Foreign investors review Batam's advantages: BG Lee

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.