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Analysis: Questions raised about BSD, PIK following inclusion as PSNs

Jakarta Post - April 3, 2024

Tenggara Strategics, Jakarta – The government recently approved 14 new national strategic projects (PSN), including Pantai Indah Kapuk (PIK) 2 and Bumi Serpong Damai (BSD) in Banten, both of which are developments by publicly listed property companies. However, with these projects set to be funded by private investors, questions have been raised regarding the reasoning behind their inclusion as PSNs.

Regarding the PSN in PIK 2, known as "Tropical Coastland" spanning 1,755 hectares, the area is slated to be developed as a green area and eco-city aiming to become a green tourism destination. The project has received support from the Tourism and Creative Economy Ministry, and with construction work set to begin this year and continue until 2060, the project has a planned investment value of Rp 65 trillion (US$4.09 billion).

Meanwhile, the BSD project entails the development of a 59.6-hectare integrated area focusing on education, health care, biomedicine and the digital economy. With a planned investment value of Rp 18.54 trillion, the project has gained the support of the Health Ministry. Additionally, discussions are ongoing to develop the area into a special economic zone, with several criteria that still need to be met and evaluated.

According to reports, the two projects were proposed as PSNs from 2021-2022. It was only after a lengthy process that their technical recommendations were issued this year. Now, with the projects listed as PSNs, the stages and administrative procedures can be expedited by the relevant ministries.

Despite the reasons for proposing BSD and PIK 2 as PSNs, both areas have already grown rapidly into developed and self-sustaining areas, prompting questions about the true motives behind their inclusion as new PSNs. Of note are the property conglomerates behind the development and management of the BSD and PIK 2 projects. The former is part of PT Bumi Serpong Damai (BSDE), under the Sinar Mas Group, while the latter is part of the Agung Sedayu Group and Salim Group.

As all three property conglomerates are part of a local consortium led by Agung Sedayu Group founder Sugianto "Aguan" Kusuma, planning to invest about Rp 20 trillion in the new capital city of Nusantara (IKN), observers suspect that the inclusion of BSD and PIK 2 projects as PSNs is a form of reciprocal support for the conglomerates investing in the IKN. Specifically, the government appears to return their support by designating BSD and PIK 2 as PSNs.

Moreover, the government's move is viewed as part of a broader agenda to ensure the success of the IKN's construction into a capital city, given the government's struggle to attract foreign investors thus far. According to Transparency International Indonesia (TII), there is a notable lack of clear information, such as the rationale for designation and details on project planning and budgeting, regarding the two projects, as neither BSD nor PIK 2 were ever mentioned or reflected in the annual reports of the PSN organizing committee.

Responding to the criticism regarding the inclusion of BSD and PIK 2 as PSNs, the government justified its decision by emphasizing the potential of these two projects to bolster the national economy. As mentioned by Coordinating Economic Ministry spokesperson Haryo Limanseto, the projects were proposed as PSNs to equalize the economy based on regional development, involve the private sector in development through self-financing and expand employment opportunities.

What's more

Haryo further clarified that all decisions regarding the designation of PSNs are based on thorough studies and clear parameters. He added that the government routinely conducts comprehensive evaluations of PSN projects, encompassing various stages from continuous monitoring to assessing the impacts of issues.

Aside from the BSD and PIK 2 projects, other designated PSNs include the Wiraraja Industrial Area in Galang Island, Riau; the North Hub Development Project offshore East Kalimantan; the Neo Energy Parimo Industrial Estate in Parigi Moutong, Central Sulawesi; the Patimban Industrial Estate in Subang; and the Intra Urban Toll Road in Bandung, West Java.

Administered under Presidential Regulation No. 3/2016, the PSN list comprises projects aimed at improving social welfare and regional development. Additionally, Presidential Instruction No. 1/2016 expedites PSN undertakings related to public interests, such as by resolving issues and implementing strategic policies. According to Coordinating Economic Minister Airlangga, so far 195 PSNs have been completed with a total investment of Rp 1,519 trillion from 2016 to February this year, with 41 PSNs targeted for completion in 2024.

What we've heard

Sources in the property business have said that the government's plans to designate include the PIK 2 and BSD as PSN have been in the works for quite some time. Supposedly the decision was already being prepared when certain conglomerates began investing in the Nusantara Capital (IKN).

Around September 2023, Sugianto Kesuma, the boss of the Agung Sedayu group, led a consortium to build property projects in IKN. The consortium involved many conglomerates such as Franky Widjaja (Sinar Mas Group), Boy Thohir (Adaro), Anthony Salim (Salim Group), and Prajogo Pangestu (Barito Pacific Group).

They intend to build Nusantara Hotel with a capacity of 200 rooms there. Agung Sedayu and Salim Group are developers of PIK 2, while Sinar Mas is the developer of BSD. In addition to the hotel, the conglomerates intend to develop mixed-used development there.

As a reciprocal gesture for their assistance in IKN, PIK 2 and BSD were granted PSN status. With this status, the development of PIK 2 and BSD in the future will receive a litany of privileges, such as ease of licensing, land acquisition, and more lenient allowances when submitting design adjustments plans.

With an investment of Rp 40 trillion, Agung Sedayu and Salim Group will develop an ecotourism area from 2024 to 2060 that would cover at least 1,755 hectares. Meanwhile, Sinar Mas intends to build an education, research, and health center in BSD.

The Ministry of Tourism and Creative Economy is said to have helped and recommended the designation of PIK 2 as PSN. Similarly, the Ministry of Health also encouraged the inclusion of BSD into the PSN. However, other sources add that right before the two ministries provided recommendations, top officials from both groups had been meeting with officials from the two ministries. Coincidentally, the Deputy Head of the IKN Authority, Dhony Rahajoe, had previously worked at BSD.

On the other hand, the involvement of conglomerates in the IKN project may have been instigated by the state palace. Other sources have said that officials from the palace 'urged' them to assist in the development of IKN. Moreover, the timing of this request is supposed to have come right after the government had failed to attract foreign investors to finance the project.

[This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia's political and business landscape.]

Source: https://www.thejakartapost.com/opinion/2024/04/03/analysis-questions-raised-about-bsd-pik-following-inclusion-as-psns.htm