Three regions pinpointed for meeting criteria for creating a pro-business climate

INDONESIA plans to set up three more special economic zones (SEZ) to attract fresh investments into the country.

Modelled on the first SEZ, which is being developed jointly with Singapore in Riau province, these could be set up in Bojonegara in Banten, in North Sumatra and in South Sulawesi, once the blueprint is approved.

Plans for the three regions were disclosed by Indonesia's chief investment coordinator Muhammad Lufti, who heads the Investment Coordinating Board (BKPM).

The three areas, he told the media, "met the criteria that would make them attractive to investors and were among the more promising ones". The criteria included the presence of existing business clusters and the commitment of the local leadership in ensuring a pro-business investment climate. Eventually, there would be a total of 11 SEZs, Mr Lufti said. He told The Straits Times that a key meeting to settle the location of these zones would be held soon. Leading the list of the three new proposed SEZs is Bojonegara, which is located on the western tip of Java.

Its candidacy was boosted after 16 investors, including major player Dubai Ports World of the United Arab Emirates, showed interest in a stalled government plan to build a new 7 trillion rupiah (S$1.2 billion) international port there.

Indonesian officials have long said that if the port plan takes off - with or without an SEZ - Indonesia could wean itself from its over-dependence on ports in Singapore and Malaysia.

According to the Indonesian government, an estimated 80 per cent of the country's imports and exports go through the two countries, with Singapore getting the lion's share.

While the Indonesians did not provide any breakdown, official figures from Singapore showed that last year, goods bound for Indonesia that were re-exported from Singapore reached $20.4 billion, up nearly $2 billion from the year before.

Mr Lufti said South Sulawesi is also a leading contender because the area is a major centre of prime export commodities such as fish, shrimp, cocoa and nutmeg.

As for North Sumatra, he said he expected the area to take on some of the trading activities now being conducted in Malaysia's Penang port, just across the Malacca Strait.

Once the three regions are approved, they would be modelled after the nascent pilot SEZ on the Riau Islands of Batam, Bintan and Karimun.

The pilot zone promises rules that make it easier to do business. These include pro-investment Customs and tax regimes, as well as shorter waiting times for business licence and visa approvals for foreign professionals.

But Bojonegara holds the most potential, observers said. For one, the area is already somewhat of a hub for Indonesia's petrochemical industry, with international players such as Japan's Asahi and Mitsubishi, the United States' Polychem and US-Japan collaboration Amoco Mitsui there. There are also major steel manufacturers around the area, including Indonesia's largest steel company Krakatau Steel and Australia's BHP Steel.

As for the proposed international port, Communications Minister Hatta Rajasa said the government had agreed to give Dubai Ports World a majority share of the project as an incentive if it were to follow up on its interest. Mr Hatta said the world's fifth-largest port operator had indicated its keenness although the project was not one of those offered at last week's Indonesia Infrastructure Convention and Exhibition.

In the past, various other major port operators had reportedly expressed interest in Bojonegara but did not act on them.

Indonesian media had reported that Singapore's PSA and Hong Kong's Hutchison had shown interest in the port as well.