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Analysis: IKN offers 'oversubscribing' as part of business gambling
The 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.
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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.
What’s more
According to Public Works and Housing Minister Basuki Hadimuljono, Nusantara development adopts a “forest city” concept, and therefore, people would live and work mostly in high-rise buildings to spare more space for green areas. Landed houses would only be built for high-ranking officials such as ministers.
Basuki also said the development in IKN would ensure the city’s sustainability, and therefore, early development included infrastructure projects related to water supplies and flood prevention such as the development of dams, ponds and sanitation. In addition, early construction projects also related to connectivity such as building roads, a toll road connecting to the existing Samarinda-Balikpapan toll road, bridges and a port.
Most of those construction projects are allocated to state-owned construction companies such as publicly listed PT Waskita Karya Tbk (WSKT), PT Adhi Karya Tbk (ADHI), PT PP Tbk (PTPP) and PT Wijaya Karya Tbk (WIKA). Because of their major works in IKN, investors are mostly bullish on their stocks this year.
What we’ve heard
A source in the government said that a number of companies participated in the hearings with the IKN Authority and the Deputy for Development Funding at the National Development Planning Agency (Bappenas). These potential investors were invited to express their interest in the IKN project, especially for commercial housing and electricity, at the end of last January.
Some of the names of the companies invited include China Huadian Engineering Co. Ltd, Intiland Development, Masdar Mitra Solar Radiance, and Greenwoods Group.
"One of the commissioners of Semen Indonesia was also invited," said the source. He was referring to Sony Subrata, an independent commissioner of state-owned cement maker Semen Indonesia, who was also the former coordinator of Jokowi's social media volunteers in the presidential election.
Another source said that Sony has recently been frequently invited to meetings held by the IKN Authority. He is said to be close to Dhony Rahajoe, Deputy Head of the IKN Authority. "Some say he is an IKN shadow team," said the source.
According to one source, the presence of the shadow team within the IKN Authority could not be separated from the lack of smooth relations between Bambang Susantono, as Head of the Authority, and Dhony as his deputy. Bambang mostly recruited assistance teams from the Asian Development Bank (ADB), where he previously had a career. Meanwhile, shadow teams like Sony Subrta stick to Dhony.
On a number of occasions, Dhony and his team have held many meetings inviting ministries and other institutions. However, the Head of the IKN Authority did not attend the meeting.
Not long ago, Sony was also mentioned as inviting foreign consultants such as McKinsey, AT Kearney, PwC, KPMG, Deloitte, Boston Consulting Group, and EY. These foreign consultants were asked to provide consulting services to help create a new capital city.
"Some were asked to take care of city planning, some were to become engineering consultants, some were to take care of communications, and become strategic consultants," said the source.
Some of the foreign consultants will be under the IKN Authority Body, but there are also those who are under the Authority-Owned Enterprises (BUMO). A number of consultants under BUMO are divided into several clusters of consulting services, including energy supply, housing, transportation, private hospital, and industrial parks.
"The problem is that the BUMO has not started until now," said the source. This also makes the foreign consultants reluctant.
Clarification from Sony Subrata, commissioner of PT Semen Indonesia
1. I am not an independent commissioner of PT Semen Indonesia, but my official position is a commissioner. My presence at the Nusantara Capital City (IKN) Authority meeting was in the context of PT Semen Indonesia supporting the government's program of infrastructure development at the IKN. Because the need for cement in IKN is very large in both the construction of basic infrastructure as well as the construction of housing for state civil apparatus (ASN) and the Indonesian Military/National Police personnel.
2. I am not registered at all in any official or unofficial structure at the IKN Authority. It is not true that there is a "shadow team" or an informal team that includes my name. The reason for my presence was as a commissioner of PT Semen Indonesia and in the context of supporting the government's program to build infrastructure in the IKN.
3. I have never invited consultants on my behalf, but consultants have been invited by the IKN Authority for informal discussions. These informal discussions were to explore the possibility of working with a pro-bono scheme for a certain scope of work and working hours. As additional information, these global consultants often work together with PT Semen Indonesia for corporate strategy consulting needs and financial transactions.
4. I have never felt as a team from one of the leadership elements in the IKN Authority. As a professional in the field of public communication strategy, many parties within the government and private institutions have discussed and exchanged ideas with me. My educational background at the University of New South Wales in the field of marketing communications and experience in various national and multinational companies, may make my presence useful in various discussion forums.
5. Regarding the information that the consultants are "reluctant" to work with the IKN Authority or BUMO, this needs to be confirmed with the consultants. According to information circulating in various media, the consultants have officially sent a Letter of Intent to the IKN Authority. The consultants showed their support for the Indonesian government and for the IKN Authority.
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This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access our latest edition to read the articles listed below:
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