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Analysis: IKN offers 'oversubscribing' as part of business gambling
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President Joko “Jokowi“ Widodo (left) briefed reporters after inaugurating three sections of Balikpapan-Samarinda toll road in East Kalimantan on Tuesday, December 17, 2019. The three sections of the toll road, which span 58.7 kilometers, are the first toll road in operation in Kalimantan. The government hoped to finish the remaining two sections of the toll road to fully connect Samarinda and Balikpapan by April next year, Jokowi said. (JP/Marchio Irfan Gorbiano)
T
he Nusantara Capital City (IKN) Authority has claimed huge investment interest from the private sector to invest in the capital city within the next two years, but businesses said they were actually taking a gamble by grabbing land in the capital city and would not really invest until a new government was formed after next year’s elections. Until then, investment will come mainly from the government – and state-owned enterprises.
Speaking at the World Economic Forum’s (WEF) Indonesia Pavilion in Davos, Switzerland, in late January, IKN Authority head Bambang Susantono said his party was caught off-guard by huge investment interest from the private sector in projects it offered as multiple sectors swarmed for inquiries. He said the authority was currently reviewing 71 letters of intent from domestic and foreign firms that were ready to inject funds within the next two years and was in “active discussions” with 25 of them.
Bambang disclosed that the 921 hectares of land made available for initial investment in 2024 were “oversubscribed 44 times”. As a result, the authority opened up more of the Core Government Area (KIPP) and even some of the surrounding zones for private-sector investors, departing from an initial plan to only open up a portion of the KIPP. IKN Authority data show that 798 ha of land in the KIPP is now available for investors, in addition to 1,070 ha in the financial zone, 875 ha in the leisure zone and 372 ha in the research zone.
Three property developers with available capital totaling US$2.71 billion are ready to build 184 towers for around 17,000 people. They are a consortium of China Construction First Group (CCFG) and Risjadson Brunsfield Nusantara, which is expected to invest around $2.1 billion, followed by Korea Land and Housing Corporation with $659 million and publicly listed property-firm PT Summarecon Agung with $109 million.
However, according to the Indonesian Real Estate Developers Association (REI), the three property developers mentioned by the IKN Authority were not really investing their money as their property construction projects were funded by the state budget, just like any other construction projects currently carried out by state-owned infrastructure companies. Also, out of 4,600 REI members, no more than 50 members were pitching construction projects in Nusantara. The others were taking a wait-and-see approach to see if the new administration after 2024 would continue the IKN project.
As private investment has not really come to Nusantara while President Joko “Jokowi” Widodo has targeted to move his office to the new capital in 2024, the government has allocated Rp 43.73 trillion (US$2.9 billion) until 2024 to jumpstart infrastructure and property development in the capital city. Since last year, the Public Works and Housing Ministry has signed 30 contracts mostly with state-owned infrastructure companies to do infrastructure, government offices and housing construction projects worth Rp 24 trillion.
The ministry would bring a total of 16,000 construction workers in February and March to IKN to speed up the construction projects. The ministry targets to build a total 47 apartment towers in IKN this year, with a total budget of Rp 9.4 trillion to house a total of 16,900 civil servants, soldiers and policemen by October 2024.
