Core Business (H)
KAI has classified all the train station under
the management with the following criteria

• Transportation facilities around the station
• Potential market
• Passengers volume
• Freight volume
• Station income

• Number of employee
• Number of Train supported by the train station
• Number of Train stopped
• Number of Train that signing, maneuvering and
  parking
• Location of the train station (province,
  municipal, district etc)

And using the above criteria, the following table
illustrate number of main station based on their
classification
In addition of the above stations there are over
4,000 small train shelters that manage under PT
KA.
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Business Opportunity Non Core Business
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Business Opportunity Non Core Business (H)

• Among other transportation mode in Indonesia,
  railway has a unique characteristics where the
  access of rail network usually reach the central
  city area.
• KAI owned a numbers of property in the central
  city area, however the utilization relatively low
  compare with the potential that should be
  received by KAI. In some area, the land of KAI
  has been taken over by other parties due to the
  insufficiency of KAI resources to maintain the
  lands and properties. The following tables shows
  the size of the land and properties owned by KAI
  and their utilization

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Revenue of Non Core Business
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SWOT Analysis on the Interaction of the Market
Demand (H)

• Strengths
• Service Value
• Low Debt Equity Ratio
• Service Line to the prospective region
• Capacity compare with other transportation

• Opportunities
• Increasing civil mobility
• Local Government policy gives positive impact for
  railway development
• Monetary funding (finance or non-finance) both
  national and international
• Governments plans to expand the infrastructure
• The existence of supporting industry of the
  national railway

• Threats
• Law No.13, Year 1992
• Lack of discipline of the surrounding community
• Tariff competition among air transportation
• Highway expansion in Java land transportation
• Inadequate supply of rolling stock and
  infrastructure by the Government

• Weaknesses
• High level of accident and delayed schedule
• Most of the rolling stock, infrastructure and
  facility are very old
• Limited budget provided to develop human resource
• Low profitability causing limited investment
  funding
• Non-optimal asset utilization

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Passenger Each Mode Transportation
Land Transportation
Air Transportation
Sea Transportation

• Land transportation still dominating the movement
• Most of movement are still dominated by Java and
  Sumatra
• Number of movement in Kalimantan does not shown
  in the picture

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Regulation

• II. New Decree Issued Government will share
  part of the risk
• Government will secure the land acquisition
  tenure.
• Government to subsidize fares for economy
  passengers a service to the public
• Government will reduce performance bond
  (currently 5 of capital investment).
• Reimbursement of project preparation investment
  for cancelled projects if project
  supported by agreed feasibility study.
• Taxation relief (yet to be decided).
• Note Freight tariffs can be set to market demand

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HR Issues
In order to transform the companys position from
Turn Around (2005) into Rapid Growth (2009),
professional Human Resource management and
development is required. Human Resource
development could be done in several ways

• Employee rightsizing in order to reduce employee
  expenses (in 2004 employee expense was 35 of
  the whole expense) to be allocated to subsidiary
  companies.
• Human Resource competency mapping and
  improvement.
• Effective control of number of employee,
  according to the definition in railway business
  process.
• Increase employees income commensurate with the
  other BUMN.
• Effectively implement reward and punishment.
• Provide employee certificate according to the
  performance.
• Increase employees training hours.

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HR Issues (H)
YEAR
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Financial data (H)
39
Performance of Passenger TransportRevenues of
Passenger Transport
US
40
Performance of Passenger Transport (H)
41
Performance of Revenue Freight Transport
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Average of Freight Tariff per Ton KM
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Performance of Freight TransportTon of Freight
Transport
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Revenue of Freight Services
US (Million)
70 65 60 55 50 45 40 35 30 25 20
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Performance of InfrastructureTrack Length (H)
46
Performance of Rolling StockCoach Utility (H)
47
Performance of Rolling StockWagon Utility (H)
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Performance of Rolling StockLocomotive Utility
(H)
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Closing Remarks

• Thank you for the opportunity to address you
• Thank you for your interest and attendance
• We wish to
• Enhance Indonesian railway safety and security
• Improve and enhance management
• Improve competitive transportation service
  through innovation and sound business development
  planning
• Enhance Indonesian railway efficiency