Progress on Indonesia’s new land law - Mandiri

The DPR, through its special task force (“Pansus”), has held its first working session on the draft law (RUU) regarding the provisioning of land for infrastructure development on 18 August 2011. Our channel checks indicate that some follow-up meetings have taken place since then, and that the law makers aim to pass the law before the recess period on 28 October (optimistic scenario), or after recess in November (likely scenario). We laid out below a basket of stocks that likely outperform the market should the land acquisition bill is passed as planned.

Misinformed and confused. We sense market frustration and unwillingness to bet on Indonesian law makers approving the draft land acquisition bill anytime soon. The market expects a prolong debate caused by conflicting interests among parliament members on the matter, or the lack of political will.

Conflicting interests or pure bureaucratic delay? The fact is, the DPR Pansus has had no working session on the subject since the draft law was submitted on 15 Dec 2010. The other fact is, the DPR has only passed 10 out of the 91 draft laws, year to date. Our sources indicate that once a draft bill has been put in the agenda, the odds for its passing improves markedly.

A draft law that favors infrastructure developers, with rigid timeline for resolution of disputes. The key feature of the draft of the land acquisition bill is that the national land agency (BPN) sets the compensation value for land that would be acquired for public use. Land owners have 14 days to file a legal case, and national court has 30 days to reach final and binding verdict. Risk of civil rights violation aside, numerous infrastructure projects may progress much more quickly with this new land law, benefiting Indonesia’s economy as a whole.

One powerful new theme that should influence equity investment decision. Past disappointments aside, market participants are aware that the probability of the draft law being passed increases each year, given the worsening infrastructure bottleneck. Two years to the end of president SBY’s term, 4Q11 is the perfect time for this important draft law to be passed.