1. Surveying Indonesia's 2017 Mining Regulations: Mineral Export Ban doesn't Pan Out?
Summary: Relaxing the export ban on unprocessed mineral ore has created new uncertainty for Indonesia’s mining industry, together with ongoing disputes with Contract of Work holders. Establishing a set of overarching goals, priorities and strategies could help the government break the deadlock with the private sector and pave the way for a new law.
Indonesia's Ministry of Energy and Mineral Resources ("ESDM") has implemented new regulations that allow exports of certain grade of unprocessed mineral ore for another five years from 11 January 2017. Relaxing the ban has called into question the government's commitment to develop its downstream mineral policy.
Read our analysis of the export ban relaxation and the potential transition to a new Indonesian mining law regime.
2. PLN Issues New 10-year Plan
ESDM has adopted PLN’s 2017 edition of its 10-year electricity supply plan, which is often referred to as a "RUPTL". The RUPTL is of interest to independent power producer ("IPP") developers as it identifies the projects that PLN may make available for tender as IPPs. Demand forecasts, future expansion plans, electricity production forecasts, and fuel requirements are also addressed.
It is clear from this year’s RUPTL that IPPs continue to feature prominently, and that there is still a great demand for private sector investment in Indonesia’s power industry. Among others, the main aspects of the RUPTL include:
- a focus on developing power plants that can tap into local energy for electricity generation. This means that areas rich in coal such as South Sumatra could attract mine-mouth power projects, with a similar approach adopted for gas-fired projects in regions with indigenous gas potential;and
- upwards revision of the use of renewable energy in power projects, with a focus on geothermal and hydro. Renewables now target 22.5% of the total energy mix by 2025.
Interested parties can download a copy of the RUPTL from the D-G of Electricity’s website.
3. Planned Divestment of Air and Sea Ports
Indonesia intends to sell minority stakes in its air and sea ports to foreign private investors, in a bid to raise funds for further infrastructure development. The proposed programme is indicative of a growing regional trend for the use of “asset recycling” to pave the way for domestic infrastructure development on a country specific or government to government basis.
According to Transport Minister Budi Karya Sumadi, shares of up to 45% in 10 airports and 20 ports will be sold, but the state will retain majority ownership and control of these facilities. Under current laws, foreign ownership of air and sea ports is generally limited to up to 49% for sovereignty reasons.
Sales are to start in 2017 with profit-generating assets, beginning with Kualanamu airport in North Sumatra and Sepinggan airport in East Kalimantan, with the intention of inviting bids from big-name foreign port operators.
Private investment is increasingly being considered as an alternative source of funding amidst tight budgets. By attracting more foreign private investment, government spending can then be re-directed to developing new air and sea ports in more remote areas of the sprawling archipelago.
This is part of a greater scheme for private investment to play a greater role in funding infrastructure development.
4. Production Sharing Contracts - Cost Recovery Mechanisms Removed
On 16 January 2017, ESDM issued Regulation No.8 of 2017 (the “Gross-split Reg”), which removed provisions allowing upstream oil and gas companies to recover a proportion of operational costs from the State in bringing oil and gas fields to production.
The Gross-split Reg introduced a “Gross-Split” Production Sharing Contract whereby the State and the contractor are allocated a notional split of the revenues arising from a producing field as follows:
This split is intended to be flexible and can be adjusted by ESDM as the project moves forward depending on certain factors including (i) the prevailing oil price and (ii) how much oil is being produced. It is not clear at this stage whether transparent criteria need to be followed to implement any such adjustment.
All costs and risk in bringing a field to production now sit with the contractor, which ESDM hopes will drive innovation and cost efficiencies between contractors to produce oil and gas at a lower cost – and increase the profit take of the State.
Other important provisions of the Gross-split Reg include the requirement:
- that resources are owned by the State until a handover date to the contractor has occurred;
- for a minimum production amount (25%) to be sold to the State; and
- for the contractor to prioritise local workforce, domestic logistics, services, technology and designs.
It remains to be seen how the transition to the new regime is implemented – and whether those operating under the old regime will be grandfathered and protected from the changes.
5. New Regulation to Accelerate FinTech
In December 2016, the Indonesian Financial Services Authority (OJK) issued Regulation No. 77/2016 on Information Technology-Based Lending Services (the “FinTech Reg”), which is its first set of regulations relating to the FinTech sector. Please refer to our July 2016 release of Indonesia in Focus for more details.
The Fintech Reg is expected to support the growth of the FinTech industry and is designed to protect consumer and national interests, while providing opportunities for local FinTech providers to grow and expand. It is aimed mainly at companies carrying out peer to peer (P2P) lending services, and sets out requirements and restrictions pertaining to minimum capital, interest rates, consumer protection and education.
Some key provisions of the FinTech Reg include the following:
- FinTech P2P lending firms must register with and obtain a business licence from the OJK;
- a FinTech company must have: (i) at least Rp1 billion in subscribed capital to register with the OJK; and (ii) at least Rp2.5 billion in subscribed capital to apply for a business licence;
- there is no maximum interest rate cap prescribed. Instead, the FinTech Reg prescribes that firms can advise their investors and customers of an interest rate by "taking into account fairness and national economic development”;
- foreign ownership in FinTech businesses is limited to 85%; and
- FinTech firms must use escrow and virtual accounts in their business operations.
To further the drive to strengthen consumer protection, the OJK has also established a regulatory sandbox for FinTech firms to test services for consumers under the OJK’s supervision. This is in line with regulatory developments in other jurisdictions such as Singapore, Hong Kong and the UK.
According to Muliaman Hadad, the chairman of the OJK, the FinTech Reg is the initial step in the government’s efforts to regulate and supervise the business. Industry players have purportedly expressed optimism that the FinTech Reg will raise investor confidence in the FinTech industry in Indonesia.
The new FinTech Reg is timely in light of the current and expected growth of the FinTech sector in Indonesia. In January 2017, Bank Central Asia (BCA), Indonesia’s largest private bank, invested Rp200 billion into its venture capital business unit Central Capital Ventura (CCV), to invest in and collaborate with FinTech companies and financial firms that will support BCA and its subsidiaries' financial services. Last year, state-owned Bank Mandiri launched its venture capital unit Mandiri Capital Indonesia, with Rp500 billion of initial capital, to invest in FinTech startups. Regional players have also jumped on the bandwagon, with Grab planning to invest US$700 million in Indonesia over the next four years, with a focus on developing mobile payment and financing services.