2-Night Stay at rate US$ 490
3-Night Stay  at rate US$ 650
4-Night Stay at rate US$ 790

All rates inclusive:

• Daily breakfast for 2
• One 3-course in-suite candlelit dinner for 2
• Valentine gift for 2
• Tropical fruit basket, replenished daily
• Evening herbal tea at turndown
• Scented-cool towel & refreshment drink upon arrival
• His & her bathrobe & slippers
• Mineral water in each villa
• 24-H wireless internet
• Free use of gym
• 21% tax & service charge

RATES & RESERVATION
THE SHANTI RESIDENCES & RESORTS, BALI
T. +62 (0) 361 734 656
F. +62 (0) 361 730 160
E. selvi@shantiresidencesandresorts.com
W. www.shantiresidencesandresorts.com

As the holiday season nears, Bali’s tourism businesses are asking the government to provide some leeway on alcohol imports following the recent shortages. As of December, certain products, particularly European ones such as whiskey, vodka and tequila, are still hard to find, even after all the complaints lodged by businesses from the alcohol scarcity of over three months ago.

Reasons behind the sudden shortage remain unclear. Customs officials said there had been no increase in duties on imported alcohol. Some experts blamed tightened bureaucracy. Several businessmen went so far as to call the shortage part of an effort to weed out European brands to make way for Chinese brands.

Whatever the theory, tourism businessmen said Bali could only end up with the short end of the stick should the alcohol shortage last any longer. Ngurah Wijaya, head of the Bali Tourism Board, said a prolonged alcohol shortage would pose a “major problem” for the island’s tourism industry. “The government must remember that alcohol products bring in up to 80 percent of Bali’s tourism revenue. “This means the industry is going to experience a major income loss due to this shortage, especially with the ongoing global financial crisis,” he said. He urged the government to provide some leeway, such as making trade deals to allow unrestricted traffic of imported alcohol from certain countries to the island. “Europe, the United States and Australia remain our most trusted exporters for alcohol, we should be making trade deals with them soon for alcohol,” he said.

I Gde Wiratha, chairman of the Bali Chamber of Commerce and Industry who is also the owner of a number of high-class night clubs, said the prolonged shortage showed a lack of government commitment and support of Bali’s tourism industry. “How can the government allow Black Label to sell for up to Rp 1.2 million? How are we supposed to make money? Who will want to spend that much money?” he said.

He criticized the government for allowing this to last through the holidays, calling it a snub to Bali’s tourism industry. “Just imagine, Singaporeans pay three times less than we do here for alcohol. How is that supporting the industry?”

Meanwhile, most restaurants, hotels and bars continue to struggle to supply guests with alcoholic drinks. Aulianty Fellina, marketing communications manager from the Hard Rock Hotel in Bali, said the hotel was facing a 100 percent price increase in alcoholic drinks due to shortage. “Right now we don’t have a shortage because we have a good stock of alcohol, but I can’t say that we won’t be affected and we may end up raising prices, although we’re still holding to the current prices,” she said.

Jeanie Grace, a spokesperson for Sector Bar, said her establishment had also been struggling to find certain beverages, but was encouraged by the opportunity to introduce local drinks. “Right now we’re just looking at the bright side, it’s still going to be Christmas, we have a lot of events planned and it’s going to be a good time to promote some locally made drinks,” she said.

This year Indonesia’s tourism industry can take pride in its achievements. A new record will be set in 2008 with some 7 million foreign tourists visiting Indonesia. This meshes with Bali where a record 1.9 million foreign tourists will be recorded. This compares most favorably with the 5.5 million foreign tourists who came to Indonesia in 2007 and the 1.5 million who visited Bali in that same year.

What’s interesting is that the achievement of 7 million foreign tourists certainly represents a phenomenal performance for Indonesia. However, closer examination is warranted, including viewing arrivals from several countries in Southeast Asia to Bali and Indonesia and the tourism performance of those countries. For example, Malaysia has attracted 18 million visitors spending US$36 billion; Thailand has netted 15 million foreign tourists; and Singapore 10 million. This does not include the impressive performance of the tourism industries in China, India or Hong Kong. Singapore is able to attract more Indonesian tourists than the total foreign tourists that visit Bali.

Through comparing tourism arrivals at a the aforementioned Southeast Asian countries, we can see that Singapore, a small country the size of Bali, is able to surpass Indonesian tourism by attracting 10 million visitors in a single year. Meanwhile, Indonesia, which is a vastly larger country with thousands of natural attractions and thousands of islands can only attract between 5-7 million foreign tourists. This is also the case with Bali, a destination that has won the label as “the best island in the world” for eight times as well as other honors, where we should actually be able to attract more tourists than we are at presently achieving.

We can derive many important lessons from our neighboring countries – such as Malaysia, Thailand and Singapore – who have only recently discovered their tourism potential. These countries are very serious about tourism and have clearer visions, stronger marketing, behave more strategically, and are bolder in their execution than their near neighbor Indonesia. In fact, when seen from the standpoint of their tourism products and the attractions they offer, these countries have no significant advantage over Indonesia.

Singapore is active in its promotion of special events in the electronic and print media to markets not dissimilar to those sought by Indonesia. Every activity is expertly packaged, such as their great sale as well as cultural and religious celebrations.

Malaysia is even more successful with its program “Malaysia, Truly Asia” which has managed to launch new tourism destinations, such as the resort island of Langkawi and the FI circuit of Sepang. In fact, Malaysia has sought to strengthen its “truly Asia” positioning by utilizing the icons of neighboring countries; a step that caused Indonesia to protest Malaysia’s use of reog, batik, angklung and songs – all considered to belong to the endemic culture of Indonesia. Such tactics show that while Malaysia may be lacking domestic destinations capable of attracting tourists, such as the beaches of Bali and the exotic cultures of Indonesia’s other islands, their strategic promotional plan in combination with a very serious intent to build a national tourism industry, have allowed Malaysia to become the Southeast Asian destination capable of attracting the largest number of foreign tourists.

Then, lastly, we have Indonesia which has apparently been left far behind in the management of its tourism industry, marketing strategies, product packaging and service provided to visitors. It is as though we have been assisted by the global phenomenon of tourism growth and the difficulties of other destinations, such as Thailand, who have encountered internal political problems. How goes Bali? If we are truthful, we have done little of significance to develop our tourism fortunes.

Little Effect or Influence

Examining closer what has been achieved by Bali tourism, the various programs have had little significant impact. Casting our eyes back to the recent past, “Bali for the world, Bali is my life” and the latest branding of “Shanti Shanti Shanti” have all failed to create any tangible results. It is rare to have a hotel or other tourism industry component that displays the Shanti Shanti Shanti branding, despite Bali having launched this island branding program more than one year ago. Such is also the case at Bali’s airport and tourism destinations within the island where the latest branding has become so much jargon.

Similarly, few members of the general public – including both domestic and international tourists – have any appreciation or understanding of the Shanti Shanti Shanti branding. Some have complained that the central government, in the guise of the Department of Culture and Tourism, has failed to support programs for Bali branding. However, the fact that the central government has also failed to support other successful branding programs, such as “Enjoy Jakarta”, deny Bali the use of that excuse.

With this understanding, the government of Bali must create a tourism promotion program which stands out for its creativity and effectiveness. More appropriate media placement and promotional material are needed. Don’t we have sufficient unique materials that can be used in the execution of promotional activities? Certainly we must have learned from past mistakes where every project lasts for but a moment and absorbs substantial amounts of money. We have yet to learn from our neighbors how to truly promote tourism in a proper way

The question has become: How long will we continue to be left behind? Outside of facts beyond our control, “the best island in the world” should be able to demonstrate the required synergy that matches that honorific – an island presenting “the best” for its visitors and “the best” for its own people.

• The private sector will be given the opportunity to operate airports in Indonesia, ending a monopoly held by state-owned PT Angkasa Pura I and PT Angkasa Pura II.
• Airline operators are now required to own a minimum of 5 aircraft and rent as least 5 more in order to create armadas deemed by the government to be sufficient to support an adequate management and maintenance regime. This change in the rules is expected to fuel mergers and acquisition as small operators struggle to stay in business and meet minimum fleet requirements.
• Airlines must demonstrate financial soundness with sufficient assets to finance flight safety.
• A three-year grace period during which airlines will be given the opportunity to bring their operations into compliance with the new operating rules.
• Air traffic control and navigation support will become the direct responsibility of the government and no longer be operated by airport authorities.
• In a controversial move, the government now has the right to set minimum selling rates for economy class fares.
• Special attention must be paid by Indonesian operators for aged and disabled passengers.
• Airlines must provide compensation for passengers on delayed or cancelled flights.
• In addition to a requirement to hold a valid air operating certificate, Indonesian
• Airlines are also required to maintain minimum levels of spare parts.
• Air accidents will now be investigated by an independent body.

At the present time, Indonesia has a total of 14 airlines operating 964 aircraft over 167 different routes. The Jakarta Post reports that some 30 more airlines are in the process of seeking operating licenses, a number expected to decline in the face of requirements levied under the new aviation law.

The passage of the new aviation law, now being translated into English, was widely seen as a critical step in efforts to lift the current European Union “blacklisting” of all Indonesian registered aircraft.

The head of the Bali Environmental Agency, Gede Putu Wardana, confirmed the government’s growing concern over the environment, and said a long-term environmental protection plan stretching to 2050 is now being formulated

According to Wardana, in the shorter term of 2009 to 2014 there are plans to replant Bali’s forests, stop the erosion of shorelines and re-green critical water-absorbent green zones

Data provided by the Director General of Water Resources the air temperature in November 2008 reached 22-33 degrees Celsius. Previous to that, the average temperature ranges between 28-30 degrees Celsius

At the same time, water levels are now 50 centimeters higher on almost all beaches of Bali

The fast-declining condition of Bali’s environment is also underlined by the fact that the 51.950 kilometers of eroded shore line recorded in 1987 has now grown to 91.070 kilometers or approximately 20% of Bali’s entire shoreline (436.5 kilometers). At the same time, officials report that the intrusion of sea water into the water table has become a major concern in many areas of the island

A local activist from Conservation International Indonesia, Made Iwan Dewantama, has characterized the soon-to-be-announced timetable for preventing further environmental degradation as coming too late. He points to the many environmental and green conferences held in Bali, including the U.N. Climate Change Conference held in December 2007, as demonstrating that Bali has done little for the environment despite the dire warnings sounded during numerous conference held at the Island’s conventions centers. spent US$100 million to attract tourists in 2008.

The Director General of the Department of Culture and Tourism, Sapta Nirwandar, told Bisnis.com, “Even more so in the middle of the global economic crisis which is also affecting Indonesia, we hope the contribution from tourism will help speed the recovery of the national economy.”

The central government has budgeted a total promotional budget of Rp. 289 billion (US$ 26 million) from a total departmental budget of Rp. 1.1 trillion (US$99 million) to achieve an approximate 10% increase in foreign tourist arrivals in 2009.

Is the Promotional Budget Enough?

Diplomatically fielding questions regarding the sufficiency of the funding allocated for tourism promotion, Sapta referred to the World Tourism Organizations’ yardstick of US$10 for every foreign tourist arrival. By that standard, Indonesia should be spending US$ 100 million in order to achieve its stated target for 2009.

Reflecting the current world economic crisis, Indonesia has lowered its target of 8 million tourist in 2009 to only 6.8 million. The Department of Culture and Tourism had originally asked for Rp. 340 billion (US$30.6 million) in promotional funding, resigning itself to the final figure of only Rp. 289 billion (US$26 million). According to the Secretary General of the Department of Culture and Tourism, Wariyatmo, the money allocated for tourism promotion in Indonesia is still miniscule in comparison to competing destinations, such as Malaysia, which spent US$100 million to attract tourists in 2008.

The Interview: Rainy Hendriany SH, M.Kn.

Balidiscovery.com: There has been a lot of media coverage recently about proposed changes to the regulations governing property ownership by foreigners. Since our last interview in September 2007, have there been any significant changes in the laws?

Rainy Hendriany: In a word: “no.” While it is true that there has been a lot of discussion and speculation in the media about possible changes in the law as regards foreign ownership and reforms have been proposed, these changes have largely been put forth by commercial interests and, as in the past, they continue to be strongly opposed by nationalistic interests. The debate both for and against liberalizing foreign land ownership rules rages on with little evidence of any consensus developing on what remains a heavily charged and controversial issue. Even with the added pressures of the current global recession, I don’t see any significant change on the horizon and, in my opinion, Hak Milik (Freehold) land title will remain closed to foreigners.

Let me try to bring you up to date on the changes that have occurred since we last spoke.

Firstly, the BKPM (Foreign Investment Coordinating Board) now requires a new Foreign Direct Investment Company (FDI/PMA) wishing to invest in commercial or residential property to submit a business plan specifying the number of units to be developed. BKPM now requires a minimum number of units to be developed, together with a commitment of a commensurate amount of investment capital. Single unit or small scale developments are no longer being encouraged.

Secondly, the Capital Investment Law of 2007 (UU25/2007) had originally incorporated a longer grant of land tenure for both domestic and foreign investment companies under “Hak Guna Bangunan” (Building rights) and “Hak Pakai” (Right to Use) land titles.

“Hak Guna Bangunan” (HGB) building right title may be held by Indonesian nationals or by both Indonesian or foreign investment companies. HGB title cannot be held in the name of a foreign individual. Hak Pakai or right to use title may be held by foreign individuals. In the hierarchy of Land titles HGB falls below Hak Milik (Freehold) – which remains strictly unavailable to foreigners, but above Hak Pakai. Both HGB and Hak Pakai are granted for an initial period and may then be extended and thereafter possibly renewed.

The 2007 Investment law, as approved by Parliament (DPR), provided for the extension of land titles granted at the time of the initial land grant with the approval of the investment by BKPM. However, an appeal against this stipulation was lodged with the Constitutional Court arguing that these provisions were in contradiction with the existing Agrarian law (UU5/1960) and the Hukum Dasar (The Indonesian Constitution). That appeal was upheld and so the existing regulations limiting the validity period of land titles remain in effect. Back to square one.

Finally, the new Company Law (UU40/2007) has a number of significant changes affecting businesses, including stipulations forbidding beneficial ownership arrangements of a Company through the use of nominees.

After some initial differences of opinion as to whether or not this applied to a PT Biasa Company (essentially a company not formally incorporated under the investment laws and fully owned by Indonesians), the consensus is that the law applies to all companies, including PT Biasa Companies. Since direct foreign shareholding in a PT Biasa is not allowed, this has raised various issues where nominees have been used by foreigners to establish beneficial ownership of a PT Biasa Company, which sometimes also involved the ownership of property (with HGB title) by the company.

Balidiscovery.com: Don’t changes to the Company Law restricting the use of nominees seem to mirror previous regulations regarding use of a nominee for an individual foreign property investor?

Rainy Hendriany: Although there are important practical differences in terms of the legality of associated documentation, the law’s intent to confine foreign investment to those areas not restricted by Indonesian investment law and other relevant laws remains unchanged.

In short, Indonesian law does not recognize rights of beneficial ownership of property. Therefore, the use of an Irrevocable Power of Attorney (POA) seeking to convey rights of beneficial ownership is, in general, legally unenforceable; subject to revocation at any time and may raise other legal issues in the event of a dispute.

In addition, it should be remembered that, as is the case in most legal jurisdictions, a Power of Attorney automatically terminates with the death of the person granting it.

So, as we discussed last time, entering into a nominee arrangement, now also including one involving a PT Biasa Company, is not a trivial matter as some parties would have potential investors believe. The notion that a nominee arrangement (also referred to in some circles as a “Name giver” arrangement) is just an inconvenience of Indonesian law and which is somehow legally accepted, is a complete misrepresentation. There is a need for great caution, and professional legal counsel should be obtained.

Balidiscovery.com: Following our last interview there were some comments that a Public Notary is not qualified to provide such legal advice?

Rainy Hendriany: Yes, I’m aware of the misunderstanding on that point in some quarters, so thanks for raising it.

The confusion is based on a lack of understanding of the differences between the roles of a public notary in common law jurisdictions – such as the UK, USA, Australia and New Zealand, and civil law jurisdictions- such as Indonesia, France, Holland, and Germany.

In common law jurisdictions the function of a Public Notary is largely a clerical role intended to verify the existence of a document prepared by a professional. However, in a Civil law jurisdiction a Public Notary is first and foremost a qualified lawyer, or Sarjana Hukum, with a post graduate qualification required to serves as a Public Notary. In Indonesia, only a qualified notary with a further qualification, authorizing the preparation of land ownership titles (PPAT) for the conveyance of land titles As such, a Notaris/PPAT spends a good deal of his/her time dealing with land matters.

Balidiscovery.com: Based on your comments, it appears the rules affecting foreigners wishing to invest in property in Bali have actually become more restrictive. Could you summarize what, if any, fully legal options are available for foreigners wishing to establish a property in Bali?

Rainy Hendriany: The legal options remain largely unchanged except that the route of ownership of a single residential property investment via a foreign-investment or PMA company many no longer be available,

Firstly, “Hak Sewa” (Leasehold) remains perfectly legal. But because the Constitution and the basic Agrarian Law both restrict the “Control” of land by foreigners to specified periods, notaries in Bali can only create leaseholds of 25 years. However, there can be options included in the original lease to extend that period.

As leasehold conveys no ownership rights, either direct or beneficial, so the interpretation of what constitutes “Control” is rendered a moot argument. If sometime in the future a consensus is achieved allowing the liberalization of foreign “ownership,” a longer period of leasehold might represent an easy and less controversial approach, simply because it does not convey any land ownership rights.

In fact, long lease periods have provided the basis for allowing foreigners to acquire property in many countries. For instance, if one were to “buy” an apartment in London, most properties are subject to a 99 year lease and this arrangement has been proven to work well over time.

Secondly, Hak Pakai or the “right to use and build” on land, both for “Hak Pakai atas tanah Negara” (Use of Government lands) and “Hak Pakai atas Hak Milik” (Use of Freehold Lands) is legally available to foreigners, under certain fairly straightforward conditions. Such use can only be for one residential property per individual foreigner.

“Hak Pakai atas Tanah Negara” essentially transfers the land from an Indonesian “Hak Milik” (Freehold) property owner to the Indonesian State which then grants “Hak Pakai” rights to the foreigner, who receives a Land Certificate in his/her own name. However, the initial period, consistent with everything discussed earlier, remains 25 years with options to extend and then renew possible.

Hak Pakai atas Hak Milik, on the other hand, involves the owner of the land granting Hak Pakai on top of the Hak Milik title, with the Hak Milik certificate remaining in the name of the Indonesian owner. In this instance, a separate Hak Pakai certificate issued in the name for the foreign investor and noting the Hak Milik ownership by the Indonesian ownership, again for an initial 25 year period. This structure involves the use of various side Agreements to cover extensions and other matters.

Balidiscovery.com: The number of apartment and condominium developments in Bali have dramatically increased. Are there any differences when it comes to ownership regulations for apartments and condominium units?

Rainy Hendriany: Again, the short answer: “no.” Having said that, there are a great number of variations involved with apartments, some of which do not involve “ownership.” If we are talking about foreign ownership, then the same general principles discussed earlier apply.

Apartments may be offered to foreigners on a leasehold basis, again subject to the same principles of leasehold already covered.

In Jakarta, most apartment developments make use of the “Strata Title Law” with an underlying HGB land title. However, as we discussed earlier, units sold with HGB title would not be available to foreign individuals but could be held by a local Company, including a foreign investment company (PMA), although not one established solely for this purpose.

Actually, while apartments may be developed and legally sold to foreigners using Strata Title over Hak Pakai land title this practice remains rare because the law does not permit the underlying land title to be both HGB and Hak Pakai. So, should a project be developed using Hak Pakai as the underlying land title, the developer would need to sell all the units to foreigners because, in general, Indonesians are less interested in Hak Pakai title due to the lower status of the title and an initial grant period that is less than HGB. However, perhaps the high demand for property by foreigners in Bali will make this approach more feasible than is the case in Jakarta.

I don’t know how the misconception arises, but I am frequently asked by clients if a legal exception exists allowing the freehold purchase of an apartment/condominium unit by foreigners. This is not correct and the general principles discussed apply to all properties. There are no specific differences or exceptions for apartment units.

Another area in which there is great confusion is taxation. The sale of a new unit for the first time, and incidentally this applies to all new properties not just apartments, may be subject to both 10% PPN (VAT) and 20% PPnBM (Luxury tax), depending on the size of the property and/or the total cost. The potential liability for such taxes obviously makes a material difference to the total purchase price, meaning that this aspect needs careful examination and documentation.

The quality and applicability of transaction documentation can also vary considerably. It is important in buying a property that the purchaser appoints an independent notary to represent their interests and take responsibility for completing the transaction.

The potential tax liability for a new property does not apply to the resale of an existing property taking place between private individuals. In these instances a separate 5% tax is levied on both of the buyer and seller, based on the taxable value of the land and property (NJOP).

Finally, a word of caution: my comments are of a general nature. Every transaction and the associated documentation is different and professional legal advice should always be obtained.

Editor’s Note: Rainy Hendriany is married to a retired British businessman recently award the OBE for his service to the British and International communities in Indonesia. Rainy maintains a notarial practice in Sanur and can be contacted via telephone at +62-(0)361-7800532 or +62-(0)361-
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