The government's attempt to increase investor confidence in the Batam industrial zone by issuing a package of new regulations last July appears to have fallen wide of the mark.

With the failure to enact specific legislation clarifying the status of the island, the investment climate there remains uncertain, with an increasing number of firms relocating their plants to other areas and a decrease in the amount of inward investment.

This was stated during a hearing Monday between the House of Representatives' trade and industry commission and Trade Minister Mari Elka Pangestu, Investment Coordinating Board (BKPM) chairman Muhammad Luthfi, Batam Authority chairman Mustofa Widjaya and the chairwoman of the Indonesian Chamber of Commerce and Industry (Kadin)'s Batam branch, Nada Faza Soraya.

BKPM figures show that the value of proposed foreign investment projects in Batam dropped from US$176 million (57 projects) in 2004 to $117 million (56 projects) last year.

Luthfi said the reason for the fall was that many investors were still unaware of the July package of regulations. "They're new regulations. We need to make them known to potential investors," he said, adding, however, that he was quietly optimistic foreign investment in Batam would increase this year.

However, Nada expressed greater pessimism, saying that Batam's competitiveness had seriously declined over the last five years.

At least 10 foreign-owned companies have relocated their plants to places outside Batam, including Jakarta, two dropped their investment plans altogether and six others postponed their investments.

Nada told the hearing that the current regulations, including the upgrading of the island's status to a "Bonded Zone Plus", gave rise to nothing but more uncertainty for investors on the island.

"We need clear legislation binding on all sides," she said, adding that the lack of clarity was causing major problems such as an overlapping of powers between the Batam Authority and the Batam municipal administration.

She said upgrading the island's status had also caused other problems. "In practice, there is now double taxation, as experienced by firms in the oil sector," she said.

She predicted the value of investment on the island this year would further decline should the government not tighten up the rules of the game, citing a fall in investment growth from 20.7 percent in 2001 to 0.7 percent in 2005.

By contrast, the Batam Authority chairman claimed the investment climate was actually getting better.

"The current situation (Batam's status as a "Bonded Zone Plus") provides more certainty than when we were debating whether Batam should be a bonded zone or a free trade zone," Mustofa said.

He pointed out that total investment in Batam had increased from $8.8 billion in 2001 to $11.89 billion last year.

He also said that tax revenue from Batam had increased from Rp 955 billion ($103 million) in 2001 to Rp 1.082 trillion in 2005.

Through its July package of regulations, the government upgraded the status of the Batam Industrial Bonded Zone to a "Bonded Zone Plus", to help the island's export-oriented businesses, improve sustainability, reduce costs, simplify procedures and maintain policy consistency.

The package addresses four main legal and investment issues -- the status of assets in the zone, land use and spatial planning, the powers of the Batam Industrial Development Agency and the powers of the Batam municipal administration.

Trade Minister Mari Elka Pangestu said the benefits of the regulation package would not be immediately apparent.

"However, we expect that over the next few years we will see an improvement in the trade balance on the island as a result of the July package," she said.