Global Business Guide Indonesia

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Property | Land Acquisition Law

The laws surrounding land acquisition have held back the progression of much needed infrastructure projects around the country. The lack of clear rules on acquiring land for public use and the provision of fair compensation for land owners have stopped projects from being realised by causing delays as negotiations are carried out. This issue is currently being addressed in the form of new legislation that was submitted to parliament in February 2010. The new law would overhaul the stifling procedures for obtaining ownership of land that is required for public purposes by streamlining the process and drastically reducing the time taken to acquire the land. When passed, this law will give a much needed boost to Indonesia’s infrastructure roadmap that is vital in raising the $140 billion USD needed in investment over the next 5 years and meeting the connectivity requirements of the ASEAN economic community in 2015.

Acquiring land for infrastructure projects is a burdensome process considering the numerous government bodies needed to be consulted and a long history of informal land ownership that gives rise to any number of individuals or families claiming rights over the land. An example is Law No 41/2004 on Waqf that requires the Ministry of Religious Affairs’ approval to ensure that the land in question has not been reserved for religious purposes. The Ministry of Forestry also has a say over the land should it contravene laws on protected forest. The coordination of the various ministries, central and local governmental bodies as well as the process of placating the communities around which the project will be built has delayed the land acquisition process by over 5 years in various cases. To address the poor coordination between the various levels of government and resolve conflicts restraining infrastructure projects, President Yudhoyono set up a Presidential Delivery Unit in 2009 with the authority to cut through bureaucracy. While coordination on the public side may be improving, the lack of formalised compensation for individual landowners has led to the practice of holding on to their land for as long as possible while the project progresses to let the value appreciate and thus demand a higher price making the project untenable. The result is that swathes of transport projects have a fraction of the land they need to complete; the 617 km Trans Java toll road had only 38% of the necessary land by March 2011 which is due for completion by 2014 and the Ulujami – Kebon Jeruk Toll Road had only 40% by January 2011 with construction due to start in the second half of 2011.

The new law being discussed would speed up the negotiation process from 4 to a maximum of 2 months to avoid discussions being dragged out. It would mark a significant shift in the national attitude towards land by prioritising needs of the public over an individual or community for infrastructure projects by giving the government the right to take it over. The public interest will relate to infrastructure projects such as toll roads and ports as well as utility projects such as geothermal power plants. The new law is also drafted to include measures that halt the practice of purchasing land for speculative purposes however it will not cover formalisation of compensation for landowners.

The new law is being eagerly awaited by investors but the issue of when it will pass is still undetermined. The law was expected by the first quarter of 2011 but failed to materialise, the most recent pledge was by July 2011. Finalising this law is vital to advancing Indonesia’s long term development needs and commitments in the form of the ASEAN Connectivity Master Plan that will become felt more acutely after 2015. Infrastructure has been a persistent hurdle in improving economic efficiency in the country as well as holding back foreign direct investment. While the new law will not solve all the issues surrounding land acquisition or how the measures will be implemented, it will be a significant step forward that will in turn regenerate interest in the Public Private Partnership projects that the country has to offer.

Global Business Guide Indonesia - 2012

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Indonesia Property Snapshot - Infrastructure

Average Government Spending: 2.9% of GDP (2015)
Investment Required: $500 billion USD (2015-19, RPJMN)
Global Infrastructure Ranking: 63/160 (WB 2016)
Infrastructure Quality Score: 2.65 (ASEAN Average 4)
Main Project Areas Under PPP: Toll roads & railways, power generation, water supply & waste management.
Government Bodies: BAPPENAS, BKPM, Ministry of Public Works and Housing, KPPIP.
Relevant Law: Law No. 2 of 2012 on Acquisition of Land for Development in the Public Interest, Presidential Regulation No. 38 of 2015 on Cooperation Between the Government and Business Entities in the Provision of Infrastructure, and Presidential Regulation No. 78 of 2010.