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