Red carpet for investors?
The land acquisition law: Pros and cons
The government is targeting that implementation of the Land Acquisition Law should be effective by the middle of this year to allow a start to building public infrastructure, with a presidential decree to support the law still pending.
That decree, now being drafted by the National Land Agency (BPN), will govern the technical aspects of the implementation of the law, according to Public Works Minister Djoko Kirmanto.
The decree will outline the phases of implementation from the availability of the land, the establishment of the land-clearing team and the time limit for the process. The law, passed on December 16, covers infrastructure projects such as roads, dams, tunnels, railways, ports and airports, oil, gas and geothermal facilities, power plants and their distribution networks, hospitals and telecom networks.
While the law is limited to government projects, it allows government to partner with state-owned firms and the private sector. The law shortens to two years the process of deciding on a project location, with an extension of one year.
Delays in many infrastructure projects in Indonesia are blamed on weak regulations, which were unable to manage the movement of people from critical land. But despite the optimism that the new law will be able to expedite infrastructure work, there have been a variety of responses, with some arguing that the law will not meet the high hopes set for it.
DBS Group Research economist Eugene Leow believes that there is good reason to believe that the law will make a change and sees it is as an important step in Indonesia’s reform process.
“The law is key to build infrastructure as it will provide certainty on time and costs,” he states. The law will enable the government to make land acquisitions within a relatively short period as legal disputes have to be settled at the most in 74 days. Besides, he adds, compensation for landowners will be handled by an independent appraisal team.
“It remains to be seen how effective the law will be, but its approval shows that Indonesia’s reform path is still on track,” Leow states.
The new land clearing requirement is far simpler and should make it more attractive to investors to bid for infrastructure projects such as toll roads, power plants, airports and seaports.
“The law states, more clearly and decisively, that the government is obliged to provide land,” says Frans Sunito, president director of state-owned toll-road operator Jasa Marga. But, he notes, land speculators have lured landowners into selling their property at higher prices than might otherwise be the case.
They have also in the past purchased property in areas they expect will be acquired by the government for infrastructure projects, with the aim of selling at exorbitant prices.
“All this time the main obstacle in toll-road completion was the presence of speculative land brokers. Now they cannot do it anymore as the government would buy the land at an independently appraised market price,” Frans said.
Frans now expects the land law to help speed up his company’s road projects. Jasa Marga, the country’s biggest toll-road operator, operates 531 km of toll roads, equivalent to 72% of Indonesia’s total.
Citra Marga Nusaphala Persada, a private toll-road builder, is also confident that the law will help it fulfill its plans, including Rp4.76 trillion ($528 million) of projects to connect roads in southern Jakarta.
It will sell bonds to raise between Rp1 trillion and Rp 1.5 trillion in the first half of this year to help finance land acquisition, says Hudaya Ariyanto, Citra Marga’s operational director.
Other infrastructure-related sectors, including property, cement and construction contractors, will benefit from the land law. As a knock-on effect, banks, automotive-related companies and steelmakers would benefit from the rise in construction activity, analysts said.
“The cement and steel industries should enjoy strong demand for the next few years,” Morgan Stanley said in its December 16, 2011 Asean Equity Strategy research note to clients.
Banks and property developers may benefit from the land law, since lending in the infrastructure sector increases property values rise for land situated near roads, Morgan Stanley said.
Despite all the good news, Hiramsyah Thaib, president director of Bakrieland, believes the government still faces much work to accomplish its goals. “The government has yet to make an investment climate that is conducive for infrastructure. The problem is at the policy level. The coordination between departments, between central government and regional governments still needs improvement,” he has said.
Hiramsyah added that toll-road operators are waiting for the government to come up with a guarantee scheme, either ensuring investors get a certain return on investment for the project, or an assurance that protects their investment from a possible change in policy.
Bakrieland, through its subsidiary, Bakrie Toll Road, is building two routes in Central Java scheduled for completion by 2013.
The law would enable both the government and the private sector to move decisively. Three huge infrastructure projects worth Rp359 trillion are to be carried out this year. They are the Trans-Sumatra, Trans-Java and Trans-Kalimantan highways.
“Government funds will not be enough. The National Economic Committee (KEN) is convinced that the private sector will be taking part once infrastructure building takes off with the law,” chairman of KEN and prominent businessman Chairul Tanjung said.
Meanwhile, despite the optimism and expectation, opponents of the law have emerged who say the law has been too hastily drawn, benefiting investors rather than the people.
Budiman Sudjatmiko, an activist who played a role in the process that led to the ousting of former autocrat Suharto and now a lawmaker for the Indonesian Democratic Party of Struggle (PDI-), states that the formultion of the law was not in accordance with Decision of the People’s Consultative Assembly (MPR) No IX of 2001 on agrarian reform and management of Indonesia’s natural resources. This is strongly pro-people, Budiman points out.
“The new law does not have the MPR Decision as its legal grounds and this could be the basis for filing a judicial review at the Constitutional Court,” said the founder of the radical People’s Democratic Party (PRD).
Andalas University’s Professor Yuliandri notes that the MPR decision rules supreme above any law passed by the DPR. “Indeed it is a very difficult situation. As long as that MPR Decision is still valid, the law should follow that,” he said.
The Alliance of Traditional Landusers (AMAN), a grouping of various activists, disputes an article of the law which authorizes the government to take control of land of traditional settlers to make way for development, arguing that it would allow forced evictions.
“Article 6 of the law states clearly that the state could transfer land ownership rights of traditional settlers to make way for development. This is the crucial part, because the law only recognizes legal ownership by title. What about traditional settlers who have been on the land for generations? They face forced evictions. This is why we are filing for a judicial review,” AMAN spokesman Jopi Peranginangin said.
Problems will inevitably arise with people who live on unregistered land. Considering that a vast proportion of land used by indigenous farmers and settlers is not registered, and it is clear that the fears of landowners being evicted out of their land – their home – are not baseless.
There are due process mechanisms in the new law to ensure that anyone who is affected by land acquisition can voice their concerns. However, embedded in the spirit of the law is the assumption that at least two enabling conditions are in place: that Indonesia has an efficient land registration system and effective land-use planning.
Unless we get these two enabling conditions right, no matter how good the land acquisition law and its bylaws are drafted, implementation will still be difficult. GA