Our Experience with the Application Process for Special Economic Zones for Tourism (‘KEK Pariwisata’) in Indonesia | October 2021
In the last decade, Indonesia has intensified its promotion of Special Economic Zones (‘KEK’) in order to maximise the potentials of industry, import, export and related activities which add high value to the economy. A focus in particular has been on the manufacturing, agriculture, marine, infrastructure and tourism sectors. To encourage investment in these areas, a number of incentives are offered by the Government in relation to preferential regulatory infrastructure and taxation in order to seek investors to apply to set up SEZs across the Country. Such incentives provide a tantalising prospect for developers/owners to try to obtain KEK status for their projects.
This article focuses on TOWNLAND’s experience with Tourism related SEZ projects (‘KEK Pariwisata’) which are focused on further strengthening Indonesia’s position as an integrated tourism destination with an emphasis on nature, culture and MICE. To date, we have assisted a variety of Clients with their applications for ‘KEK Pariwisata’ for Projects in ‘Tanjung Gunung’ (380ha), ‘Singhasari’ (200ha), ‘Pangandaran’ (200ha), and ‘MNC Lido City’ Phase 1 (156ha – part of a 1000ha Development) and we set out some of our experience below.
Method and Process
The regulations that outline the process and requirements for obtaining KEK are set out under Law No.39/2009, Law No.11/2020, PP No.1/2020 and PP No.40/2021. The general perception of the process by many is that it is convoluted and complex. However, in our experience, it is clear enough so long as a number of prerequisites are followed. The challenge lies in taking the time needed to prepare a strong Application backed by comprehensive analysis which will be favourably considered by the KEK National Council (DENAS KEK), the body who ultimately issue a decision on whether or not an area is to be awarded the coveted KEK title. Whilst the physical Application process takes only 30 working days, the preparation of the required documentation for the Application can take up to two years or in some cases much longer and the process includes for negotiations with a wide variety of parties and stakeholders to obtain their support
Vision, Priorities, Feasibility and Timelines
A key element and challenge of the process is the need for consensus building with key stakeholders on the goals and objectives and Vision of a particular project as well as the key benefits which can be obtained. It is often difficult to obtain support from potentially affected parties in this regard and it is vital to demonstrate the feasibility of the project Vision and the potential social benefits which the project can bring to bear in order to garner support. The ability of a developer/owner to demonstrate potential benefits in a clear and measurable strategy is therefore very important in order to outline the feasibility and benefits of a project to DENAS KEK.
Once KEK status is awarded, the Government allows a timeframe of three years for a developer/owner to build and commence operation of the first phase of a project. Should the developer/owner not meet this deadline, the KEK status will be revoked and related benefits will be no longer be applicable to the project. Depending on the size of the first phase, three years can be considered to be a relatively short time period to build and commence operation, however this timeframe exists to ensure the commitment and participation of the owner/developer. Getting the sizing of the first phase right is therefore a key consideration. This tight timeframe often means that other Application processes such as development and infrastructure approvals may need to run in parallel.
Lobbying and Connections
Communication and coordination with all stakeholders all the way up to the top officials in a given Ministry is vitally important, in order to properly receive and accommodate their aspirations into the Master Plan and measurable Business Plan for the KEK. TOWNLAND always plays an active role in such communication and coordination between the various parties in this regard, in order to ensure all views are considered and integrated.
“Why should you be given a KEK status?” and “What benefits would KEK give you?”
These are two of the key questions that must be answered by a developer/owner when starting the KEK process. Together with our Clients, TOWNLAND works to set out the interests and objectives of a specific KEK project and to ensure that these objectives are in line with the developer/owner’s Business Plan and are not in conflict with any applicable regulations and the agenda of the local government. A degree of flexibility is required in answering these questions so that the KEK proposal can be accepted and fulfill the main goal of the KEK itself: advancing and developing Indonesia’s economic potential such that it can compete on the International stage.
A high degree of commitment and responsibility is required on the part of the developer/owner in order to commence the KEK Application process. TOWNLAND is proud to be able to support developers/owners in navigating the complex process to realise their KEK development and to support the process of nation building in Indonesia.
For more information, please also visit the official government website: https://kek.go.id/