Indonesia’s Lippo Group is facing major new problems after one of its top executives was arrested by the Corruption Eradication Commission on Oct. 15 on charges of bribing government officials over the issuance of property permits for Meikarta, the group's troubled flagship project.
Update: Two days later, KPK officials raided the home of James Riady, who has operational control of the Lippo empire.
For months, Meikarta has faced rumors of abandonment by unnamed Chinese investors, charges that unit sales haven‘t met targets and that advertising vendors haven’t been paid. The Indonesian Ombudsman and the National Land Agency (BPN) have also criticized Lippo for promoting and marketing the mega-development without proper building permits, which require environmental impact and spatial adjustment studies involving various institutions in the regional government. The alleged bribery allegedly involved Neneng Hasanah Yasin, the regent of Bekasi Regency, as well as several related agency heads involved in issuing such permits.
Billy Sindoro (pictured above), Lippo’s operations director, was apprehended at his home after being named as a suspect by the watchdog corruption agency, known by its Indonesian acronym KPK. In addition to Sindoro, the KPK named eight other suspects including Lippo Group consultants Taryudi and Fitra Djaja Purnama as well as Lippo Group employee Henry Jasmen. In addition to Bekasi Regent Yasin, a number of officials with the Bekasi regency administration are among the suspects.
The KPK's deputy chairman Laode Muhammad Syarif alleged Sindoro instructed consultants and employees to bribe Neneng with Rp513 million (US$33,727) and S$ 90,000 respectively. Sindoro "was aware of and gave instructions to other individuals who acted as consultants for the company," said Syarif.
The KPK, Syarif said, had been investigating the bribery allegations for a year and carried out the arrests on Sunday and Monday. The KPK, he said, suspects that bribes totaled Rp7 billion (US$464,400) from a commitment of Rp13 billion to license the project. The bribes were said to have been given through several service heads in stages in April, May and June.
"It is suspected that the provision is related to the permits being managed by the project owner covering a total area of 774 hectares, (with the bribes) divided into three phases," said Syarif. Although the KPK could charge Lippo with criminal corporate, it depends on how the investigation developed, he added.
This is the second corruption case for Sindoro, who was also arrested and convicted of bribery in 2009. At the time, the KPK said it suspected the Lippo executive of bribing a member of the Business Competition Supervisory Commission (KPPU), Muhammad Iqbal, to influence the ruling of a case pertaining to broadcasting rights of a sports program. He was sentenced to three years in jail and a fine of Rp200 million.
Following announcement this week of the high-profile bribery case, the shares of four companies under the Lippo Group dropped into the red zone in the first trading session at the Indonesia Stock Exchange (IDX) on Tuesday. The four are PT Lippo Cikarang (LPCK), PT Lippo Karawaci (LPKR), PT Matahari Putra Prima (MPPA) and PT Matahari Department Store (LPPF).
The current case is the most recent issue to befall the troubled development of Meikarta, a proposed huge new city on the outskirts of Jakarta that is being built from scratch and projected ultimately to house up to 8 million people at a whopping cost of more than US$21 billion. The development, with 19 domestic and international partners, also faces a series of political issues and the antipathy of a group of conservative Muslims. Riady is of Chinese descent and Lippo actively supports the building of Christian schools in Indonesia. A conservative Islamic group called Alumni 212 in May issued a resolution calling for the end to Meikarta.
In addition, the construction by a Chinese national consortium of a 150-km. fast railway project between Jakarta and Bandung, which is considered crucial as the new city straddles the railway, has hit delays from problems clearing locals who occupy the land. The US$5 billion rail project, being built by the Indonesian government in cooperation with a Chinese consortium, is now due to go into operation in 2021, two years after the original target date of 2019. Development progress is currently at 5 percent, from a 25 percent target by the end of the year.
When the rumors about Meikarta’s fiscal health arose, Communications Director of MSU Danang Kemayan Jati said that despite facing various obstacles, Lippo Group’s financial condition is sound enough to support projects planned and to fulfill the company’s obligations, despite the negative issues.
Meikarta was introduced to the public on May 4, 2017, with a whopping cost of more than US$21 billion. The developer, PT Mahkota Sentosa Utama (MSU), a Lippo subsidiary, poured more than Rp1.5 trillion (US$107.65 million) into advertising throughout 2017, leading Indonesian companies in ad spending for the year according to Nielsen ratings.
Meikarta is planned to occupy an area of 500 hectares through a land tenure process claimed by Lippo since the 1990s. Lippo Group Chairman James Riady announced plans to build 100 buildings of 35 floors each, which are intended for residential, office buildings, five-star hotels, shopping centers and other commercial areas.
Although Meikarta was marketed as all-round luxury, the public recently was shocked by a lawsuit filed by PT Relys Trans Logistics (RTL) and PT Imperia Cipta Kreasi (ICK), two of MSU's partners in creating and marketing Meikarta ads, that accused MSU of delinquent wage payments. The trial was disrupted by complaints on the part of the plaintiffs that MSU had bribed the judge.
Meikarta's construction has also been considered problematic from the start regarding land tenure and building permits. From the target of 500 hectares of area to be used, the Bekasi Regency Government has permits for only 84 hectares.
In a discussion in Jakarta some time ago, James Riady answered the criticisms by promising to complete all building requirements, including obtaining building permits. The conglomerate submitted an environmental impact analysis, known as Amdal, in May 2017 to the Bekasi Regency Government and the review process was almost complete but suddenly the West Java Provincial Government recommended stopping the study, ruling that the development of a metropolitan area should be the authority and responsibility of the regional government, not a private company.
Lippo Promises Cooperation
PT MSU’s attorney, Denny Indrayana said MSU would carry out an independent and objective internal investigation to find out the facts and promised to impose sanctions on related persons if corruption was indeed true.
"If there is indeed a deviation from the principle of anti-corruption that is a company policy, then PT MSU will not tolerate it, and we will not hesitate to give sanctions and decisive action to those who commit the deviation, in accordance with the applicable employment law," Indrayana said.
PT MSU, the attorney said, is a corporation that upholds principles of good corporate governance and anti-corruption and is committed to rejecting corrupt practices, including bribery.
"We also need to emphasize that we respect and will fully support the legal process at the KPK, and will act cooperatively to assist the KPK's work to fully uncover the alleged bribery case," Indrayana said.