Nusantara Capital City: 'Sweetener' for foreign investors
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Ibu Kota Nusantara: Pemanis untuk investor asing
24 June 2024
By Alifian Asmaaysi
The government is currently preparing a new formula to accelerate foreign investment realisation in Nusantara Capital City (IKN), East Kalimantan, which has been lacking investment since the launch of the megaproject in the middle of 2022.
The executive board of IKN Authority (OIKN) is currently holding discussions to address the future of foreign company and consortium investments in Nusantara.
These discussions also address the letters of interest (LoIs) submitted by foreign companies and consortiums to the OIKN office in Jakarta.
Based on Bisnis’ records, several foreign investors have expressed interest in investing in IKN, with most of them targeting cooperation in the housing sector.
At least three potential foreign investors have committed to constructing 90 flats in IKN. These investors include the Chinese company Citic Construction and the Malaysian companies Maxim and IJM.
Citic Construction that is also part of Nusantara Consortium with PT Risjadson Brunsfield Nusantara will construct 60 flats for the Defence Ministry. Nusantara Consortium has committed to this project with an investment value of Rp30.8 trillion.
The Malaysian company IJM Corporation Berhad is prepared to construct 20 flats for civil servants (ASN) in IKN, while another Malaysian company Maxim Properties will build 10 ASN flats.
However, investment interest from foreign companies in the housing sector in IKN through the public-private partnership (PPP) scheme is still hampered by cost issues.
Acting OIKN Head Basuki Hadimuljono revealed that return on foreign investment in IKN was still too costly.
“I think [implementing] the PPP model for ASN flats [in IKN] is expensive. The cost of money can be double or triple [the total investment value],” he said last weekend.
Basuki, who is also the Public Works and Housing (PUPR) Minister, calculated that investment return costs for the housing sector were higher than the interest rates on syndicated bank loans. “So, we are still calculating. Loans are preferable because the interest rates are lower,” he affirmed.
Therefore, Basuki is currently seeking potential foreign investors to achieve an internal rate of return (IRR) target of 12%.
According to him, a study to achieve an IRR above 12% has been implemented by the government. To reach this goal, the government plans to provide construction support to make investment projects more appealing to investors.
“So far, only a few letters of interest have been received. The details are currently under discussion by [OIKN Funding and Investment Deputy] Agung. Typically, the IRR is similar for both foreign and national projects, but achieving an IRR above 12% would be particularly attractive,” he added.
As of now, there has been no foreign investment in IKN, even though OIKN targets to surpass a total investment of Rp100 trillion this year.
He promises foreign investments can be realised during the groundbreaking procession in July 2024.
During the occasion, Basuki also reassessed the construction costs for the IKN project, which are expected to rise due to the depreciation of the rupiah against the dollar. As of Friday (21/6), the exchange rate at the close of the spot market was Rp16,450 per US dollar.
President Joko Widodo is planning to hold a cabinet meeting to discuss the impact of the rupiah weakening on infrastructure projects, including IKN.
“Not only IKN will be impacted, but also other regions.”
However, Basuki explained that he would not remain passive about the situation. According to him, the government will consider declaring a national force majeure to maintain economic stability if the rupiah continues to weaken.
Basuki also does not deny that several signed contracts in IKN will be escalated.
“If there is a national decision, signed contracts can be escalated. During the pandemic, we also witnessed a surge in contracts. It is situational,” he stated.
Indonesia’s situation could become more dire, as this year the PUPR Ministry will sign 33 new contracts worth Rp26.53 trillion to support IKN development.
Moreover, the PUPR Ministry has also tendered 71 other projects with multiyear contracts worth Rp52.64 trillion. This condition contrasts sharply with the infrastructure budget allocated to the PUPR Ministry for 2025, which is only Rp75.63 trillion, while Rp212.58 trillion is required.
Cruise ship
On another occasion, Transportation Minster Budi Karya Sumadi is actively working towards realising IKN. The Transportation Ministry is planning to prepare phinisi boat routes for tourism in IKN.
Currently, there are two phinisi boat routes prepared in IKN. The first route is Semayang Port-Balang Island Bridge (passing)-PT ITCI KU Pier (returning)-Semayang Port. The second route is PT ITCU KU Pier-Balang Island Bridge (passing)-Semayang Port (returning)-PT ITCU KU Pier.
The sailing time of the phinisi boats is estimated to be 3 hours and 30 minutes. The tour will include culinary tourism, visits to the multifunction building and Balang Island Bridge, exploration of the mangrove forest, a visit to the orangutan sanctuary, and opportunities to see endemic animals such as Irrawaddy dolphins and Proboscis monkeys.
Tourists will also be able to enjoy a city tour in the central government core area (KIPP) in IKN using eco-friendly vehicles. “Punggur Port, ITCI Port, and the Orangutan sanctuary are planned to be part of the phinisi boat route to promote tourism in Balikpapan, as well as IKN,” he stated.
