Posted on 26 Mar 2015
[PICTURE1]
At our recent Bahana Infrastructure
Forum, panelists shared a common view that the government was moving in the
right direction on addressing Indonesia’s land acquisition issues, supported by
the recent signing of Presidential Decree No. 30/2015, which applied Law No.
2/2012 (table 1) to all land acquisitions for infrastructure construction in
the public interest, while also allowing private investors to participate in
the land-acquisition process.
Going forward, Indonesia’s Land Acquisition Law will provide more
accommodating, transparent compensation payments to land owners with stricter
timetables to accelerate the land-acquisition process.
Nevertheless, as the land-acquisition preparation and implementation process
could take up to 500 days, we can only gauge the effectiveness of this new law
from 2016 to 2017. In addition, a lack of policy socialization by the
government could mean resistance from uninformed land owners to selling their
assets, potentially delaying projects.
With the lack of infrastructure development having hindered Indonesia’s
economic growth in the past, President Joko “Jokowi” Widodo is embarking on his
ambitious program, the 2015-2019 National Medium Term Development Plan, with Rp
5.5 trillion in total investment, including the construction of 65 dams and
1,000 kilometers of toll roads.
As these projects are fully supported by the people and the legislature, a
hefty Rp 290 trillion budget for infrastructure development has been allocated
in the 2015 revised state budget, of which Rp 119 trillion (initial budget Rp
84 trillion) is for the Public Works and Public Housing Ministry. Indonesia’s
construction players are also supportive of the government’s plan and have made
some preparations to participate in the projects.
However, at this stage, Indonesia is forced to import materials, such as steel,
asphalt and construction equipment (table 2), as we are unable to supply all
required materials for the upcoming infrastructure boom. Further, it is
unavoidable that a lack of qualified engineers, coupled with the commencement
of the ASEAN Economic Community will open the floodgates for overseas workers
to participate in Indonesia’s infrastructure projects.
The ministry, a major client for Indonesian construction companies, stated that
so far this year, tendered projects had reached Rp 59 trillion, out of the
ministry’s initial 2015 budget of Rp 84 trillion.
From the increased budget, note that there has been Rp 30 trillion in
additional tenders that are being prepared by the ministry. By project, the
tenders mostly center on the Directorate General of Water Resources (water
management) and the Directorate General of Bina Marga (road construction and
maintenance).
In summary, while we are still optimistic about a major increase in new orders
from the government, we see possible delays in President Jokowi’s plan to
complete all of the government’s tenders in March.
Given this and the uncertainties in the land-confiscation process within
land-acquisition procedures, we advise our equity investors to remain neutral
in the sector.
___________________
The writer is a research analyst in the Bahana Securities research
department.
____________________
Table 1. Summary of Law No. 2/201
Main points of the land acquisition process
-
Fair price is determined through independent appraisal
- Land owner may choose to reject through court, yet court has to decide
in 30 days (final)
- After transaction process (normal) or by court verdict, project can
commence
- Re-settlement is also an option
- The government should carry out socialization far in advance
(transparent)
- National Land Agency (BPN) is the only body responsible for land acquisition
for public interests
Source: Jasa Marga
