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8 October, 2016
Parties wishing to invest in PPP projects in Indonesia should take cognizance of the Indonesian PPP regulatory framework, which is governed primarily by three general categories of laws and regulations as follows:
- PPP regulations – These are the regulations governing participation and investments in PPP projects;
- Sector specific regulations – These are the regulations specific to the specific infrastructure sectors of the particular PPP project; and
- General Indonesian business regulations – These are regulations governing Indonesian corporate entities and their business activities in general.
This article aims to provide a broad summary of the key regulations in each of the above categories.
PPP Regulations
| LAW | KEY POINTS |
|---|---|
| Implementation of PPP Projects | |
| Presidential Regulation No. 38 of 2015 on Cooperation Between Government and Business Entity in Procurement of Infrastructure |
These regulations establish the cross-sector regulatory framework for implementing PPPs and sets out the provisions necessary for PPP implementation. These include tender procedures, project preparation, outline of cooperation agreements, cooperation schemes, unsolicited projects, direct appointment requirements etc. Permitted infrastructure types include airports, ports, railways, roads, untreated water supply/irrigation systems, drinking water, waste water, solid waste, information & communications technology, electricity, oil & gas, education facilities, sports and arts facilities, tourism, health and public housing.
The Government may provide fiscal and/or non-fiscal support to improve the feasibility of the infrastructure project. Project companies must obtain financing within 12 months of signing the cooperation agreement. Projects shall be structured to allocate risk to the party best able to manage the risk. |
| Procurement of Contingent Government Support | |
| Presidential Regulation No. 78 of 2010 on Government Guarantee for Cooperation Project between Government and Business Entity provided by Infrastructure Guarantor Company | These regulations relate to the provision of government guarantees for PPP infrastructure projects through the Indonesia Infrastructure Guarantee Fund (IIGF), a state owned enterprise established by the Ministry of Finance to provide guarantee for infrastructure projects under the PPP schemes. |
| MOF Regulation No. 260 of 2010 on Implementation Guidelines for Guarantee in Infrastructure under PPP Model | These regulations establish the procedure for requesting and provision of IIGF guarantee from the Ministry of Finance. |
| Operational Guidelines | |
| The Minister of National Development Planning / Head of national Planning Agency Regulation No. 3 of 2012 on General Guidelines of Implementation of Cooperation between the Government and Business Entity in Infrastructure Provision | These regulations set out the operational guidelines for implementation of PPP projects based on the cooperation agreements with the relevant government contracting agencies: |
Sector specific regulations
It is pertinent to note that there may be sector specific regulations depending on the relevant sectors in which the PPP project is to be undertaken, summarised broadly as follows:
| SECTOR | RELEVANT REGULATION |
|---|---|
|
Airports |
|
| Ports |
|
| Railways |
|
| Electricity (Power Plant, Transmission, Distribution) |
|
| Water Treatment, Transmission and Distribution |
|
| Roads |
|
General Indonesian business regulations
This section sets out the general laws and government regulations governing aspects such as foreign investment, environmental protection, and land use and acquisition, the key ones having been listed below.
| LAW | KEY POINTS |
|---|---|
| Negative List for Investments | |
| Presidential Regulation No. 78 of 2010 on Government Guarantee for Cooperation Project between Government and Business Entity provided by Infrastructure Guarantor Company |
The Negative List specifies business sectors that are;
Generally, a business sector not on the Negative List will be deemed to be subject to 100% foreign direct investment. The most recently updated Negative List, which came into effect on 18 May 2016, demonstrates the Indonesian Government’s commitments towards boosting both foreign and domestic investment activities in Indonesia by providing for higher foreign shareholding thresholds.
– >10 MW: 95% – 1 MW to 10 MW: between 49% to 67% – <1 MW: 0%
|
| Company law | |
| Law No. 40 of 2007 on Limited Liability Companies | This law provides the procedures for establishing a limited liability company, which shall be owned by a minimum of two shareholders. The Law also stipulates that a company that is in the business of utilising natural resources or otherwise affects the environment shall carry out corporate social and environmental responsibility programs (CSR). |
| Utilization of Government Assets | |
| Government Regulation No. 6 of 2006 regarding State/Regional Assets Management as amended by Government Regulation No. 38 of 2008 | These regulations prescribes the situations whereby government assets can be utilised by a business entity to carry out infrastructure projects, which assets include existing state assets managed under a concession, or which are constructed and operated by the business entity on behalf of the government. |
| Land Acquisition | |
| Government Regulation No. 2 of 2012 regarding Land Procurement Provision for the Development of the Public Interest | These regulations prescribe the process of land acquisition for PPP projects, with the recent amendments targeted at providing more certainty on such process by imposing an obligation on the government to facilitate and provide a timetable for acquisition. |
| Presidential Decree No. 30 of 2015 amending Presidential Decree 71/2012 on Land Procurement Provision for the Development of the Public Interest | |
| Cooperation with Regional Government | |
| Government Regulation No. 50 of 2007 on Procedure for Regional Cooperation | These regulations prescribes the pre-requisites for cooperation between a regional government and a business entity (e.g. if the cooperation involves use of the regional government’s assets) |
For further information, please contact:
Justin Tan, Partner, Clyde & Co
justin.tan@clydeco.com
