Update COVID-19 in Indonesia: 4,066,404 confirmed infections, 131,372 deaths (28 August 2021)
15 September 2021 (closed)
Jakarta Composite Index (6,110.23) -18.86 -0.31%
USD/IDR (14,146) -6.00 -0.04%
EUR/IDR (17,335) +57.05 +0.33%
The local Jakarta administration has officially revoked principle permits for the development of 13 artificial islands (reclaimed islands) in the bay of Indonesia's capital city of Jakarta. For now, the decision means a complete stop to all activities related to the ambitious land reclamation project north of Jakarta.
Jakarta Governor Anies Baswedan, who has always opposed the grand land reclamation project, said the project is now a "thing of the past". The decision to revoke the permits was taken after a recommendation from the North Coast of Jakarta Reclamation Management Coordinating Board that verified all permits related to the project. Baswedan's main reason to oppose the project is because it disrupts the livelihoods of local fishermen.
While the development of 13 artificial islands cannot be achieved as permits have been revoked, four artificial islands have already been developed. These islands will now be used for the public interest. In June 2018 Baswedan had ordered officers to seal buildings on two of these reclaimed islets as these buildings had reportedly been constructed by developers without having secured building permits.
For all involved private developers, some of whom had already invested heavily in the project, it is a major disappointment to see the whole land reclamation project being cancelled. Baswedan said he will find some sort of compensation for these developers (such as offering land - that can be used for commercial purposes - to these developers at another location).
The developers that saw their principle permits revoked are Kapuk Naga Indah, Jakarta Propertindo, Taman Harapan Indah, Jaladri Kartika Eka Paksi, Manggala Krida Yudha, Kawasan Ekonomi Khusus Marunda Jakarta, Muara Wisesa Samudra, and Pembangunan Jaya Ancol.
The total of 17 artificial islands are actually highly intertwined with the National Capital Integrated Coastal Development (NCICD) masterplan, better known as the Giant Sea Wall. The Giant Sea Wall project involves the construction of a giant sea wall that will protect Jakarta against floods originating from the sea. The groundbreaking ceremony for this mega-project was conducted in October 2014.
In the space (sea water) between the giant sea wall and Jakarta's coastal line there is room for massive urban development through land reclamation. By establishing 17 artificial islands in the Jakarta bay there would be great room for property development (including apartments and office towers, shopping malls, hospitals, and landed houses), parks and beaches as well as (other) infrastructure.
While the giant sea wall is the project of the central government, the land reclamation projects falls under the authority of the local Jakarta administration. Meanwhile, most of the property development on the artificial islands would be done by private investors.
However, in April 2016 Indonesian President Joko Widodo had temporarily suspended all activities related to the ambitious project due to violations of - and/or hiatuses in - Indonesian law. Moreover, a corruption scandal emerged involving one of the property developers of the land reclamation project (property developer Agung Podomoro Land that is listed on the Indonesia Stock Exchange) and a local Jakarta legislator (Muhammad Sanusi).
Poll Indonesia Investments:
Do you agree with the decision to revoke principle permits for the development of 13 artificial islands?
Voting possible: -
- No, the project is important for the development of Jakarta (44.8%)
- Yes, because it will impact negatively on the livelihoods of local fishers (24.1%)
- Yes, but it can be resumed after developers obtained all permits (12.1%)
- I don't know (10.3%)
- Yes, because developers had not secured all required permits (8.6%)
Total amount of votes: 58
Also alarming was that the property developers engaged in Jakarta's land reclamation project had only obtained principal permits from Jakarta's city administration. However, they had not secured other permits (such as a land reclamation permit, a permit allowing the use of reclaimed land, and a building construction permit).
There is plenty of criticism against Baswedan's decision to stop the land reclamation project, particularly because Jakarta has very limited available land (for example for property projects) while the city's infrastructure is not adequate (resulting in severe traffic congestion). We assume that Baswedan's resistance to the project is not so much related to the welfare of local fishermen but is more motivated by his (and his camp's) desire to oppose grand projects that are supported by incumbent President Joko Widodo and former Jakarta Governor Basuki Tjahaja Purnama (Ahok).
This whole case gives a couple of insights into the structural weaknesses of Indonesia's investment climate. Firstly, with the change of a (local) government a big project can suddenly be scrapped even though private investors have already invested big bucks to establish infrastructure. This explains why investors are always hesitant to engage in big projects in Indonesia (that require support from authorities) shortly before an election.
Secondly, Indonesian law is usually not prepared to deal with big projects. There are hiatuses in local law that - at some point - give rise to problems and uncertainty. We also saw this problem in the ambitious Meikarta project. Especially since land reclamation is something new to Indonesia, it is not adequately regulated by law and regulations.
Indonesia Investments moves more and more in-depth analyses from the website to the monthly research report. This report can be purchased here