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 (“Implementing Regulation”) on 7 August 2012 (implementing the Land Acquisition Law introduced in late 2011 – see our e-bulletin of 22 December 2011) is a much welcomed development.

Key Points

  • The Implementing Regulation adheres to the basic architecture for compulsory land acquisition in Indonesia as set out in the Land Acquisition Law (see our e-bulletin of 22 December 2011), 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).
  • 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 purposes, 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. Please click here for an illustration of the time line for the land acquisition process.
  • 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.
  • The Implementing Regulation is a step in the right direction, although the need to ensure fairness for affected parties through 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.

Please click here to view the fuller version of our outline of the Implementation Regulation.