All’s Not Well as Coca-Cola Bottling Indonesia’s Water License Gets Tangled in Bureaucracy

All’s Not Well as Coca-Cola Bottling Indonesia’s Water License Gets Tangled in Bureaucracy

By Dion Bisara on 09:45 pm Mar 09, 2014

Jakarta. Even after operating in Indonesia for more than 20 years, a local unit of Australian soft-drink bottler Coca-Cola Amatil isn’t spared from the country’s notorious red tape — becoming instead a symbol of the bureaucratic hurdles that hold back foreigners from investing in this country.

Coca-Cola Bottling Indonesia (CCBI), one of the local subsidiaries of Sydney-based Coca-Cola Amatil (CCA), is being investigated by the National Police’s detective unit over allegations that the company operated three water wells without proper licenses for its plant in Sumedang, West Java.

Wilson T.P. Siahaan, CCBI’s head of corporate affairs, told Jakarta Globe in an interview that the licenses for the three wells expired between 2010 and 2011 and that the firm had been applying for renewals for each well before the deadline. The licenses, though, have yet to be renewed.

A 2004 law on water resources states that anyone continuing to use water without proper licenses will face three years in jail or be fined Rp 500 million ($43,000). The law does not provide details on the procedure for obtaining a license, other than stating that it will be regulated in a separate presidential law.

A 2008 presidential law on water use states that a license ends if it expires and is not being renewed; if it is revoked; or if it is returned.

“It seems that the police are using their own interpretation of the law, while we interpret the presidential regulation as being that we are still allowed to tap the wells as we had submitted applications for renewal,” Wilson said.

The National Police is yet to hold a hearing to gather opinions from experts about the case.

Insp. Gen. Suhardi Alius declined to comment on the case. “I have not been updated yet about that,” he told the Globe in a text message last week.

The police first began investigating CCBI’s Sumedang plant in September after receiving information that the company’s licenses for the wells had expired. Three CCBI employees have been questioned as witnesses: Ambrosius Padang Durmandito, an employee at CCBI Sumedang; M. Edi Isdwiarto, human resources director at CCBI Jakarta; and Budiawan Anggrahitono, national human resources operations manager at CCBI Jakarta.

Passing it on

Sumedang district secretary Zaenal Alimin said the district government had received a request from CCBI for an extension on the licenses as early as in 2010 and that it had forwarded the request to the provincial government, asking for its technical recommendation.

Underground water licenses are issued by a district head. Still, the provincial government needs to provide its recommendation for underwater usage if the resource is shared among districts, according to the 2008 presidential regulation.

In the CCBI case, Sumedang shares its underground water with other districts in West Java.

“We have conducted the meetings with relevant units in government to resolve this issue. We have sent a letter to the provincial government to ask for the status of the wells,” Zaenal, said in a text message. He declined to elaborate further.

Tatang Effendi, head of the geology and water resource division at West Java’s Energy and Mineral Resources Department, says that his office is yet to receive any documents from the district government.

The provincial government is involved in issuing licenses of underground water resources from all of its districts because tapping the resource in one place can affect availability in other regions, Tatang said.

CCBI must fulfill several requirements for the licenses including tax payments, water usage, and providing technical reports, among others, Tatang said.

“Still, if they already had applied for renewal as they have said, CCBI can still operate its wells according to government regulation,” Tatang said.

Loopholes

Business leaders say the issue is not unique to CCBI. Businesses, be it foreign or local, have stumbled while navigating through the complexity of bureaucracy in Indonesia.

Robert Endi Jaweng, executive director of Regional Autonomy Watch (KPPOD), said CCBI’s case is just one of thousands that often happen due to inefficient bureaucracy.

Indonesia ranked 120th of 189 countries in the World Bank’s 2013 report on ease of doing business. Singapore was number one. On the basis of requiring permits, Indonesia ranked 88th. In the World Economic Forum’s Global Competitiveness Report 2013-14, inefficient bureaucracy was the second-most problematic factor in doing business in Indonesia, after corruption.

Such inefficiency can also pose other threats to businesses.

In CCBI’s case, Robert said that in 2010 a new government regulation stipulated that supervision and tax payment of water assets are to be diverted to the provincial government from the district government. The regulation, though, did not specify who will be responsible in issuing permits for water sources, thus creating the confusion among district officials.

Such lack of clarity over governance or interpretation of regulations has affected businesses recently.

The Jakarta Anti-Corruption Court last year sentenced certain Chevron Pacific Indonesia employees to jail for a bioremediation project, which processes soil contaminated during operations. Even though Chevron had financed the project and set aside funds, as required by law to treat contaminated soil, the Attorney General’s Office had accused Chevron of misusing those funds. Experts and even the government had said that no laws were broken in that case, while the accuser — who was an expert witness for the Attorney General’s Office — had reportedly lost a tender for the bioremediation project.

“The investment climate in Indonesia is so bad, especially on the bureaucratic side,” Sofjan Wanandi, chairman of the Indonesian Employers Association (Apindo), said on Sunday.

“The government has to make clear of the regulation. And if they are not going to give the permit to Coca-Cola Bottling, they should inform the company, not just leave it with an unclear status,” he said. “At the same time, Coca-Cola Bottling should trace its renewal application to the provincial government and ask for an explanation.”

CCBI’s Wilson said the company was committed to follow through with all the proper procedures needed to resolve this issue.

“Our priority is to keep the operation going and follow both legal and administrative process,” he said, referring to the licensing and police investigation.

The Sumedang plant — which makes flavored tea beverage Frestea — continues to operate and use water from the underground wells.

The facility provides 1,000 direct jobs to the surrounding community, and indirectly supports 4,000 other jobs, from retail to distribution, Wilson says, referring to a study by the University of Indonesia.

CCBI’s parent company Coca-Cola Amatil has pledged investment of $155 million to expand in Indonesia in the next three to four years, as it tries to boost sales in the fourth-most populous country.

“We just want certainty. A problem like this is a deterrent to business and investment,” Wilson said.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: