Welcome to our Indonesia bulletin, with investor news and legal insights prepared by BLP's Indonesia desk. This edition contains a round-up of recent developments in the oil and gas, water and mining sectors.
1. Indonesia’s PPP programme – breaking the deadlock
In recent years, PPP has struggled to take root in Indonesia, despite the government’s best efforts to promote and develop a PPP framework. However, recent changes are starting to show promise at an administrative level, with PPP opportunities arising in the areas of telecommunications, downstream oil and gas and healthcare related infrastructure.
2. Currency law update – the mandatory use of Indonesian Rupiah?
Indonesian companies will be familiar with the purported obligation to use Rupiah for cash or non-cash transactions, subject to limited exceptions, and the broad requirement for Indonesian business operators to quote all prices for goods and services in Rupiah.
These regulatory changes have resulted in much disruption and uncertainty in the insurance and energy and natural resources sectors, among others. Despite certain public statements by industry bodies, released after the new regulations came into effect, the legal position is far from clear.
3. Indonesian Oil & Gas Sector - Recent Developments and Updates
Despite the turmoil in the global energy markets, the Government is determined to attract investment and has been trying to fix various long standing issues in the country’s oil and gas sector.
Regulatory uncertainty, land acquisition issues, ageing fields, bureaucracy, and problems with regional governments are just some of the difficulties continuously faced by investors which ultimately contribute to the slowing development of the fields and declining production outputs.
Recent steps have been taken by the Government to improve the business conditions in Indonesia’s oil and gas sector.
4. Indonesian water annulment – draft regulations under review but no new law to plug the gap
In February 2015, the Indonesian Constitutional Court annulled Law No. 7 of 2004 regarding Water Resources (“Law 7/2004”) on the grounds that it was unconstitutional. In the same judgment, the Court decided that the previous water law enacted in 1974 was to be reinstated. This created havoc for private investors in the Indonesian water industry, and stalled potential public-private deals.
Over half a year later, a new water law still has not been passed in order to plug the gap left behind by the annulment of Law 7/2004. Read our summary of the draft government regulations, which are intended to provide a temporary stop-gap before a replacement water law can be promulgated.
5. BKPM’s integrated services for oil and gas licenses
Under MEMR Regulation No. 23 of 2015 dated 31 July 2015 (“Oil/Gas Delegation Regulation”), the Minister of Energy and Mineral Resources (“MEMR”) has effectively delegated his power to issue various permits and licenses in the oil and gas sector to the Investment Coordinating Board (“BKPM”).
This is part of the Indonesian government’s attempt to consolidate licensing powers in BKPM, as opposed to having them spread among a number of different government agencies and ministries. However, this instruction does not in itself trim the number of licenses needed for business or operational purposes.
6. New regulations on hiring foreigners
Minister of Manpower Regulation No. 16 of 2015 regarding the Procedure for the Utilisation of Foreign Manpower (“Regulation 16/2015”) requires employers of non-resident directors and commissioners to obtain a License to Utilise Foreign Manpower (“IMTA”). Regulation 16/2015 also requires a 1:10 foreigner-to-Indonesian employee ratio, among other things.
Effective from 29 June 2015, this has implications for any investor seeking to establish an Indonesian representative office or other local presence.
7. Churchill / Planet arbitration claims against Indonesia: Managing Costs in International Arbitration
Churchill’s ICSID arbitration against Indonesia continues. In this update we summarise the latest developments in the case and discuss strategies to manage costs in international arbitration in relation to mining investments.