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Economy

Indonesia weighs lease of Jakarta properties to fund capital move

Potential schemes include a barter program and a build-operate-transfer plan

The government owns 17,834 facilities and sites in the greater Jakarta area, worth a combined $78 billion. (Photo by Kosaku Mimura)

JAKARTA -- Indonesia is considering several plans to fund the construction of the country's new capital, including the leasing of government-owned land and properties in Jakarta to private companies, according to a Ministry of Finance official familiar with the matter.

The government hopes such moves will help it raise a large part of the projected 466 trillion rupiah ($33 billion) needed to develop the capital site in East Kalimantan on the island of Borneo.

The government owns 17,834 facilities and sites in the greater Jakarta area, worth a combined 1.1 quadrillion rupiah, with about 354 trillion rupiah worth of assets located in the central business district, according to the Ministry of Finance. According to the person at the ministry, the government hopes to use its Jakarta land and properties to raise around one-third of the cost of the new capital.

Other possible schemes include:

-- A barter program, under which a private company would be given a property such as a ministerial building in Jakarta in exchange for building a similar facility in the new capital.

-- A build-operate-transfer plan, under which a company would pay for and build facilities in the new capital, and in return be given operational rights for a set period.

-- Borrowing money from banks using government assets as collateral.

-- State-owned enterprises or government institutions forming joint ventures to operate facilities in the new capital, splitting the construction cost.

-- The sale of government-owned land and properties in Jakarta to private companies.

The government is looking to obtain parliamentary approval and complete the regulatory framework for the capital relocation this year, with the masterplan scheduled to be finalized in 2020. The actual move is slated for 2024.

Meanwhile, the central and Jakarta regional governments are set to spend 571 trillion rupiah to rejuvenate the current capital. President Joko Widodo said in August that Jakarta "will remain a development priority and continue to be developed as a business city, financial city, trade center, and regional scale service center."

Speaking to local media last month, Jakarta Governor Anies Baswedan said that the funding plan is being finalized by the Ministry of Finance.

"There will be a short term 2019-2022, 2022-2025, and then a long period of 2025-2030 [for the project]," he said. "Funding for this program will comprise approximately 32% from the Jakarta regional government, 38% from the state budget, 18% from regional bonds or loans, and 12% from private funding. Investors will be very interested because the return is clearly guaranteed."

According to presentation materials from the Ministry of National Development Planning, 315 trillion rupiah will be used for the development of public transport such as the extension of the Jakarta mass rapid transit and light rail transit network. A further 96 trillion rupiah is earmarked for delivering clean water to all city residents; 70 trillion rupiah for flood mitigation; and 90 trillion rupiah for the construction of low-cost housing.

Deden Rukmana, an urban planning professor at Alabama A&M University in the U.S., told the Nikkei Asian Review that a "rejuvenation plan is needed for Jakarta especially after the capital relocation is executed. He said that Jakarta "needs to "adapt and mitigate" the impact of the capital move, as previous revitalization attempts have seen projects get mired in corruption and scandals.

A road in East Kalimantan province, where Indonesia's new capital will be built. (Photo by Jun Suzuki)

The most recent example of a mass renovation plan gone wrong was the National Capital Integrated Coastal Development, or NCICD.

The plan consisted of a government project to construct a massive sea wall to the north of Jakarta Bay, and a Jakarta government-led initiative to build 17 artificial islands. Both were meant to become the center of urban development with offices, housing, green parks and toll roads.

The project was criticized on environmental and humanitarian grounds, especially by the fishing community. A corruption case involving a major property developer was the nail in the coffin for the project, and in September last year Baswedan revoked land reclamation permits for 13 of the artificial islands -- four had already been reclaimed. The construction of the sea wall has also been scaled back.

"[The rejuvenation plan] is the best option in 'response' to the Indonesia's capital relocation out of Jakarta," said Rukmana of Alabama A&M University. But, he added: "The Jakarta administration needs to execute the plan wisely and seek input from as many stakeholders as possible."

Nikkei staff writer Bobby Nuguroho contributed to this article.

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