Road to Indonesia´s new capital

The longstanding plan to relocate the capital city of Indonesia is finally getting in motion as the lawmaker passed Law No. 3 of 2022 on Nation’s Capital (“LAW 3”) on mid-February 2022.

Law 3

Besides stipulating ‘Nusantara’ (the name of Indonesia’s new capital city) in the island of Borneo as the nation’s new capital, Law 3 also establishes the Nusantara Capital Authority (Otorita Ibu Kota Nusantara or “NCA”), a ministry-level institution in charge of the preparation, construction and relocation of the nation’s capital also being supposed to act as the administration of the Nusantara Capital, and mandates the formulation of a master plan for the Nusantara Capital.

Some key takeaways of law 3 include:

FUNDING
Aside from the state budget, the funds for the preparation, construction, relocation as well as administration of the Nusantara Capital may come from other legitimate sources which include public-private partnerships and private contribution;
Specifically for the purpose of funding the administration of the Nusantara Capital special region, NCA is also authorized to impose spe-cial taxes and/or retribution in Nusantara Capital.
NCA’S AUTHORITIES NCA is granted with vari-ous special authorities including the one to grant investment licenses, ease of doing busi-ness, as well as special facility to those who support the funding for preparation, construction and relocation of the state’s capital and development of Nusantara Capital and partner-ing region.
NCA is also authorized to issue special regulations with respect to the administration of the governance of Nusantara Capital Special Region and/or to implement the preparation, development and relocation of the nation’s capital.
LAND RIGHTS
Land in Nusantara Capital is stipulated as a state-owned goods (for land re-lated to governance implementation) and/or assets under the possession of NCA (for land not related to governance implementation).
Further, NCA is granted with rights over plots of land in the form of right-to-use (hak pakai) and/or right-to-manage (hak pengelolaan or “HPL”), and is authorized to enter into arrangements for the utilization of land in Nusantara with private parties (whether individual or legal entity). Where such arrangement includes granting of a land right over HPL held by the NCA, NCA may provide a guarantee for extension and renewal of said land right.
In addition, Law 3 also provides that a transfer of land rights must be approved by the chairman of NCA.
GRADUAL RELOCATION
Relocation of state institutions, representative of foreign countries and international organizations will be carried out gradually.
Specifically for representatives of foreign coun-tries and international organizations, the relocation will be based on their respective capabilities.
COMMENCEMENT
NCA shall commence operation at the latest by the end 2022.

Pending the issuance of the relevant implementing regulation, more detailed regulations on how the above will be carried out in practice are currently not available.

Judicial Review

Shortly after its enactment, several petitions for judicial review of Law 3 were submitted to the Constitutional Court of the Republic of Indonesia (Mahkamah Konstitusi or “MK”). To date, the pro-ceeding for these petitions are still ongoing at MK.

Our view

Despite the resistance from several community groups, the Indonesian Government seems to have reached the final decision to proceed with the plan to relocate the nation’s capital. The judicial reviews of Law 3, whilst they might delay the relocation process, are unlikely though to alter this decision.

In light of the above, it should be interesting to observe how the relocation will be carried out as well as the investment opportunities that might arise. Given the tight timeline for relocation and in line with the intention to open the country more to foreign investors, it can reasonably be expected that any investment opportunity emerging during or with respect to the relocation process will be made open for foreign investment and, hopefully, come with additional incentives.

Rödl & Partner will closely monitor the situation and provide updates on the status on a regular basis.