17 January, 2018
Year in Review – Indonesia Law in 2017
Gross split production sharing contract: Upstream petroleum operations are currently based on a production sharing contract, under which the contractor is entitled to recover the operating cost it incurs for the petroleum operation after the block has started to produce. However, in January, the government introduced the gross split production sharing contract by issuing the Minister of Energy and Mineral Resources Regulation No. 8 of 2017 (as subsequently amended). Under the gross split scheme, the contractor is no longer entitled to recover the operating costs but, in return, is entitled to obtain a greater split subject to satisfaction of certain criteria. The government determined that from 16 January 2017 onwards, all new production sharing contracts shall be executed under the gross split scheme. ONWJ PSC is the only one executed under the gross split scheme to date. The current regulations are created with cost recovery as the basis, so we are still waiting for the government to issue further implementation regulations.
New provisions on cost recovery and taxes for PSC: The government has issued Government Regulation No. 27 of 2017 to amend the widely-challenged Government Regulation No. 79 of 2010. The amendment proposed a series of investment incentives as well as tax facilities. These investment incentives are not automatically granted and will be subject to the government’s discretion on a case-by-case basis. Furthermore, the tax facilities will only be implemented after the issuance of the relevant Minister of Finance Regulations.
LNG import for electricity generation: The government issued Minister of Energy and Mineral Resources No. 45 of 2017 for the supply of gas (both in natural gas form and LNG form) for power generating activities. This regulates, among other things, the procurement mechanism and the price of gas, however, its main focus is on LNG import requirements. The regulation provides that LNG may only be imported for power generation purposes if domestically available gas has exceeded a certain price threshold (14.5% of the ICP price for natural gas and no available domestic LNG at or below the price of imported LNG). Although this import restriction only explicitly applies to power generating activities, there are some concerns this approach may also be applied to imports of LNG for other purposes (considering the import of LNG requires endorsement from the Minister of Energy and Mineral Resources).
Supervision of change of control and transfer of ownership: In the upstream oil and gas sector, government approval (whether from SKK Migas, Migas or both, depending on the production sharing contract) is generally required for the transfer of interest to a new contractor or for a change of control in the existing contractor. In August, the government issued the Minister of Energy and Mineral Resources Regulation No. 48 of 2017 that provides for more stringent supervision of any transfer of ownership in the energy and mineral resources sector. The approval requirement also now applies to the downstream sector as well as mining and power sectors. The newly implemented regulation requires government approval for any transfer of ownership, change of control and even the change in management of the company.
Changes in the personnel structure and tenure of the Tripartite Cooperation Body: In February, the President of the Republic of Indonesia issued Government Regulation No. 4 of 2017 on the second amendment to the Government Regulation No. 8 of 2005 on the work system and organisational structure of the Tripartite Cooperation Body. The amendment focuses on the status of regulator representatives who will serve as the vice chairman and secretaries of the Tripartite Cooperation Body, either at national, provincial or regency/municipal level. Under this regulation, these positions should be assumed by government officials on an ex-officio basis.
Employers to formulate wage structure and scale: In March, the Minister of Manpower (“MOM”) issued MOM Regulation No. 1 of 2017 on Wage Structure and Scale (“MOM Regulation 1/2017”), an implementing regulation envisaged under the Government Regulation No. 78 of 2015 on Wages.
MOM Regulation 1/2017 imposes an obligation on employers to formulate a wage structure and scale by considering the seniority level, position, length of service, educational level, and competency of employees. The wage structure and scale must show the range of an employee’s basic salary (upah pokok) (i.e., from the minimum basic salary to the maximum basic salary for each job position). The company must make the structure and scale of wages available to all employees.
The wage structure and scale must also be provided to the relevant MOM agency when the employer applies for: (i) approval and renewal of the company regulation (a company regulation is required for employers who employ at least 10 employees unless a collective work agreement is in place. The company regulation sets out the basic rights and obligations of the employer and employee, work requirements and details of the company’s disciplinary policy and rules of conduct); and (ii) registration, extension, and renewal of the collective labour agreement.
Employers had until 23 October 2017 to comply with the Regulation.
Safety requirements for lifts and elevators at work: As part of work health and safety requirements, in March, MOM issued MOM Regulation No. 6 of 2017 on lifts and elevators. This regulation stipulates that the planning, construction, installation, assembling, utilisation, maintenance, handling and repair of lifts and elevators must be subject to an evaluation and/or test by a manpower supervisor specialist and/or a competent work safety and health expert. Also, employers who have workplaces with lifts/elevators are obliged to arrange for the evaluation and examination of such machinery at least once a year and deliver the examination report to the relevant Indonesia MOM office. Non-compliance will subject the employer to (i) an administrative sanction (ranging from a warning letter to revocation of the licence); and/or (ii) criminal sanctions in the form of imprisonment for a maximum period of three months or a fine of up to Rp100,0001.
Judicial Review of Article 153(1)(f) of Manpower Law in respect of marriage between co-workers: A group of Indonesian employees applied for judicial review of Article 153(1)(f) of the Manpower Law to the Constitutional Court. The effect of this Article is that an employer is prohibited from terminating the employment of one of its workers in the event that such worker marries another worker in the same company, unless this situation is covered in the employment contract or company regulation or collective labour agreement. While the intention appears to prohibit employers from terminating the employment of one of its employees because of their marital relationship with another employee, the exception language in Article 153(1)(f) provides an easy loophole to circumvent the prohibition by simply including relevant provisions in the relevant employment contracts, company regulation or collective labour agreement.
The applicants in the judicial review argued this violates the basic human right to marriage as guaranteed by the Indonesian constitution. The Indonesian Employers Association, one of the related parties in the judicial review, argued that prevention of a potential conflict of interest arising from co-workers’ romantic relationships/marriages outweighs the right to freedom of marriage. The Constitutional Court is currently preparing its decision.
Authority to issue postal business licences: The Ministry of Communications and Informatics (MOCI) enacted a new regulation on the procedure for postal business licensing through MOCI Regulation No. 7 of 2017. This determines that postal matters are now under the remit of the central government (i.e. MOCI). MOCI will be the sole authorised institution to grant licences for both domestic and foreign companies. In addition, applicants will no longer be required to secure recommendations from a local governor/regent/mayor.
Government to accommodate legal certainty for ride-hailing service: In 2017, ride-hailing services were a major issue in Indonesia. This business is growing rapidly while the sectoral regulations remain unstable. In March, the Minister of Transportation (MOT) issued Regulation No. 26 of 2017 (Reg 26) which introduced, among other things, the lower-limit and upper-limit tariffs arrangement and requirements for ride-hailing operators. However, this resulted in massive protests and led the Supreme Court to annul 14 Articles. In response, the MOT finally issued Regulation No. 108 of 2017 (Reg 108) to revoke Reg 26.. This rules that: (i) the vehicle registration number (Surat Tanda Nomor Kendaraan) may be under the name of an individual (i.e. the car owner) – previously this was restricted to the name of a business entity (i.e. the special rental transportation company); (ii) the tariff arrangement should be based on the agreement of the customer and the service operator in accordance with the floor and ceiling tariffs determined by the relevant institutions; and (iii) the limitation of the operational area and number of vehicles should be determined by the relevant institutions.
E-Commerce Road Map: The President of the Republic of Indonesia finally signed the long-awaited national e-commerce road map via the Presidential Regulation No. 74 of 2017 on E-Commerce Road Map for the Year of 2017-2019 (E-Commerce Road Map). This focuses on eight key programmes. Interestingly, the government encourages broader access to community-based business loans (kredit usaha rakyat) as well as alternative funding and financing schemes (e.g. crowd funding, angel capital or seed capital) as a part of the ‘funding programme’ for e-commerce businesses. The Ministry of Finance and Bank of Indonesia are also responsible for developing a national payment gateway to improve electronic retail payment services. The government also plans to increase the number of logistics companies to ensure timely delivery in rural areas. We believe the E-Commerce Road Map will also boost market development in other related sectors.
New minimum equity requirements for insurance and reinsurance companies: In December 2016, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) issued OJK Regulation No. 71/POJK.05/2016 on Financial Soundness of Insurance and Reinsurance Company and OJK Regulation No. 72/POJK.05/2016 on Financial Soundness of Sharia Insurance and Sharia Reinsurance Company, the implementing regulations envisaged under Law No. 40 of 2014 on Insurance. Insurance and reinsurance companies (“Regulated Companies”) are required to comply with the following new equity requirements which took effect from 1 July 2017.
|
Regulated Companies |
Minimum Equity |
|
Non-sharia insurer |
IDR100 billion |
|
Sharia insurer |
IDR50 billion |
|
Non-sharia reinsurer |
IDR200 billion |
|
Sharia reinsurer |
IDR100 billion |
The Regulated Companies must not distribute dividends if this may result in a failure to achieve the required minimum equity of the Regulated Companies.
2017 tariff rates for property and motor vehicle insurance: In January, the OJK issued Circulation Letter No. 6/SEOJK.05/2017 which regulates tariff rates and caps on acquisition costs for the insurance of property and motor vehicles. These can be in the form of discount, commissions and/or other benefits provided to third parties in connection with acquiring the business. The tariffs are calculated by reference to this circulation letter. This type of regulation is usually updated and issued annually. The tariff rate and cap do not apply to: property and earthquake risks where the cover is above USD1,000,000,000; and micro insurance products.
Micro insurance products and marketing of micro insurance products: In February, the OJK issued OJK Circulation Letter No.9/SEOJK.05/2017 on Micro Insurance Products and Marketing of Micro Insurance Products. Micro insurance products are those designed to cover risks for low-income people. An insurer may market these products via: direct marketing; insurance agents; bancassurance; co-operation with non-bank institutions; marketing officers.
For digital sales, the following information (at the minimum) should be provided to the customer: the insurance product’s benefits; the premium (or contribution for sharia products); the validity period; summary information about the product; general terms and claims procedure.
Year to Come – Indonesia Law in 2018
P2P lending services: Recently, peer-to-peer lending has grown significantly in Indonesia and the financing provided via such platforms reached IDR1.9 trillion in November 2017. To provide regulation, in December 2016, the Indonesia Financial Services Authority (“OJK”) issued OJK Regulation No. 77/POJK.01/2016. This obliges peer-to-peer platforms to be registered by the OJK and obtain a licence within a year of registration. Up to November 2017, 24 platforms were registered with the OJK. It is expected that the amount of funding and the numbers of platforms registered will increase in 2018. Accordingly, the OJK is planning to regulate the minimum requirements for a peer-to-peer lending contract to ensure protection for creditors and borrowers. It is expected a draft will be published in 2018.
2018 Jakarta Regional Minimum Wage: The Governor of DKI Jakarta has set the increase of regional minimum wage at 8.71%. The percentage figure was in line with the Minister of Manpower’s circular letter issued on 13 October 2017 where the regional minimum wage calculation should take into account the national inflation rate and economic growth rate published by the National Statistic Bureau (Badan Pusat Statistik), which currently sit at 3.72% and 4.99%, respectively. The employers in Jakarta have to ensure that their employee’s wage will not be less than IDR3,648,035 by 1 January 2018. Up to the publication date, the Governor has not determined the sectoral minimum wage but we anticipate this to be available by early 2018.
New foreign ownership rules to be determined: The 2014 Insurance Law does not prescribe any foreign investment limitations in relation to insurance companies. However, changes to the current rules will be set out in a Government Regulation to be issued by the end of 2017. Given this regulation has not yet been issued, the OJK will apply the current implementing regulations with respect to foreign ownership limitations, i.e. a foreign investor can acquire up to 80% of the insurer. From press reports, the Government has indicated that the new foreign ownership limit is likely to be maintained at 80%. It is also expected that the regulation will clarify whether and how any grandfathering protection will apply to existing foreign investment in insurance companies.
BKPM Regulation on Investment Licensing and Facilities: In December 2017 the Capital Investment Coordinating Board (the “BKPM”) issued its regulations on investment licensing and facilities, which will be effective as of January 2018. This regulation is an integration of all preceeding regulations related to licencing, facilities, supervisory and reporting issued in 2015 and 2016. The regulation contains the following key changes: (i) the in-principle licence will be replaced by investment registration; (ii) certain business lines are entitled to directly apply for a business licence without the obligation to first obtain an investment registration (e.g. business lines that do not require construction phase or import duty exemption such as service and trading business lines); (iii) BKPM will exercise its discretion on business and investment presentations before the BKPM; (iv) the debt to equity ratio (“DER”) is expressly stated as 4:1; (v) any applications for industry business licences require a site visit by the BKPM (e.g. new application of and expansion to industry business licence); and (vi) the BKPM re-inserted paragraphs regarding the obligation to convert to foreign investment (“PMA”) companies for all subsidiaries of PMA companies. These paragraphs were adopted in BKPM regulations in 2013. Also, the BKPM aims to reform its online application system (“SPIPISE”) in 2018 and integrate the standard business classifications (“KBLI”) with any negative investment (“DNI”) requirements relevant to each business line. SPIPISE would automatically refuse to process any online applications that do not comply with DNI resulting in shorter waiting times for investors. This new regulation effectively revokes its preceeding BKPM regulations.
Data protection: Despite any developments in 2017, data protection remains a topic to be followed in 2018. The government, through the Ministry of Communications and Informatics, is planning to revise the key regulation that imposes the data localisation requirement, i.e. Government Regulation No. 82 of 2012. We understand, based on our discussion with the Ministry’s official, that they are planning to relax the data localisation requirement, e.g. permitting personal data and transactional data to be transferred offshore subject to certain requirements. Given that this amendment was initially planned to be issued in October 2017, it is expected that a draft will be published in the first half of 2018.
1 The criminal and fine sanctions are regulated under the Law No. 1 of 1970 on Workplace Safety
For further information, please contact:
Widyawan, Senior Partner, Widyawan & Partners
widyawan@linklaters.com
