Government favouring China over Japan in railway bid - govt sources

Indonesia is leaning towards China over Japan in an aggressive bidding battle to build the Southeast Asian nation's first high-speed railway, two government sources involved in making the decision said.

Analysts believe that whoever wins will likely become the front runner for other high-speed rail projects coming up in Asia over the coming years, including one linking Kuala Lumpur and Singapore.

A cabinet-level committee led by chief economic minister Darmin Nasution will meet on Monday to make its recommendation on which country should build the rail line between the capital, Jakarta, and textile hub of Bandung.

President Joko Widodo is expected to announce the winner within days.

"Indonesia is leaning towards China because their proposal is less financially burdensome on the Indonesian government and because the issue of safety has been adequately addressed," a government source told Reuters.

A second government source said Indonesia wanted to strike a balance between the two powers in handing out high-profile infrastructure projects. Japan already holds contracts to build Jakarta's mass rapid transit system and the biggest coal-fired power plant in the region.

Both sources declined to be identified due to the diplomatic sensitivity of the issue for Jakarta and the economic stakes. Japan is Indonesia's second-largest investor, while China is its top trading partner.

"We have two partners and it will be good if we can maintain both of them. We have to be smart when taking this decision," Luky Eko Wuryanto, Indonesia's deputy minister of infrastructure and regional development, told Reuters last Friday after meeting China's ambassador to Indonesia.

ENVOYS

The 150-km (94-mile) rail line should to cut the journey between Jakarta and Bandung to 35 minutes, from about three hours. Trains are expected to reach speeds of more than 300 km (188 miles) per hour.

Indonesia hopes to extend the line later to connect Jakarta with the city of Surabaya.

Japanese Prime Minister Shinzo Abe last week sent an envoy to offer a more attractive deal ahead of Monday's deadline, which was Japan's second revision in two weeks.

Japan's late manoeuvring brought protests from China, which said it was unfair Japan had been allowed to submit a new offer so close to the deadline, a minister said.

China had sweetened its offer earlier in August.

Japan initially believed it had won the contract after completing a more than $3 million feasibility study, but in March Widodo invited other offers in order to get the best deal.

China is offering a 73.92 trillion rupiah ($5.27 billion) loan with a 50-year tenure and an interest rate of 2 percent in U.S. dollars.

Japan is offering a 60.14 trillion rupiah repayable over 40 years at an interest rate of 0.1 percent in yen, with a 10-year grace period.

Its latest proposal also offers Japanese guarantees on financing and increases the percentage of local content.