A BREATH of fresh air is blowing from the Middle East into Indonesia. The Bin Ladin Group, a Saudi conglomerate, plans to enter into the agribusiness sector by planting rice on 500,000 hectares of land in Merauke, Papua. They are also interested in a similar venture in Central Sulawesi, on 80,000 hectares of land.

The total funds to be invested in the two provinces are immense, namely US$4.3 billion, nearly half the deficit in Indonesia’s national budget. “They will do a feasibility study at the end of September,” said Agriculture Minister Anton Apriyantono at a hearing with the House of Representatives (DPR) Agriculture Commission in mid-September.

The Bin Ladin Group is one investor trying their luck at doing business in eastern Indonesia, especially in West Papua. Nine local investors had previously expressed their interests in the agribusiness (food crops and palm oil plantation) and the energy sectors in the province that used to be called Irian Jaya.

According to Chairman of the Indonesian Chamber of Commerce & Industry (Kadin) M.S. Hidayat, investors showing interest in Papua include Medco (owned by Arifin Panigoro), the Bangun Cipta Sarana Business Group (Siswono Yudohusodo), the Sinar Mas Group (Eka Tjipta Widjaja), the Artha Graha Group (Tomy Winata), the Rajawali Group (Peter Sondakh), and Benua Biru Nusa (Hidayat). “Investments there are promising. The huge sizes of land is highly attractive and the weather is an additional asset,” said Hidayat.

Sofyan Panigoro, Arifin Panigoro’s younger brother, confirmed that his company has businesses in Papua. “The prospects of the plantation sector are good,” he told Muchamad Nafi from Tempo. A senior official at the Rajawali Group, Daryoto Setiawan, added that the Group was opening an oil palm plantation in Keerom.

Indeed, the lure of eastern Indonesia, mainly West Papua, is getting hard to resist. Resources are in abundance, from forestry, agriculture and fisheries to mining. Geographically, Sulawesi, the Maluku Islands and Papua are also very close to potential markets such as the Philippines, Japan, Taiwan, Hong Kong, Australia and China. In brief, the potential to develop the economy in this area is very promising. “Eastern Indonesia is very important to businesspeople,” says Hidayat.

So far, businesses have entered the traditional areas in the east such as South Sulawesi, North Sulawesi and Maluku. The Para Group (Chairul Tanjung) and Lippo (Mochtar Riady) are just dipping into the South Sulawesi market. The Para Group, in partnership with the Kalla Group, are building an integrated entertainment center called the Trans Studio Resort on a 12.7-hectare plot of land in Tanjung Bunga. In the same area the Lippo Group is building a self-contained city.

In North Sulawesi, AKR Land Development (AKR Corporindo group) is developing its second property valued at more than Rp1 trillion. “Manado has great potential,” said Widijanto, Managing Director of AKR Land, in Manado at the beginning of last September.

According to Investment Coordinating Board Chairman, Muhammad Lutfi, Papua, Central Sulawesi, Gorontalo and North Maluku will compete with Riau, Bengkulu, Central Java, East Kalimantan and West Kalimantan over investments. “Each region has its own attraction,” he said from Moscow two weeks ago. Central Sulawesi can be the new center for the petrochemical industry. Gorontalo with its corn and sugarcane is interesting for the ethanol industry.

Unfortunately, however, amid such high-level interest among businesspeople in spending their money, infrastructure continues to be the main constraint. There are barely passable roads, ports, let alone electricity and clear water. In Java, said economist Faisal Basri, there is hardly any power cut. But in east Indonesia it happens just like mealtimes, three times a day. “As long as infrastructure is limited, it is hard for investments to come in,” he said.

Building infrastructure is even harder due to the limited budget from the central government. In the Amendment to the State Budget in 2008, the total budget for infrastructure is around Rp53 trillion. Seventy percent is allocated to building infrastructure outside Java, such as Sumatra, Kalimantan, Sulawesi, Maluku, Nusa Tenggara, and Papua.

However, waiting for the government to realize its infrastructure budget is like waiting for Godot. Consequently, businesspeople try to have the initiative to build their own infrastructure. Today they discuss the schemes. One of them may be a consortium of investors to build the infrastructure in Indonesia’s Eastern Region. Once they are done, the government will set off with the businesspeople’s obligations to the state, for example, paying taxes. “This scheme has been conveyed to President Susilo Bambang Yudhoyono,” said Hidayat.

According to Deputy Coordinating Minister for the Economy & Infrastructure, Bambang Susantono, the set off scheme can only be given if construction is within a special economic zone. “Outside it, the set off scheme cannot be implemented,” he says.

However, Bambang said that investors did not need to worry although in eastern Indonesia there’s yet to be such a special economic zone. In fact, the government is actually providing tax incentives to investors investing in certain regions, including eastern Indonesia.

According to Government Regulation No. 1/2007, investors will receive a tax allowance of 30 percent from their total investment (tax allowance) for up to six years. “Investors can also receive acceleration to depreciation and amortization.” Investors even have the opportunity to receive a tax holiday incentive. “The Investment Law regulates this,” says Lutfi.

THE limited infrastructure in eastern Indonesia is a classic problem. For the past 60 years, the central government had planned to focus on building this part of the country. The government does actually want to develop the area. On December 3, 1996, President Suharto established an Integrated Economic Development Zone (Kapet) under Presidential Regulation No. 89/1996. Here, the Agency for the Development of the Integrated Economic Development Zone was established managing 12 development zones in the Eastern Region of Indonesia and one development zone in Aceh. The program continued under the eras of Presidents B.J. Habibie, Abdurrahman Wahid, Megawati, and Susilo Bambang Yudhoyono.

The program seems promising. The concept is to develop a favorite sector as the main mobilizer of the region relying on regional and community initiatives, and on market access. The intent is noble: to accelerate economic development in eastern Indonesia. The development zone will receive facilities such as tax, customs, and administration and permits.

The concept turned out to be good only on paper. Ten years along, the zone has not been successful in mobilizing the economy and improving people’s welfare. Of the 13 zones, only five can be considered successful, namely the Khatulistiwa Integrated Economic Development Zone in West Kalimantan province, Sasamba in East Kalimantan, Manado-Bitung in North Sulawesi, Parepare in South Sulawesi, and Biak in Papua.

According to Public Works Minister, Djoko Kirmanto, the five work because they have adequate infrastructure facilities. Investments can come in. “The five kapet are still good,” he says in a special interview with Tempo at the beginning of last September. The other three kapet are just moving. The rest was a good plan.

Tempo had an opportunity to visit Luwuk City, on Monday two weeks ago. The hot air swept the capital city of Banggai regency, Central Sulawesi province. The scorching sun could also be felt in the Office of the Batui Kapet. The white-painted and red-roofed office was still and empty. Hardly any activity, noise, or employee chatter like in ordinary offices.

Of the 32 employees, only three staff members of the zone development management body were present. They chose to relax in their respective offices with air-conditioning. The offices of the daily administrator and his three directors were locked. Only the program planning and promotion and investment offices were open.

Head of the Promotion and Investment Section, Kusmawati Ponulele, said that the performance of Batui Kapet insisted that not everything was bad. The regional government’s project to provide tap water two years ago worth Rp23 billion was at the suggestion of the managing body of the zone. The Samudra Tangkiang Port development project covering an area of 40 hectares is also entering its final stages.

The infrastructure will later function as a port to load and unload containers and to support economic activities in Batui Kapet. Work on expanding the Bubung Airport has also started. “In the future, Boeing-737 planes will be able to land at this airport,” he told Tempo in Banggai.

Admittedly, however, infrastructure construction is proceeding at a snail’s pace. To investors seeking opportunities to make profit, the lack of infrastructure development becomes a major constraint. According to the Executive Director of the Kapet Development Implementation Agency, Djoko Kirmanto, an independent team that evaluated the program came with the same conclusion.

The development agency itself is also weak because its position is merely to aid the regional government. Governors as head of the agency only grant permits. The area of the development zone is also too broad, spanning several regencies. Their management is not effective either. “We will revitalize these zones,” said Djoko. The minister also promises that by the end of the year a new concept on economic development zones will soon be released.

Deputy for Investment Planning at the Investment Coordinating Board, Luky Eko Wuryanto, cautions the government not to repeat its past mistakes. “Can you imagine, in one province there was one economic development zone. It is located nowhere useful,” he says. Developing an economic development zone is not enough by merely looking at the regional potential, it must also look at the market demands of the region’s favorite commodity.

A special economic zone, according to Luky, is more suited for implementation in eastern Indonesia than in a kapet. Not all areas in east Indonesia need to be granted a special status, only those with adequate infrastructure and human resources. Demands for their products must also be high. “The other development zones can function as a hinterland alone and supply goods and services to the special economic zone.” According to him, South Sulawesi and North Sulawesi have the potential to be special economic zones.

Special economic zones are those projected to be business and industry development centers for domestic and foreign companies. Various facilities in obtaining permits and taxes are given in these special zones. The supporting infrastructures are also very complete. The main purpose of these special zones is to attract as much investment as possible.

Hidayat agrees with Luky. “The legal umbrella in special economic zones is much better,” he says. But Hidayat is still worried that special economic zones like the success stories in China will be hard to achieve in east Indonesia. Special economic zones in Batam-Bintan-Karimun, for example, after two years of operation are yet to be completed.

The government has an improvement plan as well. According to Bambang Susantono, several kapet in eastern Indonesia which still do not have adequate infrastructure will be developed through a mechanism for developing such backward areas. In the meantime, development zones that are ready to be the new development centers will be known as special economic zones.

However, Faisal Basri criticizes the special economic zones concept of China. This country is able to apply the concept because it cannot be transparent 100 percent. Indonesia, on the other hand, has been transparent for a long time, including on foreign currency transactions. “Crazy. What’s the point of creating zones?” he asked.

He stated that Indonesia did not need to create many special economic zones because many of the existing ones are growing and the industry regions are already receiving incentives. Special economic zones, says he, will also benefit foreigners instead of Indonesians. “That’s using colonial mentality. Make our people a priority. That’s what needs to be reformed.”

Padjar Iswara, Bunga Manggiasih, Muhammad Darlis (Palu)

Realized Domestic Investment (Rp billions)

Year	Sulawesi	Maluku	Papua	Jawa	Sumatera	Kalimantan
2003	275.5	1.3	-	9,917	1,585	419
2004	164.4	-	545	7,886	1,431	5,142
2005	509	0.9	43	14,794	13,502	1,748
2006	68.6	0.2	404	13,030	4,644	2,536
2007	3,881,6	-	-	17,757	10,362	1,039

Realized Foreign Investment (US$ millions)

Year	Sulawesi	Maluku	Papua	Jawa	Sumatera	Kalimantan
2003	266.6	-	4.,1	4,515	502	138
2004	27.4	-	-	3,248	851	368
2005	145.3	9.1	-	7,251	1,225	181
2006	15.5	20	0.6	4,412	883	534
2007	63.6	-	2.4	7,324	902	203