BKPM Assumes Operation of OSS System for Business Licenses and Permits

At end of June 2018, the government introduced the “Online Single Submission” initiative (“OSS”) that comprises an online system for applying for licenses and permits issued by Indonesian governmental authorities.

Initially the OSS system was administered by the Coordinating Ministry for Economic Affairs (“CMEA”). However, from 2 January 2019 this role has been transferred in a staggered manner to Indonesia’s Investment Co-ordinating Board (“BKPM”). BKPM’s role as the OSS system operator has been contemplated for some time, given that BKPM – rather than the CMEA– was previously responsible for handling the processing of FDI other approvals under the One Stop Service Centre program.

The OSS system was intended to streamline the process of investment and business licensing in Indonesia, and this objective is starting to be delivered in a number of areas. Nevertheless, it is reasonable to describe the OSS system as a “work-in-progress”, particularly in regards to its integration at a local level and with other ministries who regulate particular sectors (such as the Ministry of Energy and Mineral Resources).

While wrinkles in the OSS system are being ironed out, investors must carefully navigate applications for OSS licenses and permits to ensure that delays are limited, and that intended outcomes are achieved. Existing companies must also ensure that their line of business is aligned with the new OSS system, and that steps are taken to register the company under the OSS system (rather than waiting for when a particular permit or approval is needed in the future).

New Restrictions on the Collection of Export Proceeds

The Indonesian government has placed new limits on the use of US Dollar (or other) foreign currency denominated proceeds derived from the export of natural resources (“FX Proceeds”). FX Proceeds must be placed with a licensed Indonesian foreign exchange bank (an “FX Bank”), as was previously the case. Under the new regulations, however, they also must be parked in a specially designated account held with the FX Bank (the “Account”) by the end of the 3rd month after the registration of the underlying export declaration.

Once deposited in the Account, the exporter may only use its FX Proceeds for specified purposes, such as paying export duties, loans, imports, dividends and other investment related matters. In order to move FX Proceeds offshore, supporting documents must be disclosed to the supervisory authority, which is likely to be Bank Indonesia. These will include the underlying loan agreement for offshore loans to be serviced by Indonesian borrowers using FX Proceeds.

Special rules apply to escrow accounts for the collection of FX Proceeds, which also must be held with a FX Bank. Such banks must be licensed by Indonesia’s Financial Services Authority (OJK) to deal in foreign currency, with offshore branch offices excluded.

Restrictions on remitting FX Proceeds offshore need to be considered in the context of both existing cash waterfall arrangements involving offshore collection and disbursement accounts, and underlying concession agreements (such as Production Sharing Contracts), which may otherwise permit the offshoring of FX Proceeds.

Sanctions may involve fines or, ultimately, the revocation of the exporter’s business license.

The new regulations, which cover the mining, oil and gas, plantations, forestry and fishery sectors, can be found in Government Regulation No. 1 of 2019 regarding Foreign Exchange Export Proceeds from the Business, Management and/or Processing of Natural Resources. These are to be further implemented by way of Ministry of Finance decree, and must be read in conjunction with other relevant regulations.

New Work Permit and Visa Regulations for Foreign Workers

Indonesia’s Ministry of Manpower, together with the Ministry of Law and Human Rights, has changed the requirements for employing foreign workers, with a stated objective of supporting the national economy and expanding work opportunities through increased investment.

Key changes include the following:
• Indonesian immigration and work permit application systems have now been integrated into the new TKA Online system
• an Expatriate Manpower Employment Permit (“IMTA”) is no longer required as an additional step following the approval of the Expatriate Manpower Utilisation Plan (“RPTKA”)
• the RPTKA, and subsequent “Notification” from the Ministry of Manpower, is now required to be completed in 4 business days as opposed to the previous 6 business day timescale
• the RPTKA and Notification must align with the tenure of employment as set out in the relevant employment contract
• Limited Stay Permits (“ITAS”) can now be obtained at authorised points of entry (such as certain airports). This is in contrast to the previous regulations, which required a visit to the local immigration office in Indonesia
• The list of eligible positions which can be held simultaneously has been expanded to include educational/digital economy sectors, and PSC contractors

It is important to bear in mind that under the previous regime, applications tended to take longer than 6 business days from the date of application, and it remains to be seen if the process can be expedited under the TKA Online system.

Also, previous IMTAs remain valid until their expiry dates. We understand that it is possible to adjust existing IMTAs by way of the TKA Online system.

The above changes have been implemented under (among others) Presidential Regulation No. 20 of 2018 regarding the Utilization of Expatriate Manpower, MOM Regulation No. 10 of 2018 regarding Procedures for the Utilization of Expatriate Manpower and MOLHR Regulation No. 16 of 2018 regarding Procedures for Granting Visas and Stay Permits for Expatriate Manpower.

Indonesia’s Supreme Court Explores Pertamina’s Rights over Expiring PSCs

Indonesia’s Supreme Court has held that Minister of Energy and Mineral Resources (“MEMR”) Regulation No. 23 of 2018 on the Management of Oil and Gas Working Areas with Expiring PSCs (“MEMR Reg. 23/2018”) is not legally binding to the extent that it might be interpreted as prioritising existing Production Sharing Contract (“PSC”) contractors over Pertamina in the context of an expiring PSC. Case No. 69 P/HUM/2018 (the “Judicial Review”) was decided in favour of the applicant, Pertamina United Workers Union Federation (“FSPPB”). FSPPB’s concern stemmed from the reference in MEMR Reg. 23/2018’s to existing PSC contractors in item (a) of a list of options for operation of a contract area following PSC expiry. This was in contrast to the list set out in a previous regulation on the same subject matter, which referred to Pertamina in item (a).

Notably, neither regulation expressly states that MEMR may prioritise one party in the list over another. Nevertheless, the Supreme Court accepted FSPPB’s application and ultimately decided the Judicial Review in its favour.

The Supreme Court also held that MEMR Reg. 23/2018 breached, among other things, Article 33 of Indonesia’s constitution, which requires the state to “control” important branches of production and natural resources. The decision comes following Pertamina’s take over of Indonesia’s largest gas block Mahakam from Total E&P Indonesia and Inpex. Pertamina will also take over the Rokan block from Chevron once it expires in August 2021.

Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA)

Indonesia and Australia are set to reach a new chapter of bilateral economic ties following the signing of the Indonesia-Australia Comprehensive Economic Partnership Agreement (“IA-CEPA”).

IA-CEPA’s key outcomes are grouped into various baskets, including those relating to goods/trade, investment, e-commerce, skills development and services. Subject to ratification, Indonesia has agreed to grant new approvals for up to 67% Australian ownership in the contract mining services, mine site preparation services, telecommunications, large hospitals, wastewater management services and transportation sectors, among others.

IA-CEPA introduces a comprehensive investment framework between the two countries. Standard investment protections include non-discrimination, fair and equitable treatment, protection against expropriation and security.

A most-favoured nation (“MFN”) clause is also included, subject to a prescribed regime. For example, claims by an investor against the State that another international agreement contains more favourable provisions may be subject to summary dismissal (unless exceptional circumstances apply).

Decisions made under foreign investment screening processes (for example, the Australian Foreign Investment Framework) are excluded. Indonesia does not yet have any equivalent process, but if one is introduced in the future it will be covered too.

Claims may be referred to international arbitration, subject to a prescribed process with specific limitations. There is a provision on security for costs, with an ability for the tribunal to terminate proceedings if security is not provided within a prescribed 30 day period.

It is important to bear in mind that the bilateral investment treaty (BIT) between Indonesia and Australia remains in place, as well as the ASEAN-Australia-New Zealand Free Trade Agreement.

The IA-CEPA will only enter into force following ratification by both Indonesia and Australia. This is likely to occur the general elections for each country, in April and May 2019 respectively.

A summary of the key outcomes of the new treaty, as well as the full English text, can be found on the DFAT website.