Indonesia: House of Representatives passes long-awaited compulsory land acquisition law

On 16 December 2011, the Indonesian House of Representatives passed the long-awaited compulsory land acquisition law which, if effectively implemented, is expected to facilitate the compulsory acquisition of land by the government for public use purposes, whilst providing fair compensation for land owners. It is hoped that this landmark legislation – the implementation of which requires the issue of further implementation regulations within 1 year – will help facilitate public infrastructure projects in Indonesia.

Executive Summary

1. The new land acquisition law seeks to balance the needs for infrastructure development in Indonesia against the interest of society at large (and in particular the rights of affected parties), by enshrining the basic principle of providing fair compensation for the compulsory acquisition of land by the government for public use purposes.
    
2. The way in which the new law seeks to preserve this balance is by providing a legally prescribed time frame for each stage of the compulsory land acquisition process, whilst embedding within that framework procedures to safeguard both procedural and substantive fairness for affected parties (e.g. consultation process with affected parties and subjecting administrative decisions to legal / court oversight within a specified time frame).
    
3. Whilst the introduction of a prescribed time frame for each stage of the process is welcomed, needless to say it remains to be seen whether this new law would indeed facilitate much needed infrastructure development in Indonesia, particularly whether the relevant processes can move as promptly as prescribed and whether the Court’s intervention in the process may turn out to be adverse to the government’s policy priority of speeding up public infrastructure projects in Indonesia. The new law provides minimal legislative guidance to the Courts on the specific criteria to apply when adjudicating disputes relating to the new law. It remains to be seen whether the expected implementing regulations may provide further guidance on this.
    
4. The new law envisages that the compensation payable to affected parties can be other than in the form of cash, for example, replacement land, share ownership (presumably in legal entities participating in the project) and any other forms of compensation agreed between the parties. This opens the possibility of using “creative” structures, other than cash, to incentivise and compensate parties affected by the compulsory land acquisition.

The key points of the new land acquisition law are as follows:

Balancing priorities

5. The new law seeks to make land available in the public interest for development, whilst at the same time safeguarding the legal interests of Entitled Parties (defined as parties who control or own land which is subject to the compulsory acquisition). The law explicitly seeks to balance the development needs of the country and the interest of society, by enshrining the basic principle of providing fair compensation for the compulsory acquisition of land by the government.
    
6. Entitled Parties are obliged to relinquish the ownership of land at the moment when the public interest compulsory acquisition takes place, once compensation is paid or once the final court decision is obtained. The land acquired pursuant to the new law will be owned by the government or, as the case may be, the relevant state-owned enterprise.

Development activities

7. The new law contains a prescribed list of development activities which may be the subject to compulsory land acquisition (see Annex A). We expect debate in the future as to whether a particular project will fall within the scope of this list.

Four stage process

8. The new law envisages a four stage process for undertaking public interest compulsory land acquisition, namely:
   

   1. Planning Stage
   2. Preparation Stage
   3. Implementation Stage
   4. Handover Stage

Planning stage

9. At the Planning Stage, the relevant Government Agency (which includes State-owned Enterprises) requiring land is required to prepare a planning document setting out, among other things, the purpose of the proposed development, details regarding the land required and the timing of land acquisition / development and the valuation of the land. This document, once prepared, will be submitted to the relevant provincial government.

Preparation stage

10. At the Preparation Stage, the relevant Government Agency and the provincial government will, based on the planning document, announce the development plan, undertake early stage data gathering in connection with the location for development and a public consultation process.
     
11. The new law specifies time periods by which each stage of the process must be completed. Whilst this legally prescribed timeline, if properly implemented, should advance one of the key policy objectives underlying this legislation (i.e. reducing the delays currently experienced by public infrastructure projects in Indonesia), the key policy objective of minimising delays is balanced by the requirements of both procedural and substantive fairness to the affected parties. This is exemplified by:

1. The requirement to have a public consultation process which must be concluded within 60 business days, and which is extendable by a further 30 business days period if objection persists; and
2. The ability for Entitled Parties to challenge the decision made by the governor regarding the location of the development, through the State Administrative Courts, and further that the decision of the State Administrative Courts can be appealed to the Indonesian Supreme Court (with the legal process for appeals being subject to a time frame prescribed by the new law).

12. The new law requires that the determination of the development location in the Preparation Stage be completed within 2 years (extendable, at the most, by 1 further year).

Implementation stage

13. Once the Preparation Stage is completed and announced to the public (determining the location of the development project), the National Land Agency will facilitate the Implementation Stage, including by conducting the necessary surveys and data gathering regarding the land and the relevant Entitled Parties and to facilitate the land valuation and compensation process.
     
14. The new law prescribes specific time periods by which each implementation stage of the process must be completed. Again, as with the Preparation Stage, the prescribed framework for the Implementation Stage also seeks to accommodate the requirements of both procedural and substantive fairness to the affected parties. This is exemplified by:

1. The ability of Entitled Parties to object to the survey and information gathering exercise conducted by the National Land Agency;
2. The requirement to conduct a deliberation with the Entitled Parties with the aim of achieving consensus ("musyawarah") regarding the compensation amount, which process must be concluded within 30 business days of the submission of the valuer’s report to the National Land Agency; and
3. The ability for Entitled Parties to challenge the decision regarding the form and amount of compensation, through the local district courts, and where the decision of the local district courts can be appealed to the Indonesian Supreme Court.

Valuation and compensation

15. The new law provides that the valuation of the land will be conducted by a valuer appointed by the National Land Agency. The new law also provides that the compensation amount determined by the valuer shall be the value of the land at the time when the announcement is made (at the Preparation Stage) by the governor regarding the location of the development.
     
16. The compensation for the compulsory acquisition of the land could take the form of:
     
    1. Cash;
    2. Replacement land;
    3. Resettlement
    4. Share ownership; or
    5. Other forms of compensation agreed between the parties.

Transition

The transitional provisions in the new law are not clear. It provides that land acquisition processes which are ongoing prior to the new law taking effect shall be concluded based upon the previous rules prior to the introduction of the new law, save that the acquisition of certain remaining land ("sisa tanah") which has not been settled under the previous rules, shall be completed based upon the new law. We suspect this somewhat ambiguous wording may give rise to problematic interpretation issues.

The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.

Herbert Smith, Gleiss Lutz and Stibbe are three independent firms that have a formal alliance.

© Herbert Smith in association with Hiswara Bunjamin & Tandjung 2011