Investment Year

Investment Year The prototype investment destination in Indonesia

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

The task will be rendered even more difficult by the lack of the government support. The central government's policies regarding investment in Batam and the 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 Indonesia Investment Year amid the growing optimism over signs of recovery in foreign investment inflows into the country.

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

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

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

Batam Island has an area of 415 square kilometers. However, due to pressure on space, the Batam industrial area was expanded in 1992 to include the two neighboring islands of Rempang and Galang. Its close proximity to Singapore is one of the advantages of the industrial bonded zone, but the island needs 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 that the authority would make all possible efforts to further attract foreign investors to the industrial bonded zone despite the lack of government support.

A number of programs have been put into effect to enable BIDA to promote the island more effectively, such as through the sending of investment missions overseas.

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

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

The Authority has also made significant breakthroughs in its efforts to promote the quality of services, such as by organizing regular meetings with investors as well as actively being involved in mediating labor disputes involving investors.

The authority has also adopted a more persuasive approache in resolving problems faced by investors arising from taxation. Besides simplifying the procedures imposed on investors in obtaining their investment permits, the Authority also guarantees that they will not have to pay any unofficial charges when applying for permits.

Ismeth, however, acknowledged that the improved services were no longer enough to attract foreign investors to the island. "If the investors are not given attractive fiscal incentives, such as exemption from Value Added Tax (VAT) and Import Tax, 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 forces to ensure that Batam remains a secure place for investors.

As part of this collaboration, the Authority has provided a number of patrol cars and motorcycles, as well as communication equipments for about 600 police officers in Batam, Rempang and Galang Islands.

Besides working together with the Police, the Authority also has its own security department (Direktorat Pengamanan), which has so far recruited 700 officers to help the police in their work. 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 institutions maintain law and order, and to ensure that the island is a secure place for the existing 611 foreign investors.

Batam's investors mostly operate out of modern industrial estates on the island. There are 14 industrial estates at present, which include the Walakaka Industrial Estate, Kara Industrial Park, Cammo Industrial Park, Tunas Industrial Park, Kabin Industrial Park, Taiwan International Industrial Estate, Citra Bauana Centre Industrial 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 in anticipation of a surge in new investments in the future.

BIDA is also working closely with other agencies to improve water, electricity and telecommunications infrastructure.

In order to provide fresh water, the Authority has appointed PT Adhya Tirta Batam (ATB), a local subsidiary of a British water company to manage and operate water installations on the island under a 25-year Build, Operate and Transfer (BOT) contract.

ATB, which began operations in 1995, processes and manages the distribution of water from six major reservoirs on Batam, namely Baloi, Sei Harapan, Nongsa, Sei Ladi, Muka Kuning and Duriangkang Reservoirs.

The setting up of the Batam branch of the state-owned electricity company PLN in Batam as an independent company in late 2002, was a major breakthrough for the distribution of electricity on the island. With its new status, PLN Batam has autonomy not only as regards the distribution of power but also in the operation of its power plants. This means that the company has more leeway in solving any electricity problems that may arise on the island.

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

A number of industrial estates operate captive power plants to meet the electricity needs of investors operating factories on the estates. Batamindo Industrial Estate, for an example, operates a power plant with a generating capacity of about 70 MW while the 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 parts of Indonesian, which mostly still use the analog system. Besides using digital technology, the telecommunications facilities on the island are also supported by more reliable underground cables, which have a bigger transmission capacity. Telkom, with the capacity to provide 78,400 telephone lines, has 76,000 subscribers on Batam and surrounding islands.

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

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