Indonesia’s New Negative List.

 

14 August, 2016

 

Introduction

 

On 18 May 2016, the Indonesian Government issued the much anticipated new negative investment list through Presidential Regulation No. 44 of 2016 (the “New Negative List”). The negative list is a series of Presidential Regulations issued over time by the Indonesian Government which sets out an evolving list of sectors that are either completely closed or partially open to foreign direct investment where the foreign ownership level in the entity licensed by the Capital Investment Coordinating Board (“BKPM”) is capped at a certain percentage.

 

The new Negative List dramatically increases the minimum work value of construction projects open for foreign investment to IDR 50 billion for construction performance services (up from IDR 1 billion) and to IDR 10 billion for construction planning services and construction supervision services (also up from IDR 1 billion).

 

New Negative List

 

Construction services activities in Indonesia are categorized into construction planning services, construction supervision services and construction performance services. Previously, construction planning services and construction supervision services were subject to a maximum foreign ownership of 55% while construction performance services were subject to maximum foreign ownership of 67%. The New Negative List simplifies this structure by providing that all construction services activities (including construction planning services and construction supervision services) are subject to a maximum foreign ownership of 67%.

 

However, the New Negative List dramatically increases the minimum works value of construction projects open for foreign investment to IDR 50 billion for construction performance services (up from IDR 1 billion) and to IDR 10 billion for construction planning services and construction supervision services (also up from IDR 1 billion). We expect that this development will effectively shut-out new foreign investment in small to medium construction work in Indonesia. We also note that the New Negative List creates an apparent inconsistency with the recently issued Minister of Public Works Regulation No. 03/PRT/M/2016 which even further increased the minimum work value of construction projects open for foreign investment to IDR 100 billion.

 

In order to resolve the inconsistency, the BKPM and Minister of Public Works agreed on IDR 100 billion minimum work value of construction projects for foreign investment. The decision is in line with the New Negative List which provides that its implementation will not overrule the requirement of technical institution (e.g. Minister of Public Works).

Please find below the New Negative List table on the relevant sectors: 

 

No./ Line of Business / Previous Foreign Ownership Cap (%) / New Foreign Ownership Cap (%) / Remarks 

 

1 / Construction Implementation Services with high technology and/or high risks and/or value of project >Rp100,000,000,000.00 (more than IDR 100 billion) / 67% 70% for investors from ASEAN countries. / Increases minimum project value to more than IDR 100 billion (from IDR1 billion) 

 

2 / Construction Consulting Services with high technology and/or value of project >Rp10,000,000,000.00 (more than IDR 10 billion) / 55% / 67% 70% for investors from ASEAN countries. / [page2image12080] Increases minimum project value to more than IDR 10 billion (from IDR1 billion)

  

 

For further information, please contact:

 

Hanna Meliana , Herbert Smith Freehills

hanna.meliana@hbtlaw.com