Getting around the MRT's lack of subsidies

March 25, 2019

Opinion - published in Bisnis Inonesia on March 23, 2019

While Jakartans welcome new modes of mass transportation such as Mass Rapid Transit (MRT) and Light Rapid Transit (LRT), these pride projects leave a lot of work to be done. The operational costs of both modes are expensive and the government does not yet have an independent financial scheme but must subsidize them.

The MRT, while yet to announce ticket prices, noted that commuters' purchasing power is low. Based on an online survey conducted by PT MRT Jakarta from January to May in 2018, 65.5 percent of the 10,073 respondents had the desire to transfer to the MRT. However, only 19.6 percent were willing to pay more than Rp 8,500 per trip. With a fare of Rp 8,500, the subsidy to be paid by the DKI Jakarta Government is estimated at Rp 365 billion per year.

Meanwhile in Palembang, South Sumatra, the LRT, which has only been operating for a few months, is reportedly losing money. The central government has to subsidize Rp 9 billion per month because this mode does not carry enough passengers. The construction of the Palembang LRT is allegedly not supported by adequate financial studies, so that automatic income will only be calculated from ticket revenues.

The 14.5-kilometer Palembang LRT cost around Rp 10.9 trillion to build. With such a large cost, a reasonable ticket price is actually Rp 30,000 per passenger. However, to increase interest, the government subsidizes LRT tickets to only Rp 5,000 to all stations, except to the airport, which is Rp 10,000.

TOD as a mass transportation business scheme

No public transportation in Indonesia can live without subsidies, especially for its construction costs. The central government allocated IDR 1.3 trillion in subsidy funds for commuter trains serving Jabodetabek. Meanwhile, the DKI Jakarta government allocated IDR 3.2 trillion for transportation subsidies in 2018.

In fact, in developed countries, many mass transportation operators can be financially independent or at least sustainable with minimal subsidies. The solution is simple, public transportation in many cities does not stand alone, but is paired with property to make it targeted and also financially sustainable. This unification between public transportation and the property business will be successful when integrated with the concept of transit oriented development (TOD).

TOD areas are usually calculated within a walkable distance. In Indonesia, this distance is set at a radius of between 350 meters to 800 meters from the center of the transit point. Density within this radius will be increased and connectivity improved.

The TOD concept is not only useful for more effective urban development that will address urban sprawl, as well as reduce carbon footprint and congestion. TOD can also be a financial scheme for nearby public transportation.

The tool used to make this scheme work is to give building rights to landowners around the station area.

The right to build is the right of the landowner to build on his land. This includes the maximum floor area that can be built on it and some other restrictions. One of these is reflected in the Building Floor Coefficient (KLB). This right is granted and controlled by the DKI Jakarta Government.

With the concept of TOD, there is a need to increase the density in the area around the station area or transit center within walking distance. The government needs to analyze the areas where density can be increased. This increase can be calculated for the common good.

However, there needs to be a contribution made, usually in the form of a financial contribution, by landowners who want to use the KLB increase to the government. The funds can be used to improve accessibility and connectivity, add public facilities, or develop public transportation nearby. So, landowners will get more space for their economic activities. Meanwhile, the DKI Jakarta government can allocate the financial contribution from the KLB increase to cover the cost of transportation development.

KLB increases have been made, including during the leadership of Governor Basuki Tjahaja Purnama. However, this increase was unfounded because it only depended on the ability to pay and its use was also not used to reduce the burden of those affected.

NJOP, Building Rights, and PBB

The implementation of an increase in KLB is certainly not immediately applicable in Jakarta. The policy requires adjustments here and there, especially the issue of adjusting our spatial regulations that are not yet oriented towards the TOD concept. Moreover, the Tax Object Sale Value (NJOP), which is the basis of the calculation of building rights, has not been correlated with KLB.

NJOP and land and building tax (PBB) prices should be determined from the building rights or KLB assigned to the land. The Right to Build data contained in the KLB Spatial Detail Plan sheets is still compartmentalized based on existing buildings, not for future vision. Meanwhile, the value of building rights is not reflected in the land tax scheme.

In addition to landscaping, local governments also need to make adjustments to the NJOP. So far, NJOP has been determined per region or per street name. This provision is made without considering the size of the Building Rights on the land.

This NJOP disparity is also what causes gentrification. The phenomenon arises because people in premium areas have to pay the same expensive tax burden as the ordinary office buildings next to their land that are clearly making more profit. For example, they end up choosing to sell their assets and move to the periphery with a much lower tax burden. This displacement of residents from central areas eventually creates urban sprawl.

The government must also start organizing connectivity, especially for pedestrians around the TOD area so that this expensive mode is not wasted without passengers. TOD can actually be developed not only at MRT stations, but also at other public transportation transit nodes. However, while the MRT is being talked about, the discussion on TOD as a financially self-sustaining and sustainable approach can begin. The reason is simple: no city can improve people's lives without good public transportation.

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