The Indonesian Government has given approval to state-owned coal miner Bukit Asam to build a 307km coal railway on Sumatra Island.

The railway will connect the company’s coal mine in Central Bangko in South Sumatra to the port of Lampung on the southern tip of Sumatra island and will be designed to carry 20 million tons of coal a year.

The project, expected to cost nearly $1.06bn, will be 30% funded by internal cash and 70% by loans.

Work will be carried out by a joint venture between Bukit Asam, Transpacific Railway and China Railway Engineering and is expected to finish by 2013.

Transpacific Railway leads the venture with an 80% stake, with the other two companies holding a 10% stake each.

China Railway will be the contractor for engineering, procurement, construction and operation of the project.