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Indonesia Under Review


Indonesia Under Review

October 2013

Legislative Developments

BKPM Regulation No. 5 of 2013 has been revised to remove the provision that deemed listed companies controlled by foreigners to be subject to Indonesia’s direct investment regime, returning to the previous arrangement where listed companies operate under the separate capital market framework and are treated as domestic companies for the purposed of foreign direct investment restrictions.

A Presidential Regulation on PPP projects has been revised effectively replacing the two year deadline for PPP projects to reach financial close with the possibility to indefinitely extend the deadline, by one year at a time. This is particularly relevant to the development of the Central Java Coal Power Plant, which was reaching the two year deadline while still being in the process of completing land acquisition.

The Minister of Manpower and Transmigration has issued an implementing Circular Letter on outsourcing, regarding how associations of companies relying on outsourcing should draw up workflow procedures that will become the basis for determining which tasks can be outsourced and on the reporting obligations, as well as penalties.

The Minister of Forestry has issued a regulation requiring forestry license holders to partner with communities who live in forested areas. Failure to comply will result in license holders being temporarily denied the administrative services of the Ministry of Forestry.

The Minister of Energy and Mineral Resources (ESDM) has revised the regulation on mineral exports and processing, bringing it in line with the Supreme Court decision that overturned the outright ban on exports.

ESDM has finally issued a regulation governing the tender process of mining work areas (WIUP/WIUPK), which serve as the basis for mining licenses (IUP/IUPK). This opens up the possibility of new mining licenses being issued for the first time since the introduction of the 2009 Mining Law.

ESDM has also issued the implementation of the divestment requirements, restating the 20% to 51% divestment obligation between years 6 and 10 of production, adding an accelerated divestment obligation in the event of a transfer of shares, and stating that an IPO will not qualify as fulfilment of a divestment obligation (notably this was issued after the reversal of BKPM’s position discussed above). However, ESDM has indicated that it plans to soften the divestment requirement (to 40%) for those firms that make downstream investments.

The Director General of Mineral and Coal at the ESDM has issued a Circular Letter implementing Government Regulation No. 9 of 2012 on non-tax levies on mining businesses, which sets royalties and other payments. The Circular sets out the procedures and the penalties to supplement the rates set out by the Government Regulation.

The Financial Services Authority (OJK) has issued a revised regulation on share buybacks in fluctuating market conditions (previously Bapepam Rule XI.B.3). The requirement is a determination by OJK or a 3-day consecutive IDX decline of 15% or more, allowing a repurchase of up to 20%.

In Batam, the Ministry of Forestry issued a Decree to implement the Batam Spatial Plan, and zoned residential, industrial and shipyard areas as protected forests. The issue has now been taken over by Coordinating Economic Minister Hatta Rajasa on the basis of Batam being a free trade zone.

The Minister of Finance released the tax incentives available for 2013 in a regulation, with further implementation by Directorate General of Taxation. And also revised, and then quickly further amended, the luxury tax regulation setting out the good and the applicable tax brackets that range from 10% to 75% (notably alcoholic beverages are now subject to regional taxation following a Supreme Court decision that overturned a Presidential Decree).

A Presidential Regulation has established a permanent REDD+ Agency, tasked with reducing carbon emissions due to deforestation and replacing the REDD+ Task Force that has previously seen a number of extensions.

Forthcoming Legislation

The Negative Investment List (Presidential Regulation No. 36 of 2010) is set to be revised shortly, with expectation that restrictions on logistics, health, and alcohol will be reduced.

The Directorate General of Tax is seeking easier access to bank accounts, which may materialize through the expected revision of the Law on Banking.

A draft Bill on Unincorporated Business Entities (partnerships) has been proposed to the House of Representatives (DPR), to regulate partnerships under a law instead of the Civil Code and the Commercial Code, which date back to the colonial days, unlike companies, cooperatives and foundations, which are all regulated by recent laws.

The DPR also passed bills to create 8 new provinces and 57 new regencies/municipalities, despite the DPR’s and central government’s moratorium on regional division. The DPR is also discussing a revision to the Geothermal Law with the aim to accelerate development, which has been held back by a mix of ministerial regulations.

Litigation

The Constitutional Court held that any limit on the ability to bring a claim under the Labour Law is unconstitutional, thereby striking down the two-year statute of limitations.

One of the sentences in the Chevron bioremediation case has been reduced on appeal, however further appeals are continuing.

A West Jakarta District Court has annulled a loan contract on the basis of it being in a non-Indonesian language, relying on the not yet implemented Law on the State Flag, Language, Emblem, and the National Anthem and going against the previously stated interpretation of the Law voiced by the Ministry of Law and Human Rights.

Somewhat notable is the Supreme Court’s acquittal of Sudjiono Timan, the former president director of a state owned company convicted in 2004 for disbursing loans to unqualified companies. Sudjiono Timan was previously represented by Amir Syamsuddin, the current Minister of Law and Human Rights, during his initial trial, but fled Indonesia prior to being incarcerated and had the ultimately successful case review filed by his wife, prevailing on the basis of the argument that the matter is civil rather than criminal in nature.

In the Bank Century case, Washington-based International Center for Settlement of Investment Disputes (ICSID) has ruled for Indonesia in the dispute filed by British national Rafat Ali Rizvi on the basis of his investment not being admitted to Indonesia in accordance with the bilateral investment treaty requirements.

Appointments

Mahendra Siregar, a long time technocrat and a former diplomat, has been appointed as the head of the Indonesian Investment Coordinating Board (BKPM). Comr. Gen. Sutarman, the chief of the crime investigation department, has been appointed as the new National Police Chief, replacing Gen. Timur Pradopo.

Army General Moeldoko has restated Indonesia’s commitment to modernizing its military following his appointment as the Commander of the Indonesian Armed Forces.

With the 2014 elections looming, government officials have been resigning, including Dino Patti Djalal the ambassador the to the USA, and Gita Wirjawan the Minsiter of Trade, with plans to focus on politics in anticipation of the elections.

Corruption

The beef import quote corruption case continues, with the current issue being the extent of the exposure of President Susilo Bambang Yudhoyono’s Democratic Party. Of particular note is the current news cycle’s focus on “Queen Lobbyist” with the alias “Bunda Putri.” Alleged photos of her with various political figures, including the former minister of trade Gita Wirjawan have since emerged.

Rudi Rubiandini, former Deputy Minister of Energy and Natural Resources (ESDM) and the head of SKK Migas (the oil and gas regulatory authority recently placed under the ESDM following a Constitutional Court decision that dissolved the independent regulation BK Migas) has been arrested by the Corruption Eradication Commission (KPK). The arrest stems from an investigation into bribes allegedly paid by Kernel Oil, a foreign, albeit allegedly Indonesian-owned, trading company. The investigation is still continuing. Notably, SKK Migas is now also no longer involved in the tenders to sell the state’s share of oil and gas under PSCs, with the state-owned Pertamina taking over and conducting the sales.

The Head of the Constitutional Court, Akil Mochtar, has been arrested in a corruption case involving an election dispute that was being reviewed by the Court. Akil Mochtar has since been dismissed. With two other current Constitutional Court judges questioned it is likely that public discussion on this tragic state capture of the Constitutional Court will continue. Following all of this, another mayoral election dispute that came under scrutiny was decided in favour of Banten governor’s Ratu Atut Chosiyah’s brother, while her political dynasty is coming under investigation by the KPK.

2014 Elections

The 2014 elections have been set for 9 April 2014 for the House of Representatives (DPR) and 9 July 2014 for the President.

Jokowi appears to remain the most popular candidate, with continuing strong anti-corruption and efficiency enforcement of Jakarta city government officials, and an extremely hands-on approach, such as in the implementation of city projects, which has increased his popularity with the Jakarta city public.

Prabowo Subianto, former Commander of the Army Strategic Reserve Command (KOSTRAD) and 2009 vice presidential candidate, continues to consistently feature as a candidate, although gathering less support than Jokowi.

Megawati Sukarnoputri, former President, appears an unlikely candidate, and more likely to play a kingmaker role, potentially for Jokowi. Hatta Rajasa, Coordinating Minister for Economy, has attempted to advance his image, but appears increasingly unlikely to succeed.

Aburizal Bakrie appears likely to lose the nomination of the Golkar party. Other contenders, such as Dahlan Iskan, Wiranto and Jusuf Kalla, also continue to make periodic appearances in the media.

Infrastructure

The residential and office space real estate market appears to be cooling down along with the slowing economy and the wait-and-see investment attitude in anticipation of the 2014 elections. New Bank Indonesia ‘loan to value’ rules that restrict real estate lending are expected to benefit small and subsidized housing due to the lower down payments.

Significant budget allocations are proposed for railway development starting from 2014, specifically including the double track development of the Jakarta-Surabaya line. Groundbreaking for the Kertajati International Airport in Majalengka (Bandung), West Java, is expected to take place at the end of this year. The Jakarta monorail project has seen a groundbreaking by Governor Jokowi, resuming the long-stalled project with the cooperation of Chinese companies. In a government-to-government deal it appears that Jakarta has gone away from the even/odd license plate idea and will instead install and electronic road pricing system with Sweden’s assistance.

A consortium on state owned companies is exploring the construction of a highway from Jakarta to Surabaya over water, with repeated coverage (including concerns from the Trans-Java Toll Road) suggesting that this may in fact be a project that is being considered. Similarly, the Jakarta sea wall project appears to be prioritized for acceleration by Jokowi, with construction slated to commence next year.

The 2013 APEC Summit in Bali has resulted in an agreement to establish a PPP Expert Advisory Panel with a pilot PPP Center in Indonesia, and a pending selection of an Indonesian PPP project to be showcased at the 2014 APEC Summit in Hong Kong.

 

[Last update: 2013-11-08 03:29:02]

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