One governs the island, while the other manages free trade, but some businesses say the work of the two authorities in Batam can overlap, leading to confusion and red tape.

The two authorities in question are the Batam Indonesia Free Zone Authority (BP Batam) and the city administration.

But BP Batam chairman Hatanto Reksodipoetro said this issue had been "blown out of proportion".

BP Batam, he said, is an arm of the central government, which owns, builds and manages the land and infrastructure, from roads and buildings to airports and harbours.

So matters pertaining to land and properties should be directed to BP Batam's office, not the mayor's, he noted.

"Let's go back to square one, which is the rules," he said.

The issue has been a concern for some years among investors from Indonesia and abroad.

Mr Hatanto said regulations governing which authority does what are clear, but not adequately observed.

"This has created a lot of problems for people who have not been abiding by the laws in the past, and they start making different kinds of stories which, in my view, may not be proved at all," he added.

On Jakarta's plan to raise Batam's status from a free trade zone to a special economic zone (SEZ), he said "it's still in the pipeline".

It would give businesses now enjoying import-duty exemptions a wider range of tax perks.

"This is under discussion by the central government. Nothing is decided yet. It will go in that direction, yes, but in what sort of form, whether it will happen next year, we don't know," said Mr Hatanto.

Still, his management is planning to give special incentives such as tax holidays to specific industries.

Top on his list are high-technology, environmentally friendly and eco-green sectors that will be "relevant in the next 50 years".

He said that he could make a direct request to the Ministry of Finance, citing the industries' potential benefits for the economy, and that the ministry could grant the tax incentives to Batam even if it is not an SEZ yet.

Arlina Arshad