“The development of infrastructure in Indonesia will contribute towards strengthening the efforts by ASEAN countries to develop the region’s connectivity.”
Overall, there is a growing need of foreign investment in infrastructure sectors throughout the region. With a long list of planned and upcoming projects in Indonesia, foreign assistance plays a vital role in realising the government’s ambitious vision for the country. Among Southeast Asian countries, Indonesia emerged as the second most preferred nation after Singapore in attracting foreign direct investment with a net inflow of $22 billion in 2014. However, the key to successfully realising foreign investments is eliminating all the bottlenecks that undermine infrastructure development. To deal with this, the focus should be on obtaining faster clearances, improving project structuring, offering bankable projects, and enhancing communication among various stakeholders. The Indonesia Investment Coordinating Board (BKPM) was established to identify potential investors, facilitate investment in sustainable infrastructure projects, and to manage and mitigate risks to attract a greater level of foreign sector participation and ensure successful implementation of infrastructure projects.
Southeast Asia Infrastructure brings you the views of Franky Sibarani, Chairman, BKPM, on the company’s role, key achievements, priorities, project pipeline and challenges…
What has been BKPM’s role in infrastructure development in Southeast Asia?
Indonesia, with its abundant natural resources, demographic dividend, and other advantages, is not only a huge potential market for ASEAN, but a production base that holds huge potential for development. In this new government, we have set seven priority sectors in investment projects to be promoted; one of them is infrastructure. The development of infrastructure is not only important to enable its domestic economy to expand and grow but also to fulfil Indonesia’s commitment to be involved in the development of ASEAN connectivity, which would help develop ASEAN as a single market and investment area. There are several government programmes on infrastructure development in 2015-19, such as a 35 GW power plant, 1,000 km of toll road, 15 new airports, development of 24 seaports, 8 special economic zones (SEZs) and 14 new industrial estates, construction of 3,258 km of railways, and the establishment of an infrastructure development bank. Recently, President Jokowi initiated the construction of the Kuala Tanjung seaport and Trans-Sumatra toll road. These constructions will support the development of palm oil processing, rubber and petrochemical units, which are located in the Sei Mangkei and Kuala Tanjung SEZs.
BKPM has an important role as a front office and clearing house agent following an MoU signed in 2010 between the Ministry of Finance, Ministry of National Development and Planning (Bappenas) and BKPM. BKPM’s role in the front office is to identify potential investors, package ready-to-offer projects, and hold business meetings for business licensing processes. Its role as a clearing house agent is to organise between stakeholders and do debottlenecking.
In 2015, BKPM has focused on three activities in order to achieve this goal, namely, improvement of the licensing process to make it faster, simpler, transparent and integrated; debottlenecking to solve investor problems to boost investment, and development of an environment conducive to carrying out regulatory reforms including granting incentives.
Simplified procedures and faster issuance of investment permits are important to boost our competitiveness as an investment destination; therefore, we seek to streamline the government’s permit process by integrating the provision of several licences to be issued by various ministries in a one-stop service centre. With 21 ministries delegating their authority to issue a number of their investment-related licences to BKPM, investing in Indonesia is simpler, quicker and more transparent. We have been increasing our efforts to ease the investment licensing process from the moment investors touch down in Indonesia until investments are realised.
For the second and third activities, BKPM regularly coordinates with the relevant ministries to assist investors in removing obstacles in implementing investment projects (debottlenecking). In addition, all investment-related regulations are reviewed regularly. BKPM has been given a very important role in advocating and proposing incentives. In this way, BKPM, in coordination with the relevant ministries, will be able to channelise foreign direct investment (FDI) to priority sectors, including infrastructure. The development of infrastructure in Indonesia will contribute towards strengthening the efforts by ASEAN countries to develop the region’s connectivity.
What have been the key achievements of BKPM since its inception?
Since the enactment of the Investment Law in 1967, which was replaced four decades later by Investment Law No. 25 of 2007, BKPM has played a very important role in promoting direct investment, from domestic as well as foreign sources, in Indonesia. It has managed to enhance and establish Indonesia’s investment agencies by strengthening their institutional capacity at the provincial and district levels. Based on the investment realisation data for the period from 2010 to December 2014, there was significant growth in each quarter in domestic investment as well as FDI. The data on investment realisation from 2010 to December 2014 indicates that there are more new investment projects as compared to expansion projects. Further, there is an increase in investment capacity and diversification in terms of the variety and types of industries and products.
The amount of domestic investment realised has shown an overall growth over the six-year period 2009-14, increasing from Rp 37.8 trillion in 2009, to Rp 156.1 billion in 2014. Indonesia’s FDI has also increased in the last few years, primarily as a result of increases in FDI in the non-oil and gas sector, including mergers and acquisitions of domestic companies and increases in loan disbursements. Net FDI inflow was $4.9 billion in 2009. In 2010, FDI increased substantially, posting a surplus of $15.3 billion, and increased further to $20.6 billion in 2011. FDI was still robust and charted net inflows of $21.2 billion in 2012, $23.3 billion in 2013 and $19.2 billion in the first nine months of 2014.
BKPM issued Regulation No. 7 of 2013 on June 13, 2013, to improve the quality of licensing and non-licensing services by simplifying, hastening and ensuring greater accuracy, transparency and accountability in providing these. The regulation specifies mechanisms required to implement one-stop services for investment, including allocation and qualification of human resources, facilities and use of electronic/ online systems.
One Stop Integrated Services for Investment was launched in 2009. In 2014, the government issued Presidential Regulation No. 97 of 2014 regarding One Stop Services (OSS), regulating the implementation of OSS.
To support OSS, BKPM in 2010 launched the Electronic Information and Licensing Services System (SistemPelayananInformasidanPerizinanInvestasiSecaraElektronik [SPIPISE]), which was designed to expedite the process of applying for an investment licence. As of January, 2015, regional OSS has been implemented in 34 provinces, 362 regencies, 97 municipalities, four free trade zones (FTZs), and one SEZ throughout Indonesia. The system has been adopted by 33 provinces, 178 regencies, 57 municipalities, four FTZs, and one SEZ in Indonesia. In addition, to improve the investment licensing service and to increase transparency, BKPM also launched a tracking system in 2012 to assist investors to monitor their application process.
On January 26, 2015, BKPM set up the OSS Centre, an integrated facility that provides a link between BKPM and related ministries and institutions. The OSS Centre is intended to provide quick, simple, transparent and integrated investment licence services. Currently, 22 ministries and institutions have delegated their authority to issue investment permits and have stationed 81 liaison officers at the OSS Centre to ensure faster handling and to provide front office consultation service. In total, there are 150 licences which can be processed at the OSS Centre, covering all business sectors, excluding the oil and gas, and financial sectors.
BKPM provides an online application system of principal licences, capital goods for import duty facilities, and permanent licences. The aim of this online system is to provide accountable, fast and transparent investment services to investors. In December 2013, BKPM obtained an SNI ISO 9001:2008 certificate in the category of Quality Management System-Requirements for the Investment Services Unit.
The Indonesian government enacted the Negative Investment List under Investment Law No. 25 of 2007 to provide a clearer and more detailed list of business activities that are conditionally open to foreign investors and stakeholders, subject to the satisfaction of certain conditions relating to, among other things, partnership arrangements, capital ownership, location, qualification for special licences or permits and small- and medium-sized enterprises. The Negative Investment List sets out business sectors that are closed to foreign investment and business sectors that are open to foreign investment subject to certain conditions, including limits on the percentage of foreign capital ownership.
The latest revision of the Negative Investment List was ratified on April 24, 2014, with the enactment of Presidential Regulation No. 39 of 2014 on the List of Business Fields Closed to Investment and Business Fields Open with Conditions to Investment. The purpose of the revision is to increase investment in Indonesia and to implement Indonesia’s commitment to the AEC. By revising the Negative Investment List, the government also aims to prioritise the national interest and improve national competitiveness; maintain sustainable economic development and mitigate the impact of a global economic slowdown by increasing both domestic and foreign investment; and simplify investment regulations and provide legal certainty to investors.
In order to accelerate the realisation of investment, BKPM also facilitates investors in solving their problems (debottlenecking). In 2015, BKPM has identified 99 priority projects where facilitation is required; the amount of investment involved is $41 billion (Rp 492.2 trillion). As of March 5, 2015, BKPM has resolved issues relating to 22 projects involving a total investment of $8.1 billion (Rp 97 trillion).
The government intends to push the development of investment activities in food (seeds, fertilisers and estate crops), energy (fossil fuels and geothermal) and infrastructure (cement, steel, air and sea transport, toll roads, bridges, railways and utilities) projects throughout Indonesia. To expedite infrastructure development, the government has enacted Presidential Regulation No. 67 of 2005 on Government Co-operation with Business Entities in the Provision of Infrastructure as last amended by Presidential Regulation No. 66 of 2013 on the Third Amendment to Presidential Regulation No. 67 of 005, commonly known as public-private partnerships (PPPs). PPPs will have the full support of the government and guarantees such as fiscal facilities, financial support, compensation, and other incentives. In 2012, to accelerate infrastructure development, the government enacted Law 2/2012 and Presidential Regulation No. 71/2012, which was last amended by Presidential Regulation No. 99 of 2014.
What has been the experience of Indonesia with regard to FDI in infrastructure? Which countries have been the major contributors?
In the past five years (2010-15), Singapore has been the top investor followed by Japan, in Indonesia. According to our data from 2010 to 2014, Singapore, joint-countries investment, and Malaysia are the top three investors in Indonesia’s infrastructure.
As we know, currently Japanese companies, which incorporated the Japan Business Federation, have plans to make big investments in the infrastructure and energy sectors in Indonesia. We hope this investment planned in infrastructure projects will be realised and will support our infrastructure development.
In terms of competition with the other countries in the region, do you think Indonesia is favourably placed?
Indonesia is a member of the G-20. International rating agencies give “investment grade” status to Indonesia as a prospective investment destination. Indonesia’s economic growth rate is the second highest among the G-20 countries after China, which was around 5.8 per cent in 2013.
While the government has gone all out to enhance its investment/business climate continuously, Indonesia’s economy with the fourth largest population in the world (248 million) and GDP size of $1 trillion is certainly a very attractive place for investment, both as a market and as a potential industrial base. Indonesia represents 40 per cent of ASEAN’s population and 38 per cent of ASEAN’s economy. According to the Japan Bank for International Cooperation Survey, 2014, Indonesia is the most promising country for overseas business.
The result from the United Nations Conference on Trade and Development is that Indonesia is among the most prospective host economies for 2013-15, among the most stable, and is among the top five investment destinations.
What are the challenges commonly encountered in the planning, designing and financing of infrastructure on such a large scale?
Indonesian infrastructure development within the next five years requires at least $477 billion (around IDR 5,500 trillion); 22 per cent of the funds are expected to come through PPP. Even then there will be a funding gap.
There are challenges commonly encountered in the planning, designing and financing of infrastructure. The first is the government’s budget constraint for infrastructure development. The government continues to seek diversification of infrastructure financing sources, using PPP.
The second is ensuring commitment and support from all stakeholders and coordination among related ministries/institutions. A change of power in the regional government can hamper the progress of government programmes. The government, together with stakeholders, is striving to eradicate such issues by establishing better communication and coordination. Indonesia also needs committed investors with the financial capability to execute projects.
The third is the issue of overlapping laws and regulations. The government needs to synchronise laws and regulations for various sectors to establish a sound investment climate for investors.
Lastly, the Indonesian government is lagging behind on project identification and preparation. Project identification is important to identify which sectors need to be strengthened, and for which ones financing schemes are available.
Which infrastructure projects are in the pipeline and how are they spread across sectors?
Based on our National Medium-Term Development Planning (RPJMN) 2015-2019, there are several infrastructure projects that will be developed in the next five years:
- A 35 GW electricity power plant
- 1,000 km of toll roads
- 3,258 km of railways
- 15 new airports
- 24 new seaports
- SEZs
- 14 new industrial estates
According to the new Presidential Regulation No. 38 of Year 2015 regarding PPP, there are 19 sectors that can be executed on a PPP basis as compared to eight in the previous regulation. We hope that through this regulation, more infrastructure will be developed in cooperation with the private sector.
What are BKPM’s priorities and expectations in the immediate and long-term future? What is your message to prospective investors?
We are certain that Indonesia remains attractive as an investment destination as we offer a vast array of investment opportunities spread all over the country. We focus more on the outside Java region in order to evenly distribute and develop resources in areas that are yet to be developed. We will go all out to promote the seven investment priority sectors as our main focus for the five-year period 2015-19 in order to achieve our goals.
These focus areas will include:
- Infrastructure: power plants, toll roads, seaports, airports, railways (integrated), industrial parks
- Maritime: fisheries, shipyards
- Manufacturing industries: processing of agricultural and mining products, export-oriented products, import substitution, labour-intensive industries
- Tourism: development of more tourist destinations.
In short, there is a vast array of investment opportunities waiting to be explored. We will assist investors to ensure that their investment plans can be realised in a faster, simpler and a more transparent manner. I would like you to think of BKPM as your trusted facilitator and a partner in Indonesia – a “helping hand” to plan, establish and develop your business.
