Foreign investors review Batam's advantages: BG Lee

By Endy Bayuni

SINGAPORE (JP): Many companies may be reassessing their investment plans on Batam, Bintan and Karimun if the Indonesian government goes ahead with its plan to impose value added tax (VAT) on the three industrial designated islands south of here.

Deputy Prime Minister Lee Hsien Loong said that many investors, particularly from Japan, had expressed concern over the Indonesian government's decision to impose the VAT.

The government, at the instigation of the International Monetary Fund, has waived a rule which exempted VAT on all transactions conducted on the three islands. This was considered one of the chief attractions to investors.

Singapore has played a major role in promoting these islands among multinational companies based on the island.

Some of the industrial parks on the three islands, as well as the resort facilities, have also been built with joint ventures involving Singapore companies.

Many investors, therefore, have lodged their complaint through either the Singapore government, or the industrial parks' management, instead of directly taking it to Jakarta.

"The tax matter is something you (Indonesia) have to resolve, but the investors have told us, particularly the Japanese investors, that they are very concerned that the tax has changed and they will have to pay the VAT," Lee told visiting Indonesian journalists on Saturday.

Lee said that even if the VAT payments could be reclaimed after companies exported their products, that would still mean tying up huge sums of capital, and having to go through lengthy red tape to obtain the tax rebates.

"The tax is a significant overhead. You can say that a year later you will get it back but to tie up that capital is going to be a lot of money and that is the problem," he said.

"It's not only a problem for new companies coming in, but even for companies that are already there, that will have to reassess their position.

"So we've told them it's better to make this quite clear to the Indonesian authorities, so when they make decisions they will have a full picture, which I think they intend to," he said.

Lee said the various projects in which Singaporean companies were involved in Batam, Bintan and Karimun had been quite successful, noting that Batam accounted for about a third of Indonesia's electronic exports.

"They are one of our most successful regional projects," he said.

Officials at the PT Batamindo Industrial Park, a company managed by Singapore's Sembcorp Park Management Pte Ltd, said last week that some of its tenants had also lodged complaints at the government's decision to raise the minimum wage in Batam by as much as 30 percent, also beginning on April 1.

The investors' main question was whether this would be the rate of increase every year, which surely they could not afford, or whether it was just a huge once-off increase, they said.

The minimum wage in Batam will increase to Rp 350,000 a month, excluding allowances. Batam has the highest minimum wage in the country but it also has the highest cost of living. Minimum wages are lower in Bintan and Karimun.

Batamindo officials said tenants' objections were also prompted by the fact that the wage increase and the new VAT policy were being implemented at the same time as the government rose the price of fuel and electricity rates, all around the same time.

"All these increases come almost simultaneously. They have upset the cost calculations of these companies," one Batamindo executive in Batam said on condition of anonymity.

Talks were now underway with the Indonesian government to convert the three islands into bonded zones, so that companies operating there could claim rebates on their exports, he said.

"These companies are already exporting most, if not all, their products in any case," he said.

Bintan

SembCorp has also warned that many of the Japanese tenants in its Bintan Industrial Estate are still wary about the lack of protection from the Indonesian government, taking their cue from the Jan. 15 incident in which protesters were able to shut down the island's power plant which crippled their factories.

The Japanese tenants have lodged a formal complaint and are reportedly planning to sue SembCorp and the Indonesian government for the losses caused by their plants' shutdown.

One company, Metal Components of Singapore, has already closed down its operation and decided to resettle in Johor Bahru in Malaysia. The electronic company is relocating because two of its main clients, computer giants Hewlett Packard and Compaq, insist on a guaranteed uninterrupted supply.

Another factory has delayed its expansion plans and three new customers are opting for other countries.

"The incident has set back Bintan a bit," SembCorp president Goh Song How said.

SembCorp itself sustained a total of US$7.2 million in losses, through direct losses and losses from a reduced number of tenants in 2000, Goh said.

The protesters -- villages with the support of outside students and activists -- are demanding additional compensation for land they sold to the industrial estates and a hotel resort, saying they were cheated out the first time round.

SembCorp said that the land settlement was the responsibility of its Indonesian partner, which at one time was the once powerful Salim business group. The group, however, has relinquished its stake in these projects with its assets taken over by the Indonesian Bank Restructuring Agency (IBRA).

Bintan has now returned to normal and tourists are flocking once more from Singapore to the various resorts there.

But Goh warned it would only take one more single demonstration to jeopardize the entire future of Bintan.

"More investors will pull out and we will also pull out of Bintan because we will end up with a shell industrial estate," he said.