Finance Minister Criticizes Conflict of Interest in Mandalika SEZ

Finance Minister Purbaya Yudhi Sadewa has warned that a business dispute in the Mandalika Special Economic Zone (SEZ) threatens to undermine investor confidence in Indonesia [1]. The controversy involves allegations of a conflict of interest by the state-owned InJourney Tourism Development Corporation (ITDC) regarding a foreign-backed water processing project [2].

Key takeaways

• Finance Minister Purbaya Yudhi Sadewa criticized ITDC for allegedly creating a competitor to a foreign contractor it had previously invited to the Mandalika SEZ [1].
• The dispute centers on PT Perusahaan Air Indonesia Amerika (PAIA), a joint venture involving investors from the U.S., Singapore, and Saudi Arabia, which has halted its desalination operations [2].
• ITDC-NU, a subsidiary of the state-owned developer, stopped purchasing water from PAIA and shifted to a partnership with a local water utility [1].
• ITDC leadership defended the shift, stating that a partnership with the regional utility was necessary to ensure water supply reliability [2].
• The Mandalika project has faced separate, long-standing scrutiny from U.N. human rights experts regarding the treatment of Indigenous Sasak communities [3].

Dispute over water supply operations

The conflict involves PAIA, a foreign investment joint venture that includes the state-owned contractor PT Adhi Karya [2]. The company had been operating a seawater desalination plant in the Mandalika SEZ on Lombok Island using reverse osmosis technology [1]. Operations were suspended after PT ITDC Nusantara Utilitas, a subsidiary of the state-owned developer ITDC, ceased buying water from the venture [2]. Instead, the subsidiary entered into a partnership with the local water utility, PDAM Central Lombok, to serve as the primary supplier [1].

During a public hearing at the Finance Ministry, Minister Purbaya argued that ITDC’s actions created an unfair environment for foreign investors [1]. He stated that inviting a foreign contractor only to establish a competing internal company creates a conflict of interest that leaves investors sidelined [2]. In response to the criticism, acting ITDC president director Ahmad Fajar maintained that the decision to partner with the regional utility was a strategic move to guarantee supply reliability, noting that the zone requires at least two water providers [2].

Broader scrutiny of the Mandalika project

The Mandalika SEZ, a $3 billion tourism development intended to become a "New Bali," has been the subject of ongoing international attention for several years [3]. Since 2021, U.N. human rights experts have issued three separate communications regarding the project, citing allegations of intimidation and the disenfranchisement of Indigenous Sasak residents [3]. These reports have highlighted concerns over involuntary resettlement, movement restrictions during major sporting events like the MotoGP, and the presence of security forces near local communities [3]. While the current water dispute focuses on business practices and investor relations, it occurs against this backdrop of persistent questions regarding the project's management and its impact on local stakeholders [3].