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urban land consolidation

GeoJournal 49: 311–322, 1999. 2000 Kluwer Academic Publishers. Printed in the Netherlands.


Urban land consolidation: a review of policy and procedures in Indonesia and other Asian countries
P. Agrawal
Block 334, Jurong East Avenue 1, #01-1596, Singapore 600334
Received 17 August 1999; accepted in revised form 19 March 2000

Key words: implementation, infrastructure, involuntary resettlement, land consolidation, participatory, planning, urban renewal Abstract Many Asian mega-cities are growing rapidly and they face formidable urban problems: unplanned squatter settlements, inadequate infrastructure and basic amenities. Smaller Asian urban areas also need badly the provision of basic infrastructure and facilities. However, efforts to improve are often constrained by either nonavailability of suitable land or its exorbitant cost. Strategies such as land consolidation have shown considerable promise. Implementation of the strategy varies from country to country and from project to project. In general, the land consolidation approach is participatory in nature and places emphasis on in situ development with voluntary contribution of private assets by affected households in need of infrastructure and basic services. However, to make any signicant impact of the land consolidation strategy on urban development, nancial support from multilateral agencies such as the World Bank is necessary. To enable this it is necessary that the policy and implementation procedures fully conform to the objectives of the World Bank’s safeguard policies such as OD 4.30 ‘Involuntary Resettlement’. This study reviews the land consolidation policies and procedures as applied in several Asian countries in general, and in Indonesia in particular. The objective is to identify the gaps that exist between the policy and procedures and that of the objectives of the World Bank’s Policy of Involuntary resettlement and to recommend general policy and procedural guidelines for land consolidation projects that would enable nancial support from multilateral agencies such as the World Bank.

Introduction Cities in the developing countries are growing at a faster rate than ever before and are likely to contain almost half of the world’s population by the early 21st century. In Asia where almost two-thirds of the world’s population is found, about 36% of its population is expected to live in cities by then. Urbanization in developing countries is characterised by large-scale rural-urban migration and inner city problems such as lack in public services and utilities, trafc congestion, sprawl and squatter settlements. Massive ruralurban migration is largely a consequence of rapid population growth and deterioration of rural economy caused by proliferation of monetary economy. Industries have also acted as a pole attracting rural youth to the cities where they can enjoy some spillover effects of urban economy and be engaged in low-skilled jobs. Few developing countries have sufcient resources to deal with rapid urban growth. A large proportion of the limited resources have to be allocated to economic sectors generating higher economic returns than to social services catering for the poor. While most of the Asian mega-cities experience formidable problems such as squatter settlements, inadequate infrastructure and basic amenities, smaller urban areas are not immune to such problems. They both face a critical

shortage of urban land supply in satisfying the need of the fast rising population, in particular the poor. Most often, the development efforts are constrained either by nonavailability of suitable land or exorbitant land costs. Basically two strategies have been used in tackling inner city problems: (a) improvement of existing built-up areas hitherto occupied by low-income groups, and spontaneous and unplanned settlements; and (b) development of new housing sites for displaced inner city low-income population. Over the past two decades, the rst strategy has shown some shift from the public sector-initiated slum clearance to in situ development approaches such as self-help improvement, sites-and-services, and Kampong Improvement Programs (KIP), with emphasis on community preservation and security of land tenure. However, the strategy has its limitations due to the limited availability of urban land. The second strategy has become increasingly difcult to apply. This approach requires acquisition of land for relocation of affected communities and is able to meet only part of the huge demand. In the highly competitive urban land markets of most developing countries, it has become almost impossible to acquire land to prepare new housing sites or for relocation, especially close to the existing locations and job market. Additionally, strong social tradition of attachment to land ownership and social and community ties nullify strate-

312 gies that result in dislocation of population from their present locations. Realising the limitation of the conventional approaches, various alternative strategies such as urban renewal and land consolidation have been applied in several urban sector projects. Land consolidation and urban renewal involve in-situ development and voluntary contribution of private assets by affected households for the provision of infrastructure. The approach is therefore, participatory and aims at minimising involuntary resettlement and acquisition of private assets. Land consolidation, or land readjustment as it is popularly known,1 as a strategy for urban development has been extremely successful in Japan, Taiwan and Korea. Its application in Thailand and Malaysia is at its nascent stage. In Indonesia, land consolidation in urban development has been used for the past many years. Although the implementation procedures vary from one project to another, certain aspects of the policy and implementation procedures are common and do not appear to follow the core principles of land consolidation as implemented in other Asian countries. Therefore, land consolidation in Indonesia, despite it’s potential for urban development has shown only limited application due mainly to problems arising out of policy and implementation procedures and paucity of resources. Role of the World Bank in urban development The World Bank’s urban development programmes have been expanding since it rst started lending in 1972. However, the qualitative review of the Bank’s portfolio indicates that an increasing number of projects are being identied as ‘at risk’. Resettlement of urban population is among the most common problems affecting the urban portfolio performance. This is partly due to the conventional approaches to resettlement, requiring relocation of affected communities and acquisition of private assets, and partly because resettlement issues are not identied early enough and addressed adequately. The importance of the World Bank’s urban portfolio in general, and in East Asia in particular, cannot be overemphasised. The number of urban projects introduced in Indonesia through a direct mode of intervention or sector loans is rapidly increasing. However, the projects normally tend to use conventional approaches in dealing with land acquisition and resettlement issues resulting in limited success. It is now being commonly realized that the problem of urban resettlements is not likely to be solved through conventional means – clearance and relocation or public housing – due to rapid urbanization process, exorbitant land prices, and paucity of resources for large-scale public low-cost housing programs, especially in the current economic crisis affecting the whole region. However, land consolidation as a strategy for the World Bank funded urban development projects has not been used and has not been found acceptable mainly because the policy provisions and implementation procedures, as applied in Indonesia and some other countries in the region, do not appear to meet the objectives of the World Bank’s safeguard policies, especially OD 4.30 ’Involuntary Resettlement’. Compliance with the World Bank’s relevant safeguard policy objectives is necessary for the World Bank’s support. There is therefore, a need for a review of the current laws and regulations governing land consolidation and implementation procedures in selected Asian countries and in Indonesia, with an objective to establish a general framework for policy guidelines, public participation and consultation, and implementation procedures to enable World Bank’s nancial support for adopting land consolidation as a strategy in its urban development projects. Characteristics and application of land consolidation in urban development Many conventional strategies used in urban development are designed to achieve specic objectives but have neglected the core problem of demand for land. Land readjustment, or consolidation, has proved quite effective under such circumstances. Land consolidation basically means: (a) development of areas without any dislocation; (b) provision of urban infrastructure and facilities through voluntary contribution of land; and (c) nancing project cost covered by contributing reserve land for commercial use. Although landowners lose a portion of their land, they derive signicant benets in the form of increased land value for the following reasons: Land conguration is regularised making it possible for a more efcient use; improved access and public facilities; and a better urban living environment. Land consolidation can be conceptually applied to most areas with haphazard development, uncontrolled settlements with irregular lot boundaries and areas with inadequate facilities and services. Left alone, such areas tend to deteriorate further and downgrade to nonconducive environment. Conventional approaches requiring land acquisition to improve facilities benet a limited number of people and result in displacement of people without any area-wise improvement. Land consolidation makes it possible to develop the area comprehensively while avoiding land acquisition. Necessary infrastructure is provided, irregular land parcels are reorganised, affected households stay in the area and share the benets and costs from the project equitably. Land consolidation can therefore, maximise the benets of the project in terms of enhancement of community environment as well as land values. Land consolidation can specically be applied in the following areas: Existing urban areas covered by local plans/action area plans and those earmarked for urban renewal or redevelopment. Peripheral areas of metropolises where planned urban land is to be provided ahead of urbanization. Existing or once-developed areas where infrastructure needs to be upgraded or provided; and Areas where existing land owners/residents co-operate to participate in the development of the area with an objective to equitably share the benets of the development

313 aimed to enhance the value of the affected area by improving the infrastructure and community services with or without any change in land use. Infrastructure development projects with very specic and narrow objective of provision of linear services without area development, such as widening of existing roads or laying of infrastructure facilities affecting only the properties along such linear projects, do not fall into the category of land consolidation. The advantages of land consolidation projects to the public sector are that the benets of development can be spread over a larger community with relatively low nancial requirements. Residents also benet from the improvement of living environment, increase in asset values, and maintenance of existing social and community ties. Land consolidation can be implemented by individuals, associations or public organizations. A exible nancial plan can be prepared through adjustment in contribution ratio and a land consolidation project can be combined with other development plans such as urban renewal and housing development. The replotting or physical layout of a project area ensures that all rights and encumbrances to land parcels are carried over to the post-project development and that the development takes place in accordance with the urban land use plan. Comparative advantage of land consolidation over land acquisition Land Consolidation, by eliminating the need for land acquisition in urban areas, provides a potential solution to urban area development. In operational terms, the advantages of the land consolidation or readjustment lie in the fact that: (a) the cost of development can be recovered from the project through allocating a part of the developed land to commercial use; (b) unlike other infrastructure projects the adjoining areas can be developed efciently; (c) no dislocation of residents is necessary and land titles are preserved; and (d) easing social tension by not resorting to land acquisition. parks, utilities, and housing. Land consolidation projects are therefore, required to conform to the local level development plans. Since lower level plans, such as district development and local area development plans, are generally implemented within an overall planning framework provided by the higher level plans (such as regional development and structure plans), land consolidation play an important role in local area development and can be used as a strategy for comprehensive urban development. Voluntary contribution and involuntary acquisition Land consolidation requires voluntary contribution of land by participating land owners for provision of infrastructure and public facilities, settlement of squatters, as well as to cover the cost of development by allocating part of the contributed land for commercial purposes. Where possible, public land is incorporated in the project to facilitate resettlement of squatter households. The strategy is therefore, highly participatory requiring consensus and agreement of all the community members. The process by which agreement of community members is obtained is tedious, time consuming and cannot follow a structured timeframe. In Japan agreement by two-thirds of the affected households gives automatically a legal mandate to project authorities to proceed. However, in practice, very rarely is this mandate used to force the remaining one-third of households to participate against their will. Project authorities often have to make serious efforts to obtain consensus among all the households, resulting in long delays. The land consolidation procedures applied in Taiwan and Korea follow those in Japan. In Malaysia and Thailand, where the land consolidation pilot projects are being implemented with the technical assistance from the Japan International Cooperation Agency (JAICA), the procedures are exactly the same as followed in Japan except that there is also a provision for acquisition of assets under the prevailing land acquisition acts. In Indonesia, the legal mandate requires agreement by at least 85% of landowners covering at least 85% of the area as a basis to implement the project. The mandate is used for implementation of projects without any alternatives offered to the people resulting in involuntary participation of the remaining 15% of households. With inadequate legal provisions for compensation for land and other assets and without any other option available, most community members are left with no choice but to participate in the project. While it is necessary to minimise time in project preparation and implementation, especially in the Bank-funded projects, implementation of projects without any options made available to households unwilling to participate voluntarily defeats the core principle of the land consolidation strategy. In any World Bank funded project, any affected households unwilling to participate in land consolidation project would automatically invoke application of the World Bank’s OD 4.30 ‘Involuntary Resettlement’ and would be entitled to compensation and rehabilitation assistance.

Review of land consolidation policy, procedures and practices This section reviews the land consolidation policy, implementation procedures and practices in Indonesia using the key elements and characteristics of the land consolidation practices in selected Asian countries as a yardstick. Where relevant, specic examples on regional practices are also included. A comparative analysis of regional policies and implementation procedures is provided in Annex A. Land consolidation as a strategy for comprehensive urban development Land consolidation is an urban development strategy for the development of urban infrastructure such as access roads,

314 Equitable distribution of costs and benets Equitable distribution of project benets and costs over the participating landowners, leaseholders, central and local government institutions, private sector and managers of public facilities is the most important aspect of land consolidation. The success of a project depends whether or not equity can be achieved and demonstrated in the form of individual contribution and increased value of replots. Since landowners and leaseholders contribute part of their land holdings for public facilities and reserve land, the benets of the projects must accrue to the participating community. In general, the benets are in the form of increased land values with the enhancement of environment and more efcient use of building lots. The following equity issues need to be considered in a land consolidation project: (a) Equity between the communities within and outside the project area Local governments are basically responsible for providing basic services to all city residents without favor or discrimination with respect to different income groups. It should be ensured that equity in provision of services is maintained. As such, land consolidation as a strategy to provide services with voluntary contribution of land only by lowincome groups or in unplanned settlements alone should not be acceptable. (b) Equity among individual affected households in a project Equitable sharing of costs and benets among all the affected households in a project is extremely important to ensure full cooperation of community members and to achieve transparency. Land values are a factor of land area, location and shape. In Japan, Taiwan, Korea, and other countries adopting the Japanese land consolidation system, individual landowners and leaseholders contribute on the basis of land valuation. Using land values, rather than land area as the norm helps achieve equity in a project. Similarly, equity in benets is achieved by careful postproject analysis and valuation of replotted land holdings. In some cases, owners of small plots may not be able to stay at the present location because of further reduction in lot size. To overcome such disadvantages, compensation is paid to residents who suffer nancial loss from the project. Additionally, benets other than increase in land values can be offered, such as more efcient use of the land as a result of lot regularisation and better accessibility. In Indonesia, where technical skills for such detailed valuation do not exist at the local government level, a simpler method based on the areal plotting design is used. Operational Guidelines provide three alternative methods to estimate contribution of each landowner which include land contribution, monetary contribution or both. Areal plotting method is most suitable to small districts with uniform size of land holdings. Its application in other areas with complex land holdings and varying degree of physical attributes does not achieve equity among affected landowners. However, this method is most frequently used in Indonesia for its simplicity. Further, following detailed design and planning constraints, individual contribution of land by landowners may vary resulting in some households contributing more than the uniform limit. There is however, no provision in the current procedures in Indonesia for any compensation to those contributing more than the agreed limit. (c) Equity between costs and benets The basic principle of land readjustment is that all on-site costs are paid by those affected by the project who will eventually benet from it. Therefore, where the benets of certain primary infrastructure facilities and services are expected to extend beyond the project area, it is logical that costs should also be shared equitably by the local, provincial and central governments2. Preservation of titles and tenure security Land consolidation preserves existing land titles and requires minimal disruption of community ties. Residents can continue to live in the same area and land titles are transferred after replotting. The projects therefore, require some mechanisms for nonland based contributions by households without formal titles, squatters, and those with weaker titles not in a position to contribute their land. In Malaysia, Malay Reserve Lands affected by the Land Readjustment (LR) project can, under the constitution, be acquired but such lands can only fetch a maximum of 80% of the market prices. The project authorities top up land prices to ensure that the landowners are compensated fairly. Where necessary, some form of subsidy from the government is also provided. The Malaysian Town and Country Planning Act, which denes levels of compensations for acquired assets, does not recognise rights of squatters and as such does not have provisions for any compensation for the loss of assets such as structures, incomes and businesses. However, in case any squatters are affected some form of assistance is provided on humanitarian grounds. The project authorities also give priority to affected squatters for government sponsored low-cost housing schemes. Japanese Land Readjustment Law does not make provisions for such cases because (i) the incidence of squatters and those with weaker title is very low, and (ii) such cases are addressed during implementation as a matter of practice established over many decades. In land consolidation the minimum plot requirements for the remaining holdings are governed by the prevalent zoning regulations. If the remaining plot becomes smaller in area than the minimum allowed, the affected households are required to purchase developed area for the balance at values above pre-project valuation but at lower than post-project values. In Indonesia, however there is no such provision in the Implementation Guidelines and Technical Advise. Public participation and transparency Though voluntary in nature, land consolidation is highly participatory. Landowners and leaseholders participate in

315 decision-making during the planning, design and implementation process. Land consolidation process is impartial in the sense that the procedures in a project are transparent and are regulated in accordance with the legal provisions. Even when a project is implemented by a local government, the procedures are followed by representatives of landowners and leaseholders. In Japan, most land readjustment projects are implemented through co-operatives3 consisting of landowners and leaseholders. The co-operatives thus established under the Land Readjustment Law are required to obtain approval of at least two-thirds of landowners and those of leaseholders (or the landowners and leaseholders supporting the project and co-operative should at least account for two-thirds of land holdings). Thus participation of landowners and leaseholders and transparency is ensured in the planning, design and implementation of the project. Public organisations are required to provide technical assistance and supervision. Where land readjustment projects are implemented by government agencies, adequate representation of landowners and leaseholders is ensured in the advisory councils. In Thailand, representatives of the community take an active part in all aspects of project planning, design and implementation. The procedures for the project preparation require all meetings with the community to be accompanied with an explanatory kit including visual aids such as video, slides, etc.; maps and diagrams; and scaled model showing existing and proposed development. The inclusion of explanatory kit greatly increases transparency in the project. In Indonesia, by contrast, commitment by landowners is sought even prior to the preparation of a concept plan. Affected community members play almost no role during implementation of the projects and are denied access to information on accounts and management of funds. Implementation and administration Precise evaluation of land holdings and replotting is important for success of any land consolidation project. It is therefore, necessary that ofcials in charge have extensive knowledge and experience in evaluation and replotting. Skills in planning, design and land valuation are key to a successful implementation of land consolidation and for equitable distribution of benets. Japan, Korea and Taiwan have a wealth of experience and skills in property evaluation and design, accumulated over many decades. But the same cannot be said of most other Asian countries, including Indonesia. In Japan land readjustment projects are implemented through individual implementing body, land readjustment co-operatives, public organisations and administrative agencies or local public corporations. Projects by public corporations are generally for development of public facilities in built-up areas that may have numerous structures and title-holders. In such cases, priority is given to public interests rather than on economic feasibility of the project. The projects may not produce large-scale project benets and may even result in loss of land values. On the other hand, projects carried out by individuals and co-operatives are normally of small scale with fewer land holdings. Such small-scale project must ensure that reserve lands can be sold to cover project costs. For small projects, economic feasibility is extremely important. Such projects often result in large project benets. In projects carried out by individuals and co-operatives, local government and public organisations play an active and supportive role and the administrative costs are not covered by the projects. In other countries including Thailand, Taiwan and Malaysia, the costs of administrative overheads, salaries and allowances of government regular staff are not covered by the project. The participation by government departments is seen as supportive and regulatory. In Malaysia, it is envisaged that once land readjustment proceeds beyond the pilot project phase, planning, design and implementation would be solely carried out by landowners’ association or private sector participating in LR and the costs would be borne by the project. Most co-operatives do not have adequate technical expertise and funds to implement land consolidation projects, making participation by private sector a necessity. Participation by private developers at the initial stages of the project helps landowners to set up co-operatives, raising the required funds and skills. Private developers help implement the projects, including land marketing and nancing. In Indonesia, the BPN’s policy and the Article 4 of Implementation Guidelines provide for the formation of Land Consolidation Management Team at the provincial level; Land Consolidation Coordination Team at the district level; and Land Consolidation Task Force at the local level. Despite their multi-sector nature, all the three teams are dominated by the Land Agency with very little participation by the community members. Only a maximum of two community members are permitted to join the Coordination Team at the district level, and none at the project level. The responsibilities of the teams include planning, design, management and supervision of land consolidation activities. Neither the affected community nor the informal leaders take part in decision-making. Yet, the Guidelines require that all costs of management, coordination and implementation by the above three teams be borne by the project itself. Article 5 of the Implementation Guidelines provides details on the management of land consolidation funds. These funds are managed entirely by the National Land Agency at the provincial, district and local levels including prenancing projects at locations outside their administrative boundaries. The Guidelines therefore, empower BPN ofcials to use the funds in any manner and in any projects they like, without making them accountable to the participating communities who actually contribute the funds. The Guidelines also provides for all costs of administration, management, coordination and implementation by the above three teams to be charged to the project. Financing In principle, the primary source of nancing is through disposition of reserve lands for commercial purposes. However, sale of commercial lands is possible only after the project completion. Some other sources of nancing are therefore

316 necessary for project implementation. Financial support for land consolidation projects can be provided through interestfree loans from the central and local governments, by tax exemptions, and government bonds.4 Subsidies if any, are only considered a secondary source of nance. The land consolidation projects are implemented through replotting of community land resulting in each owner acquiring equivalent value of land by selling a part of formerly owned land. Landowners are given tax exemptions as specied below: (a) Land transfers and registration of replots. (b) Tax free registration. (c) Reduced tax for equity (income tax, corporation tax) In Japan, most projects are subsidised either by the national government or by local governments.5 In land readjustment projects without subsidies, 70% of costs are recovered from sale of reserve lands, while the remainder is mainly covered by shared defrayal of public facilities by the management authority. In Indonesia, all land consolidation projects are sponsored by BPN in collaboration with local governments with very little, if any, participation by private sector or cooperatives. Project funds are generated through land contribution by landowners. All costs of projects including primary facilities are recovered from the participating community. Financial support from central or provincial governments depends largely on their availability, rather than due to policy provisions. Housing Trust Act 1950. The Land Readjustment (LR) system, proposed for the pilot projects, is incorporated into the statutory town planning process and in particular to action area planning so that the LR technique could be effectively utilised to realise the plan. The feasibility study identied inadequacy of existing laws to address several issues such as participation of landowners and leaseholders; arrangements with chargees, lessees and sub-lessees in respect of existing encumbrances which cannot be carried forward to new titles of the replots; and land acquisition requirements. The pilot project proposes the use of the existing Town and Country Planning Act allowing government to acquire land for public purposes. The Act allows land purchase by the private sector where necessary, on a willing buyer-willing seller basis as well as payment of compensation for acquired assets at fair market rates. The Act also provides for compensation for loss of structures, incomes and businesses in addition to shifting allowance. It is within the realm of this provision that the land can be acquired by associations and implementation councils in case no agreements with owners are reached on their voluntary participation. So far, no LR project has been implemented in Malaysia and procedural measures have yet to be worked out. In Indonesia, land acquisition and land consolidation are governed by the Presidential Decree Keppres 55/1993 ‘land acquisition for public purposes’ and ‘The Regulation of the Head of BPN No. 4 of 1991’ respectively. The BPN’s regulation on land consolidation is accompanied by ‘Implementation Guidelines’ and a detailed ‘Technical Advice’. The ‘Technical Advice’ provides Operational Guidelines for the implementation of land consolidation projects. All the three documents govern land consolidation policy and procedures in Indonesia. The World Bank’s Operation Directives (OD) 4.30 ‘Involuntary Resettlement’ describes the Bank’s policy and procedures to mitigate adverse social impacts in the Bank funded projects on people resulting in the loss of assets, incomes and businesses caused by involuntary acquisition of assets. The major policy objectives of the Bank’s OD 4.30 include, among others, the following: (a) involuntary resettlement should be avoided or minimised where feasible; (b) affected persons should be able to share the project benets and should be (i) compensated for their losses at replacement cost; (ii) assisted in move and supported during the transition period; and (iii) assisted in their efforts to improve their former living standards, income earning capacity and production levels or at least to restore them; (c) community participation in planning and implementation should be encouraged and existing social and cultural institutions should be supported; and (d) the absence of legal title to land by indigenous groups, ethnic minorities, and pastoralists who may have usufruct or customary rights to the land or other resources should not be a bar to compensation.

Legal provisions and institutional framework In Japan, land readjustment is implemented under the Land Readjustment Law enacted in 1954. Prior to the enactment of the law, land readjustment was implemented under the Agricultural Land Consolidation Act and City Planning Law. The Land Readjustment Law encompasses the requirements and procedures for establishment and organisation of co-operatives, procedures for decision-making and implementation of projects, procedures for valuation and for public participation and consultation. The Land Readjustment Law however, does not specify the measures that may need to be taken for addressing the issues such as squatters and those with weaker tenure rights, compensation for lost assets, and the provisions for acquisition of assets of those not willing to participate. Such issues are not commonly experienced in land consolidation projects in Japan, and when encountered they are addressed on a case-by-case basis. It must be understood that land readjustment procedures in Japan date back more than a century ago, and the country has a socio-cultural environment not comparable to other countries in the region. In Malaysia, there is no separate land consolidation or readjustment act. The feasibility study on land consolidation in Malaysia considers four possible approaches using the provisions of existing laws. These include Land Acquisition Act 1960, the Sabah Town and Country Planning Act 1958, the National Land Code 1965, and Part IV of the repealed

317 Gaps between World Bank OD 4.30 and BPN’s policy on Land Consolidation The review of the land consolidation policy and implementation procedures in Indonesia indicates that there are gaps between the land consolidation policy and procedures in Indonesia and the objectives of the World Bank’s OD 4.30. These are articulated below: (a) BPN’s policy lacks in scope and clarity BPN’s policy encourages active participation of community members but does not specically include participation by members of the community other than those with land titles and cultivators of state land. (b) Policy does not specify equitable distribution of costs and benets World Bank’s OD 4.30 requires that all project affected persons are beneted by the development and they must be able to improve, or at least restore their incomes and living standards to pre-project levels. However, the BPN’s policy is ambiguous in terms of equitable distribution of costs and benets among the affected community members and does not ensure restoration of incomes and living standards of the affected community. (c) No provisions for compensation and resettlement to ‘involuntarily’ affected households The policy provides a legal mandate for implementation of land consolidation with the agreement in writing by at least 85% of land owners covering at least 85% of land area. The policy however does not require agreement of the remaining 15% which implies their involuntary participation. Further, the policy does not take into consideration the views and preferences of the occupiers of land, including those with weaker titles. There is therefore no option offered to affected households who do not agree with the project objectives and not willing to participate in the project. World Bank’s OD 4.30 requires that all persons ‘involuntarily’ affected by a project are entitled to compensation at replacement cost for their losses and for resettlement benets. However, BPN’s policy makes no provision for compensation and rehabilitation for households not willing to participate in the projects. Additionally, BPN’s policy does not provide for compensation for affected structures, loss of businesses or for loss of land beyond the agreed proportion even for those participate voluntarily. (d) Limited role of community and private sector in planning, design and implementation The policy envisages all land consolidation activities such as functional organisation, implementation, supervision and management to be carried out by the provincial and district ofces of the National Land Agency, or BPN, with the involvement of other related agencies, with little or no role being played by participating communities in the decisionmaking process. Further, the policy does not provide the participating community and its representatives with access to information. There is therefore, a complete lack of transparency in the operations of BPN ofces at the local, provincial and national levels. (e) No security of tenure to those with weaker titles World Bank’s OD 4.30 states that absence of legal title should not bar any project affected household from entitlement to compensation for lost assets. However, BPN’s land consolidation policy does not specify any provision for security of land tenure, resettlement benets and compensation for lost assets to squatters and those with weaker land titles. Although some provisions for the community with weaker titles seem to have been made in the policy, these remain ambiguous and left at the discretion of the project authorities.

Concluding remarks and recommendations Land consolidation policy and procedures in Indonesia are generally adopted from the land readjustment procedures in Japan. In Thailand and Malaysia where land readjustment pilot projects are currently underway with technical assistance provided by JAICA, the procedures are primarily based on the Japanese model that has a different legal and social context. Land readjustment practices in Japan have evolved over more than a century. The Japanese Land Readjustment Act concentrates on procedures for land valuation and participation mechanisms for community but does not address issues such as acquisition of assets and treatment of squatters and those with weaker titles. These issues are addressed in Japan on a case-by-case basis, but are important in other Asian countries requiring clear policy guidelines. Further, due to the scale and complexity of urban problems in the developing countries, the land consolidation projects need to be planned and implemented within limited time and resources, unlike in Japan where land readjustment projects may take between 10 to 15 years to complete. Therefore, some mechanisms are required to speed up the planning and implementation of land consolidation projects without sacricing the core principles of land consolidation. Additionally, to ensure World Bank’s participation in land consolidation projects, the existing gaps between the Bank’s OD 4.30 and that of the land consolidation policies and procedures in developing countries in general, and in Indonesia in particular need to be addressed. The following key modications to the BPN’s policy on land consolidation and implementation procedures are needed as remedial measures. Land consolidation policy (a) Provision of option to involuntarily affected community members. In accordance with the Bank’s OD 4.30, project affected households unwilling to participate voluntarily should be entitled to compensation for affected assets and for resettlement benets. BPN’s Land consolidation policy must provide for options to all households unwilling to participate in the project to opt-out and retain their right to assets in land and other assets.

318 (b) Public participation and consultation. The BPN’s Policy on Land Consolidation must ensure transparency in operation and an active participation by affected community in planning, design and implementation, including access to management of funds and accounts. (c) Provision for compensation for affected assets to participating community. The land consolidation policy should also make explicit provisions for compensation for their affected structures and other xed assets, and other assistance to participating community members required to relocate within the project area. Additionally, adequate compensation must be provided for losses that cannot be shared proportionately and for nonequitable distribution of benets. (d) Policy provision for squatters and those with weaker tenure. The policy should ensure security of tenure, compensation for affected assets and resettlement benets to affected squatter households and those with weaker titles. The policy should also provide for assistance to vulnerable groups likely to fall below the poverty line and those losing businesses, incomes and employment. (e) Equitable distribution of costs and benets. The policy should ensure equitable distribution of costs and benets among the affected community members. The policy should also provide for establishment of a mechanism for the community, central, regional, local and other line agencies to equitably share costs and benets in a project, especially where primary and secondary level services and public facilities are provided. Implementation procedures In addition, the following modication in the implementation procedures would be necessary: 1. Establishment of project objectives. Establishment of project objectives to clearly demonstrate that land consolidation is not used merely to avoid compensation payment for land acquisition required for primary or secondary level infrastructure facilities and services; 2. Formulation of public consultation and participation framework to ensure: continued consultation with community during project identication, planning, design and implementation; participation by affected community in decisionmaking; representation of community representatives in the Land Consolidation Coordination Committee and Implementation Task Teams; transparency in operation and management of funds; and grievance redress mechanism. 3. Procedures to ensure equitable distribution of costs and benets. To ensure equitable distribution of costs and benets in a land consolidation project, appropriate valuation methods should be applied. In a country such as Indonesia where skills for detailed valuation of land and assets at the local level are limited, a simpler method based on uniform contribution may be acceptable. It may be possible therefore, to conduct valuation of a group of land holdings with similar characteristics instead of valuation of each individual land holdings. However, provisions in the policy may be necessary to compensate where there are visible anomalies. Therefore, selection of valuation method should be done after careful consideration and depending on the characteristics of the land holdings. 4. Institutional framework. The project must clearly indicate roles and responsibilities of each participating institutions and community in planning, design and implementation. The agreement by participating community members and the commitment (nancial, technical and administrative) by various institutions should be reached in consultation with the community and documented at the initial stages of the project. It is hoped that with incorporation of suggested key changes in the existing land acquisition policy and procedures, the land consolidation as a strategy for urban development will fully meet the objectives of the World Bank’s OD 4.30 ‘Involuntary Resettlement’ and would enable participation of the World Bank in urban development projects. The recommended approach to land acquisition will also be applicable to other Asian countries.

1. Land Consolidation is termed as ‘land readjustment’ in Japan, Korea, Taiwan and in countries where land consolidation is generally implemented through the assistance of JAICA. Won-Kyu Lew (‘The Land Readjustment in the Urban Development in Korea’. Proceedings of the International Seminar on Kukaku-Seiri, 1985, Ministry Of Construction, Tokyo, Japan) however, made a distinction between ‘land readjustment’ and ‘land consolidation’ by indicating uniform reduction of plots in land consolidation as against variable reductions in ‘land readjustment’. The author does not agree with this distinction and treats ‘land consolidation’ and ‘land readjustment’ as similar in principle and approach. 2. In Japan, subsidies from central governments are generally provided for land readjustment projects that are implemented by public organizations and where a major arterial roads and other primary infrastructure are included in a project area. Subsidy in such projects may account for up to 50% of total cost of such facilities. The remaining 50% is borne by the implementing body when the projects are led by the local government, and by the local government in a project by a cooperative. In private sector led implementation of land readjustment projects subsidy from central government, disbursement or subsidy from local governments, and shared defrayment of public facilities by management authorities are generally available and may cover upto 50% of total project costs. The remaining 50% may come from disposition of reserve land. The implementing body can use these subsidies to nance costs related to compensation and relocation, public facility development, subdivision and other aspects of land readjustment. In Malaysia, not all costs are borne by the affected households. Some subsidies are provided by local, provincial or Federal governments for share of the costs, especially for the provision of access and distribution roads. Basic infrastructure facilities in Malaysia are privatized. Therefore, such costs are to be borne by the participating agencies. 3. In Japan, almost 70% of all the land readjustment projects are carried out through individuals and cooperatives, with full participation by private sector. Even where the projects are led by central or local government agencies, participation by private sector is greatly encouraged. Source: Takeo Ochi, ‘Japanese Experience of Urban Development by Land Readjustment’. 4. In Thailand, two approaches are recommended for nancing of main infrastructure. One, the central, provincial or local government bear the total cost of such infrastructure including the cost of land acquisition

in the form of subsidy. Second, if the landowners agree to contribute land for primary infrastructure, the cost of construction is borne by local government or line agencies. Such costs are to be considered as nancial support to cover construction cost and not as revenue of the project. Pre-purchase of land from the landowners by the project entities to offset part of the project cost is also a possibility. The landowners get sale proceeds from the sale of part of their land towards nancial land. However, landowners are still required to contribute part of the land for public facilities and services. The cost of land acquisition is added towards the project costs. The approach is similar to that used by Housing & Urban Development Corporation in Japan, which acquires 40% of the plot area from landowners for development of housing and to cover project costs. Source: ‘Preparation for a Land Readjustment Project’ Department of Town and Country Planning with Japan International Cooperation Agency, Thailand, February 1997. 5. In Japan, assistance from government and nancial resources for land readjustment projects are available through the following sources: (a) Disposition of Reserve Land: Where subsidies in a land consolidation project are not available, all project costs are covered by disposition of reserve land. However, to derive development benets fully, the disposition of land can only take place after the development, it is necessary to nd other sources to nance the project. In such cases, interest free loans from central government, local governments or from nancial institutions are available to nance the projects until the reserve land can be sold. Such nancial assistance is often required to kick-start implementation. Many prefectures in Japan are cash rich and can afford to provide nancial assistance in the form of long-term, interest free loans. Other measures may include municipal bonds. (b) Shared defrayment of public facilities by management authority (e.g., local government, private sector): Where the objective of a land readjustment project is to develop major roads, important public parks, canals, public open spaces and recreational facilities, managers of such facilities are requires to share cost of the project to nance such facilities. This is to ensure equitable distribution of cost and benets as well as to comply with the legal provisions. (c) Tax: Tax preferential systems are also available to promote LR projects whereby tax exemption are provided for advance purchase of land, compensation for affected structures and their location, replotted land, land transfers and on transfer of developed land to a person who builds a house. Source: ‘Urban Development Project in Japan’, City Bureau, Ministry of Construction, Government of Japan, and Japan Land Readjustment Association, July 1996.

ALMEC Corporation, 1995: The feasibility study on the introduction of land readjustment in Malaysia. ALMEC Corporation in collaboration with the Japan Association of Land Readjustment. Final Report, Kuala Lumpur. Department of Town and Country Planning, 1997: Preparation for a Land Readjustment Project, Land Readjustment Handbook 1, In Collaboration with Japan International Agency, Bangkok, Thailand. Government of Indonesia, 1991: Regulation of the head of BPN No. 4 of year 1991 concerning land consolidation. National Land Agency, Jakarta, Indonesia. Government of Indonesia, 1994: Regulation of the Minister of State for Agrarian Affairs/ Chairman of the national Land Agency, Number 1 of 1994 on the Operational Directive of the Decree of the President of Indonesia No. 55 of 1993. Government of Indonesia, 1996: Technical Advise Land Consolidation No. 410-1078. The State Minister for Agrarian Affairs/Head of the National Body of Land Affairs, Jakarta. Government of Japan, 1996: Urban development project in Japan. City Bureau, Ministry of Construction. Japan Land Readjustment Association. Kishii Takayuki, 1993: Land readjustment projects implemented by cooperatives in Japan. Paper presented at the 7th International Seminar on Land Readjustment and Urban Development, Bali, Indonesia. Lew W. 1985: The land readjustment in the urban development of Korea, Proceedings of the International Seminar on ‘Kukaku-Seiri’. Ministry of Construction, Tokyo, Japan. Presidential Decree, 1993: Number 55 of 1993 concerning land acquisition for the development of public interest. President of the Republic of Indonesia. Srudahat, 1997: Konsolidasi Tanah (Studi Kasus: Kota Surakarta). Paper presented at the World Bank and BAPPENAS sponsored Workshop on Land Acquisition and Resettlement, Samarinda, Indonesia. Takeo Ochi, 1998: Japanese experience of urban development by land readjustment. Paper presented at the Urban Development Seminar on Japanese and Asian Experiences, Washington D.C. World Bank, 1990: Operational Directives 4.30: Involuntary Resettlement. The World Bank Operational Manual. Washington D.C.. Yachiyo Engineering Co. Ltd., 1998: The study on land provision for housing and settlement development through KASIBA and land consolidation in Jakarta metropolitan area. Inception Report.

320 Annex A. Comperative analysis of policies and procedures regional experience in land consolidation
Description Japan Korea Thailand Malaysia


(a) General a. Development of a. Housing lot Public Facilities development b. Increase of use in b. Maintenance of building lots supply facilities

a. Development of Public Facilities b. Change in land use

a. provision of planned urban land in advance of urbanisation b. change in land use c. upgrading of services

Legal basis

Land Readjustment Law Land Readjustment Law Land Readjustment Act Land Readjustment Act (1954) (1966) (under preparation). (under preparation). The proposed LR system incorporated into the statutory town planning process. Individuals, Cooperatives, Local Govt., Public Corporations Cooperatives, Local Govt., Housing Corpn., Land Dev. Corpn. Government Sponsored Government Sponsored. Pilot project to be initiated by Local Planning Authority, possibility in collaboration with private developer. Improvement of urban infrastructure Improvement of urban utilities and land values Comprehensive urban development with extensive use Preservation of land titles Participation of land owners and leaseholders Agreement by at least 2/3 of landowners covering at least 2/3 area. Persuasion used to obtain agreement of the remaining.

Implementing bodies

General characteristics

Comprehensive urban development with extensive use Fair distribution of development benets and costs Preservation of land titles Participation of land owners and leaseholders Impartial procedures

Urban Planning Area Residential Area under Land Utilization and Maintenance Law New Development

Improvement of urban infrastructure Revitalizing CBD Improvement of urban utilities and land values Participation of land owners and leaseholders

Criteria for application

Two Third of House- Landowners of more Agreement by at least holds or 2/3rd of than 2/3 of land area 2/3 of households. landowners. Where Persuasion used to households seek legal get agreement by the refuse, normally courts remaining. rule that households must follow LR acts and participate. (b) Land acquisition and compensation Not provided. However, supportive program to provide substitute land for landowners who are required to resettle as a result of land acquisition Provided on case to case basis but no provision made in the Act. Not provided. However, supportive programs are provided on case to case basis. No provision in the Land Readjustment Act, but assets acquired under the Town and Country Planning Act, if necessary. Provision for compensa- No provision in the Land tion for damages Readjustment Act but the Town and Country Planning act provides for compensation and allowances.

Provision of option to opt-out and acquisition of assets of those unwilling to participate Compensation for affected structures and allowances for shifting

No provision in the LR system. However, land acquisition possible under the Land Acquisition Act, where necessary. No provision under the LR system. However, compensation in accordance with the Land Acquisition Act possible.

Annex A (continued) Description Provision for purchase of additional land for those with plots of less than min. allowable area Provision for settlement of squatters and those with weaker titles Japan Korea Thailand Malaysia

Provision for cash com- Provision for cash compensation to those left pensation to those left with very small plots with plots smaller than minimum allowed. Min. lot area 90 m2 No provision in the Act but such issues are handled at case to case basis and in discussion with the land owners Provision in the Act for cash or charges from the landowners after the replotting to make up for the difference

No specic provision No. However, prevailing Minimum allowable zoning regulations are folarea for residential plots lowed, where necessary. is 150 m2 No provision in the Act but such issues are handled at case to case basis and in discussion with the land owners No provision in the LR system. Such issues are addressed on case to case basis and on humanitarian grounds. Need for a policy is identied.

Provision for cash Provision in the Act compensation for for payment of cash contribution in or charges from the excess of limits landowners after the replotting to make up for the difference in theoretical valuation and actual plot area. Compensation is also provided if the value of a plot after the project becomes lower than before.

Provision in the Act for No provision. payment of cash equivalent or charges from the owners to make up for the difference between theoretical valuation and actual land area distribution.

(c) Cost sharing and nance Limits on contribution of private Assets Sharing of Project Cost by Govt. and Line Agencies About 40%. But no set Up to 55% but no limit. specic limit About 40% but no specic limit About 40% but no specic limit

For primary infrastruc- Cost sharing by local No specic provision at Cost sharing according ture facilities subsidies bodies and state govern- this stage. to the benets received are provided by central ment among those with land or state governments to rights, government and cover the cost of such attached agencies and development private utility/service companies. Land readjustment projects are not limited to only lowincome areas. Local government partially contributes towards the project costs. Equitable defrayment and benets are realised through land plotting and land contribution ratio. Equitable defrayment and benets are realised through land plotting and land contribution ratio. Equitable defrayment and benets are realised through land plotting and land contribution ratio. At the nal stages of the project ‘equity’ is collected from or paid to each household depending upon the difference between the area/value of the actual plot and that between the theoretical valuation. Equitable defrayment and benets are realised through land plotting and land contribution ratio.

How are the equitable distribution of benets ensured in a project

Is the project wholly nanced by land owners Normally yes provided the benets are limited to the participating community - Sale of land secured by Costs and benets are authorities limited to the participat- Expenses by bene- ing community. ciary local body - Subsidy from state and local autonomous body - Expenses by beneciaries No. Signicant contribution by Federal, State and local governments and agencies.

Annex A (continued) Description Management and overheads of govt. staff included in project cost Japan No. State even cover part of the cost of surveys required for preparation of plans. Korea No. When the executor of a project is a local body, part of the expenditure are borne by the govt. Thailand Malaysia No. Only the expenditures associated with the Implementation Committee, consisting of Land Owners’ Association members, are included in the project cost. Cost sharing according to the accrued benets.

Cost sharing in macro-level projects with benets spreading over larger area Other forms of nancial support

Cost sharing in the form of subsidies from central and local governments to cover the costs of such projects - Government Bonds - National Subsidy - Funds from disposition of reserve land - Shared defrayment of public facility by management authority - Subsidy by public organisations - Interest-free loans - Tax exemptions on prots and land transfer tax (d) Role of government, community and private sector in management Public sector role is increasing

No. Only the expenditures associated with the Implementation Committee, consisting of Land Owners’ Association members, are included in the project cost Cost sharing in the form No specic provision of subsidies from state at this stage. Some and local bodies subsidies from central and local government expected. - National Subsidy Dept. of town and Coun- Funds from disposition try Planning providing of reserve land interest-free loan. - Cost sharing by No consideration on tax management authority relief yet - Public organisation subsidies - Interest-free loans & tax exemptions on prots and land transfer tax

Contribution upto 60% of the project cost by Federal, State and Local governments, and agencies.

Role of local government in planning and design of the projects

Only in local government sponsored projects, local govt. is fully involved in planning and design in consultation with the participating community Participation of Participation by seven people or their or more landowners and representatives in leaseholders in a proj. project management team team

Only when the project is Active role by government sponsored by local in the pilot project. government

Role of private sector

Signicant, especially where the projects are wholly carried out by land owners’ association and private sector

Association composed Consensus making of more than seven among landowners is an landowners important component. Consultation with and participation of community members in decision-making is a pre-requisite. Project Advisory Committee composed of representatives of landowners and other community members. Signicant, especially Not applicable in the where the projects are pilot project wholly carried out by land owners’ association and private sector

Formal and informal mechanisms for participation and consensus building. Representation of landowners in LR committee to ensure active participation at planning, design and implementation stages.

Role of private sector envisaged.



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