MOU between the two will help avoid jurisdiction woes that frustrate investors

THE two parallel authorities on Indonesia's industrial island of Batam have signed a memorandum of understanding to avoid overlaps in jurisdiction that have been frustrating investors.

The MOU between the Batam municipal government and the Batam Industrial Development Authority (Bida) spells out clearly the responsibilities of the two bodies in areas such as land acquisition, taxation, infrastructure development and security.

It was sealed last week in Batam after a series of meetings that began in December last year, said Mr Chablullah Wibisono, who headed the workgroup that facilitated the agreement.

The MOU was conceived after Jakarta failed to issue a government regulation spelling out the working relationship between the two Batam authorities despite considering the issue since 2000, he said.

Observers believe the MOU was possible because of the strong link of the key players to Bida.

The new Batam mayor, elected early this year, is Mr Ahmad Dahlan, a former Bida officer of 20 years.

The signing last week was the latest step in efforts by the Batam authorities to revive the island's flagging economy.

Between 2000 and 2004, non-oil exports declined by US$1.11 billion (S$1.8 billion), or roughly 20 per cent. New foreign investments also fell by 34 per cent over the past year.

In June, Singapore and Indonesia signed an economic agreement to revitalise Batam and its island neighbours, Bintan and Karimun.

Under the pact, the two countries would set up a special economic zone (SEZ) encompassing the three islands to draw more investment and boost economic growth in the area.

Last week's MOU is expected to play a part in making the SEZ a success. Bida chairman Mustofa Widjaja told The Straits Times yesterday: "It will form a vital building block for the SEZ.

"Investors can look forward to a more transparent regime from the regulators." Confusion among investors over who was in charge of what on the island had been mounting since Indonesia started implementing regional autonomy in the past five years.

Technically, Batam is still under the charge of Bida, which was established by presidential decree to develop the island in 1971.

Despite regional autonomy, it remains outside the power of local institutions and retains its monopoly over the island's properties and development policies.

But the island's new and democratically elected municipal government assumed a wide range of powers, consistent with national laws on decentralisation. Investors complained about double taxation, as well as inconsistencies, contradictions and overlaps in the respective policies of the two authorities. Many called for clearer delineation of authority, saying that the ensuing uncertainty was one of the reasons why investors were shunning Batam. Investors generally welcomed the MOU as a step in the right direction, although some, such as Ms Nada Soraya, had wanted the two bodies to be merged. Said the chairman of the Batam Chamber of Commerce and Industry: "There will still be two captains on the ship.