Easing land acquisition

Easing land acquisition

The government has moved firmly to remove a major hurdle to
investment in basic infrastructure by simplifying procedures for
land acquisition, while still upholding private property
ownership rights.

It is a good balancing act between speeding up the
construction of infrastructure and ensuring fair compensation for
landowners. The government's ruling appears to take a harsh line
against landowners with a stipulation that allows the government
to revoke the property right of dissident landowners. However,
this is a measure of last-resort, to be invoked only after all
other avenues of negotiation and appeal have been exhausted.

Government Regulation No. 36/2005, which was signed by
President Susilo Bambang Yudhoyono last week, will significantly
ease the acquisition of land by clearly laying out the step-by-
step procedures and the timetable for the process.

This is one of more than a dozen regulations the government
has been preparing to stimulate private investment in and
facilitate the smoother implementation of basic infrastructure
projects, but is a very important one because infrastructure
often requires large plots of land.

Land acquisition has been a major obstacle to the construction
of public infrastructure, especially since the fall of Soeharto's
authoritarian, centralized administration in 1998. Protracted
negotiations over land prices have delayed the construction of
badly needed public infrastructure such as toll roads and dams.

Worse, the price of land on the future sites of public
infrastructure projects is often jacked up not by the original
landowners, but by well-informed land speculators who buy up the
land before the projects begin.

Poor infrastructure impairs the competitiveness of our economy
by making production and distribution costs much higher than in
other countries. Inadequate infrastructure also hinders access to
public services such as health, education and market facilities,
hampering poverty alleviation efforts.

These problems are addressed by the new regulation with clear-
cut stipulations to prevent differing interpretations and to
close any loopholes that could be exploited by private interests.
Land speculators should now find it virtually impossible to buy
up land that, according to an area's spatial plan, is designated
for basic infrastructure.

The regulation outlines 21 categories of infrastructure for
public interests, ranging from roads, dams and ports, to
religious facilities, sports venues, parks and public health
centers. This will prevent investors from abusing the regulation
in order to acquire land for private interests, which is left
entirely up to market mechanisms.

The government regulation requires the establishment of a land
acquisition committee by the regent, mayor, governor or the
minister of home affairs, depending on the location of the land
to be acquired. This committee will negotiate with landowners
about the price of their land.

Even though it will be acquiring land for the public's
interest, the committee will not be allowed to set land prices
arbitrarily. The regulation stipulates the amount of compensation
offered landowners will be based on the taxable value of their
land and property, as determined by a land appraisal team
appointed by the committee. However, this stipulation will be
less effective in securing fair prices for landowners if local
administrations do not annually revise the taxable value of land
and property in rapidly developing areas.

If no agreement on compensation is reached after a 90-day
period, the committee will be allowed to move forward with the
acquisition process by setting a compensation price and
transferring the money to landowners, in the care of the nearest
district court. However, landowners can file an appeal with the
mayor, regent, governor or minister of home affairs, depending on
who has jurisdiction over the land. These officials will then
ratify or amend the decision taken by the land acquisition
committee.

If landowners refuse to accept the ruling of the mayor,
regent, governor or minister of home affairs, these regional
chiefs can ask the head of the National Land Agency to revoke the
property rights of the landowners. However, this is a last resort
and the decision to revoke property rights can only be made by
the president, based on a recommendation from the National Land
Agency head.

As important as the new regulation is, it is just part of a
package of about 14 policy instruments the government hopes to
issue in order to strengthen legal certainty, simplify taxation
procedures, improve the commercial viability of investment in
infrastructure and set up a viable tariff system.

There is still much work to be done by the government before
private investors will be willing to commit long-term capital to
the development of basic infrastructure here.