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Indonesia Under Review

Indonesia Under Review

March 2015

The Indonesian government is becoming increasingly concerned with the falling rupiah, the balance of payments, and is starting to become concerned with the significant budget shortfall that is likely this year. Several regulations have been issued attempting to address these issues, one being a Ministry of Trade regulation that requires sales of coal, several unprocessed and processed minerals, oil, LNG, and palm oil to be paid for with Letters of Credit. With respect to the budget shortfall, tax enforcement is being stepped up (including travel bans and bank account freezes) while at the same time the government continues to attempt to expand the tax base. In a move that may be related to concerns over the financial outflows, the AEC, or just general concern over the 69 thousand foreign workers in a nation of 254 million, the Ministry of Manpower has announced plans to administer a test, likely online, of the Indonesian language to foreign workers (excluding Directors and Commissioners) – of particular note is that this would include new arrivals as well as foreigners already in Indonesia.

Import and export of oil and gas has seen stricter requirements under a Ministry of Trade regulation. The Ministry of Energy and Mineral Resources has extended the deadline to obtain Clean & Clear status for mining concessions to June 2015, or alternatively reported as April 2015. The Ministry of Finance has issued a regulation to incentivize oil and gas exploration by reducing the land and buildings tax burden, making a 100% reduction in tax possible. The government has announced that the ban on bauxite (aluminum ore) exports will be removed for firms that demonstrate a commitment to build a smelter.

The revision of the Oil & Gas law is ongoing, and should be expected in the near term. The House of Representatives has also produced a draft amendment to the anti-monopoly law, notably adding an extraterritorial aspect to the law and switching to mandatory pre-completion notification. With the issuance of the national legislation program, OJK has commended on the suggested contents for the amendment of the Banking law, indicating that the amendment may happen in the near future. The Mining law is also a top priority for amendment.

BKPM’s One Door Integrated Services are expanding and being actively promoted, which should hopefully simplify and expedite several establishment licensing processes. BKPM is also cleaning up the situation with non-active companies, and starting to revoke in principal licenses from companies who have not filed their Capital Investment Activity Reports (LKPM) (with the number of 15,528 being reported, and alternative reports stating that 6,541 have been revoked).

Land acquisition remains a major issue in Indonesia, and the implementing regulation of the Land Acquisition law has been amended to tweak certain points (compensation and transition). However, it remains to be seen whether the Land Acquisition law is itself adequate, with a major test case being the success of the Central Java Power Plant PPP project, for which the state electricity utility PLN has taken over land acquisition after years of delays.

The plan to add 35,000 MW continues, having met some regulatory issues relating to land acquisition support with respect to the 5,000 MW proposed power plant in Cilacap. The Ministry of Energy and Mineral Resources has issued a regulation allowing PLN to purchase electricity from IPPs through Direct Election and Direct Appointment under certain conditions, and subject to benchmark prices (which can be exceeded with Ministerial approval). The availability of Business Viability Guarantee Letters from the Ministry of Finance has also been extended to 2019. And PLN has issued its 2015-2024 Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik / RUPTL).

The OJK has been very active in issuing a wide range of regulations. Of note is a regulation on Directors and Commissioners of public companies, which limits individuals to being directors in a maximum of 2 public companies and commissioners in a maximum of 2 public companies, or just commissioners of 4 public companies, commissioners can also serve on at most 5 committees, and prohibits directors and commissioners from directly or indirectly making personal gains from the public company’s activities, unless approved by a GMS. The OJK has also taken a different stance from IDX – allowing independent commissioners to serve more than two terms as long as they declare their independence.

The pressure for banks to consolidate has also become official, with the OJK preparing a plan for such consolidation and stating that only 50 to 60 of the current 119 banks should remain.

In administrative matters, the Presidential Regulation on procurement of goods and services has been amended for the fourth time, and an accompanying Presidential Instruction has been issued with the intent to accelerate the procurement of goods and services. Construction services business classifications have been amended by the Ministry of Public Works. The Ministry of Finance has issued procedures for Advance Pricing Agreements. And a new Government Regulation on the management of hazardous waste has been issued, replacing a 1999 regulation.

Indonesia has ratified the 1988 Convention on Mutual Administrative Assistance in Tax Matters, to which it became a signatory to in 2011, through the issuance of a Presidential Regulation.

The Constitutional Court has revoked the 2004 Water Resources law because it allowed water resources to be controlled by private parties, as a result the 1974 law now applies.

The United States has initiated a WTO case against Indonesia regarding barriers to imports of fruit, produce, and meat.

[Last update: 2015-03-26 11:36:45]

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