Jurisdiction - Indonesia
Reports and Analysis
Indonesia – Regulation For Land Acquisition Law – Will It Help Accelerate Infrastructure Projects?

31 August, 2012

 

  

It is widely acknowledged that one of the major strategic constraints currently preventing the Indonesian economy from achieving its full potential is the long term under investment in infrastructure. Apart from State budgetary shortfall for funding infrastructure projects (partly due to the government’s fuel subsidy policy which eats up a large portion of the State budget), the difficulties encountered by government agencies and investors in compulsorily acquiring the necessary land for infrastructure projects (e.g. toll roads, power plants and ports) has been a recurring problem in Indonesia. In light of this, the coming into effect of Presidential Regulation 71/2012 is a much welcomed development.
 
Key Points
 
1. The Implementing Regulation adheres to the basic architecture for compulsory land acquisition in Indonesia as set out in the Land Acquisition Law, and provides more procedural details on the implementation process. In particular, it provides a legally prescribed time frame for each stage of the land acquisition process to achieve the desired legal certainty, while embedding within that framework mechanisms to safeguard both procedural 
and substantive fairness for affected parties (e.g. a consultation process with affected parties and subjecting administrative decisions by government agencies to legal / court oversight within specified time frames).
 
2. Under the Implementing Regulation, the maximum time period for the land acquisition process is in theory 583 working days from the date the Governor (of the relevant Region) receives the land acquisition plan document from the government agency which requires the land for public purpose, up to the date of the land registration or certification process. If there are no objections 
or appeals from affected parties, the time period for the land acquisition process can be as short as 319 working days.
 
3. The Implementing Regulation will, however, not be applicable to the compulsory land acquisition process for existing projects which commenced prior to 7 August 2012 (for which the old land acquisition regime will continue to apply), save that if there remains land which has not been acquired by 31 December 2014 for such projects, the Implementing Regulation will apply to the compulsory acquisition of such remaining land. This has caused some disappointment among industry participants. It is reported that there are currently, for example, dozens of stalled toll road projects, the land procurement difficulties for which will not be immediately alleviated by the new mechanisms offered by the Implementing Regulation. 
 
4. In broad terms, the Implementing Regulation provides more details regarding the institutional and administrative methodology for each of the four-stage process outlined in our  e-bulletin of 22 December 2011. In particular: 
 
(a) Planning Stage – The relevant government agency (which, importantly, includes stateowned enterprises which have been given special assignment by the government) requiring the land will prepare a “planning document” to be submitted to the Governor of the relevant region. The “planning document” will set out, among other things, the purpose of the proposed development, details regarding the land required and the timing of the land acquisition / development and the valuation of the land. 
 
(b) Preparation Stage – The preparation stage will be undertaken by the Governor of the relevant region, with the assistance of a “preparation team”, consisting of the relevant mayor / regent, a provincial-level working group, the relevant government agency requiring the land and other relevant government agencies. The Governor may delegate his powers to undertake the preparation stage to the relevant mayor / regent. At the preparation  stage, the development plans will be notified, a preliminary stage data gathering process undertaken in relation to the relevant location, a public consultation process conducted and the designated location announced. 
 
(c) Implementation Stage – The implementation stage will be facilitated by the National Land Agency, acting through the head of the relevant regional office of the National Land Agency, in his capacity as the Land Acquisition Implementation Chief. The implementation stage includes conducting the necessary measurements and mapping of the land, further data gathering regarding the land and the relevant Entitled Parties (see paragraph 5 below) and facilitating the land valuation and compensation process (which includes a negotiation process with Entitled Parties regarding the form and amount of compensation to be provided, where the compensation could take the form of cash, replacement land, resettlement or share ownership in the relevant state-owned enterprise). 
 
(d) Handover Stage – Once acquired, the rights with respect to the land of the Entitled Parties will be extinguished by operation of law, and the Land Acquisition Implementation Chief will hand over the acquired land to the relevant government agency requiring the land for development. Note that, under the Implementing Regulation, construction may commence once the land is handed over to the government agency requiring the land, despite the fact that  the  registration/certification process for the land has not been completed at that stage.
 
5. The Implementing Regulation elaborates further on the concept of Entitled Parties (who will be consulted in the land acquisition process and who are entitled to compensation). They are defined as individuals, legal entities, social bodies, religious bodies or government institutions owning or controlling the relevant land in accordance with applicable laws. Entitled Parties include, among others, holders of rights in relation to the land, holders of rights of management in relation to the land, trustees of land  granted for religious or social purposes (“wakaf” land), owners of land previously held under native customary laws, community based on native customary laws, persons who control state land in good faith and owners of buildings, plants and other objects related to the land.
 
6. The Implementing Regulation also provides that the Entitled Parties or the government agency requiring the land may be given certain tax incentives (although no further details are provided at this stage).
 
7. The National Land Agency is required to issue further technical guidelines regarding 
implementation of the compulsory land acquisition process by 7 November 2012.
 
Observations
 
8. The Implementation Regulation is a step in the right direction, although the need to ensure fairness for affected parties though court  oversight and appeal procedures may still result in a relatively lengthy compulsory acquisition process under the new rules. That said, it is hoped that the legal certainty resulting from the specific time frame for each stage of the land acquisition process (if indeed it is actually complied with), will provide the necessary clarity needed for planning and successfully implementing large infrastructure projects, and will further encourage much needed private sector participation in developing Indonesia’s infrastructure. 
 
9. Given the fact that, even under the new regime, a successful implementation of the compulsory land acquisition process for public projects will involve coordination among several government agencies (including, for example, the government agency or state-owned enterprise requiring the land, the regional government where the land is located, the National Land Agency and the courts), no doubt a great deal of political will and bureaucratic efficiency is required in the years ahead to push through the land acquisition process within the new legally prescribed timetable.

  

  

For further information, please contact:

 
David Dawborn, Partner, Herbert Smith
david.dawborn@herbertsmith.com
 
Brian Scott, Partner, Herbert Smith
brian.scott@herbertsmith.com 

  

Iril Hiswara, Partner, Hiswara Bunjamin & Tandjung
iril.hiswara@hbtlaw.com
 
Vik Tang, Hiswara Bunjamin & Tandjung
vik.tang@hbtlaw.com

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