INDONESIA IN DEPTH: 2019 INDUSTRY OUTLOOK - HFW
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INDONESIA IN DEPTH: 2019 INDUSTRY OUTLOOK
Contents Paving the way: The impact of Indonesia’s Construction Law 01 Lost in translation: The use of Bahasa Indonesia and foreign languages in Indonesian contracts 05 Diving deep: An analysis of key developments and imminent changes in Indonesia’s shipping sector 07 International arbitration in Indonesia: Common challenges 11 Eighteen months on: Indonesia’s ratification of the Montréal Convention 1999 14 Generating progress: Updated regulation aims to encourage consumer use of solar energy for electricity generation 16 New IDERAs: Recent regulatory changes affecting the aviation finance industry 18 Don’t keep your head in the sand(box): Advice for fintechs on OJK’s new digital financial innovation regulation 19 Our Indonesia specialists across our global network 22
Welcome to the first of our Indonesia On 3 November 2017, HFW formed
in depth publications, a series of an association with local law firm
articles focussing on a range of Rahayu & Partners in Jakarta,
current issues and emerging trends demonstrating our commitment
in Indonesia during 2019 across to expanding our capability and
many of the country’s geographical reach within Indonesia
major industries. to offer clients enhanced ‘on the
ground’ support. HAYDN
From construction to cabotage DARE
and innovation to international Through this association we offer Senior International Counsel,
arbitration, these articles, authored clients a comprehensive range Rahayu & Partners in
by Partners and Associates across of corporate, finance, and Association with HFW
our Jakarta and Singapore offices, transactional services across T +6221 5080 4404
illustrate the exciting future – and HFW’s key industry sectors. E haydn.dare@hfw.com
challenges along the way! – for
companies doing business
in Indonesia.
About Rahayu & Partners in
association with HFW
HFW has been working with a range
of local, regional and international
businesses in Indonesia for more SRI ALISTAIR
than 25 years, across all of our core RAHAYU DUFFIELD
sectors. We have built an extensive Partner, Rahayu & Partners Partner, HFW
in-depth local knowledge, which we in Association with HFW T +6221 5080 4404
combine with the full services of a T +6221 5080 4401 E alistair.duffield@hfw.com
global law firm. E sri.rahayu@hfw.com
Paving the way: The impact of Indonesia’s In particular, the Construction Law
prohibits foreign entities from
Construction Law participating in the construction
sector unless they have:
Indonesia’s issuance of Construction ●● Internationally, Indonesia is ●● Either: Established representative
Services Law No. 2 of 2017 anticipated to be one of the offices in Indonesia to work in
(Construction Law) was the country’s biggest beneficiaries of China’s cooperation with a national
first major construction-related Belt and Road Initiative (BRI); in construction company, which
legal development in 17 years, April 2018, the President returned can only implement the high
revoking 1999’s Law No. 18 regarding from Beijing with US$23.3 billion risk, high technology and/or high
Construction Services. of cooperation contracts². cost of the construction services
market segments.
With 12 January 2019 marking What challenges does the
the Construction Law’s second Construction Law present ●● Or: Incorporated an Indonesian
anniversary, we explore how – and to for international construction legal entity in a joint venture with
what extent – this landmark piece of companies? an Indonesian company.
legislation has affected construction
companies working in Indonesia. Foreign construction companies 2. Employment of Indonesian
working or looking to work in workers
What has changed in Indonesian Indonesia should be alive to at
construction since 2017? least three key ramifications of the While foreign nationals are
Construction Law: permitted to work in Indonesia, the
Domestic and international factors Construction Law legislates so that
have each influenced the construction 1. E
stablishment of operations the majority of jobs are given to
industry in Indonesia – and will very in Indonesia Indonesian nationals including the
likely continue to do so in the coming head of the representative office.
years. Namely: Indonesia’s success in attracting
investment for infrastructure Whilst encouraging local
●● Domestically, President Joko improvement must be balanced recruitment will increase the talent
Widodo tripled infrastructure against legislative requirements. available in Indonesia, there is
project funding in 2015¹, creating currently a chronic shortage of local
momentum that has fuelled construction workers. The result
Indonesian construction’s is that construction companies
growth since 2017. have on occasion struggled to
find resources while maintaining
compliance with the new law.
1. https://www.indonesia-investments.com/id/news/todays-headlines/infrastructure-
development-indonesia-more-investment-licenses-issued/item5762?
2. https://www.legalbusinessonline.com/features/belt-road-indonesia/76222
Indonesia in depth: 2019 industry outlook 1
3. L anguage of construction The Construction Law has forced a Project owners’ appointment of
contracts departure from this tendency and construction companies
towards closer scrutiny and greater
The Construction Law requires all importance on the Indonesian The Construction Law also relaxed
construction contracts to be written language version of a contract. the rules regarding construction
in Bahasa Indonesia. companies’ appointment by
What changes has the Construction project owners.
If a contract is written in another Law directly brought about?
language as well as Bahasa The previous law required all
Indonesia, the Indonesian Safety contractors to be appointed through
language version prevails, should a public or limited tender.
a discrepancy arise. The Construction Law sought to
improve security and safety on Under the new Construction Law,
Foreigners have been accustomed construction sites, introducing privately funded projects do not
to writing contracts in Bahasa new standards that cover usage need to be publicly tendered before
Indonesia, particularly following a of materials and equipment, a contractor is appointed. Dozens
2013 decision by the West Jakarta site security and safety, and of project owners on privately
District Court that contracts written environmental protection. funded projects have benefited
only in English were void. from this change.
This has provoked meaningful
In practice, however, legislating that debate on the important issue of On the other hand, the previous
the Indonesian version will prevail construction sector employees’ tender requirements have continued
over the foreign language version working conditions in the country; to apply to publicly funded projects
was not consistent with the way in something that health and safety and construction projects for
which the majority of foreign parties professionals have been carefully public services by using electronic
drafted contracts, prior to 2017. monitoring. procurement, direct appointment
and direct procurement in
Foreign parties tended to negotiate We anticipate that the issue of accordance with prevailing
contracts in English, including an workers’ safety will move higher up regulations. The Construction Law
Indonesian translation later. The the political and legislative agenda empowered regional governments
Indonesian version was not always in the coming years. to issue special policies where a
checked for consistency and so construction project was funded
parties relied on a clause giving Changes in the industry at a global
using the regional budget, which
the English version priority. level will likely exert pressure on
fulfill the criteria of small to
all countries to demonstrate a
medium risk, simple technology
tangible commitment to
to intermediate technology, and
effecting positive change.
low to moderate cost.
2 Indonesia in depth: 2019 industry outlook
This included permitting regional conciliation dispute resolution We can expect changes but, given
governments to have joint operation methods. that the Construction Law took 17
with regional construction services years to implement, progress is
companies and/or the regional Such boards are intended to assist unlikely to be imminent.
subcontractors to provide in resolving disputes that arise on
specific services. construction projects. In the meantime, foreign investors
should pay close attention to the
Greater administrative burden The usage of dispute boards in provisions of the Construction Law
construction contracts is becoming and other relevant Indonesian
The Construction Law continues the increasingly common throughout legislation.³
previous requirement for all foreign the world, spearheaded by
construction businesses to possess the Federation of International
licenses and certificates issued by Consulting Engineers (FIDIC). For more information, please contact
the Ministry of Public Works and the author of this article:
Public Housing (the Ministry). FIDIC’s standard form contracts
generally require the establishment BEN
BURY
However, since the implementation of dispute boards during the early
of Government Regulation No. stages of a project.
24 of 2018 concerning Online
Integrated Business Licensing However, Indonesia is one of
Services, the application process of the few countries that intends
the business permit for construction to legislate in favour of it.
service is made through an Online
Key takeaways
Single Submission (OSS), the new
established centralised business Indonesia’s construction sector GUSNANDI
licensing system. is facing an exciting and HALIADI
challenging future.
Further anticipated change:
Dispute boards Greater investment, including from
foreign companies, in
One anticipated change, provided
much-needed infrastructure,
for in the Construction Law
sits against a backdrop of strict
but not yet implemented, is
legislation that prioritises Indonesian
subsidiary legislation concerning
interests over those of foreign
the dispute resolution, as well
investors, and is compounded by a
as the establishment of dispute
shortage of construction workers
boards other than mediation and
3. T
hese include but are not limited to: Indonesia Civil Code, Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution, Presidential Regulation
No. 16 of 2018 on Government Procurement of Goods or Services, which includes provisions relating to the procurement of construction work for
international tender, and Bank Indonesia Circular Letter No. 23/7/UKU Tahun 1991, setting out the requirements of a Bank Guarantee, which applies to
Contractor Bonds.
Indonesia in depth: 2019 industry outlook 3
4 Indonesia in depth: 2019 industry outlook
Lost in translation: The use of Bahasa Strict implementation: Industry
case studies
Indonesia and foreign languages in We have been observing
Indonesian contracts developments regarding the
implementation of the Language
When the Indonesian government Landmark case: Nine AM v PT Requirement. Domestically, President
enacted Law No. 24 of 2009 on the Bangun Karya Pratama Lestari Joko Widodo tripled infrastructure
National Flag, Language, Symbol and project funding in 20153, who is well
Anthem (Law 24), controversy ensued. Despite MOLHR’s response, in 2013, known for his support of
the District Court of West Jakarta pro-nationalist policies.
This was due to Law 24 requiring nullified an agreement entered into by
the Indonesian language to be Nine AM Ltd. (Nine AM) as creditor and Upstream oil and gas
used in agreements, contracts PT Bangun Karya Pratama Lestari as
and memoranda that involve borrower in respect of US$4.42 million The upstream oil and gas sector
Indonesian governmental institutions, worth of facilities, on the basis that typically uses the Indonesian
private entities or citizens1. the agreement was not entered into language in contracts.
(Language Requirement). in the Indonesian language.2
Upstream oil and gas concession
In the decade since, how strictly The case was then brought to the contracts and service contracts
has the Language Requirement Supreme Court at cassation level. are drafted in both the Indonesian
been implemented, and what The Supreme Court was of the and English languages;therefore,
are the key issues to be aware of opinion that, in terms of the regulatory they are in line with the
regarding parties’ choice of language hierarchy, the law ranks higher than Language Requirement.
in contracts? presidential regulations.
Further strict implementation of the
The Minister of Law and Human As such, presidential regulations, Language Requirement is reflected in
Rights’ view including MOLHR’s response to the the Tender Guideline No. EDR-0167/
Jakarta advocates, cannot override SKKMH0000/2017/S7, dated 26 July
Immediately after the enactment the provisions and obligations 2017 (PTK 0167), issued by the Special
of Law 24, Indonesia’s then stipulated under Law 24. Task Force of Upstream Oil and Gas
Minister of Law and Human Rights Business Activities, the supervising
(MOLHR) responded to a request The Supreme Court therefore rejected authority of the upstream oil and gas
by several advocates in Jakarta for the cassation request filed sector (locally known as SKK Migas).
clarification on the implications by Nine AM.
and implementation of the PTK 0167 expressly requires that
Language Requirement. This case, owing to its controversy, tender documents submitted by
became a landmark case referred to tender participants must be in
MOLHR’s response clarified that the by legal practitioners when complying either the Indonesian language
absence of an Indonesian language with the Language Requirement. alone or both the English and
version of the contracts would neither Indonesian languages.
invalidate contracts nor breach the
Language Requirement.
1. Clause 31 (1) of Law 24.
2. Nine AM Ltd. v PT Bangun Karya Pratama Lestari (2015).
3. https://www.indonesia-investments.com/id/news/todays-headlines/infrastructure-development-indonesia-more-investment-licenses-issued/item5762?
Indonesia in depth: 2019 industry outlook 5
“It is imperative that parties check
that they will not be in breach of
any relevant regulations before
opting for a foreign language
(such as English) to be a
contract’s prevailing language.”
It also provides that, in the event Therefore, it is imperative that parties For more information, please contact
of any perceived conflicts when check that they will not be in breach the authors of this article:
interpreting the Indonesian language of any relevant regulations before
and English language provisions, the opting for a foreign language to be a EVIATY
JENIE
Indonesian language contract’s prevailing language.
provisions prevail. 3
To avoid challenges by contractual
Construction counterparties, we recommend
adopting a conservative approach,
The construction sector also particularly with high-value contracts.
strictly implements the Language
Requirement regarding construction Given the above mentioned exposure
contracts according to the recently to non-compliance with Law 24, we
enacted Construction Law No. recommend that parties prepare the TASHIA
NOVIASI
2 of 2017. Indonesian language version of the
contract in sufficient time to execute
Ben Bury and Gusnandi Haliadi’s the Indonesian and English versions of
article in this publication provides an the contract concurrently.
in-depth exploration.
How can HFW help?
Key takeaways
We can advise on the further
The above industry case studies implications of Law 24 and assist with
clearly differ from the way in which Research conducted by Stephanie
drafting and translating the full range
Law 24 (which is silent on the Koh, Trainee Solicitor.
of commercial contracts, whether in
question of a prevailing language) is the Indonesian or English language.
generally interpreted – i.e., parties to
the agreements are free to make the Our team is also composed of
foreign language of the contract the Indonesian-qualified lawyers, who can
prevailing language, in the event that assist ininterpreting contracts drafted
there are conflicts in interpretation. in the Indonesian language.
Our observation suggests that foreign
parties’ awareness and acceptance
of the Language Requirement
has increased.
3. PTK 0167, Chapter II, 2.2.
6 Indonesia in depth: 2019 industry outlookThe Shipping Law applies a “closed”
Diving deep: An analysis of key ship registry in Indonesia, meaning
developments and imminent changes that Indonesian-flagged vessels can
only be owned by and registered to
in Indonesia’s shipping sector Indonesian individuals or legal entities.
Cabotage rules They aim to increase and This includes Indonesian companies
promote Indonesian shipping and with foreign shareholders; these
Indonesia’s implementation of the shipbuilding interests, by restricting are commonly referred to as a PMA
cabotage principles has been a key certain activities of foreign vessels companies (Perseroan Terbatas
factor in the fast pace of the growth operating within Indonesian waters. Penanaman Modal Asing, limited
of Indonesia’s shipping industry. The principals introduced under liability companies established under
the Shipping Law have since been Indonesian laws.). PMA companies
A brief history of cabotage
periodically supplemented by are the only permitted form of inward
in Indonesia
various regulations. Foreign Direct Investment (FDI) in
Indonesia’s cabotage rules were Indonesian shipping by foreigners.
A number of exemptions to the
introduced via Law No. 17 of 2008 on
restrictions have allowed the Foreign ownership restrictions
Shipping (Shipping Law). Under this
operation of foreign flagged vessels,
law and its implementing regulations, There is also a restriction on the
in order to support certain activities in
only Indonesian flagged vessels are level of capital ownership in an
particular sectors.
allowed to carry passengers and Indonesian shipping company by
goods between ports located in For example, the oil and gas sector foreign investors.
Indonesian territorial waters (subject has a requirement for specialised
to certain exemptions discussed vessels that are not generally available Presidential Regulation No. 44 of 2016
later in this article).1 within Indonesia. Exemptions have (Negative Investment List)2 stipulated
been introduced to enable the that an Indonesian shipping company
The cabotage principles broadly may only have up to 49% of its shares
operation of specialised vessels in the
require that domestic sea trade is owned by a foreign individuals or
oil and gas sector and to support the
carried out by an Indonesian shipping companies and must own at least one
government’s planned infrastructure
entity, flagged in Indonesia and Indonesian flagged vessel with a gross
development projects, especially
manned by an Indonesian crew. tonnage of at least 5000 tonnes, if it
with regards to construction and
power plants. has any foreign shareholders.
1. See our recent article http://www.hfw.com/Murky-waters-Six-key-maritime-issues-to-understand-before-doing business-in-Indonesia-
Sep-2018 accessed 2 January 2019.
2. See our previous article on the topic: http://www.hfw.com/The-New-Indonesia-Investment-Negative-List accessed 2 January 2019.
Indonesia in depth: 2019 industry outlook 7However, the government recently announced the 16th Economic Policy Package, which includes a revision to the
Negative Investment List, opening up permitted foreign capital ownership to 100% in 25 business categories:
Category Previous limit on foreign ownership
Oil and gas construction services 49% for offshore pipeline installation
Offshore oil and gas drilling services 75%
Geothermal drilling services 95%
The Government has also decided shares in an Indonesian company This regulation will further complicate
to open up international freight are held for and in the name of the creation of workable foreign
sea transport (excluding cabotage) another person. shareholding arrangements
(CPC 7211) business activities to in Indonesia.
100% foreign investment. This sector The Investment Law further
was previously limited to foreign provides that any kind of nominee New Minister of Transportation
investment by ASEAN countries arrangements in an Indonesian regulation: Updates on the
investors with maximum company are void by law. exemption for the use of certain
ownership of 70%. foreign flagged vessels
The government also recently issued
While the 49% cap on the ownership Presidential Regulation No. 13 of In 2011, the Indonesian Ministry
of Indonesian shipping companies 2018 on the Implementation of the of Transportation (MOTP) issued a
remains, these changes give Principle on Recognising Beneficial regulation permitting the use of
foreign investors greater scope Ownership of Corporations in the certain types of foreign flagged
when structuring investments in Framework of the Prevention and vessels for certain activities, other
these sectors. Eradication of Money Laundering and than the transportation of passengers
Criminal Acts of Terrorism Financing and/or goods. 3 Such permitted
The Government is currently in the (PR 13/2018). activities included offshore drilling,
process of issuing a new regulation construction, surveys, dredging,
on the Negative Investment List. This regulation obliges Indonesian salvage and underwater work4.
Following its issuance, we will provide business entities and non-business
a further update. organisations to disclose and declare The government has since issued
their ultimate beneficial owners MOTP Regulation PM 92 of 2018,
Nominee arrangements, and to provide information on their which provides a further extension on
prohibition in the Investment Law beneficial ownership. the exemptions on the use of foreign
and the requirement to report the flagged vessels until 31 December
ultimate beneficial owner While the stated primary purpose of 2020 (PM 92/2018). It also makes a
PR 13/2018 is to tackle the misuse of wider range of vessel types exempt.
There have been instances where a business entities or organisations
foreign investors have used various for illicit purposes, such as terrorism In order to secure a permit to use
forms of nominee arrangements to financing, money laundering, tax foreign flagged vessels for offshore
circumvent the Negative Investment evasion and corruption, it’s disclosure activities, the Indonesian shipping
List restrictions. requirements will provide more company must submit an application
transparency in the ownership of to the MOTP5.
Foreign investors should be aware that business entities and enable the
Law No. 25 of 2007 on Investment relevant government agencies Before submitting the application,
(Investment Law) clearly prohibits to monitor the ownership of the applicant is required to conduct
domestic and foreign investors alike business entities. at least one procurement process
from entering into agreements and/ to ascertain the availability of an
or making statements asserting that Indonesian flagged vessel of the same
type and specification.
3. M
OTP Regulation PM 14 of 2011 on Procedures and Requirements to Grant Permits to Use Foreign Vessels for Domestic Sea
Transportation for Activities Other Than the Transportation of Passengers and/or Goods.
4. T
his regulation was then replaced by MOTP Regulation No. 100 of 2016, which was, in turn, amended by the MOT Regulation No. 115
of 2017 (PM 100/2016). PM 100/2016 permitted the use of certain foreign flagged vessels in Indonesia up to 31 December 2018.
8 Indonesia in depth: 2019 industry outlookPermitted vessel types and activities in Indonesian waters by foreign flagged vessels now include:
Activities Vessel types
Offshore drilling ● Jack up rigjack up barge/self elevating drilling unit (SEDU).
● Semi-submersible rig.
● Deep water drill ship.
● Tender assist rig.
Offshore construction ● Derrick/crane, pipe/cable laying/barge/vessel/sub sea umbilical riser
flexible (surf) with dynamic position (at least DP1).
● Anchor handling tug supply vessel (at least 10,000 BHP).
● Pilling barge with crane capacity at least 150 tonnes safety
working load (SWL).
● Diving support vessel (DSV) with dynamic position (DP2/DP3).
● Semi submersible accommodation barge.
Oil and gas survey ● Seismic survey with electromagnetic/broadband triple source.
● Geophysical survey.
● Geotechnical survey.
Dredging ● Cutter suction dredger (csd) with cutter head of at least 30 inches.
● Trailing suction hopper dredger (TSHD) with the capacity of a hopper
of at least 3,700 M3.
● Multicat with crane with a capacity at least 100 tonnes.
Salvage and underwater works ● Floating crate with capacity of at least 300 tonnes.
● Survey salvage/cable ship/barge with dynamic position of at least DP1.
● Diving support vessel with dynamic position of at least DP2.
Offshore supporting operations ● Liquid natural gas (LNG) storage.
● Floating storage offloading/floating production storage unit.
Floating power plants ● Any type of floating power vessel.
Wharf constructions ● Concrete deep mixing (CDM) barge.
● Concrete pipe mixing (CPM) pneumatic pumping barge.
● Concrete pipe mixing (CPM) cement placing barge.
● Concrete pipe mixing (CPM) anchor boat.
Indonesia in depth: 2019 industry outlook 9PMA 92/2018 requires the This regulation left a number of numerous positive opportunities to
procurement to be conducted points unclear, including: invest in the Indonesian shipping
through national electronic or sector, particularly in view of the
printed media at least three months 1. W
hether the term “controlled” government’s new economic policy to
before the applicant can submit its means vessels are required to be further opening up certain business
application to use foreign flagged owned by an Indonesian shipping fields to foreign investment.
vessels to the MOTP. This is a company or if the relevant vessels
significant change from the previous could be chartered. However, it is important that
regulation, which only required foreign investors are guided
2. W
hether the vessels used by the through the entire process of
the procurement to be conducted
exporters or importers must be investment realisation in Indonesia,
up to five days before submitting
Indonesian flagged vessels or be from structuring the investment,
the application.
manned by an Indonesian crew. incorporating or purchasing the
The procurement process prioritises correct investment vehicles in
MOT 82/2017 provides an exemption
Indonesian flagged vessels. If an Indonesia and other jurisdictions, and
to the requirement for the use of
Indonesian flagged vessel is not obtaining the necessary mandatory
vessels controlled by Indonesian
available, then the procurement permits to producing the relevant
shipping companies and the
should prioritise either those foreign investment documentation, in order
requirement for insurance to be
vessels that are to be reflagged to ensure smooth navigation of
provided by Indonesian insurance
as Indonesian flagged or foreign Indonesia’s specific legislative and
companies in the event that the
flagged vessels acquired by regulatory frameworks.
necessary vessels controlled by
Indonesian nationals or entities under
Indonesian shipping companies or We can assist you in structuring
leasing schemes.
insurance provided by Indonesian and restructuring your investments
The applicant should notify and insurance companies were in limited in Indonesia, with lawyers
provide evidence to the regulators supply or unavailable. who have advised on complex
that an attempt has been made to Indonesian investment and joint
Initially, the requirement to use vessels
procure an Indonesian flagged vessel venture structures and specialist
controlled by Indonesian shipping
without success. shipping expertise.
companies and to use insurance
Under PM 92/2018, the permit to use provided by Indonesian insurance We can also assist you further in a
foreign flagged vessels is granted for companies was scheduled to come detailed understanding of regulatory
6 months and may be extended after into effect on 30 April 2018. conditions and requirements under
being evaluated by, and subject to the the Indonesian shipping and related
There was a great deal of concern
discretion of, the MOTP. This period of legislation, including PM 92/2018 and
among industry players that both the
use of foreign flagged vessels has also MOT 82/2017.
Indonesian shipping and insurance
been tightened by the MOTP, as the
sectors did not have the necessary
previous regulation allowed the vessel For further discussion, please contact
resources to provide the requisite
to be used for up to one year. the author of this article:
shipping and insurance coverage to
comply with these obligations. HAYDN
New export and import DARE
regulations: Use of Indonesian
As a consequence, through a series of
shipping and insurance companies
amendments to the initial regulations,
The Minister of Trade (MOT) issued most recently by MOT 80/2018, the
Regulation No. 80 of 2018 (MOT government decided to delay the
80/2018) on 30 July 20186. implementation of the obligation to
use vessels controlled by Indonesian
This requires any company using shipping companies until 1 May 2020,
sea transportation to export coal or and to delay the implementation
INDRA
crude palm oil or to import rice or of the obligation to use insurance PRAWIRA
government-procured goods to: provided by Indonesian insurance
companies until 1 February 2019.
● Utilise sea transportation that
is controlled by an Indonesian Key takeaways for foreign
shipping company. companies and investors in
Indonesia
● Obtain insurance from an
Indonesian insurance company. Despite legal and political challenges
in Indonesia, many foreign investors
still consider that there are
5. Along with various supporting documents as set out in PM 92/2018.
6. This was the second amendment to MOT Regulation No. 82 of 2017 on Provisions on the Utilisation of National Sea Transportation and Insurance for
Export and Import of Certain Goods, which came into effect on 1 August 2018 (MOT 82/2017).
10 Indonesia in depth: 2019 industry outlookOne commentator explains:
International arbitration in Indonesia:
Common challenges “Indonesia currently has no specially
trained judges who can be assigned
Badan Arbitrase Nasional Indonesia The Indonesian Arbitration Law of to handle arbitration related cases.
(BANI) is an important arbitral 1999 (AL) provides that, in order for Besides, the court staff assigned
institution, as oil and gas contracts disputes to be arbitrable: to assist in handling arbitral award
involving Indonesian projects almost registration and enforcement
invariably require BANI as their ●● The dispute must be of a matters generally show no strong
dispute resolution forum. commercial nature and understanding of arbitration.
Indonesia is also well known for its
For any arbitral institution to gain ●● The parties themselves must unnecessary court interference in
the confidence of its prospective have the authority to resolve matters related to arbitral awards,
users, parties must feel assured of the dispute. although the situation is now
its transparency and institutional gradually improving.”1
If the parties have a valid arbitration
reliability. Our experience has shown
agreement, it is a violation of the AL to Processes and procedures
that the theory and the practice of
initiate court proceedings to resolve
applicable arbitral procedures in
a dispute. BANI Rules are less comprehensive
Indonesia do not always reconcile.
than the institutional rules of more
If a party initiates court proceedings established international arbitration
In this article we outline some of the
in relation to a dispute, which the bodies. They can be vague and, in
challenges we have encountered
parties have agreed in writing to refer parts, even contradict themselves.
in BANI arbitrations, and some of
to arbitration, judges must declare
the measures we believe could be
themselves to have no jurisdiction. Compounding this, many of the BANI
taken in order to improve Indonesia’s
procedures are overly bureaucratic,
standing as a credible international Despite this, the courts have, on which can hamper efficiency.
arbitration centre. occasion, shown themselves willing to For example:
try cases in spite of the existence of a
Court intervention
valid arbitration agreement. ● The parties have to be physically
Under Indonesian law, an agreement present for all procedural and
This causes delay and additional costs. other hearings, which must be
to arbitrate must be in writing.
It also becomes very difficult for the conducted orally. There is no
This is the case in many jurisdictions
claimant to prevent their consensual scope for the tribunal to decide
including in many “arbitration-friendly”
agreement to arbitrate from being even procedural directions on
ones, such as Singapore and England).
derailed by an obstructive respondent. paper or following a telephone
call with the parties.
1. Tony Budidjaja (Budidjaja International Lawyers) (2017).
Indonesia in depth: 2019 industry outlook 11● Each party has to submit from time to time to represent a client proceedings where the parties have
all correspondence to BANI. at a hearing. agreed to arbitrate.
BANI then distributes it to the
tribunal and other parties, rather A business visa only entitles holders Amongst others, some of the
than the parties and tribunal to attend meetings; it is not clear particular challenges we have
communicating directly with whether arbitration hearings would encountered with hostile respondents
one another. fall within that scope. in Indonesia include those who have:
● The final hearing is when the This issue needs to be addressed ● Refused to enclose the
award is read out. Again, all urgently by relevant parties, including documents referred to in their
parties must be present, requiring BANI, as it creates uncertainty and submissions, communicate with
the tribunal and parties to be opens the door for obstructive us directly, and threatened to
physically present in Jakarta. respondents to exclude foreign appeal any procedural directions
In contrast, many other arbitral lawyers from representing their given by the tribunal that they do
institutions circulate their awards clients in Indonesian arbitrations. not like to court (despite them
to the parties by email and post. being disentitled from doing so).
The impact of this is far-reaching
International counsel and it undermines Indonesia’s ● Tried to ensure that the
potential as a credible international arbitration is conducted in
Whilst no arbitration is immune to arbitration centre. Bahasa Indonesian, despite the
obstruction by hostile respondents, parties’ agreement to conduct
in our experience, the relative lack of Will the real BANI please it in English.
infrastructure to support arbitration stand up?
in Indonesia makes it a particularly Such conduct is particularly
fertile terrain for derailment by In 2016 some members of BANI’s disappointing given that the AL
obstructive respondents. board defected, establishing another and BANI Rules both expressly
arbitral institution that they named provide that the parties will conduct
It is a principle of international arbitral “BANI Pembaharuan”. themselves in good faith during the
jurisprudence that anyone may arbitration process.
represent a party in arbitration, even We understand that currently BANI
the individual themselves. Unlike in and BANI Pembaharuan are in These tactics serve only to deter
court litigation, parties’ representatives the process of lawsuit in several parties from choosing to arbitrate in
in arbitrations do not have to be Indonesian courts to determine on Indonesia and undermine Indonesia’s
lawyers (although, in practice, the legitimacy of their entity status. substantial potential as a dispute
they usually are). However, to date, there is still no resolution centre.
certainty on the outcome. In its
Not unusually, the BANI Rules provide press release, the newly established Conclusion
that, where the substantive law of the institution hailed BANI Pembaharuan
The international arbitration
contract is Indonesian, any counsel as a “transformed BANI”. The scope for
community welcomes Indonesia’s
has to be either Indonesian-qualified costly and time-consuming confusion
emergence as a credible arbitral
or, if they are a non-Indonesian requires no explanation.
jurisdiction and wants to see a
representative, must be accompanied
Whilst this issue is not robust institutional and legislative
by Indonesian counsel.
insurmountable, for example by infrastructure to support
However, uncertainty surrounding parties ensuring that their arbitration its development.
Indonesia’s immigration laws can agreement clearly specifies to which
BANI, as the flagship arbitration body
allow an obstructive respondent to of the two BANIs they intend to refer
for administered arbitrations, needs
effectively ban parties from being disputes, it is a further example of
to be better equipped and supported
represented by international counsel the lack of clarity and reliability that
to withstand the challenges we
– even where they are accompanied continues to blight the arbitration
have outlined.
by local counsel – by threatening landscape in Indonesia.
to report them to the immigration Relevant parties must rally together
authorities and having them detained. Obstructive respondents
to ensure that the process is impartial,
The lack of institutional coherence objective and expedient, and that
It is unclear whether a work permit,
can make the arbitral process in the courts respect the parties’
simply for the purpose of representing
Indonesia all too vulnerable to agreement to resolve their disputes
a client at arbitration hearings, is
derailment by an unresponsive or through arbitration.
required by those foreign counsel not
resident and employed in Indonesia. obstructive respondent.
Interference with the arbitral process
This is compounded by the district should be restricted to well-defined
However, if a work permit is,
courts’ willingness to intervene in any and narrow grounds, rights of appeal
indeed, required then parties face a
proceedings referred to them, even to the courts should be limited, and
conundrum: there is no temporary
though it is a violation of the AL and practices such as permitting an
work permit available that would
of the BANI Rules to instigate court unsatisfied party to have a second bite
entitle them to travel to Indonesia
at the proverbial cherry through the
12 Indonesia in depth: 2019 industry outlookre-litigation of disputes in the courts
should be eradicated.
As was the case with many
jurisdictions that are now widely
considered ‘arbitration-friendly”, if
Indonesia is to realise its potential
as a trusted and credible arbitral
jurisdiction, the courts and legislative
bodies need to become the guardians
of arbitration, rather than the enablers
of obstructive parties.
There are many practitioners, jurists
and academics putting considerable
energy into promoting international
arbitration in Indonesia; their efforts
must be underpinned by institutional
support and infrastructure at
the macro level in order to make
meaningful progress.
For more information on conducting
arbitrations in Indonesia, please
contact the authors of this article:
PAUL
ASTON
DWI
DARUHERDANI
SUZANNE
MEIKLEJOHN
Indonesia in depth: 2019 industry outlook 13Eighteen months on: Indonesia’s The outdated nature of the Poincare
Franc meant that its usage often
ratification of the Montréal led to differing results, depending
on the state in which a claim was
Convention 1999 presented.
Indonesia ratified the Montreal Adopting MC99 was a positive step Modernising the international
Convention 1999 (MC99) on 20 towards the global unification of carriage regime in Indonesia through
March 2017. It officially came global aviation law and subsequently use of SDR should, theoretically,
into force on 19 May 2017. provided more certainty for provide greater certainty for carriers;
participants. Before MC99, parties in particular, regarding the table
The importance of Indonesia’s needed to navigate a patchwork of to the right.
ratification of MC99 differing liability regimes.
Practical implications:
This brought Indonesia in line The global civil aviation community, Uncertainty still remains
with the, now, more than 130 therefore, welcomed Indonesia’s
ratifying nations that have ratified ratification of MC99. While there is widespread
MC99, following a global push agreement that Indonesia’s MC99
by the International Air Transport The key benefits of MC99 ratification and adoption should
Association (IATA) for its global to Indonesia: Promoting have led to more certainty for
ratification and adoption. greater certainty carriers, it is very noteworthy that, in
the eighteen months since adoption,
Indonesia’s only prior ratification One of MC99’s primary effects was the Indonesian courts have yet to
in this space was the Warsaw abandoning the Poincaré Franc, in make any landmark adjudications in
Convention of 1929 (WC29); it had favour of the more commonly used this regard.
neither ratified the 1955 Hague International Monetary
Protocol nor any of the Montreal Fund standard of Special
Protocols. Drawing Rights (SDR).
14 Indonesia in depth: 2019 industry outlookPrior WC29 regime Change under MC99 Benefits of MC99
Cargo claims: If carriers wanted to rely on the limits of MC99 allows the use of electronic Allowing e-airway bills will speed up
E-freight
liability, they needed a paper airway bill. documents to record the carriage of the air freight process, eliminating
cargo by air. paper-based processes, which will boost
Indonesia's competitiveness in the air
freight market.
Cargo claims: Limited to 250 Poincaré Francs Abandonment of Poincaré Franc. New compensatory regime - clarity and
Greater certainty
per kilogram of cargo carried greater certainty.
with regards to
Imposes a 19 SDR (approx. US$26) per
cargo limits (breakable limits).
kilogram unbreakable liability limit for
Much uncertainty re carrier liability for claims relating to cargo destruction, loss,
cargo losses due to variations between damage or delay.
jurisdictions in which claims were
brought.
Passenger Passenger loss of life claims were Two tier compensation system: -
claims
limited to 125,000 Poincaré Francs,
1. S
trict liability up to 113,100 SDRs
which effectively limited claims to
subject to proof of loss: liable
approximately US$20,000 (breakable
without exclusion or limitation –
limits).
but exoneration for contributory
This was significantly less than the negligence is available
standard set by the Indonesian
2. Unlimited damages (above 113,100
Government by way of Regulation 77 (see
SDRs) unless the carrier can prove
below), which provides for compensation
death/injury not due to own
of more than than IDR1 billion
negligence or solely due to negligence
(approximately. US$70,000).
of third party.
In terms of the interplay with It is therefore conceivable that To discuss further, please contact the
Indonesian domestic aviation if an aviation accident occurs in authors of this article:
regulations, it is unclear if MC99 the airspace above the territory of
will be regarded as the sole basis Indonesia arising from international MERT
HIFZI
for air carrier liability for passenger carriage it could potentially be
injury or death arising from regulated by both domestic
international carriage. Indonesian law as well as MC99.
In this context, it should be noted In which case, it remains to be seen
that Indonesian domestic aviation as to how the Indonesian courts will
legislation/regulations, including but resolve any conflicts of law post-
not limited to the 2011 Minister of MC99 adoption.
Transportation Regulation No. 77 TERENCE
as amended by Regulation No. 92 Nonetheless, it is envisaged that
LIEW
(Regulation 77) that provides for a more detailed guidelines on
different compensatory regime for the incorporation of MC99 into
passenger injury or death, does not Indonesian law may be enacted,
seem to clearly distinguish between which should provide some
domestic and international carriage. welcome clarity.
INDRA
PRAWIRA
Indonesia in depth: 2019 industry outlook 15Generating progress: Updated regulation aims to encourage
consumer use of solar energy for electricity generation
Through the Presidential Regulation operation of state electricity company A Rooftop PV System may also
No. 22 of 2017 regarding General Perusahaan Listrik Negara (Persero) be operated consumers who are
Planning for National Energy (PLN)’s grid, and comply with the not consumers of PLN, provided
(RUEN), the Indonesian government provisions of laws and regulations on that they submit a report on the
mandated that rooftops of all the use of domestic goods/services. System’s construction and installation
government buildings and luxury to the Director General of New
housing/residential/apartment However, the Rooftop PV System is Energy, Renewable Energy and
complexes had, respectively, at not subject to a capacity charge and Conservation at Ministry of Energy and
least 30% or at least 25% cover by emergency energy charge. Mineral Resources.
photovoltaic panels.
The capacity of a Rooftop PV System Following the issuance of MEMR
In order to accelerate consumer use is limited to a maximum of 100% of 49/2018, Rooftop PV Systems that
of green energy, on 16 November the consumers’ installed capacity, have been built and installed
2018, the Ministry of Environment which is determined by the inverter’s previously are declared to be in
and Mineral Resources issued total capacity. accordance with the provisions of
MEMR 49/2018 , which sets out the MEMR 49/2018.
The calculation of a consumer’s
requirements for consumers to use
exported electricity is made based The method of calculation of the
a rooftop photovoltaic power station
on export kWh value recorded at the consumers’ electrical power export-
system (Rooftop PV System).
export-import kWh meter multiplied import by a Rooftop PV System that
What is a Rooftop PV System? by 65%. This differs from the previous was built before the issuance of
regime, where consumers were MEMR 49/2018 will remain valid
A Rooftop PV System consists of paid 100%. until 31 December 2018.
photovoltaic modules, inverters,
electrical connections, security A monthly calculation is made
systems and an export-import regarding to the difference between
kWh meter. the import kWh value and export
kWh value. The calculation of a
With the aim of reducing consumers’ consumer’s electrical power export-
electricity bills, its use must take into import took effect on 1 January 2019.
account the safety and reliability of
16 Indonesia in depth: 2019 industry outlookFor further information on this or
other issues in the energy sector,
please contact the authors
of this article:
HAYDN IVAN
DARE CHIA
GUSNANDI
HALIADI
What is the new process for consumers?
• C
onsumers must file an application with the general manager of the regional/distribution base unit of
Application PLN, with a copy to the Director General of Electricity and Director General of New Energy, Renewable
Energy and Conservation at Ministry of Energy and Mineral Resources.
Evaluation • PLN verifies and evlauates the appliation within 15 working days of submission.
• Consumers must not construct or install the System prior to receiving PLN approval.
Construction • The construction and installation must be done by either:
and • a business entity for the construction and installation of the Rooftop PV System.
installation • or a state-owned or regional government-owned institution that carries out the construction and
installation of new energy power plants and other renewable energy
Inspection
• A
n Operational Worthiness Certificate (Sertifikat Laik Operasi) is required, issued by the accredited
and Electrical Engineering Inspection Agency (Lembaga Inspeksi Teknik Tenaga Listrik).
examination
Installation of
• P
LN is obliged to provide and install a kWh meter to measure the export and import
Export-import of electricity by consumers.
kWh Meter
Indonesia in depth: 2019 industry outlook 17If the IDERA is in favour of the direct
New IDERAs: Recent regulatory changes lessor, the DGCA will accept a CDDA
affecting the aviation finance industry from the direct lessor in favour of
any owner or financier, provided the
IDERA and CDDA are submitted to
The Indonesian aviation sector What is an IDERA?
the DGCA together with the CDL
continues to grow rapidly. With the
An IDERA is an authority document (which will be acknowledged by and
majority of aircraft operated by
executed by the owner/operator of an registered with the DGCA).
Indonesian airlines being procured
from foreign lessors or purchased aircraft, granting the authorised party
Key considerations
with financing from foreign lenders, or its certified designee the right to,
it is important for international following a default, deregister and It is important to note that if the
stakeholders to be aware of the export such aircraft from the aircraft DGCA, for whatever reason, refuses to
implications of the Regulation of registry in the state in which the record an IDERA or even if it simply
Minister of Transportation No.52 of aircraft is habitually registered. takes a long time for the IDERA and
2018 (New MOT Regulation). any CDL to be recorded in Indonesia
How does the New MOT Regulation
and that, in the meantime, an event
What brought about the New MOT affect IDERAs?
of default occurs, the parties can
Regulation? produce any Deregistration Power
The New MOT Regulation expressly
permits an IDERA to be granted in of Attorney (DPOA), which would
The Cape Town Convention is fully
favour of a creditor i.e. chargee in a be in favour of the owner, and any
implemented and enforceable
security agreement, conditional seller Deregistration Consent Letter (DCL),
in Indonesia.
in a title reservation agreement, or which would be in favour of the
However, there was confusion lessor in a lease agreement. financier, in an Indonesian court for
surrounding Indonesia’s Directorate the purposes of applying for the
General of Civil Aviation’s The DGCA will consider accepting deregistration of the aircraft from the
(DGCA) treatment of Irrevocable registration of an IDERA, provided the DGCA. The DPOA and DCL do not
Deregistration and Export Request following requirements are fulfilled: need to be registered in Indonesia for
Authorisations (IDERAs) until the this purpose.
● The DGCA’s new IDERA
New MOT Regulation was
form is used. Note: This advice is correct as at
implemented in November 2018.
December 2018. It is important to
● DGCA prescribed application
What is the Cape Town obtain advice on current practice
forms, which may include a
Convention? and procedure in Indonesia when
Certified Designee Deed of
considering aircraft transactions
The 2001 Cape Town Convention Appointment (CDDA) and
in Indonesia.
and its Aircraft Equipment Protocol Certified Designee Letter (CDL)
are, together, known as the Cape are completed and submitted.
For more information on this or other
Town Convention. topics regarding Aviation Finance,
● The IDERA is in favour of a party
other than the direct lessor, e.g. please contact the author of this article:
The Cape Town Convention on
International Interests in Mobile the financier.
Equipment is an international treaty ALEXANDRA HERBERT
● A summary of agreements, FORREST STAYER
intended to standardise transactions
written bilingually (Bahasa
involving movable property by
Indonesian and English), and
creating an international framework
signed by all parties involved in
for the formation, registration –
the agreement is submitted.
through an International Registry,
protection and enforcement of certain ● A Statement Letter on the DGCA’s
international interests in airframes, prescribed form, signed by the
aircraft, engines and helicopters. aircraft operator and the party
authorised under the IDERA, not
to bring any legal action against
the DGCA as a result of the IDERA
registration.
18 Indonesia in depth: 2019 industry outlookTo test whether a company has
Don’t keep your head in the sand(box): fulfilled those criteria and can be
Advice for fintechs on OJK’s new digital legally operating as an IKD, POJK
13/2018 sets three stages that a
financial innovation regulation company must undergo, namely:
Following OJK’s recent passing of a innovation, customer protection and 1. Recordation.
new regulation on digital financial stronger risk management.
innovation, we outline its remit 2. Regulatory sandbox,
and explore its likely benefits and Amongst its key features are the
establishment of a sandbox and 3. Registration.
challenges alike for the financial
technology (fintech) industry in the requirements to record and register
How to apply
months ahead. for fintech operators,.
The first step, which is recordation, is
Current fintech climate The scope of POJK 13/2018
a must for any operator of business
The regulation shall be applicable to within the scope of IKD, except for
Both the fintech industry and the
any digital financial innovation (Inovasi those who have been registered
market have been growing at a rapid
Keuangan Digital or IKD), which is or have obtained licensed from
pace over the last couple of years.
defined as activities surrounding the OJK prior to the enactment of
Based on data compiled by updating Business processes and the regulation.
Fintechnews, there were a total of business models, and financial
This obligation was effective since
167 fintech companies established instruments that provide new added
16 September 2018. The application
in Indonesia in May 2018; more than value in the financial services sector,
for recordation automatically serves
triple the number in 2015.1 by engaging in the digital ecosystem.
as an application to be tested at the
Payment and lending fintechs each Activities covered under these regulatory sandbox. Such application
compose more than 30% of the pie criteria are: should be accompanied by
chart, with these services growing at documentations provided under
16.3% annually. ●● Transaction settlement. Article 6.
However, other services, such as ●● Capital raising. To be accepted into the regulatory
market provisioning and aggregators, sandbox, a fintech has to fulfil a set
●● Investment management. of criteria, e.g. being a novel business
are predicted to gain traction in the
coming years. model, having a sizeable market and
●● Fund raising and distribution.
being registered in the association
The background to POJK 13/2018 ●● Insurance. of operators.
Keeping up with the market trends, ●● Market support. To clarify, the sandbox may not
OJK has issued a series of regulation be suitable for fintech businesses
targeting fintech services. ●● Other digital financial supporter. deemed by the OJK to be similar to
those already regulated.
It started with fintech lending through ●● Other financial services activities,
Regulation No. 77/POJK.01/2016 on such as block chain-based POJK 13/2018 also makes a
Technology-Based Fund-Lending products. distinction between a financial
Services, dated 28 December 2016. services institution (LJK) and another
Mechanism of recordation, regulatory
party conducting business in the
More recently, it has sought to extend sandbox and registration
financial sector (non-LJK), in terms
its arm to other services by releasing of which authority should receive
To harness the innovation of
Regulation No. 13/POJK.02/2018 on the application.
fintech, POJK 13/2018 requires a
Digital Financial Innovation in the
company to meet certain criteria.
Financial Services Sector on 15 August A non-LJK’s application should be
Such requirements include the ability
2018 (POJK 13/2018). submitted to the unit in charge of
to collaborate with other financial
the research and development of IKD
POJK 13/2018 sets out the basic services, benefit for financial inclusion
at the OJK (which as we understand
regulatory framework to which all and compliance with consumer and
has been established since August
digital financial companies will be data protection-related regulations.
2018 under the name OJK Innovation
subject. It is designed to promote Centre for Digital Financial Technology
or OJK Infinity).
1. F
intechnews Singapore, “Fintech Indonesia Report 2018 – The State of Play for Fintech Indonesia,”
http://fintechnews.sg/20712/indonesia/fintech-indonesia-report-2018/, accessed on 3 January 2018. Indonesia in depth: 2019 industry outlook 19You can also read
