Recent legislative updates
Rusmaini Lenggogeni and David Gaida
Soewito Suhardiman Eddymurthy Kardono
Rusmaini Lenggogeni (Bio)
David Gaida (Bio)
Indonesia continues to attract significant global investor interest in all sectors and a number of new regulations have recently come into effect that may have an impact on foreign and domestic investment.
New fund transfer law and currency law
In response to Indonesia's growing integration with global financial markets, the Government of Indonesia recently issued Law No 3 of 2011 (the Fund Transfer Law). This is intended to provide a legal framework for a secure national payment system that provides security and legal certainty for fund transfer transactions performed within Indonesia and/or cross border fund transfers.
One of the original motivations for the Fund Transfer Law was to better combat money laundering and terrorism financing, and the Law stipulates that Bank Indonesia has the authority to monitor the fund transfers by a provider. Importantly, the Fund Transfer Law also reiterates a provision in the 2008 Electronic Information and Transaction Law confirming that electronic transaction evidence is valid and legal.
On May 31 2011 the Indonesian parliament passed the new Currency Law, which requires the use of Indonesian Rupiah for all business transactions within the country, although noting that international commercial transactions are exempt.
M&A: new KPPU rules
In July 2010 the government passed the implementing regulation for Articles 28 and 29 of the Anti-Monopoly Law. Article 28 prohibits mergers or acquisitions that may result in monopolistic practices and/or unfair business competition, while Article 29 requires post-notification for mergers or acquisitions which meet a certain minimum threshold in terms of assets and/or sales value within 30 days of the transaction. The regulation also increases the authority of the Business Supervisory Commission (KPPU) to conduct assessments of mergers or acquisitions suspected of creating monopolistic practices and/or unfair business competition.
Importantly, the government regulation also provides businesses with an option to have a pre-merger consultation with the KPPU. While the consultation is voluntary, the main benefit is that the KPPU is committed to making only one evaluation of each acquisition, as long as there are no material changes in the data submitted by the businesses conducting the acquisition and no material changes in the prevailing market conditions. Therefore, if a business has voluntarily conducted a pre-completion consultation in writing, the KPPU will not change its post-completion decision which will give more certainty in future M&A transactions.
The Government of Indonesia recently amended regulations to permit foreign flagged vessels to operate in Indonesia under certain circumstances to support the oil and gas industry. Previously, the 2008 Shipping Law provided that only Indonesian flagged vessels owned by Indonesian shipping companies can engage in domestic sea transportation, and that foreign ownership of Indonesian shipping companies be limited to 49%. These requirements were broadly interpreted to include companies, such as the oil companies, that arguably do not engage in the domestic sea transportation of goods and persons as their primary business. The oil and gas industry, which viewed the conditions as onerous, had been particularly affected due to the lack of alternative vessels.
To alleviate the expected negative effect of the Shipping Law on the country's oil and gas industry, the government, through Government Regulation No 22 of 2011, broadened the rules on use of foreign flagged vessels through definitional changes and to exclude certain vessels from the cabotage requirements. However, the regulations are still very restrictive on the use of foreign vessels and set forth significant conditions for companies to prove that Indonesian-flagged vessels are not available.
Oil and gas cost recovery
Coming into effect in December 2010, the government clarified operating costs that can be recovered and the income tax treatment of the upstream oil and natural gas business sector through Government Regulation No 79 of 2010 (GR 79). While GR 79 establishes additional limitations on cost recovery, it also provides greater clarity that may positively affect the interests of investors in the upstream oil and gas sector.
Mining and geothermal updates
Two years after the promulgation of Indonesia's new law on mineral and coal mining, the Indonesian regulatory regime is still far from ideal. The government has not determined national mining zones nor issued regulations on the bidding process for acquiring a mining area. Therefore, the government has not been able to issue new mining licenses for new investors but can only extend or upgrade existing licenses. As a result, potential investors are limited to exploring or producing by way of acquiring shares in existing mineral and coal concession holders.
The outlook for geothermal investment however is more promising. With the country possessing approximately 40% of the world's geothermal potential, the Government of Indonesia is looking at the area as an alternative energy source with an eye towards accelerating investment, production and tax incentives for geothermal producers. A Presidential Decree in 2010 urged the State Electricity Company (PLN) to accelerate the development of renewable energy, and more efforts are underway in the fields of energy and mineral resources, finance and forestry to support the industry's development.
The Ministry of Forestry issued a regulation concerning the guidelines for using forestry areas for non-forestry related development. Forest areas can only be used for non-forestry related development that has strategic purposes, such as mining, electricity, water installations, telecommunications, public facilities, toll roads and railways.
The Indonesian Supreme Court continues its efforts to improve efficiency, effectiveness, transparency and accountability in the courts by requiring an electronic copy of all documents for appeals and judicial reviews submitted to the Supreme Court. If the electronic copy of such appeal or judicial reviews is not submitted, such submission shall be deemed incomplete and will be rejected.