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.