Reform efforts ease land acquisition process in Indonesia

Amid efforts to accelerate the delivery of large-scale infrastructure projects, reform of the country’s legal framework governing land ownership has become an important enabler of development. On the back of rising infrastructure growth in recent years, land procurement executors have been formally encouraged to acquire suitable land, with pressure coming both from the general public and government bodies, who want to see new projects come on-line swiftly without experiencing major delays.

The downside of this process is that local residents in affected areas have sometimes complained of an unfair compensation process in instances when they have been required to relocate. Some land owners have decided to contest the decision of government executors on consignment through legal recourse. Nevertheless, efforts are under way to reform these processes and achieve sustainable solutions that ensure both the timely execution of projects, and the equitable resolution of conflicts between project developers and local residents.

Land Issues

The land acquisition process has long been viewed as one of the more challenging components of infrastructure development in Indonesia. According to Darmin Nasution, coordinating minister for economic affairs, 44% of problems having to do with infrastructure projects are related to land acquisition. While the acquisition of land for development projects does not always require the relocation of people, Indonesia does have a record of forced land acquisitions that have led to conflicts and loss of income for displaced persons.

A number of reforms are under development, but Indonesia does not have dedicated protection laws in place for those affected by land acquisition. As it stands, developers are required to hold meetings with affected communities. While they are required to disclose certain information in their land acquisition plan – such as the purpose of the project, the location, the duration of the land acquisition process and sequence of activities – they do not have to disclose their proposed options for compensation and resettlement. As a result, there have been cases where affected parties were unable to negotiate compensation levels because developers set the amount of compensation in advance.

New Yogyakarta International Airport – also known as Kulon Progo Airport – is one such example of land acquisition in Indonesia that has created conflicts between local residents, project developers and government. Set to open its international terminal in April 2019, the construction timetable was pushed back when local farmers refused to sell their land, despite being offered compensation.

Court Action

Some firms have been accused of using corrupt business practices to expedite the permit process. However, local authorities and the judiciary have been proactive in investigating these claims, as part of an effort to rid the land management sector of corruption. The development of the Meikarta township project in Bekasi, West Java, for example, was to be realised in three different stages, but has been halted due to accusations of improper conduct involving land permits. According to local reports surrounding the court case, Mahkota Sentosa Utama, a subsidiary of Lippo Group, planned to build the township mega-project on 438 ha of land in Cibatu, South Cikarang, in the Bekasi regency. The plan, which was initiated in 2016, included apartment buildings, a shopping mall, a hospital, a school building, a hotel, a residential compound and a business district.

In May 2017 the head of the regency issued a permit for 846,000 sq metres of land for commercial use in Cibatu village, South Cikarang. However, during a court session in late 2018 accusations were made by the prosecuting team that in order to persuade the local administration to sign the permit, the defendants paid IDR10bn ($709,000) in fees over six stages between June 2017 and January 2018 to the Bekasi regency personnel implicated in the case. In addition, separate fees were already paid to Bekasi Investment and Permit Agency personnel, and to Bekasi Public Works and Housing Agency personnel. Although the allegations have been contested by the defendants, the high-profile case serves as a warning against the use of corrupt methods to expedite the permit processes.

Land Registration

Traditionally, the complex nature of land ownership in Indonesia has caused issues for construction projects, clearing land at greenfield sites has proven to be a lengthy process for contractors. In some cases there may be people staying on the land illegally, while in other instances residents may have a legal entitlement to the land. To further add to the complexity of this issue, land ownership used to be proven by the signatures of local sub-district heads; however, this has resulted in many land disputes as fake titles were issued in the past, leading to a doubling up of land ownership. While there are a number of temporary rights to land, such as right of mortgage and right to stay, they are rarely used and are set to be erased. There are, however, six permanent forms of legal land ownership, namely: right of ownership; right of cultivation; right of building usage; right of usage; right to lease; and right to management.

In order to reform this process, the Ministry of Agrarian and Spatial Planning (MASP) – formerly the National Land Agency – was institutionalised to help expedite land certification in 2015. Charged with the task of certifying all land within the country by 2025, MASP had certified a total of 13.5m plots by the end of 2018 and intends to register a further 10m plots in 2019. In addition to helping to ease the land acquisition process for developments, land certification can help promote land tenure security, thereby enabling greater access to credit and land-related investment. According to research conducted by the Jakarta-based SMERU Research Institute, landowners were three times more likely to apply for bank loans after receiving land certificates. The study also found that 23% of certified landowners would invest their funding directly back into the land, such as home renovations and construction of irrigation systems, compared to 17.8% of non-certified landowners.

Finance

Infrastructure development has been a top priority for the government, which allotted around $400bn worth of funding for major projects between 2015 and 2019. In a bid to create a conducive investment environment, the government has implemented a number of initiatives in recent years. These include the injection of equity funding into state-owned enterprises in order to fund infrastructure projects to the tune of IDR95trn ($6.7bn) in 2015 and 2016. In addition, the government has sought to stimulate private sector activity and leverage the expertise of domestic and international investors by encouraging public-private partnerships. While these initiatives and others have played a vital role in stimulating infrastructure investment, the government’s commitment to reforming land registration may prove to be the most important enabler of development over the long run. Given current dynamics, acquiring new plots of land still requires careful mitigation.

The Land Acquisition Law No.2 of 2012, which was enacted in 2015, proved to be crucial for a number of major infrastructure projects, such as the a 2000-MW, coal-fired power plant project in Batang. While a number of national strategic projects had been delayed due to extended land acquisition disputes, the new law effectively reduced the land acquisition procedure to a maximum of 583 days.

In addition to the law, the government established the State Asset Management Agency (LMAN) – under the Ministry of Finance – charged with expediting the financing process for land, among other duties. This has been vital in speeding up land acquisition, at least for certain projects. The establishment of LMAN shows the intent of the government to improve land financing issues, but there are still concerns around the fair compensation of landowners and the process by which they are relocated. Despite progress having been made, land acquisition remains a challenge for both government and investors alike. For example, as of March 2019 the construction of the second phase of the Mass Rapid Transit (MRT) Jakarta project was postponed due to issues related to land acquisition.

In addition to the delays being experienced by the MRT Jakarta project, the construction of the Jakarta-Bandung high-speed rail service has been delayed by land acquisition issues. However, as of March 2019 the process appeared to be drawing to a close, with officials announcing that the acquisition process would be finalised in the following month.