Indonesia’s president Joko Widodo first touted the prospect of moving the country’s capital away from the packed streets of Jakarta in 2017. The search for a location began, with a site in East Kalimantan, part of Borneo, eventually being chosen.
The island of Borneo — which is also home to part of Malaysia and the entire state of Brunei — appealed for several reasons. The Kalimantan province has a total population of around 16.5 million, with just 3.8 million living in East Kalimantan. The location is also outside of the Ring of Fire, reducing the risk of disruption from earthquakes.
It is not the first time that moving the capital away from Jakarta — home to 10.5 million people and sinking at a rate of between 1 centimetre (cm) and 18cm a year depending on where you are in the city — has been discussed. But this is the first time such discussions have moved beyond the planning stages.
The process officially began when the ground on the new capital, Nusantara, was broken in August 2022, with work well underway on the construction of the new presidential palace (which will cover twice the area of the existing residence in Jakarta). Development began on the new airport in November 2023, with the aim of being fully operational by December 2024.
Building a brand-new city from the ground up, fit for the needs and challenges of modern life, is a fascinating — and very ambitious — prospect. Yet, with an estimated planning cost of $35bn, considerable work needs to be done to get the project over the finish line, especially with general elections looming in 2024 which could see the incumbent government lose power.
Current plans would see the government crown its achievement by celebrating its first Indonesian National Day in the city on August 17, 2024, hosting as many as 8000 people in the grounds of the new presidential palace. But there are significant obstacles to tackle in order to achieve this aspiration.
Big plans
From the outset, the Indonesian government made it clear that Nusantara would be a “green city”, with its almost 260,000 hectares of allocated land seeing 75% preserved for nature, split between 65% as forest and 10% as parkland. This high percentage of natural land forms part of the plans to make the city carbon neutral by 2030, with the forest acting as a carbon sink. In addition, clean energy will be used for the local power grid and public transport.
The government aims for 1.9 million people to live in the city by Indonesia’s centennial in 2045, with the first civil servants moving in in the next 12 months. To meet this goal, secretary of the Nusantara City Authority, Achmad Jaka Santos Adiwijaya, pledged in March 2023 that facilities including malls, hospital and schools, in addition to housing, would be completed to meet their needs.
Bambang Susantono, head of Nusantara Capital City Authority (OIKN), has previously said that he believes investors want to see the government move its offices first, as proof of its confidence in the project.
The president is trying to get enough momentum to sustain the project after his term, but it is likely to slow down ...
There are dissenting voices in the viability of the project. For example, Kevin O’Rourke, principal at consultancy Reformasi Information Services, says: “The new capital project lacks independent oversight and so has questionable governance. The president is trying to get enough momentum to sustain the project after his term, but it is likely to slow down and become a very long-term project thereafter.”
He cites the nature of some of the building designs, in particular the presidential palace, and adds that the “scope of the original plans envisioned a fairly credible, small-scale central area, but indications suggest it has started to sprawl”.
However, others are looking at the project with optimism. Speaking at the Indonesia Investment Forum 2023 event in London in October, Sowmya Parthasarathy, global lead for developing and emerging markets at Arup, explained that the company is involved with the development of Nusantara.
“Planning a new city gives us an opportunity to bring together all the elements of transport, electric vehicles, energy and roads, and see how sustainable development can actually lead to a better quality of life for people. It’s not just that it’s cheaper and greener, but it allows us to do things better,” Ms Parthasarathy said.
She added that the plans were designed to make the city as accessible as possible to its new residents. “We are working on 10-minute principles,” she said. “This is beyond the 15-minute principles, as this is a new city so we can go further. How can you deliver places the people need in their daily lives in a 10-minute walk? This included public transport and integrated land use.”
But Mr O’Rourke adds that the developments seen so far may be motivated more by meeting the government contracts than a desire within Indonesia for such a new city. “There is a lot of rapid construction taking place, and there are Indonesian state-owned construction companies that do have the capability to develop structures quickly,” he says. “Indonesian companies are undertaking projects, building apartments, neighbourhoods, shopping malls and hotels. Whether they are doing it with enthusiasm is questionable.”
Making it green
Bringing the ambitious plans to life required looking internationally, and Indonesia signed several memoranda of understanding (MoU) with international companies, including Microsoft and Hyundai.
Joe Speicher, chief sustainability officer at software company Autodesk, explains that the company was among those that signed an MoU, and is providing services for the planning of Nusantara. He believes the inclusion of such international expertise will be important in the city meeting its green aspirations.
“The opportunity is there to be intentional about how it is being designed and built,” says Mr Speicher. “For example, an architect can design a sustainable building, which then has to be built. For the contractors, the aim is to build as quickly and efficiently as possible. The owners then have different incentives to maximise the economic value of the building. The tool enables all of those disparate actors to connect and find the best mutually beneficial outcomes for their goals.”
Sustainability is a data problem. If you want an optimised building, you need to know the full value chain of sustainability.
In addition to being used for the building designs, the technology can be used for modelling how the residents will use the city, such as around traffic patterns and public transport options.
Having oversight on the whole project means it is possible to identify problems or discrepancies. Mr Speicher says: “Sustainability is a data problem. If you want an optimised building, you need to know the full value chain of sustainability. This is made possible through the software. It can import the local supply chain of building materials, the grid mix of renewables and fossil fuel-derived energy. They can associate sustainability data with the model of the building they’re constructing and bring it in to make better decisions that reduce the carbon footprint of a building.”
Although there are plans for developing renewable energy sources, there are concerns about how sustainable some of them are in reality. “There are plans for the electricity to come from hydropower, but these are long-term projects. And some are proving controversial,” says Mr O’Rourke. “The $18bn Kayan Hydro Power Plant project is being developed by the contractors of the Three Gorges Dam in China. Yet the site is in the Heart of Borneo, an informal conservation area and orangutan habitat.”
However, Mr O’Rourke thinks that the development may prevent sprawl elsewhere. “The construction of the capital could help protect some other sites. The nearby city of Balikpapan is expanding and the surrounding state parks are at risk. The new capital could help to protect these sites.”
Financing the build
While the project has moved into its next phase of construction, there are still questions about how it will be financed. Indonesia has pledged to cover 20% of the project cost, with Rp32tn ($2.1bn) invested for the completion of infrastructure, including roads and a dam. A further Rp40.6tn has been allocated as part of the 2024 budget, with Rp35tn of this to be given to the public works and housing ministry to construct homes for 16,000 civil servants, and members of the military and police.
Yet, attracting the remaining 80% of investment needed to complete the project has proven to be difficult. Japan’s SoftBank had pledged investment, but pulled out in March 2022. SoftBank chairman and CEO Masayoshi Son had been named as part of the steering committee for the project, and had stated his interest in developing an innovative and clean city. After its withdrawal, Indonesia’s minister of investment, Bahlil Lahadalia, said the government had been unhappy with SoftBank’s proposed involvement as they did not believe they were getting a fair investment model, citing issues including the government having to rent properties that were constructed through the company’s investment.
Elsewhere, Australia has pledged A$5m ($3.35m) in support, with prime minister Anthony Albanese promising that the country’s technicians would be on hand to support the creation of a green and high-tech city, with the country’s Central Queensland University planning to expand into the new capital. Additionally, the Asian Development Bank has pledged support and signed an MoU, but it is not confirmed if there is a financial element.
Mr O’Rourke says investors may be nervous as they do not see others taking up the opportunity. “There has been too much spending, too fast, with not enough independent oversight. The previous administration had some big infrastructure projects which had mark-ups and kickbacks. There are also conflicts of interest, which means there are grounds for questioning the probity of the work,” he says.
“The proposition for foreign investors is to invest in the new capital project with the government as the sole customer, and they [could be] going out of office in 10 months. It is certainly not the most attractive of propositions,” he adds. “There are very few providing capital at this stage, with a lot of funding coming from the state budget.”
In March 2023, the Indonesian government announced several new incentives to entice investors. These included scrapping the corporate tax for companies in some sectors if they commit financing of at least Rp10bn for between 10 and 30 years.
Foreign companies that move their headquarters to the city and financial institutions that set up business in Nusantara will receive tax cuts. Further, research and development costs will be tax deductible, and import taxes will not be applied on capital goods. In addition, the government has also pledged to provide land rights for 95 years in the city — longer than is offered elsewhere in Indonesia.
For the new residents, there is a promise of exemption from paying income tax.
While the investor base is not widely known, the OIKN has stated there has been significant interest in the project, with 323 investors’ letters of intention received by December. Of this, 47% of the investment is to come from countries including China, Malaysia, the US, Japan, Singapore and South Korea. However, the majority of the investment is domestic, and the OIKN’s financing director, Naufal Aminuddin, has said these investors are to be treated as a priority.
What comes next?
For those involved in the construction, they believe they can leverage their systems to prove that the city is meeting its green and financial goals to investors.
Mr Speicher of Autodesk says: “Using the tools enables operational efficiency, using data and automation to ensure the project is delivered close to cost and on time. The services we bring can and will have benefits to the financial aspect of the project — reducing risk and improving margin.”
Speaking at the forum, Ms Parthasarathy explained that Arup can help with the visualisation of how the end goals can be achieved. She said: “We are not usually on the funding and financing side, but where we work is preparing projects and programmes, identifying and articulating outcomes, setting the key performance indicators and, in some ways, making them investor-ready.
“There are some projects that are presented in a way that may not attract investment, but they are on a pathway to decarbonisation,” she continued. “If we can structure it in a way that we can identify those final outcomes, and set up a monitoring and evaluation regime that can identify progress as it moves along, we find it attracts more investment. If we can tell the story and monitor the outcomes, that can bring comfort to the investors.”
She also believes that should the project prove successful in the construction of Nusantara, it may be replicable elsewhere. “Indonesia has many cities and can bring those good principles of planning, on low carbon, affordable housing, to existing cities. There is an even greater imperative and challenge between what we can do on the ground and what we are learning along the way.
“I think the opportunity to bring sustainable development and investable projects to existing and new areas is huge in countries like Indonesia.”
