Why BKPM's Negative List Reforms Must be Supported
    Category: Column By : Raj Kannan Read : 1146 Date : Sunday, January 12, 2014 - 06:02:21

    Most international investors in airports and ports were elated during a recent announcement by the Investment Coordinating Board (BKPM) that the allowable foreign equity portion in these two sectors would be increased to 100%.  Alas, this elation was short-lived since some key government agencies are now stating that the maximum figure cannot be more than 49%, in accordance with the Civil Aviation Law No 1/2009. 

    It is common knowledge that the logistics costs of doing business in Indonesia is twice that of any other countries within ASEAN. The main port, Tanjung Priok in Jakarta, which handles over 70% of all container cargo in the country, has a long “dwelling time” for containers: eight days compared to one day in Singapore and four days in Malaysia.

    Jakarta's Soekarno-Hatta airport is already in the top ten airports in the world in terms of annual passenger numbers, ahead of Dubai. Singapore's massive Changi Airport is not even in the top 10 list and yet Soekarno-Hatta airport is almost 50% above its capacity and bursting at the seams. To add to this sad fact, we are a country of 17,000 islands with over 6,000 of them inhabited and yet only have 26 commercial airports managed by two state-owned enterprises and a few hundred small-scale public airports and airstrips managed by the government.

    Since 81% of the country's territories are covered by water and people live in thousands of islands, we must have thousands of ports.  Fact is, we have around 700 ports, only 100 of which are commercial ports, including the currently congested Tanjung Priok Port and Surabaya Port within Java, which houses 70% of the country's manufacturing activities. Given the current traffic congestions in Jakarta it is simply impossible to expect the Tanjung Priok port and the under construction Kalibaru port adjacent to the former to cope with the needs of the current and future manufacturing industries. 

    Indeed, the government's economic master plan called MP3EI has identified the development of Karawang Airport and Cilamaya port, both in West Java, as national priority projects. And yet I am sad to say both of these important projects have been hampered by misguided self-interests.

    I believe that the thought leaders of Indonesia, the business community and the civil society should support BKPM's recent courageous and righteous act. BKPM's proposal would attract massive foreign investments in the port and airport sectors—more critical with the need for massive infrastructure investments to secure growth. 

    The currently talked about compromise position of 49% maximum foreign equity stake may appear reasonable but in reality it is not.  Most investors in ports and airports would want to ensure the operations of these assets are efficient and profitable and thus prefer majority control.  Granted, there are backdoor ways to afford the foreign investor complete management control. But if this is the solution, then why pretend?  Why not simply enable the foreign investor a 100% stake? 

    It's not that I am saying that local investors don't have the capacity, I am simply arguing that we need more foreign direct investments (FDIs) in the infrastructure in general and in the airports and seaports sectors more acutely. FDIs in infrastructure are by nature long-term investments, which is what every country needs to create stable economic environment and thus avoid the frequent “investor flights” common in the stock market related short-term FDIs.

    FDIs in ports and airports should not be considered as anti-nationalistic. If anything, encouraging and attracting foreign investment in much-needed infrastructure to support economic growth is extremely patriotic and what's more, is in the best interest of the nation.