Coordinating Minister for Economic Affairs Darmin Nasution inaugurated the operation of the Galang Batang SEZ in Bintan, Riau Islands, Saturday (12/08) - Photo by CMEA

JAKARTA (TheInsiderStories) – Coordinating Minister for Economic Darmin Nasution, last Saturday, inaugurated Galang Batang Special Economic Zone (SEZ) in Bintan, Riau Islands Province. The Development and investment for the special economic zone valued Rp5.6 trillion (US$386.20 million) so far.

The SEZ, consisting of a port, 2 million tons of production capacity alumina refinery, a steam power plant, coal gas plant, brick factory, and water reservoir.

Nasution specified that Galang Batang is projected to be an area focused mainly on alumunium and its preservatives, with total investment of Rp36.25 trillion. The special economic zone is also expected to boost the regional economy and involve 23,200 workers.

There will be another three SEZs to follow, operating by early 2019. Those will be Arun Lhokseumawe in North Aceh regency and Lhokseumawe, Aceh Province, also Bitung in North Sulawesi Province, and Morotai in North Maluku Province.

Meanwhile, a petrochemical complex in Cilegon, Banten Province, owned by PT Lotte Chemical Indonesia, has just broken ground. The South Korean Lotte Group invested $3.5 billion in the petrochemical complex.

The factory, with a total area of 100 hectares, will have 2 million tons of naphta crackers total production capacity a year. The raw materials are then processed to produce 1 million tons of ethylene, 520 thousand tons of propylene, 400 thousand tons of polypropylene, and other derivative products.

The Government of Indonesia expects 10 more industrial zones to offer a ‘direct construction incentive’ to investors who agree to build their facilities in these specified zones.

Since 2015, the government has called on all industry players to concentrate their operations in industrial zones, with incentives provided to make it attractive for them to construct their facilities in such zones.

The government is hoping to see more investors become involved in developing industrial zones outside Java, which has historically dominated economic activity in the nation.

The development of such special economic zones outside Java is part of the ‘equitable development’ and at the same time a segment of the Master Plan of Acceleration and Expansion of Economic Development of Indonesia.

The Government has targeted Rp250.7 trillion in investment, for a total of 13 Industrial Zones namely Sei Manke, Banten, Morowali, JIIPE Gresik, Kendal, Wilmar Serang, Dumai, Konawe, Palu, Bitung, Ketapang, Lhokseumawe (Aceh) and Tanjung Buton will all welcome projects.

Somehow, the development of zones continues to face obstacles, such as the availability of sufficient electrical power, lack of investor interest, spatial conditions, high labor costs and discrepancies between upstream and downstream industry.

In 2015, government unveiled its sixth economic package, aimed at revitalizing an under-performing economy. The stimulus package aims to attract foreign direct investment to the special economic zones sited around the country.

‘Special economic zones’ are defined as areas where natural resources, mined in or around the zone, are processed; special economic incentives are offered by the Indonesian government to develop specific industries.

Under the new economic stimulus package, investors can qualify for generous income tax discounts ranging from 20 to 100 per cent for up to 25 years. In order to qualify for a 15-year tax holiday, investors would need to guarantee an investment of Rp 500 billion, while an investment of at least Rp1 trillion would be required to qualify for a 25-year tax holiday.

The regulation divides industrial zones into four categories, namely, developed industrial development estates (WPI)  in Java, southern Sulawesi, eastern Kalimantan, northern Sumatra (except for Batam, Bintan and Karimun) and southern Sumatra, northern Sulawesi, western Kalimantan, Bali and Nusa Tenggara, also in Papua and West Papua.

What’s more, the government also granted a Value Added Tax exemption facility on imports and / or delivery of machinery and factory equipment to be used by Companies in Industrial Area and Industrial Zone Companies.

The exemption from import duty on such machines and goods may be provided on imports originating from the Free Port and Free Trade Zone, Special Economic Zones, or Bonded Warehouses.

The exemption from import duty is conditional: machines as well as the goods and materials have not been produced domestically, already produced domestically but not yet meeting required specifications, or already produced domestically but in a quantity insufficient for industry.

The facilities are grouped into four regions based on the progress of industrial areas in each; for the easternmost region, the incentive is considerably bigger.

Minister of Industry Airlangga Hartarto said that he has facilitated the development of an integrated industrial area with supporting facilities to facilitate investment in the country.

With the incentives, the government is optimistic another 10 industrial zones will be done by 2019. Three will be operated this year, namely Lhokseumawe industrial area in Aceh, the industrial area of Wilmar Group in Serang, and Tanjung Buton industrial area in Riau.

SEZ is the areas targeted for Regional Development through Nawacita, the President Joko Widodo’s nine priority programs, which aim to increase productivity and competitiveness. SEZ is targeted to absorb 632,583 workers.

SEZ is regulated under Law No. 39/2009 on Capital Investment which goals are to boost capital investments, to optimize industrial activities/export/import/ other high value economic activities, to accelerate regional development by developing new centers of growth and balancing inter-regional development and finally to create jobs in industry, tourism and trade sectors.

US$1: Rp14,500