Govt finalizing 'land capping' scheme

Urip Hudiono, The Jakarta Post, Jakarta

The government is finalizing a new scheme to determine the maximum cost of land acquisitions (or clearance) in major infrastructure projects, an issue noted as being one of the main causes of delays in getting projects under way.

The latest draft of the "land-capping" scheme states that the upper-ceiling cost for land clearance should be proportional to the total project investment value, rather than a "fixed-rate", an official from the National Development Planning Agency said Wednesday.

The existing scheme caps the maximum cost of land to be acquired for a project at a flat 110 percent of the estimated land acquisition cost. If the actual cost is higher, the government will make up the difference under a risk-sharing guarantee for the project.

With the government also sharing the risk, project investors are required to submit to the government the estimated cost for their project's land clearance.

"The problem is that the price of land for a project varies," the agency's deputy for infrastructure Dedy Supriadi Priatna said at a discussion on infrastructure development problems Wednesday.

"If we set the cap at 10 percent, it may become unfeasible compared to a project's investment value."

Dedy gave an example of a toll road project in Makassar, South Sulawesi, whose land clearance cost was estimated at Rp 10 billion (US$1 million).

If the project's total investment was Rp 490 billion, then the 10 percent cap only requires investors to add another Rp 1 billion.

However, compare this to a similar project on the outskirts of Jakarta, with an estimated land acquisition cost of Rp 700 billion and a total investment value of Rp 2.1 trillion. "The additional cap would already be Rp 70 billion."

The latest proposed "land capping" scheme, Dedy said, would relate the estimated land clearance cost with a project's total investment value.

"If the land acquisition cost approaches a third (of the total investment cost), for example, then we might need to apply 10 percent to that (estimated land acquisition cost), and come up with a cap of only 3 percent," he said.

The proposal, however, still has to be approved by Coordinating Minister for the Economy Boediono, as chairman of the national infrastructure development committee, and other related ministers.

The Finance Ministry has insisted there be a "land capping" scheme, to give the budget a reasonable amount of guaranteed funds for infrastructure projects.

This year's budget has set aside Rp 2 trillion in additional "infrastructure support" funds, with the amount rising to Rp 4 trillion for the 2008 budget.

Indonesia needs some Rp 600 trillion for infrastructure development between 2005-2009, having provided Rp 38.2 trillion this year and Rp 61.9 trillion next year through budget spending.

State Minister for National Development Planning Paskah Suzetta acknowledged that land clearance and its costs were among the main problems hampering infrastructure development projects, with land speculators sometimes coming in to buy up land already designated for projects and demanding unreasonably high prices for it.

"The government remains committed to sharing risks in projects with investors, but we don't want anyone to take advantage of the guarantee system," he said.
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