The development of four special economic zones (in Indonesian: kawasan ekonomi khusus, or KEK) that are supposed to become operational before the end of 2017 is not going according to plan and therefore there emerge serious doubts whether these KEKs can come online before the year-end. These four KEKs are (1) Maloy Batuta Trans Kalimantan, (2) Tanjung Api-Api, (3) Morotai, and (4) Bitung (see map below).
Two other KEKs, on the other hand, can start commercial operations within the next couple of months. These are Mandalika and Palu. Originally, the Indonesian government targeted to open six KEKs in 2017.
A KEK is a designated area that offers foreign and local investors preferential regulatory and tax regimes, as well as the availability of key physical infrastructure such as harbors and power plants that make it attractive for investment.
Bambang Brodjonegoro, Minister of National Development Planning (Bappenas), said the government will give the four troubled KEKs one more year to complete development. The delay is attributed to problems related to land acquisition (a well-known problem in Indonesia) and disagreement between the regional parliaments (DPRD) and the local district heads about which company should be determined to manage the KEK. Brodjonegoro added that Mandalika and Palu are the ones that will become operation this year.
Imam Haryono, Director General for Industrial Estate Development at the Industry Ministry, said land acquisition is the biggest challenge. For example in Tanjung Api Api the KEK is designed to have a size of 217 hectares. However, only 67 hectares have been purchased so far.
Haryono added the government would like to see more private partners involved in the development of the KEKs. For the development of the KEK the government offers incentives to private investors. For example those investors who invest at least IDR 1 trillion in a KEK can expect a corporate income tax holiday ranging from 10 to 25 years. Moreover, regional authorities will offer non-fiscal incentives, such as an easier land acquisition process for the investor.
Source: Indonesia Investment