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Despite reforms, red tape still 'main problem' for Indonesia's regional projects

Jakarta Post - January 20, 2023

Fadhil Haidar Sulaeman, Jakarta – More than two years after embarking on far-reaching reforms, the government has confirmed that bureaucratic hurdles remain the number one obstacle to investment cited by businesses.

New licenses for spatial planning and building, both products of the Job Creation Law, had caused a backlog of investment projects, but the "snap remedy" was in the hands of regional leaders, President Joko "Jokowi" Widodo said on Tuesday at the annual National Coordination Meeting (Rakornas) of Regional Heads and the Regional Leadership Coordination Forum (Forkopimda) in Sentul, West Java.

Jokowi signed the Omnibus Law on Job Creation in November 2020 to streamline multiple investment regulations under a single law and to minimize the authority of regional entities to make investment decisions through the Investment Ministry's Online-Single Submission (OSS) platform.

The central government has deemed the law necessary to overcome the issue of conflicting regulations, particularly when central rules clashed with regional ones.

"Get the unfinished [licenses] done as soon as possible, don't bide your time," Jokowi said on Tuesday.

Investment and exports were the keys to robust economic growth at a time of high inflation and interest rates around the world, the President cautioned repeatedly.

Coordinating Economic Minister Airlangga Hartarto, who also attended Tuesday's meeting, told regional leaders that the main problem with the suitability of space utilization (KKPR) licence stemmed from a lack of regional regulations on detailed spatial planning (RDTR).

Without local RDTR rules, issuing KKPR licences would take more than 200 days, Airlangga said, citing research by consulting firm PricewaterhouseCoopers and Australian-backed development initiative Prospera.

Airlangga added that granting a building development approval (PBG) also hinged on regional regulations to determine the processing fees, but only 105 out of 514 cities and regencies had issued regulations on PBG procedures as of Jan. 16.

By January 2024, all cities and regencies are required to have PBG regulations or face potential legal uncertainty on investments in their region. "Two hundred days is a very long time, which is [hampering] OSS processes," Airlangga said on Tuesday.

Investment Minister Bahlil Lahadalia told the meeting of regional leaders that only 118 cities and regencies had issued RDTR rules and integrated them with the OSS, noting that this was a small fraction of the 2,000 regions targeted to have the rules in place by 2024.

Continuing, Bahlil said the President had instructed the Finance Ministry to decide whether to fully or partially cover the RDTR processing costs through the state budget so as to accelerate the issuance of RDTR licenses.

According to the Investment Ministry's estimates, the costs of processing RDTR license could range between Rp 2 billion and Rp 3 billion.

As for the PBG, Bahlil explained that due to the "high dynamics" in the regions, the government was being lenient by allowing regional administrations to continue using regulation that predated the Job Creation Law. But he underlined that this grace period would expire in a year.

"We need to conclude this [PBG] issue," Bahlil told the regional heads. "If we don't, people cannot construct buildings."

Regions that had local RDTR rules in place could issue KKPR licenses within a day, Agrarian Reform and Spatial Planning Minister Hadi Tjahjanto added. By contrast, others would need a year to first adjust their regulations and then publicize the new RDTR rules.

To streamline the process of devising the RDTR rules, regional spatial planning forums should appoint officials from local agrarian reform and spatial planning offices as deputy heads, Hadi recommended. This would greatly improve the central government's responsiveness if issues emerged during the RDTR drafting process.

Data from the spatial planning ministry show that 237 regions had issued RDTR rules, but only 108 had been synchronized with the OSS platform. "There are difficulties with KKPR issuance in the regions," Hadi added.

Obtaining a KKPR licence in a region without an RDTR framework meant having to go back and forth between regional and central state agencies, corporate lawyer Fikri Selo told The Jakarta Post on Tuesday.

Without local RDTR rules in place, the OSS required businesses to submit a payment order (SPS) to pay nontax revenues before the government could issue a KKPR.

Confusion arose in cases where the investment and spatial planning ministries and regional land offices all refused to issue an SPS, as all institutions felt they did not have the authority to do so.

OSS processing was bogged down for three months last year, until Jakarta issued its RDTR regulation in October 2022. After the regulation was issued and the dataset revised to match the RTDR mechanism, it only took one day for KKPR licenses to be issued after revising the data to match the RDTR, without any dealings with local authorities.

Fikri suggested that in regions that had no regional RDTR rules and were therefore not integrated with the OSS, regional authorities should replace the KKPR license with a statement on spatial use that only needed regional approval, to avoid dealing with both central and regional authorities. "I'm going round in circles because all [stakeholders] are confused," Fikri told the Post about his experience.

Government plans to subsidize the RDTR regulatory process "depended" on bureaucratic efficiency in the drafting teams, he continued, particularly if no guarantees were provided to ensure a fast process. A greater danger was the risk of administrative mismanagement, he added.

Fikri therefore recommended that instead of providing the funds to cover the licensing costs upfront, it would be much wiser for the government to provide incentives so regional administrations would issue local RDTR regulations.

Separately, civil engineering researcher Rafi Anugrah told the Post on Tuesday that while the PBG framework carried a lower application fee, the requirements for the new building development license were much more complex than for the previous Building Construction Permits (IMB).

This was because the PBG took into account many factors, such as the height, functions, complexity and permanence of the proposed building, he explained.

Source: https://asianews.network/despite-reforms-red-tape-still-main-problem-for-indonesias-regional-projects