Investing in Indonesia - 2013 SIDDHARTA & WIDJAJA KPMG HADIBROTO KPMG SIDDHARTA ADVISORY
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SIDDHARTA & WIDJAJA
KPMG HADIBROTO
KPMG SIDDHARTA ADVISORY
Investing in
Indonesia
2013
kpmg.com/id
c | Investing in Indonesia - 2013 Investing in Indonesia - 2013 | 1
1. Introduction
Indonesia has historically been This publication is intended as
plagued and associated with a general guide to investing and
weak institutions and a myriad of doing business in Indonesia for new
other problems, being one of the foreign investors looking to enter the
countries hardest hit by the 1997 Indonesian market, but also tries to
Asian Economic crisis, which caused capture practical insights and other
a major recession, widespread intelligence from KPMG’s experience
civil unrest, sectarian violence and “at the transaction and M&A
resulting socio-economic fallout. coalface” based on our experience in
At the height of the crisis, foreign providing transaction, M&A and tax
investment virtually dried up, the advisory services to both foreign and
IDR collapsed against the USD local investors.
and other foreign currencies and
The publication is not intended to
interest rates and inflation reached
be a substitute for formal legal and
unprecendented levels.
other professional advice. To the
Today, Indonesia is a politically best of our knowledge, laws and
stable democracy, has enjoyed regulations referred to throughout
sustained periods of record the document reflect the position as
economic growth and foreign at 1 January 2013.
investment, as well as now being
the largest economy in South East
Asia. However the country is still not
1. Introduction 1 without need for significant policy
reforms and various challenges
remain, with new ones emerging.
2. Country Facts and Overview 2
3. Economic Environment 5
4. Infrastructure 8
5. Investment 11
6. Business Structures and Establishment 26
7. Repatriation of Foreign Exchange 30
8. Domestic and Foreign Trade 32
9. Labor and Employment 35
10. Taxation 40
Glossary 50
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2. Country Facts and Overview
The Country
Indonesia is located in South-East Asia between the Indian
and Pacific Oceans and is bordered by Malaysia, Singapore,
East Timor and PNG. The main islands of Java, Sumatra,
Kalimantan, Sulawesi and Papua feature spectacular
mountain ranges flanked by rich coastal plains, fertile valleys
and large areas of lowlands. The smaller islands, many of
which are uninhabited, are often fringed by brilliant beaches
and coral reefs and bedecked with tropical palm trees.
A large percentage of world trade transits the strategically
important straits of Malacca that link the Indonesian ocean
littoral to the South China Sea and the larger Pacific Ocean
basin.
Official Name Republic of Indonesia
Indonesia is rich in natural resources, minerals, oil, and fertile
Capital city Jakarta: which is the business and governmental centre
land to support agricultural products. It is these resources,
Other major cities Surabaya, Medan, Bandung. Surabaya is the second largest city and a major together with the islands’ central location between India and
and provinces industrial centre and port. There are 34 provinces comprising 502 regencies, 6,543 the Orient, that have made Indonesia so attractive to foreign
districts and 75,244 villages traders, rulers and investors both historically and as of today.
Government Type : Independent Republic
Independence : 17 August 1945
Highest Authority: People’s Consultative Assembly (MPR) The people
Geography Location : South Eastern Asia, archipelago between Indian Ocean and Pacific Ocean The people of Indonesia are culturally diverse reflecting their
Largest Islands: Sumatra, Java, Kalimantan (Borneo), Sulawesi and Papua account for over differing ethnic origins, religions and histories.
90% of total land area. There are also two large groupings of smaller islands,
With an estimated population of 240.8 million, Indonesia is
Maluku and Nusa Tenggara
the fourth most populous nation in the world after China,
Area : 1,904,569 sq km ( 736,600 sq mi).
India and the USA, as well as the world’s most populous
Land: 1,811,569 sq km; water: 93,000 sq km
Muslim nation. The population is expected to grow by 2.5
Terrain : More than 17,508 islands; 6,000 are inhabited; 1,000 of which are
million people per year through 2015. 54% of the population
permanently settled
is below 29 years of age, while about 70% is below 39
Coastline : 54,716 km
years of age. The most populated islands are Java, Sumatra,
Climate Tropical, hot, humid, cooler in the highlands Sulawesi and Kalimantan. Java, Bali and Madura are the most
People Nationality : Indonesian densely populated with Papua, Kalimantan and many of the
Population : 240.8 million: >50% under age of 29 (2010-15E annual average growth: 1.0%) smaller islands having low population densities. The most
Ethnic Groups: 40% Javanese, 16% Sundanese and 44% other ethnic groups populous cities are Jakarta, Surabaya and Bandung in Java,
Religions : Islam 86%, Protestant 6%, Catholic 3%, Hindu 2%, Others 3% and Medan in Sumatra. About 44% of the population resides
in urban areas, with the annual rate of urbanization estimated
Language Bahasa Indonesia (akin to Malay)
at 1.7% over 2010-15.
English is widely spoken by business people in major cities
Currency Indonesian Rupiah (IDR) Most Indonesians are of Malay descent and the largest
ethnic group, the Javanese, make up 40% of the total
Inflation Average of 5.1% in 2010; 5.4% in 2011 and 4.3% in 2012
population. The Javanese are pre-eminent in the social
Forecasted between 5.0% - 6.1% over 2011-15
Natural resources Oil, tin, natural gas, coal, gold, copper, silver, nickel, bauxite, timber, fertile soils
Agricultural products Rice, cassava (tapioca), peanuts, palm oil, rubber, cocoa, coffee, copra, poultry, beef, eggs
4 | Investing in Indonesia - 2013 Investing in Indonesia - 2013 | 5
3. Economic Environment
elite, bureaucracy and the armed forces. There is also an The country is divided administratively into 34 provinces
ethnic Chinese minority whose influence in business is headed by a Governor and elected provincial assemblies, and
proportionately greater than their numbers. Papua, the hundreds of districts and municipalities headed by a Regent,
eastern half of the island of New Guinea, is people by each with its own elected council assemblies. Governors and
Melanesians. Regents are appointed by, and report to, the local assembly
or council. These regional governments have responsibility
The official language of the country is Bahasa Indonesia,
to administer a wide range of matters, including health,
which is similar to Malay. This is the second language of
education and investment.
many rural Indonesians after their local tongue, of which
there are almost 300. English language skills are actively The type of legal system
encouraged in recognition of the opportunities English
The judiciary is based on the Supreme Court and separate
affords to Indonesians in education, commerce and
courts for public administration and military, religious and civil
international relations. English is understood by business
matters. A comprehensive system of civil laws has replaced
people in the cities. The country has more than a 90%
most of the statutes established by the Dutch. In addition,
literacy rate.
there is an extensive range of decrees and regulations
Over 85% of the population follow the Moslem faith, but developed and applied by government departments. For
there are significant minorities of Hindus (centered in Bali), foreign investors, the most relevant areas are laws regarding:
and Christians. • foreign investment
• company law
The state of the Indonesian economy The main opportunities
• business licensing and trade
The climate • taxation and customs Following the 1997 Asian Economic Crisis, Indonesia Indonesia has the economic growth and investment potential
• labor experienced a period of severe economic and political to be regarded in the same light as the ‘BRIC’ countries. The
Straddling the equator from latitude 60oN to 110oS, Indonesia
• land and buildings instability that was compounded by the collapse of the country has a large domestic consumption base; its middle
has a typically tropical climate marked by heavy rainfall as
• regional regulations. banking system, a function of unrestrained lending and class has grown substantially, from approximately 38%
well as high humidity and temperatures. Rainfall increases
other practices. Ten years later however following a period of the population in 2003 to 57% in 2010 or well over 100
during the monsoon season which typically runs from Certain industries are subject to specific regulations and
of political stability as well as sound economic and financial million people, with 7 million being added each year. Wage
October to April. The tropical climate is moderated by requirements, including oil & gas, financial services and
policy which lowered the national deficit from 89% of GDP in growth and an improving employment outlook are expected
mountains in large parts of the country. In most parts of the mining which are covered in Chapter 5.
2000 to less than 30% in 2011, Indonesia was less affected to support the Indonesian consumer story. The country’s
country, temperatures generally range from 23o to 33o C.
Professional advice should always be obtained with regard by the Global Financial Crisis (“GFC”) compared to many abundance of natural resources and strong demand for these
to contracts and agreements made in Indonesia. One reason neighboring economies, its resilience underpinned by strong from China, India and other rapidly expanding economies
is that the civil law provides for certain clauses to apply to domestic spending and relatively low dependence on exports should benefit Indonesia over the longer term.
The type of government
all agreements unless specifically excluded. Litigation can which make up a small 1.7% proportion of the country’s GDP.
The emergence of Indonesia’s growing middle class has
The 1945 Constitution of the Republic of Indonesia provides be unpredictable and time consuming, and as a result is
2010 2020E been well documented.
for independent executive, legislative and judicial functions. not commonly an effective route to resolve disputes. The
The highest authority is the People’s Consultative Assembly protection provided by agreements of themselves can be Income and market size There is also however a growing lower and poor socio-
(MPR), which meets annually to hear accountability limited, and commercial arrangements should be designed, economic class of over 100 million whose income and
Population (mn) 239.9 262.6
reports from the President and government agencies and where possible, with safeguards which can operate in the private expenditure is between USD 2 to USD 4 per day
provide policy guidance. The MPR includes the House of event of later disagreements. Contracts commonly include GDP (Nominal, USD bn) 706 2,332 and less than USD 2 per day, respectively. The government
Representatives (DPR), which has 560 members, and the Indonesian or international arbitration for resolution of GDP per head (USD) 2,943 8,883 is becoming increasingly conscious of this socio-economic
Council of Regional Representatives (DPD) which has 132 disputes. A popular choice is Singapore in accordance with group and reform strategies are now a focus.
Private consumption (USD bn) 401 1,254
members. Members are elected to five year terms. the rules and regulations of the Singapore International
Arbitration Centre, where the final, binding arbitral award is Private consumption per head (USD) 1,671 4,777
The President and Vice-president are elected by direct
automatically ratified in the Indonesian Courts. GDP (International $ bn at PPP) 1,051 2,475 Barriers, risks and challenges
popular vote. The president is the Chief Executive, the Head
of State and Commander-in-Chief of the Armed Forces, and Indonesian laws become operative following issuance GDP per head (International $ at PPP) 4,379 9,427 Barriers, risks and challenges
also appoints Cabinet Ministers who are responsible only to of Implementing Regulations, and can be subsequently Exports of goods & services (USD bn) 174 668 Indonesia’s business environment is still plagued by poor
him/ her. stipulated in Ministerial and Presidential regulations and
Imports of goods & services (USD bn) 162 722 infrastructure and weak institutions. Despite steps being
decrees. A significant period of time can elapse between
taken to tackle corruption, Indonesia is still ranked 100th
new laws being announced, drafted, passed by Parliament Memorandum items
out of 183 in Transparency International’s 2011 corruption
and final regulations or decrees being rolled out. GDP per head (at PPP; index, US=100) perception index. Excessive bureaucracy and a lack of
Share of world population (%) 3.52 3.48 coordination at the ministerial level also undermine the
country’s business environment. In terms of 2011 World
Share of world GDP (Nominal, %) 1.11 1.85
Bank and IFC “Ease of doing business” and “Ease of starting
Share of world GDP (PPP, %) a business” measurements, Indonesia ranked 128th (behind
Share of world exports of goods & 0.93 1.53 Ethiopia) and 155th out of 185 countries, well below East
services (%) Asia & Pacific regional averages. On contract enforcement,
Source: BMI
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the country ranked 144th, tied with Malawi. A recent Indonesia economy maintains positive momentum
positive development is an announcement by the Indonesia Inflation and Exchange rates Economic outlook
Economic growth and Gross Domestic Product (“GDP”)
Foreign Investment Review Board (“BKPM”) which has As at 3Q2012, the national inflation rate remained under
The economic growth forecast for Indonesia remains at 6.1% Indonesia is not totally immune from spillovers from
plans to reduce the time involved in establishing a business control at 4.58% YTD despite a rise in some consumer
in 2012. Growth is still being driven to a large degree by international developments through both financial and
by providing for applications for business and investment goods prices which occurs annually due to and depending
domestic consumer demand and spending from a growing trade channels. Downside risk remains due to ongoing
licences to be made online. on the timing of Ramadhan and Idul Fitri religious festive
middle class of over 100 million people with increasing external uncertainties, including the extent and impact of
celebrations.
These and other similar indicators however do not measure levels of disposable income and a relaxed savings mindset. the slowdown in China’s economy, the ongoing recession
all aspects of a business environment that matter to Indonesia’s GDP rose to 6.4% in 2Q2012 and is projected to In terms of currency, the IDR depreciated by 0.6% over in the Euro Area and US fiscal issues. Should these risks
companies and investors. Related discussion is in Chapter be maintained at 6.3% in 2013. 3Q2012 to IDR 9,540/USD, due to a strengthening of transpire, Indonesia’s growth rate could be considerably
4 on Infrastructure and Chapter 5 on Investment, as well as the USD. The IDR is projected to reach IDR 9,670 /USD slower. Much of the current growth has been built on rising
FDI is also now at record levels higher than what was
other chapters throughout this publication. at 4Q2012 and slightly strengthen to IDR 9,461 in 2013. commodity prices and strong domestic consumption.
achieved prior to the 1997 Asian Economic Crisis. Recent
Currency fluctuations and volatility as a country risk have Whilst the manufacturing sector is growing, it lags behind
There are plans for investments in infrastructure of USD BKPM data suggests that in 1Q2012, foreign investment
now largely disappeared, for the time being at least, with Thailand, Malaysia, Brazil and Turkey in terms of size and
191 billion over 2011-2014, and USD 440 billion from 2011- realization in manufacturing reached USD 5.7 billion, a 30%
the IDR being relatively stable for some time. However sophistication. Labor laws complicate doing business and
2025, nearly half of which has been assigned for basic increase YoY. The increase in FDI inflows has been driven by
deteriorations in the external trade balance and other factors discourage value added, solutions based, labor intensive
infrastructure. relatively low labor costs, the availability of abundant, key
can creates risks of the IDR coming under depreciation manufacturing and diversified industrials investment.
natural resources and a large and growing domestic market,
Further, the 2012 upgrade of the country’s sovereign pressures. Infrastructure is inadequate.
reflecting favorable demographics, high GDP per capita
debt to BBB- Investment Grade by Fitch Ratings should
growth and the rapidly growing middle class. Indonesia has Fuel price increases and government policy on lifting of The baseline outlook is for growth of 6% in 2012 and
augment Indonesia’s ability to attract foreign capital and
enjoyed recognized political stability since around 2004. subsidies can impact inflation and thus interest rates. 6.4% in 2013. However, in the event of a major freezing
also stabilize its debt market. However its is recognized
Following public demonstrations and a “last minute” of international financial markets which contributes to a
that further upgrades are likely to be contingent upon the
cancellation of a planned fuel price increase on 1 April 2012 decline in trading partner growth, a fall in global commodity
GOI’s ability to achieve progress in development of basic Inflation and exchange rate (2006-2013F)
in an effort to reduce the level of fuel subsidies, a stipulation prices and reduced domestic investor confidence, similar
infrastructure, which is discussed further in Chapter 4.
in a Revised Budget Law on 31 March 2012 provides for fuel to the Global Financial Crisis (GFC) in 2009, it is projected
A possible condition of investor uncertainty is likely to
price to be reviewed semi-annually based on movements that growth could slow to 4.7% in 2013 ahead of the 2014
exist in the period leading up to the 2014 Presidential and
in worldwide oil price. Historical increases in fuel prices in Parliamentary and Presidential elections.
Parliamentary elections.
Indonesia have had adverse impacts on inflation and interest
rates.
Investment Rating
Fitch Moody’s S&P
AAA Aaa AAA
AA+ Aa1 AA+
AA Aa2 AA
AA- Aa3 AA-
Source: Mandiri Sekuritas, Macroscope Economic Research,
A+ A1 A+ 2 October 2012
A A2 A
A- A3 A- Economic activity Q1 2012
BBB+ Baa1 BBB+ Services Agriculture, Livestock,
10.2% Forestry & Fishery
BBB Baa2 BBB 15.2%
Financial, Ownership &
BBB- Baa3 BBB- Business Services
7.3%
BB+ Ba1 BB+ Mining and Quarrying
Transport and 12.7%
Communication
BB Ba2 BB 6.6%
BB- Ba3 BB- Trade, Hotel, and
Restaurant
B+ B1 B+ 13.5%
B B2 B Manufacturing Industry
Construction 23.6%
B- B3 B- 10.1% Electricity, Gas and
Water Supply
Note : Indonesia Current Rating Nov 2012 0.8%
Source: Fitch Ratings, Moody’s, Standard & Poors Source: Central Statistic Bureau, Economic Growth in Indonesia 1Q2012
8 | Investing in Indonesia - 2013 Investing in Indonesia - 2013 | 9
4. Infrastructure
Maritime Transport is expected to account for 71% of the total
infrastructure investment – from USD 26.1 billion in 2010
There are 21,579km of navigable waterways in the larger
to USD 93.0 billion in 2014.
islands such as Sumatra, Java, Madura, Kalimantan, Sulawesi
and Irian Jaya. • Water & sanitation: water access is low; 76% of the
population do not have access to ‘improved’ water and
Natural gas pipelines extend 8,183km, with oil pipelines
only 24% are connected to local water utility companies.
totaling 7,429km and refined product pipelines 1,329km.
Sanitation services are severely lacking – only 1.3% of
The main ports are at Jakarta and Palembang supported by the population are reached (not necessarily connected)
others in Cilacap, Cirebon, Kupang, Makassar, Semarang and to a sewage network.
Surabaya. Belawan and Medan are big commodity ports.
The Government has stated its commitment to achieving
Indonesia is recognized to have a lack of deep water ports.
the Millennium Development Goals(1). In order to do
In 2011, marine fleets operating in Indonesia totaled 16,331 so, an estimated 10 million household connections is
vessels consisting of 10,902 national fleets, 562 foreign required to be implemented.
chartered fleets and 4,867 foreign agency fleets.
• Energy: access is low; 43% of the population is without
power (approx. 90 million people); investment needs are
high – an estimated USD 15-17 billion is required before
Indonesia’s infrastructure condition
Introduction Road 2012 for an additional 9,700 MW of capacity, expanded
Overview transmission and distribution.
Infrastructure spending in Indonesia (both government Indonesia’s road network totals 437,759km, of which
The World Economic Forum ranks Indonesia’s road
and private) has remained subdued since the 1997 Asian 258,744km (46%) are paved or sealed. It is estimated that Road infrastructure is the platform for all other major
infrastructure as 83rd out of 142 countries, rail infrastructure
Economic crisis. As a result Indonesia continues to have 90% of all domestic passenger transport and 50% of cargo infrastructure: land acquisition is the challenge
as 52nd out of 123 countries and port infrastructure as 103rd
poor basic infrastructure and remains under invested. traffic is carried by road. underpinning progress
out of 142 countries.
Population pressures and strong interest of foreign investors The lack of clear regulations on land acquisition for public
The road network is best in the most developed islands and
in Indonesian commodities gives rise to a significant need Poor levels of infrastructure development are not only use and the provision of land compensation to owners
main population centers of Java, Sumatra and Bali. Mining
for infrastructure development in the country, which has holding back Indonesia’s growth potential but also poverty have caused delays to toll road and other infrastructure
related transport (road, rail) infrastructure is more developed
a congested road network, over utilized airports, weak rail reduction progress. The symptoms of more than a decade of projects. There has been a long history of informal land
in Kalimantan compared to Sumatra.
connectivity, low electrification rate and an underdeveloped low infrastructure investment include increasing congestion ownership in Indonesia that gives rise to any number of
port sector. Despite being given a high priority in government spending in urban areas, high levels of inter-island cargo transport individuals claiming the rights to the land during the land
programs, road building in Indonesia has progressed at a costs, electricity blackouts and low access to improved acquisition process. The implication of this is the need for the
Unless progress is made, this will be a major barrier to
slow pace. Only 85kms of the 1,095km target for new sanitation. administrative process involving a number of government
sustained longer term economic growth and development
toll roads has been developed over the past 5 years. Land institutions to resolve land ownership issues, which is
across many industries, as well as adversely impact foreign • Transportation: Indonesia has experienced a rapid
acquisition challenges are commented on overleaf. problematic.
investment (Chapter 5). Indonesia ranks low among other increase in the numbers of cars in circulation with
countries with regards to the quality of infrastructure and the virtually no major investment in toll and other road Another frequent issue encountered is land owners
inadequate supply of infrastructure is consistently identified infrastructure. Ports are among the least efficient in holding on to their land as long as possible to benefit from
Rail
by companies as a constraint on their operations and South-East Asia in terms of turnaround times and unit appreciation in value while a project progresses, which has
investment. The railway system covers 5,042km, all of which is narrow costs. According to a World Bank survey of international led to unexpected land cost escalation. Property prices in
gauge; 565km is electrified. buyers at the Jakarta Trade Expo 2009, most firms Indonesia and especially Java and Jakarta are increasing at a
Indonesia infrastructure are satisfied with factory gate prices and the quality rapid rate.
The public railway which comprises most of the Indonesian
Road network 437,759 kilometers, of which 258,744 of Indonesian products but find high transport costs
rail network is operated by the state-owned PT Kereta Api Land acquisition issues have been one of the main
kilometers are paved and lack of reliability of delivery schedules as the main
(Persero), while some freight railways are privately owned obstacles for infrastructure projects in Indonesia. Enactment
constraints for business transactions(1). For example,
Railway network 5,042 kilometers, of which 565 and operated. of President Regulation No.36/2005 concerning Land
logistics costs from Cikarang – Bekasi factories to
kilometers are electrified Acquisition for Infrastructure Development was intended to
Air Tanjung Priok ports for a 40ft container is USD 775, far
Air • 684 airports, of which 13 are outline the rules and procedures for infrastructure projects
higher than logistics costs from factories in Malaysia to
international airports As of February 2011, there are 684 airports, of which 171 have serving public purposes, however the regulation was not
port, which are only USD 450. Thailand is in the same
• 64 heliports paved runways, and 64 heliports operated by Angkasa Pura I, effective due to vagueness in the rules.
range(2). Corresponding costs in Vietnam are lower again
Angkasa Pura II and the Directorate General for Aviation.
Maritime • 21,579 kilometers of navigable at USD 250(3).
waterways Based on Ministry of Transportation Regulation No.11/2010,
• Pipelines: there are 5 main airports in Indonesia: Soekarno Hatta –
-- natural gas 8,183 kilometers Jakarta, Ngurah Rai – Bali, Sultan Hasanuddin – Makassar,
-- oil 7,429 kilometers Juanda – Surabaya, and Polonia – Medan.
-- refined product 1,329 kilometers There are 16 scheduled commercial airlines, 30 charter Sources: (1) Logistic Performance Index 2010: Indonesia, World Bank
(2) World Bank, Indonesia’s Logistics Costs Inefficient, November 11, 2011
airlines and 7 cargo (freight) airlines operating in Indonesia. (3) www.viglaceraland.vn/tiensoniz/Investment/PriceCharges/tabid/1119/Default.aspx
10 | Investing in Indonesia - 2013 Investing in Indonesia - 2013 | 11
5. Investment
The Government has further enacted “Law No.2/2012 In September 2012, the World Bank approved a new project
concerning Land Procurement for Development Purposes in to support the newly established Indonesian Infrastructure
Public Interest” to improve and put clarity around the land Guarantee Fund (“IIGF”), an institution under the Ministry
acquisition framework. However for the Law to be practical, of Finance (“MOF”) responsible for providing guarantees
a Presidential Regulation elaborating on the law was for infrastructure projects, or more specifically Public-
required. “Presidential Regulation No.71/2012 concerning Private-Partnership (“PPP”) projects. With the World Bank’s
Administration of Land Procurement for Development support, the IIGF will be able to provide guarantees to
Purposes in Public Interest” was issued on 7 August 2012, leverage private investments in infrastructure projects such
and subsequently in the first week of November 2012 as toll roads, bridges, railroads, irrigation canals, wastewater
Regulation of BPN No.5/2012 which sets out technical infrastructure, telecommunication towers and power
implementation guidelines and rules. There is anticipation generators among other undertakings.
now that these regulatory developments have occurred, the
Government institutions
prospects of progress being made and additional private
PT Sarana Multi Infrastruktur (SMI) was established
funding flows being achieved will be improved.
on 26 February 2009 to accelerate infrastructure
development in Indonesia. The establishment was based
on Government Regulation No.66/2007 and Government
“Indonesia to ramp up infrastructure”
Regulation No.75/2008 on State Equity Participation in the
Expenditure plans Establishment of Perusahaan Perseroan (Persero) in the The foreign investment landscape The Indonesian government encourages Direct foreign
Recognizing the pressing need for infrastructure Sector of Infrastructure Financing. The role of SMI is to investment or “FDI” in most areas of the Indonesian
Indonesia welcomes foreign investment on its own terms.
development, the Indonesian government has increased become a catalyst in the acceleration of the infrastructure economy. Foreign investment approvals can be issued either
Government policies aim at ensuring that foreigners work
its focus on improving the regulatory environment and development in Indonesia, to provide alternative sources of by BKPM in Jakarta or an Investment Board (BPM) in every
with Indonesians to assist in development of the country’s
stimulating infrastructure spending. Whether this can be project financing by working with stakeholders to obtain an Province, Investment Institution in Regency Municipality or
economy and skill-base. There is a general recognition that
achieved or not is open to discussion, but what is certain appropriate financing solutions, to promote PPPs in financing through Representative Offices of the Republic of Indonesia
Indonesia needs the development capital, and the technical
is that long lead times are involved. Indonesia’s 2011-2025 infrastructure projects in Indonesia and to increase the size in several countries.
and management skills of foreigners.
Development plan comprises IDR 4,012 trillion (USD 440 and capacity of SMI through partnerships with third parties.
Foreign Investment Law, Investment Negative List and
billion) of investment, with IDR 1,786 trillion or USD 196 Government regulation of foreign investment in Indonesia is
The Indonesia Infrastructure Fund (IIF) was established FDI
billion assigned for basic infrastructure with substantial manifested in a variety of ways, for example:
as part of the government’s 100-day Priority Program. The
investments planned for roads, railways, ports and power • approved and monitored through governmental bodies The Foreign Investment Law regulates FDI by granting a
commitment to accelerate infrastructure development
plants. • companies can employ only a limited number of right of entry to foreign businesses through a government
is further reflected in the MOF through PT Sarana Multi
expatriates, and are required to demonstrate plans for licensing procedure principally controlled by BKPM. It
Under Indonesia’s economic plan for 2011-2014, infrastructure Infrastruktur (Persero) (“PT SMI”) and the establishment
replacement of those expatriates by Indonesians (with specifies that foreign investment shall be in the form of
investment has been targeted as requiring up to USD 191 on 15 January 2010 of PT Indonesia Infrastructure Finance
the exception of expatriate directors and commissioners) a limited liability Foreign Investment Company or “PMA”
billion for the economy to grow at its full potential. One third (“PT IIF”), an infrastructure financing company. PT IIF is
• certain fields of business are closed to investment by incorporated in Indonesia, in which the investor goes
is expected to be funded by the Government with USD 140 majority privately owned, with initial shareholders being
foreigners into partnership with an Indonesian person or entity as
billion being sought from the private sector. To encourage the Asian Development Bank (“ADB“), International
• foreign individuals are permitted to acquire land or land shareholders. Foreign investors can hold up to 100%
local and international investment, Indonesia plans to abolish Finance Corporation (“IFC”), Deutsche Investitions-und
rights with a number of restrictions. ownership, or between 45% to 95% of ownership in certain
more than 800 regional restrictions on businesses that clash Entwicklungsgesellschaft mbH (“DEG”) and PT SMI.
industries, but this will vary within sectors and business
with national regulations as well as continuously revising its A “foreign investor” is usually a foreign company
A Project Development Facility (PDF) has been established fields.
regulations and providing various facilities to investors like incorporated under the laws of its host nation; however
and is being administered by BAPPENAS with funding
tax holidays. foreign individuals are also acceptable. Foreigners are permitted to invest with no restriction on
from ADB. The objectives of PDF is to assist in project
the maximum size of the investment, the source of funds
Indonesia also plans to increase spending on the country’s preparation, selection of appropriate private partners in
or whether the products are destined for export or for the
overburdened roads, airports and power plants to IDR 194 infrastructure services and monitoring of project preparation
Direct and Non-direct investment domestic market. This is except in an industry sector which
trillion (USD 20 billion) in 2013 from a target of IDR 169 and transactions being conducted in accordance with PPP
is listed as closed to foreign investment on the Investment
trillion in 2012. The fund will be used to improve 4,431km of principles. Law No.25/2007 concerning Investment (“the Foreign
Negative List (“Negative List”) which attaches to the Foreign
roads, add 380km of new railway and finance construction of investment Law”) defines investment as Direct investment
BKPM serves as the “front office” for PPP projects. BKPM’s Investment Law under Presidential Regulation.
15 new airports and the expansion of another 120. and Indirect investment. Indirect investments, also known as
role is to be the primary interface between private investors
portfolio investments, are the transactions made through the The latest 2010 Negative List set out in Presidential
and the government.
domestic capital market/stock exchanges of a country. The Regulation No.36/2010 contains 20 nominated industries or
Indonesian equity market is highly institutionalized, whereby fields of business that are closed to foreign investment. The
over a period from 2002 to 2007 foreign institutions held rest are open if certain conditions are fulfilled.
almost 70% of the free-float value of the Indonesian equity
market, while less than 5% of the free float value was held
by individuals.
12 | Investing in Indonesia - 2013 Investing in Indonesia - 2013 | 13
FDI in specific sectors – Negative Investment List
List of business fields that are closed to investments
Sector Business Field
Sector Heading Sub-sector Heading Regulation of PDI
Agriculture Marijuana Cultivation
• Seedling plantation and crop cultivation (area less • Reserved for micro, small, medium enterprises and
Forestry 1. Capturing of Fish Species as Stated in Appendix I Convention on International Trade in than or equal to 25 Ha); Pig (less than or equal cooperatives (“UMKMK”)
Endangered Species of Wild Fauna and Flora (CITES) to 125 pigs) and free-range poultry breeding and • Pig breeding must comply with local regulations
2. The use (removal of coral/attol from nature for construction material/lime/calcium and farming; Plantation product processing
souvenir/jewelry, also live or dead coral (recent dead coral) from nature • Pig breeding and farming for quantity of more than • Allowed in certain locations and must comply with
125 pigs local regulations
Industry 1. Alcohol Beverage Industry (Liquor, Wine, and Malt Containing Beverages)
Agriculture • Use of genetics in agriculture products • Maximum 49% foreign shareholding
2. Mercury processed Chlorine Alkali Maker Industry
• Requires a recommendation from the Minister of
3. Chemical Material Industry that can damage the environment, such as: Agriculture
-- Penta Cholorophenol, Dichloro Diphenyl Tricholoro Elhane (DDT), Dieldrin, Chlordane,
• Plantation business (with and without processing • Maximum 95% foreign shareholding
Carbon Tetra Chloride, Methyl Chloroform, methyl Bromite, Chloro Fluoro Carbon (CFC) unit or mill) including seedling, cultivation, and • Requires a recommendation from the Minister of
4. Chemical Material industry Schedule 1 Chemical Weapon Convention (Sarin, Soman, Tabun product processing business (area equal to or more Agriculture
Mustard, Levisite, Ricine, Saxitoxin, VX, etc) than 25 Ha)
Transportation 1. Providing and Implementation of Land Terminals • Non-reptile wild life capturing and propagating; • Reserved for UMKMK
2. Implementation and Operation of Weight Stations swallow’s nest business in nature; forest plantation:
sugar palm, pecan, etc.; Pine sap, bamboo, and
3. Implementation of Motor Vehicle Type Tests rattan processing primary industry, mangrove semi
4. Implementation of Motor Vehicle Periodic Tests finished goods and saw mill – under 2,000 m3/year
5. Telecommunication/Supporting Facility of Shipping Navigation • Rattan, pine sap, bamboo, resin, eaglewood, • Requires partnership with small enterprise
6. Vessel Traffic Information System (VTIS) shellac, bee, latex, natural silk and alternative crops
7. Air Traffic Guiding Services • Hunting business; raising wildlife plants; coral • Maximum 49% foreign shareholding
Communication and Management and Implementation of Radio Frequency and Satelite Orbit Spectrum raising/cultivating
Informatics Monitoring Stations • Nature tourism and ecotourism business • Maximum 51% foreign shareholding
Culture and Tourism 1. Public Museums Forestry • Capturing/taking and distributing reptiles and coral/ • Requires a recommendation from the Minister of
2. Historical and Ancient Heritage (temple, castle, epigraphy, remains, ancient buildings, etc) decorative coral Forestry
3. Residential/Traditional Environment • Development of technology on use of plant and • Requires a statement on partnership with an
4. Monuments wildlife genetics accredited institution/national research and
development institution appointed by the Minister
5. Gambling/Casinos of Forestry
Sources: President Regulation No.36/2010, Investment Negative List • Wood processing industry • Requires a recommendation on sustainable raw
material supply from the Minister of Forestry
• Timber utilization and forest plant seed and • Requires 100% domestic capital
seedling export and import
To invest in Indonesia, an investor should first look at the The underlying principle is that if a business within a certain • Water environment use service in forest area • Requires a special license
Negative List which is updated regularly with policy changes. industry can be capably conducted by Indonesians, then that
• Small scale fishery business • Reserved for UMKMK
Accordingly, if a business field is not mentioned in the sector will be closed to foreign investment.
• Marine, brackish water, and fresh water fish rearing • Requires a partnership with small enterprise
Negative List, conceptually it is regarded as ‘open’ to foreign
Navigating the Foreign Investment Law and Negative and hatchery; Fishery processing, marketing, and
investment. The GOI had plans to revise the Negative List in distribution business
List together with other regulations, decrees or specific
2012 in a bid to boost higher foreign investments, however
industry laws that can interplay with, override or supercede • Indonesian Exclusive Economic Zone (“ZEEI”) • Requires a special license
this is yet to occur as at December 2012. The revision fishing using 100 GT ship or above • Compliance with the Ministerial Regulation No.PER
each other and the Foreign Investment Law/Negative
is understood to be prioritized to ease investments in 12/MEN/2009 concerning Capture Fishery Business
List is fraught with danger, and professional advice is Maritime and Fishery
telecommunication towers, pharmaceuticals and health care • Usage (taking) and distribution of decorative coral/ • Requires a recommendation from the Minister of
recommended together with consultation with government
as well as education sectors. atoll from nature for aquariums Maritime and Fishery
officials at BKPM and/or relevant Ministries that regulate
In general conceptual terms, the following lines of business specific industries on how the business field of a particular • Lifting of valuable items from a shipwreck’s cargo • Compliance with Presidential Decree No.19/2007
concerning National Committee for Salvaging
are not open to FDI in Indonesia: target or business is categorized.
and Exploiting Valuable Objects Retrieved from
• those that are reserved for micro, small, medium Shipwreck
enterprises and cooperatives
• Big scale fishing business and sea sand extraction • Requires 100% domestic capital
• those for which a partnership is required
• those for which certain shareholding arrangements are
required
• those that may be conducted only in certain locations
• those for which a special license is required.
14 | Investing in Indonesia - 2013 Investing in Indonesia - 2013 | 15
FDI in specific sectors – Negative Investment List (continued)
Sector Heading Sub-sector Heading Regulation of PDI
• Salting/drying fish; Processed food (seeds, roogs, • Reserved for UMKMK
sago, gnetum gnemon nut and copra); Root peeling
and cleaning; Palm sugar; Hand work thread
coloring, batik, knitted cloth (lace), and moslem
woman’s praying cloth; Rubber curing; Handycraft,
manual/semi mechanical hand tool, and hand tool
for farming; Motorcycle maintenance and repairing
• Food processing; Printed batik; Forest product • Requires a partnership with small enterprise
processing; Construction material and spare parts;
Medium technology machinery, tools, equipment
industry and maritime tourism; Metal hand craft
and non-metal recycle goods
• Car maintenance and repair industry • Maximum 49% foreign shareholding
• Cigarette industry • Requires a recommendation from the Minister of
Industry
• Pulp industry • Requirement to obtain raw material from industrial
forest plant or imported wood chips if supplies from
domestic sources are insufficient
Industrials
• Valuable paper printing industry • Requires an operational license from the
Counterfeit Money Coordinating Agency
under the National Intelligence Agency and a
recommendation from the Ministry of Industry
• Cyclamate and saccharin industry • Compliance with requirements of Indonesia’s
National Agency for Drug and Food Control
(“BPOM”) and the Minister of Trade
• Crum rubber industry • Requires a recommendation of raw material
availability from the Minister of Agriculture
• Lead smelting industry • Requires a recommendation of the State Minister
for the Environment and Minister of Industry
especially for an industry using used car batteries
as raw material
FDI in specific sectors – Negative Investment List (continued) • Sugar industry • Maximum 95% foreign shareholding
• Requirement to establish a personally owned sugar
cane plantation
Sector Heading Sub-sector Heading Regulation of PDI • Requirement to produce raw sugar crystal if sugar
• Less than 1 MW power plant • Reserved for UMKMK factory capacity is above 8,000 tons
• Small scale power plant (1-10 MW) • Requires a partnership with small enterprise • Explosive material industry (raw materials and all • Maximum 49% foreign shareholding
Defence components); Production of weapons, ammunition, • Requires a recommendation of the Minister of
• Drilling services of geothermal and oil & gas off/ • Maximum 95% foreign shareholding explosive devices, and war equipment Defense
on-shore; Geothermal, nuclear, and more than
10MW of power plants; Power plant transmission • Construction services under IDR 1 billion contract • Reserved for UMKMK
and electricity distribution; Operation and value
Energy and Mineral Resources
maintenance services of oil & gas facility and • Drinking water and toll road businesses • Maximum 95% foreign shareholding
power plant installation; Technology development of Public Works
• Construction services above IDR 1 billion contract • Maximum 67% foreign shareholding
electricity supplied equipment; EPC and electricity
value
consultancy
• Construction consultancy services • Maximum 55% foreign shareholding
• Radioactive mineral mining • Requires a recommendation from National Nuclear
Energy Agency (“BATAN”) • Direct selling through marketing network developed • Maximum 95% foreign shareholding
by business partner
• Private and building cleaning services; Retail • Require 100% domestic capital
Trade business, large trade and property/real estate • Liquor business requires a Business License
broker based on fee or contract; Machinery Certificate (“SIUP”), a Business License Certificate
and equipment rental for land transportation, of Liquor Business (“SIUP-MB”), a distribution
agriculture, construction, office, and others; Survey network, and a “special place”
and other activities services; Large trade of liquor
16 | Investing in Indonesia - 2013 Investing in Indonesia - 2013 | 17
FDI in specific sectors – Negative Investment List (continued) FDI in specific sectors – Negative Investment List (continued)
Sector Heading Sub-sector Heading Regulation of PDI Sector Heading Sub-sector Heading Regulation of PDI
• Homestay; Tour agent and guide service; Art studio • Reserved for UMKMK • Leasing and non-leasing financing • Maximum 85% foreign shareholding
and gallery • Venture capital; Actuary consulting company; • Maximum 80% foreign shareholding
• Film studio, dubbing facility, processing laboratory, • Maximum 49% foreign shareholding Finance Insurance and reinsurance company including
printing and/or duplication agent and brokerage
• Filming, editing and subtitling facility; Film making, • Requires 100% domestic capital • Pension fund • Requires 100% domestic capital
distribution and promotional activities • Foreign and non-foreign exchange bank • Compliance with Law No.7/1992 concerning
• Art gallery and art performance building • Maximum 67% foreign shareholding • Sharia bank Banking, Law No.23/1999 concerning Bank
• Money market brokerage Indonesia, Law No.21/2008 concerning
• Hotel, guest house, and MICE; Tour service; • Maximum 51% foreign shareholding Sharia Banking, and their amendments and
Catering; Spa and cultural tourism business • Compliance with the regional regulations Banking Implementation regulations
• Outbound tour operator • Maximum 49% foreign shareholding
Culture and Tourism • Conventional People’s Credit Bank (“BPR”), Sharia • Requires 100% domestic capital
• Impresario business services • Maximum 51% foreign shareholding if partnering BPR, and foreign exchange trader
• Recreational and entertainment business with UMKMK
• Bar/café/karaoke and other accommodation service • Compliance with local regulations
• Indonesian workforce domestic placement, supplier • Maximum 49% foreign shareholding
• Golf business outside Kalimantan, Sulawesi, East • Golf business: Maximum 100% foreign
and training services
Nusa Tenggara, Bengkulu, and Jambi shareholding for Kalimantan, Sulawesi, East Nusa
Tenggara, Bengkulu, and Jambi Manpower and Transmigration • Agriculture business activity and fisheries in • Requires a Transmigration Implementation License
transmigration areas from the Minister of Manpower and Transmigration
• Restaurant • Maximum 49% or 51% foreign shareholding,
depends on type • Indonesian Workforce Overseas Placement Service • Requires 100% domestic capital
• Dexterity • Maximum 67% foreign shareholding and • Non-formal education business (e.g. private • Maximum 49% foreign shareholding
compliance with local regulations education services)
• Natural tourism out of conservation areas • Maximum 51% foreign shareholding Education • Formal education including early, basic and • Compliance with Law No.20/2003 concerning
secondary, and higher education (starting from pre- National Education System and Implementation
• Container, cargo, heavy equipment transportation; • Maximum 49% foreign shareholding
school to degree/non-degree education program) regulations
Water and air transportation services
• Pharmaceutical industry • Maximum 75% foreign shareholding
• International shipping (excluding cabotage) • Maximum 60% foreign shareholding for investors
from ASEAN countries
• Hospital management and health assistance • Maximum 67% foreign shareholding
• Maritime cargo handling service • Maximum 49% foreign shareholding
services (health aid and patient evacuation in
• Maximum 60% foreign shareholding for investors
emergency situations); Specialist/sub-specialist
Transportation from ASEAN countries
hospital service (200 beds); Health care providers
• Crossing harbor and river and lake harbor provision • Requirement to cooperate with a company (mental rehabilitation, specialist medical, dental,
and business appointed by the government laboratory and medical clinics)
• Passenger transportation and people’s shipping • Requires 100% domestic capital • Calibration testing, health and medical equipment • Maximum 49% foreign shareholding
• Commercial air transportation • Maximum 49% foreign shareholding. Domestic rental, maintenance and repair services;
shareholder must hold majority Health Acupuncture and nursing services (outside Medan
• Requires a special license and Surabaya)
• Community based broadcasting; • Reserved for UMKMK • Nursing services in Medan and Surabaya • Maximum 51% foreign shareholding
Telecommunication and internet kiosk; Home and • Pharmaceutical drug producer and wholesaler • Requires a special license from the Minister of
building cable installation Health
• Telephone value added service provider (e.g. • Requires a partnership with small enterprise • Traditional medicine producer and business • Requires 100% domestic capital
content service, call center, etc) industry; Pharmaceutical including raw material,
• Data communication system service provider; • Maximum 95% foreign shareholding wholesaler, and drug store/pharmacy; Health
Telecommunication device testing agency care providers (hospitals, health research center,
health service facility, ambulance,etc.); Health
• Closed fixed and mobile telecommunication • Maximum 65% foreign shareholding professionals (e.g. specialist doctor, etc.)
Communication and Informatics network provider; Internet interconnection service
• Security consultancy and worker provider services; • Maximum 49% foreign shareholding
• Fixed network telecommunication, mail and • Maximum 49% foreign shareholding Money and valuable goods transport escorting • Requires an operational license from the
internet service provider • Mail provider must comply with regulations in the Security services; Security equipment implementation, Headquarters of the Republic of Indonesia Police
• Telephone internet service for public needs and postal sector education and training services; Animal provider
other multimedia service providers services
• Public radio and television broadcasting agency • Requires a special license
• Telecommunication tower business activities; • Requires 100% domestic capital
Press company; Private and subscription based
broadcasting agency18 | Investing in Indonesia - 2013 Investing in Indonesia - 2013 | 19
Foreign investment restrictions expatriate Technical Advisors (with the exception of Board gas sector through a local branch of an overseas company Shareholding thresholds and
of Directors and Commissioners). More information on (called a Permanent Establishment or PE, which is referred to limitations
Fields of activity and local JV Partner
obligations around domestic and foreign employees is set further in Chapter 10 on Taxation). Pursuant to Bank Indonesia
As indicated, initial investment proposals to BKPM need to
out in Chapter 9 on Labor and Employment. Regulation No.14/8/
be in fields currently open to foreigners, as do applications Banking(1)
PBI/2012 dated 13 July 2012
for expansion of existing facilities. Introduction
concerning Commercial
The banking industry is regulated by the Central Bank, Bank
As explained, foreign investment will usually require a JV Industries that are treated separately Bank Share Ownership, the
Indonesia, and this is generally free from interference from
arrangement between the foreign investor and at least one maximum amount of bank
Introduction government.
local partner, either from inception of the project, or within a share ownership for a single
Foreign investment in certain industries is not administered
specified period for those companies which have approval to Banking is the only other sector in addition to upstream oil shareholder depends on the
by BKPM, but by the relevant Ministry or regulatory authority
be wholly foreign-owned in the initial stages. The selection & gas which allows foreign investors to invest direct into a category of shareholder.
directly. These industries are oil & gas, banking and non-
of a reliable and understanding local shareholder and partner local branch of a foreign bank. Foreign banks are allowed Shareholders that are related
bank financial institutions including multifinance, securities
is essential, as unsuccessful foreign investment ventures to open branches in Indonesia; however, the government through share ownership or
brokerage and asset management. While BKPM has some
can be associated with a background of tense relationships extends this advantage only to the world’s 200 largest banks family ties, or that are deemed to be acting in concert with
role in the approval of mining and forestry licenses, the
between local and overseas shareholders. by assets and only if they have a minimum Standard & Poor’s one another, will be treated as a single party in determining
principal approvals are granted by the Ministry of Energy and
or Moody’s credit rating of A. Further, the 300 largest banks the overall ownership cap that applies:
BKPM may maintain lists of potential local partners in Mineral Resources (MEMR), and the Ministry of Forestry.
in the world by assets can have a Representative Office in • banks and non-bank financial institutions: 40% of
certain fields from time to time, while banks, embassies and Shipping, sea ports and telecommunications are other
Indonesia to perform asset and relationship monitoring or to a bank’s paid-up capital (subject to Bank Indonesia
accounting firms can often provide information of a similar industries where regulation of foreign investment and related
support a branch opening, but are restricted from offering approving a higher amount: see below)
nature. In addition, accounting and investigation services approval applications has been complicated by multiple laws,
banking services. No foreign bank branch licences have • non-bank financial institutions: 30% of a bank’s paid-up
firms can undertake independent, confidential corporate regulations and decrees issued by more than one regulatory
been issued for many years with foreign banks entering the capital. Non-bank financial institutions with a long-term
intelligence and research into the background and integrity of authority body or institution.
market through M&A involving existing banks. focus, such as insurance companies and pension funds,
prominent local corporate and individual subject targets.
Oil & Gas will be allowed to own up to 40% of an Indonesian
Single Presence Policy
Minimum investment and equity participation Under Law No.22/2001 concerning Petroleum & Natural Gas bank. Other investors, including fund management
Based on Bank Indonesia Regulation No.8/16/PBI/2006 dated
Foreign investors can hold up to 100% equity initially, (“the Oil & Gas Law”), the oil & gas sector was administered firms, hedge funds and special-purpose vehicles, will be
5 October 2006, a ‘Single Presence Policy’ in respect of
except for certain industries where 49%, 65%, or 95% by two state owned legal entities: BP Migas for upstream restricted to a 30% stake
Indonesian banks provides for no single person, an entity or
are the maximum foreign ownership, but this varies within operations, and BPH Migas for downstream operations. Prior • individual shareholders: 20% of a bank’s paid-up capital
group of companies to own more than 25% or otherwise
sectors and business fields. The old foreign investment law to establishment of BP Migas in 2002, regulation of the oil (25% if the bank is a Shariah bank).
be a “controlling shareholder” in more than one Indonesian
prior to 2007 expressly provided for where 100% foreign & gas sector was conducted by the State owned oil & gas The Central Government is exempted from the limits (as is
bank.
ownership is initially permitted, for the foreign shareholder company, PERTAMINA. any agency that is called on to rescue a failing bank). That
to divest a minority share to an Indonesian shareholder Exceptions to the ‘Single Presence Policy’ allowing an means the limits do not apply to state-owned banks.
BP Migas had responsibility for management of the
within 15 years. Whilst this is not specifically included in the investor to be a controlling shareholder in more than one
upstream operation of joint cooperation contracts which are The regulation only affects future transactions. Existing
Foreign Investment Law, a general view is that it notionally Indonesian bank are:
predominately in the form of a Production-Sharing Contract bank shareholders that exceed the ownership thresholds
is contained in the spirit of the law, and 5% is the intended • the investor is a controlling shareholder in one
(PSC), while the foreign party/contractor is responsible to are not required to divest unless the bank’s Good Corporate
minimum divestment. conventional or commercial bank and one Shariah bank
BP Migas for the execution of the operation. BPH Migas Governance (“GCG”) or “soundness” rating (as determined
• the investor is a controlling shareholder in two banks and
Legal form had responsibility for granting licenses and supervising the by Bank Indonesia) is 3, 4 or 5 as at the 31 December 2013
one of the banks is a JV bank
The Foreign Investment Law specifies that foreign operation of the downstream business. cut-off date. GCG ratings range between 1 to 5, with 1 being
• an investment holding company is established through
investment shall be in the form of a limited liability company, the best. Foreign investors, (including Singapore’s United
In November 2012 a Constitutional Court Ruling dismantled which more than one bank can be indirectly owned.
Perseroan Terbatas (PT), incorporated in Indonesia in Overseas Bank and OCBC Bank, HSBC and Malaysia’s
the legal basis for upstream oil & gas regulation by BP Migas
accordance with the requirements of the Ministry of Law Ownership structures that do not comply with the CIMB and Maybank) which already own majority stakes in
following application by various prominent organizations on
and Human Rights (“MOLHR”). A PT company having an ‘Single Presence Policy’ need to be restructured through Indonesian banks will not be automatically forced to cut their
the grounds the 2001 law did not adequately manage the
approved foreign shareholding is known as a PMA. divestment, merger/consolidation or establishment of an stakes to comply with the new limits. Existing shareholders
nation’s natural resources for the benefit of the Indonesian
investment holding company. of Indonesian banks that exceed the limits will be assessed
Term Limit people. Industry commentators have referred to the
on their financial strength and corporate governance at
The operating permit for a PMA company is unlimited as long disbandment of BP Migas to be negative for investment A shareholder which meets the criteria as a “controlling
the end of 2013. After 31 December 2013, existing bank
as the PMA company is still active. sentiment at a time when crude oil production is declining. A shareholder” will be subject to PBI 8/16/PBI/2006, as well as
shareholders need to sell down to the 40% cap within 5
temporary oil & gas regulatory authority or “Task Force”, SK PBI 14/8/PBI/2012 which is summarized below.
Operations years to 2018 if GCG ratings are down graded to 3 or worse
Migas, has been established at the MEMR. A Presidential
The Foreign Investment Law grants the foreign investor the on three consecutive assessments.
Regulation is to be issued in January 2013 that will
freedom to manage a company for the term of its permit
reorganize and regulate SK Migas.
approval, which includes the right to appoint directors and, if
necessary, foreign technicians and managers, where skilled Under the Oil & Gas law, the industry is one of two that
Note: (1) Indonesia Financial Services Authority: Pursuant to Law No. 21/2011 concerning Financial Services Authority, the Financial Services
Indonesians are not available. Certain industries only allow allows foreign participants to invest in the upstream oil & Authority or “OJK” was established in January 2013 as an independent institution with integrated authority to regulate, supervise, examine
and investigate overall activities of the Indonesian financial services sector, including banking, insurance and non-bank financial institutions. The
Government Regulation is still being drafted as at the date of this publication. The extent to which the OJK will replace the supervisory functions
and regulatory roles of Bank Indonesia, the MOF and BAPEPAM-LK is still unclear with the establishment of the “watchdog” being only in infancy
stages. Further details will be included in the next updated edition of KPMG’s “Investing in Indonesia”.You can also read
