ADVERTORIAL - FOR MONDAY

ADVERTORIAL - FOR MONDAY

Investment Year

Batam -- The right model in attracting foreign investments

The unfavorable situation in the world's economy will
undoubtedly make the task of the Batam Industrial Development
Authority (BIDA) in attracting foreign investors more
challenging.

The task will be even more difficult given the lack of the
government's supports. The central government's policies related
to investment activities on Batam and neighboring islands of
Rempang and Galang have been discouraging. Foreign and local
investors who played a pivotal role in the development of the
islands have often been forgotten.

President Megawati Soekarnoputri declared in Feb. 27 the year
2003 as Investment Year for Indonesia amid the growing optimism
on the signs of recovery in foreign inflows into the country.

With the declaration of the Investment Year, the government
hopes the realization of investment approvals will improve and
reach at least 30 percent.

The realization of investment plans in Batam has reached 80
percent, far than the government's target. Last year, total
investments on the island and surrounding areas reached about
US$9.19 billion, absorbing 161,648 workers and contributing
income tax of over Rp 1.4 trillion.

However, the success of Batam in attracting both foreign and
domestic investments has not received a positive support from
the central government. This can be seen from the uncertainties
related to the implementation of the proposed Law on Free Trade
Zone that will turn Batam as one of important free trade areas in
Asia and Pacific. With this status, investors can enjoy a number
of fiscal breaks such as the exemption of Value Added Tax (VAT)

Batam Island has an area of about 415 sq kilometer. However
due to the progress of demand of space, the Batam industrial area
was expanded in 1992 with the inclusion of two other islands,
Rempang and Galang. Its close proximity to Singapore is one of
the advantages of the industrial bonded zone but the island need
to introduce more incentives such as tax breaks to enable it to
compete with other investment destinations in the region.

BIDA's Chairman, Ismeth Abdullah, said the authority would
make any possible efforts to further attract foreign investors to
the industrial bonded zone despite the lack of the government's
supports.

A number of programs have been made to enable BIDA to promote
the island more effectively such as through the sending of
investment mission overseas.

"If in the past we focused only on Singapore, we are now also
giving more attention to other Asian countries and Europe,"
Ismeth said, adding that the authority had recently sent
investment missions to Japan and Germany as part of its campaigns
to attract new investments from outside Singapore.

Ismeth said that the mission had produced fruitful results
such as the signing of Memorandum of Understanding (MOU) accords
with a number of economic organizations both in Japan and
Germany.

The authority has also made significant breakthroughs in its
efforts in promoting the quality of services such as by
organizing regular meetings with investors as well as actively
being involved in mediating disputes arising between workers and
investors.

The authority also takes more persuasive approaches in
settling the problems rising from the different perception of tax
payments with investors. Besides simplifying the procedures
imposed on investors in obtaining their investment permits, the
authority also guarantees that they will be freed from illegal
levies when applying for permits.

Ismeth, however, acknowledges that the improvement of services
was no longer enough in attracting foreign investors to the
island. "If the investors are not given attractive fiscal
incentives such as the exemption Value Added Tax (VAT) and Import
Taxes, they will not come and will instead invest in other
countries," he said.

At present, BIDA is also working closely with the local police
and security apparatus to ensure that Batam will remain a secured
place for investors.

As part of the cooperation, the authority has provided a
number of patrol cars and motorcycles, as well as communication
equipment to about 600 police members in Batam, Rempang and
Galang islands.

Besides cooperating with the police, the authority also has
its own security department (Dirpam) which has so far recruited
700 personals to help the task of the police members. The
assistance provided by the authority to the Police, the Army, the
Navy and the Air Force in the form of equipment reaches about Rp
2 billion a year.

The assistance is given to help the police and other security
apparatus maintain the law and order and to ensure that the
island is a secured place for some 611 foreign investors.

The investors mostly carry out their activities in modern
industrial estates on the island. There are 14 industrial estates
at present, which include Walakaka Industrial Estates, Kara
Industrial Park, Cammo Industrial Park, Tunas Industrial Park,
Kabin Industrial Park, Taiwan International Industrial Estate,
Citra Bauana Centre Indsutrial Park I and II, Batamindo
Industrial Estate, Panbil Industrial Estate, Malindo Cipta
Perkasa Industrial Park, Bintang Industrial Park I and II, Indah
Industrial Park and Latrade Industrial Park.

About 4,000 hectares of land have so far been designated for
industrial activities. The authority is currently preparing
another 500 hectares for a similar purpose to anticipate the
surge in new investments in the future.

BIDA is also working closely with other agencies in improving
the water, electricity and telecommunication facilities.

In providing the water supply, the authority has appointed PT
Adhya Tirta Batam (ATB), a local subsidiary of a British water
company to manage and operate water installation facilities on
the island under a 25-year Build, Operate and Transfer (BOT)
contract.

ATB, which began its operation in 1995, processes and manages
the distribution of water from six major dams on Batam including
Baloi, Sei Harapan, Nongsa, Sei Ladi, Muka Kuning and Duriangkang
dams.

The company is able to process about 30 liters per second from
the water resource in Baloi dam, about 210 liters per second in
Sei Harapan, 60 liters per second in Nongsa, 240 liters per
second in Sei Ladi, 310 liters per second in Muka Kuning and
3,000 liters per second in Duriangkang.

The appointment of the branch of the state owned electricity
company PLN in Batam as an independent company in late 2002, has
been a major breakthrough in the distribution of electricity on
the island. With its new status, PLN Batam has an autonomous
authority not only in the distribution of the electricity supply
but also in the operation of its power plants. It means that the
company will have more leeway in solving the electricity problem
that might arise on the island.

At present, PLN Batam operates 26 diesel power generators in
Sekupang ( nine units), Batu Ampar ( four units), Baloi ( four
units), Tanjung Sekuang ( seven units) . The company plans also
two build two more power generators in Tanjung Sekuang within the
next two years to anticipate the surge in the electricity demand.
At present, the combined generating capacity of the company's
power generators is 175.4 Megawatt (MW).

A number of industrial estates operate captive power plants to
meet the need of electricity from investors running factories on
the estates. Batamindo Industrial Estate, for an example,
operates a power plant with a generating capacity of about 70 MW
and Pambil Industrial Estate operates a power plant with a
capacity of 2 MW.

With the use of digital technology, fixed-telephone facilities
on Batam island and its surrounding areas are relatively more
advanced, compared to those in other Indonesian areas, which
mostly still use an analog system. Besides using digital
technology, the telecommunication facilities on the island are
also supported by more reliable underground cables, which have a
bigger transmission capacity.

In the field of mobile phones, Batam has often been used by
mobile phone operators as a pilot project for the introduction of
their new services. Indosat Multi Media Mobile (IM3), for
example, firstly introduced its multimedia service on the island.

"Batam has become the launching area of new telecommunication
services both for mobile and fixed phone operators, " said Arief
Musta'in, the general manager of Telkom for Riau islands. "For
Telkom, the island is the area where the company used its latest
technology," he added.

Telkom, with a capacity of providing 78,400 telephone lines,
has 76,000 subscribers on Batam and surrounding areas.