Govt promises better climate for infrastructure investors

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The government has reaffirmed its commitment to a better business environment through accelerating public infrastructure development.

Coordinating Economic Minister Hatta Rajasa said the government was more than aware of the legal uncertainty surrounding business conditions in Indonesia. Hatta said the administration had done its best to deal with the situation.

“We will always focus on ending the bottlenecks. What have we done so far? Well, for a start we have revised more than 30 regulations which we considered unfriendly to businesses,” Hatta told reporters at the 2012 Indonesian International Infrastructure Conference and Exhibition at the Jakarta Conference Center (JCC) Thursday.

Hatta said the government had issued, and would continue to issue business-friendly regulations, such as the recent presidential regulation on land acquisition, which should become a key to future infrastructure developments.

The regulation establishes a limit of 583 days for land acquisition but investors are not happy because it is not retroactive, leaving stalled projects at an impasse. If stalled projects cannot settle land acquisition issues in 2014, they will comply with the new regulation. Some businessmen have said the timeframe is still too long.

 “Most of the old projects are entering their completion phase anyway,” he said.

Nevertheless, he finds room for improvement.

“For example, I think we need to provide more incentives for private investors. Incentives do not necessarily mean fiscal incentives,” he added. “As a basis for incentives, we also must differentiate between regions based on their respective development level. I believe we should give larger incentives to private investors who are willing to invest in less developed regions. The scheme for this idea is currently under formulation,” he went on.

To reduce the gap of development between the more developed western and less developed eastern regions in Indonesia, President Susilo Bambang Yudhoyono issued an ambitious blueprint called the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI).

Through the master plan, the government envisaged improved connectivity throughout the archipelago, focused on six economic corridors — Sumatra, Kalimantan, Java, Sulawesi, Bali and Nusa Tenggara, and the Papua-Maluku.

The MP3EI requires more than Rp 3,000 trillion (US$314.3 billion), far higher than Indonesia’s state budget capacity, so the government will work with the private sector using the public private partnership (PPP) scheme to fund the infrastructure needs.

To make public infrastructure projects economically attractive to private investors, the government provides guarantees along with incentives.

State-owned enterprise Indonesia Infrastructure Guarantee Fund (IIGF) chief operating officer Yadi J. Ruchandi said that the issues surrounding PPP projects in Indonesia were far larger than just financial guarantee problems.

“We have the funds but most of the time, the proposal for PPP projects poorly developed and this makes it difficult to assess a proper guarantee scheme,” he said.

Hatta admitted that PPP project preparations had not been perfect but the government would strive to fix the issues.