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Cablegate: Southeast Sulawesi: A Remote Province Focuses On

VZCZCXRO2853
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJS #0087/01 2040505
ZNR UUUUU ZZH
R 220505Z JUL 08
FM AMCONSUL SURABAYA
TO RUEHC/SECSTATE WASHDC 0259
RUEHJA/AMEMBASSY JAKARTA 0245
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHRC/USDA FAS WASHDC
RUEHWL/AMEMBASSY WELLINGTON 0137
RUEHBY/AMEMBASSY CANBERRA 0137
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHJS/AMCONSUL SURABAYA 0264

UNCLAS SECTION 01 OF 02 SURABAYA 000087

SENSITIVE
SIPDIS

DEPT FOR EAP/MTS, EAP/MLS, INR/EAP, EB

E.O. 12958: N/A
TAGS: ECON EAGR PGOV ID
SUBJECT: SOUTHEAST SULAWESI: A REMOTE PROVINCE FOCUSES ON
OPPORTUNITIES OF REGIONAL AUTONOMY

REF: SURABAYA 34 (GORONTALO: CORN, CORRUPTION, AND PROMISE)

SURABAYA 00000087 001.2 OF 002


This Message is Sensitive but Unclassified. Please Protect
Accordingly.

1. (SBU) Summary: Located far from the centers of power, the
province of Southeast Sulawesi (Sultra) is rich in natural
resources yet poor in human capital and infrastructure.
Sultra's recently elected, 41-year old, businessman governor has
outlined a five-fold plan to capitalize on private-public
partnerships and revitalize the local economy. Hoping to use
increased revenues from mining concessions, local officials have
targeted investment in mining, fisheries, and tourism to spur
economic development. Local officials bemoan the lack of
support from the central government, but welcome the
opportunities provided by regional autonomy to take control of
the province's development. Sultra looks to the success of
northern Sulawesi province of Gorontalo for inspiration. End
Summary.

New Governor Looks for Change
-----------------------------------------

2. (SBU) The remote province of Southeast Sulawesi (Sultra)
boasts stunning vistas, exotic flora and fauna, and potentially
lucrative untapped mineral resources. However, a lack of
transportation links to domestic and international markets,
insufficient infrastructure, and a poorly educated population
have limited the province's economic development. Currently
heavily dependent on central government financial support,
Sultra contributes just 0.48% to Indonesia's GDP. Nur Alam, a
41-year old businessman and chairman of Sultra's National
Mandate Party (PAN) who was elected governor in December 2007,
intends to change Sultra's fortunes. Looking to the success of
neighboring Gorontalo for inspiration, Nur Alm has launched an
ambitious five-part action plan aimed at revitalizing the local
economy and strengthening government institutions.

3. (SBU) According to members of the governor's staff who
briefed ConGen Surabaya's Principal Officer during a July 14-16
visit, Nur Alam's action plan consists of five components: human
resource development, bureaucratic reform, improved investment
climate, cultural site promotion, and infrastructure
development. To fund these programs, the government plans to
use increased mining revenues generated by renegotiating
long-standing concessions. According to the governor's staff,
PT Aneka Tambang (Antam) earns Rp. 3.2 trillion (USD 351.6
million) from its mining concessions in Sultra, yet the
provinces receives just 3.5%, or Rp. 103 billion (USD11.3
million) in total revenues. Meanwhile, the company was not
fully developing the site. The governor's office complained
that over the past 40 years Antam has utilized just 8,000
hectares of the 106,000 hectares of land included in the
concession. The governor's office views successful
renegotiation of the contract, involving the company, the state,
and the Minister of Energy and Minerals, as a landmark
accomplishment.

Opportunities from Regional Autonomy
--------------------------------------------- ---

4. (SBU) Nur Alam is taking advantage of opportunities created
as regional autonomy transfers greater authority toward the
local governments but there are no rules governing renegotiating
mineral leases. Some economic officials expressed concern that
Sultra was lagging behind other provinces (including East
Kalimantan, Papua, and West Sumatra) in increasing revenues paid
by state-owned companies operating in the province. Rather than
establishing a precedent for similar contracts, each negotiation
stands alone, requiring new negotiations for each individual
project which creates a lengthy and inconsistent process and
disadvantages the local governments. While the provincial
governors have opportunities to discuss shared concerns, such as
negotiations with the central government or state-owned
companies, the governors have yet to coordinate their efforts to
renegotiate improved contract terms and are thus dependent on
the negotiating skills and energy of their elected officials.

5. (SBU) Sultra hosts the Kapet of Bukari, an Integrated
Economic Development Zone established by the central government
to strengthen the economic development of economically needy
areas. While the governor's staff and local businessmen dismiss
the Kapet as ineffective, the governor reportedly issued a
letter instructing regencies and cities to be more involved in
Kapet's activities. In turn, the Kapet has proposed increasing

SURABAYA 00000087 002.2 OF 002


its annual operational budget from Rp 4 billion (USD 439
thousand) per year to Rp 35 billion (USD 3.8 million) in order
to help implement the governor's agenda.

Obstacles: Electricity, Infrastructure and Bureaucracy
--------------------------------------------- --------------------

6. (SBU) Businessmen and government officials point to
inconsistent electricity supplies and a lack of transportation
infrastructure as the biggest obstacles to development. The
national electricity utility PLN can only supply electricity to
37% of the province and many villages have purchased their own
diesel-powered generators to provide residents with minimal
power. Even in the capital Kendari, rolling blackouts are
common, and many companies can only rely on 12 hours of
electricity per day. The provincial government will host a
meeting of all regents and mayors the week of July 21 to discuss
how to resolve the electricity problems. The provincial
government intends to develop public-private partnerships to
build two new power plants (one state-owned and one privately
owned) with a total capacity of around 20 megawatts.
Additionally, the government plans to build a 70 megawatt
coal-fired power plant near Kendari by 2011.

7. (SBU) The governor's office admitted that increasing
bureaucratic efficiency may be the greatest challenge to
implementing the governor's agenda. The recent increase in the
number of regencies from four to 12 is expected to make the
bureaucracy even less efficient, at least initially. The
governor reportedly intends to have monthly coordinating
meetings with the regents to remind them that while he may not
own the land that make up the individual regencies, he will play
a synchronizing role to ensure economic development is
distributed equitably. The governor's staff observed that
greater regional autonomy would be successful if the province
had a smart, resourceful governor. They noted that many
individuals were reluctant to take the initiative as they
continued to wait for orders from above. Similarly, the
governor must delegate authorities and not try to keep all the
power for himself.

Gorontalo as a Model
-------------------------

8. (SBU) Sultra's governor's office looks to the successful
economic development programs of the nearby northern Sulawesi
province of Gorontalo as Sultra's model (reftel). They point to
the strong commitment of Gorontalo's governor, who is not
content to wait for the cogs of bureaucracy to turn, and
Gorontalo's legislature. Sultra intends to copy Gorontalo's
success with corn by buying any amount of produce (particularly
fish) that the local population can supply so that the people
will know that what they produce has value and will have an
incentive to produce more. The idea is to provide fair income
sharing between farmers/fishermen and businessmen. The Sultra
government divides the production cycle into three stages and
provides relevant assistance at each stage. At the
pre-production stage, the government provides trainers to teach
farmers how to plant and maintain the fertility of the land. At
the plantation stage, the government guarantees a farmer's
access to capital and fertilizer. In the third stage, harvest,
the government will buy any product the farmer produces at a
high price. According to Kapet officials, while mining
represents 95% of Sultra's exports, it represents only 4.53% of
the province's economic activity. Agriculture makes up 43.37%,
with Trade and Tourism at 14.22%.
MCCLELLAND

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