Batam's status deters investors

Sari P. Setiogi, The Jakarta Post, Jakarta

A further delay in granting Batam free trade zone (FTZ) status has created legal uncertainty on the industrial island, experts said.

These experts claim investors have begun to pull out of the island or to cancel new investment plans.

"This (continuing delay) makes Batam an island with no legal status. That is why we urge the government to grant FTZ status for Batam as soon as possible," said Heri Muliono of the Research Institute for Batam at a seminar here on Tuesday.

Abdoellah Gosse of the Batam office of the Indonesian Employers Association said that last year, a foreign company with a huge investment in Batam decided to pull out from the island due to the uncertainty over the free trade zone status.

He also said another company planning to build a plant on Batam put its plan on hold for the same reason.

After years of delays, the government recently submitted to the House of Representatives for deliberation a draft law on free trade zone status for Batam.

There has been concern, however, that lawmakers will be unable to complete the deliberations for some time because they will be busy with the upcoming elections.

Free trade zone status will enable companies on Batam to import goods without paying customs duties and taxes, pending their processing, transshipment or re-exportation.

Batam, located some 20 kilometers from Singapore, is one of the most modern industrial bonded zones in the Asia Pacific.

There are some 650 foreign companies operating on the island with a combined investment of about US$3.7 billion. These companies provide jobs for 173,000 workers, with a further 70,000 jobs in the informal sector.

The industrial island of Batam was declared a bonded zone in the 1970s. But after decades of operation, Batam has become more like a free trade zone, as the government has given greater tax incentives to investors in a bid to boost investment.

However, investors are concerned the government could change the current FTZ benefits, particularly considering that the existing government regulation on fiscal policy for Batam will expire soon.