However, the government is now considering dissolving the BP Batam this month (January) because the management of the Batam Free Trade and Free Port Zone is overlapping between that of the BP Batam and of the Batam Municipal Administration.
If the BP Batam is disbanded, the fund amounting to more than Rp1 trillion should continue to be allocated for projects the BP Batam has planned such as port, airport and hospital projects.
"The government and the House have agreed to set more than Rp1trillion in the state budget for the BP Batam," Nyat Kadir, a member of Commission VI on industry and investment of the DPR said in Batam Thursday (January 7).
When the BP Batam is dissolved, the funds as assigned in the state budget should be used based on planned project allocation, he said.
The BP Batam has planned to use the state budget allocation for the construction of the Telaga Punngur Port, Sekupang Domestic Port, improvement of Hang Nadim Airport, and the development of the BP Batam Hospital.
"These projects should be carried out," Nyat who represents the Riau Islands constituents, said while expressing his personal view that rejects the plan to dissolve the BP Batam, which was formally named the Batam Industrial Development Authority.
Batam, Bintan, and Karimun are a cluster of small islands in Riau Islands Province near Singapore and are being developed as industrial areas.
The best way to solve the overlapping authorities between the BP Batam and the Batam Municipal Administration is to integrate the administration of the free trade and free port zone into that of the municipal administration, assigning the Batam city mayor as the ex-officio head of BP Batam, according to Nyat.
In that way, the BP Batam institution will continue to exist and the state budget fund for the BP Batam will be disbursed for the implementation of the previously planned projects.
The dualism in the authority of the Batam Free Trade and Free Port Zone has posed as a main constraint for the development and implementation of the Batam free trade zone. The dualism causes the complexity of licensing procedures and lengthy time needed for the issuance of a business permit.
In the meantime, Assistant to Batam Regional Government Syuzairi said Monday that a focus group has discussed the dualism in the management of the Batam free trade zone at the office of Coordinating Minister for Economic Affairs in Jakarta.
The group discussion came up with a number of alternatives with regard to the BP Batam issue, he said.
One of the alternatives is the integration of the BP Batam into the Batam Municipal Administration. So, there will no longer be dualism in the management of the free trade zone, particularly in terms of business and investment licensing.
Also, the BP Batam can be changed into a Special Economic Zone (SEZ) while the BP Batam is changed into a state-owned company or BUMN. If the SEZ becomes a choice, investment matters will fall under the regional government authority.
"If it is a SEZ, investment will be under the authority of the regional government," he said.
The other alternative is that Batam is given a special autonomy status where the authorities of the municipal administration and the BP Batam will be rearranged, he said.
"One of my proposals is the formation of a BUMN because a free trade zone is a business administration in nature. I propose that it should be managed by a BUMN or by a corporate body," Syuzairi said.
In the meantime, the BP Batam could not be changed into a BUMN, Director for Goods Flow Affairs of the BP Batam, Tri Novianta Putra said. The BP Batam has the status of a public service institution which provides services for many issues regarding the industry. The BUMN, meanwhile, only focuses on seeking profit.
"A BUMN cannot build roads and other facilities because its orientation is profit," Tri said.
If it becomes a BUMN, the BP Batam has to let go many of its responsibilities such as constructing roads, supporting the Batam Polytechnic, managing hospital and many others.
Dualism in the management of the free trade area between the BP Batam and the Batam Municipal Administration has reportedly cast doubts among investors over running their businesses on the island.
On December 30, 2015, Home Affairs Minister Tjahjo Kumolo said that BP Batam would be disbanded in an attempt to improve services offered to the people and to boost investment in the islands.
"We set a target to dissolve BP Batam in January 2016. We have conducted a study along with the relevant ministries," the home affairs minister remarked while addressing the inauguration of Riau Islands Governor Nuryanto in the Provincial Capital of Tanjungpinang late December, last year.
Over the past decade, the government is estimated to have suffered annual losses amounting to Rp20 trillion due to overlapping authority between the BP Batam and the Batam Municipal Administration.
The plan to dissolve the BP Batam was based on considerations of emerging problems due to the overlapping authority between it and the Batam Municipal Administration that could hinder the flow of investment, minister Tjahjo explained.
"Taking into account the problems that have emerged so far, we consider that the BP Batam should be dissolved. The overlapping of authority poses constraints to development and investment," he pointed out.
The dualism in the management of the Batam free trade zone has reduced potential tax revenues for the state by about Rp20 trillion per annum, according to the minister.
"The overlapping authority has caused failures in achieving tax receipt targets. An annual potential of generating Rp20 trillion in tax revenues is lost," the minister claimed.