Minister of State-Owned Enterprises Bolsters Use of Local Products in Procurement of Goods and Services
On December 12, 2019, the Minister of State-Owned Enterprises (Badan Usaha Milik Negara or “BUMN”) issued Regulation No. PER-08/MBU/12/2019 on General Guideline for the Implementation of the Procurement of Goods and Services by State-Owned Enterprises (the “New Regulation”). This New Regulation aims to increase the use of local products and to enhance the role of national business actors.
The New Regulation replaces the Minister of BUMN Regulation No. PER-05/MBU/2008 dated September 3, 2008 which bore the same title and which was amended through the issuance of Minister of BUMN Regulation No. PER-15/MBU/2012 dated September 25, 2012 (collectively, the “Previous Regulation”).
We set out below the key points of the New Regulation.
- Utilization and Monitoring of Local Product
Under the New Regulation, any BUMN that intends to procure goods and/or services (a “User”) is required to prioritize the utilization of domestic goods and services, national designs and engineering, as well as to participate in the expansion of opportunities for small-scale businesses. Furthermore, the board of directors (“BoD”) of a User will be required to establish an internal Local Component Level (Tingkat Komponen Dalam Negeri or “TKDN”) Team in order to monitor and ensure the utilization of local components during the procurement process. These rules were not addressed under the Previous Regulation.
- Price Preferences for Local Component
Previously, the rules on price preferences were not addressed under the Previous Regulation. Under the New Regulation, a User may set price preferences for domestic products with the TKDN value of 25% or above. The price preferences for said products are to be determined as follows:
- up to 25% for local products; and
- up to 7.5% for construction services offered by local companies.
- Qualifications and Options for BUMN Subsidiaries or BUMN-affiliated Companies
The New Regulation allows BUMN subsidiaries or BUMN-affiliated companies to directly appoint any other BUMN, BUMN subsidiaries, or BUMN-affiliated companies in procuring goods and services. However, the New Regulation relaxes the share percentage requirement for a BUMN subsidiary or a BUMN-affiliated company. Previously, the Previous Regulation required a minimum of 90% ownership by one or more BUMN before a company qualified as a BUMN subsidiary or a BUMN-affiliated company. Now, the New Regulation only requires more than 50% ownership by one or more BUMN.
Further, the New Regulation stipulates that the application of the New Regulation is optional for BUMN subsidiaries and BUMN-affiliated companies. As such, these companies can choose whether or not to adopt the requirements under the New Regulation through their general meeting of shareholders.
- Procurement Procedures
The New Regulation uses different terms than those of the Previous Regulation on the procedure for the procurement of goods/services. However, the procedures are still similar with the Previous Regulation, as follows:
- a tender/general selection (previously, an “open tender”), where a User announces its procurement plans publicly through the mass media in order to provide a fair opportunity for all qualified providers of goods/services to participate in the selection process (auction);
- a limited tender/limited selection (previously, a “direct tender”), where a User only informs a limited number of parties of the relevant procurement plans. This process must result in at least two bids;
- a direct appointment, where a User directly appoints a single party to be the provider of goods/services or makes an appointment through “beauty contests” once they have satisfied at least one of the requirements set under Article 13 (2) of the New Regulation; and
- a direct procurement, which refers to purchases of goods that are currently available in the marketplace so that the price follows the market price. This procedure includes e-purchasing.
Further, the New Regulation stipulates that BUMN may set a bid bond as a requirement in a tender, a general selection, a limited tender, or a limited selection process unless the supplier of the goods/service is a BUMN or ex-BUMN parties.
- Long Term Procurement
The New Regulation clarifies the details of the requirements for the long-term procurements, which are as follows:
- work that requires more than 12 months or one fiscal year to complete;
- work that will provide an added value if the contract lasts for a period of one to three fiscal years;
- work that requires a long-term investment; and
- routine work that must be completed at the beginning of a given year.
The BoD of BUMN is allowed to formulate the price adjustment for multi-year contracts based on market conditions and prevailing best practices.
- Deadline to File an Objection
Previously, a User could file an objection within 4 business days as of the date of announcement of the winning bidder or the date of the contract award (whichever is earlier), and the BUMN will have 14 calendar days to respond.
Now, the New Regulation shortens the period in which a bidder can file an objection against a BUMN's determination of the winning bid or contract award. A User may file an objection against the announced tender winners within 2 days as of the date of announcement of the winning bidder or the date of the contract award (whichever is earlier), and the relevant User must then respond to the objections within 7 calendar days of receiving them.
- Procurement Contract
Unlike the Previous Regulation, the New Regulation only requires the procurement contract to provide, at least, clear rules on the rights and obligations between the parties. Such procurement contract must also heed the provisions of the applicable laws and regulations, good corporate governance as well as the precautionary principle on the business judgment rule.
February 11, 2019
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AKSET New Managing Associate and Senior Associate Announcement
AKSET Law is delighted to announce the promotions of Mr. Prihandana Suko Prasetyo Adi and Mr. Dicky Winata as Managing Associate and Senior Associate effective as of January 1, 2020.
Prihandana specialises in information and communication technology (ICT) law, and he also renders advice in matters related to competition law. Insurance and telecommunication associated issues are further strong fields of his core. You can see his full profile here.
Dicky has been involved in a wide range of M&A transactions involving insurance companies, tourism companies, oil palm plantations, mineral water companies, shipping enterprises, and oil&gas drilling companies. More information about Dicky can be found here.
We believe with these admissions AKSET will continue growing as a full-service law firm, serving clients across and beyond Indonesia.
New Insurance Regulations on Foreign Ownership and Compliance Director Requirement
There are 2 (two) regulations issued concerning insurance business sector–which are:
- Government Regulation Number 3 of 2020 (“GR 3/2020”) to amend the previously issued Government Regulation Number 14 of 2018 on Foreign Ownership in Insurance Business Companies (“GR 14/2018”). GR 3/2020 has been in force since January 20, 2020. GR 3/2020 introduces new provisions on restriction on foreign ownership threshold for both conventional and shariah-based insurance business companies; and
- Financial Services Authority (“OJK”) Regulation Number 43/POJK.05/2019 (“POJK 43/2019”), which amends the previously issued OJK Regulation Number 73/POJK.05/2016 (“POJK 73/2016”) regarding Good Corporate Governance for Insurance Companies. POJK 43/2019 has been in force since December 31, 2019. POJK 43/2019 introduces a requirement for insurance business companies to appoint compliance director.
We set out below notable provisions under GR 3/2020 and POJK 43/2019.
- GR 3/2020
Foreign Ownership Threshold
With respect to joint investment between Indonesian individuals and/or legal entities with foreign parties (“JV Insurance Business Companies”), GR 3/2020 reaffirms the previous provision on GR 14/2018 which allows JV Insurance Business Companies to maintain its foreign capital participation that exceeds 80% prior to the enactment of GR 14/2018.
The old provision under GR 14/2018 required, in the event of an increase of paid-up capital, at least 20% of the newly issued shares shall be subscribed by Indonesian individuals or legal entities. Consequently, each action will cause the foreign shareholding proportion in the said JV insurance Business Company to be diluted.
Such provision is amended by GR 3/2020. In case of increase of paid-up capital in JV Insurance Business Companies which foreign capital participation already exceeds 80%, GR 3/2020 only prohibits the foreign shareholder to further increase their shares ownership that already exceeds 80% - but allowing such foreign shareholder to maintain their shareholding composition in case of increase of capital.
As an illustration: a JV Insurance Business Company, with shareholding composition of: (i) 10% of issued shares hold by an Indonesian individual and (ii) 90% of issued shares hold by a foreign party, intends to increase its issued and paid up capital.
Under GR 14/2018, the said Indonesian shareholder must subscribe at least 20% of the newly issued shares – which means that the foreign shareholder may only subscribe 80% at the most. As the result, the foreign shareholder, which previously hold 90% of shares, will end up holding less than 90% as it cannot subscribe in accordance with its shareholding composition.
Now, GR 3/2020 only prohibits the said foreign shareholder to hold more than 90% as the result of increase of capital. Therefore, if the said foreign shareholder intends to maintain its 90% shareholding composition in case of an increase of capital, it may subscribe 90% of the newly issued shares, while the Indonesian individual must subscribe the remaining 10%.
Further, when the Indonesian shareholder cannot subscribe to the newly issued shares in accordance with their shareholding composition, which would result in the increase of foreign shareholding composition, then the increase of capital must be conducted through an IPO.
Addition of Scope of Foreign Ownership in Insurance Business Companies
GR 14/2018 is applicable for insurance companies, including insurance companies that operate based on conventional or sharia principles, reinsurance companies, insurance/reinsurance brokerage companies, and insurance loss adjusting companies. GR 3/2020 adds the scope to also cover sharia-based insurance/reinsurance companies resulting from spin-off of sharia-based business units of conventional insurance/reinsurance companies (“Sharia-based Insurance Companies Through Spin-Off”).
Under GR 3/2020, Sharia-based Insurance Companies established through Spin-Off shall also be subjected to the same foreign ownership restriction as conventional insurance-business companies (as discussed in the previous section). Sharia-based insurance companies are subjected to the same sanctions with conventional insurance-business companies for any violation of GR 3/2020 and GR 14/2018.
- POJK 43/2019
POJK 43/2019 requires insurance companies to appoint at least 1 (one) compliance director in its Board of Directors. The compliance director should not hold dual positions as a director handling matters concerning technical insurance, financial, or marketing matters. Based on the complexity and business line, OJK may request certain insurance companies to appoint a compliance director solely for attaining to compliance matters.
February 5, 2020
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OJK Launched New Regulation on the Implementation of Anti-Fraud Strategy for Commercial Banks
The Indonesian Financial Services Authority (“OJK”) issued OJK Regulation No. 39/POJK.03/2019 of 2019 on the Implementation of Anti-Fraud Strategies for Commercial Banks that comes into effect on January 1, 2020 (“POJK No. 39/2019”) to revoke Bank Indonesia Circular Letter No. 13/28/DPNP of 2011 on the Implementation of Anti-Fraud Strategies for Commercial Banks (“SEBI No. 13/2011”).
Essentially, the new POJK No. 39/2019 now provides more comprehensive implementation of anti-fraud strategy and reporting obligation provisions for Banks. POJK No. 39/2019 was enacted as an attempt of OJK to strengthen internal controlling system of a Bank for minimizing Fraud, as well as a form of support to implement risk management in a bank. To improve accuracy and expedite submission of data reporting, POJK No. 39/2019 complements the form and procedures of reporting to OJK to be more comprehensive, including the new form of report for Fraud perpetrator which requires Bank to fill in the details of perpetrator involved whether an internal or external party of the bank. To minimize the risk of Fraud, POJK No. 39/2019 has included the monitoring of external parties as a part of implementing anti-Fraud strategy.
Nevertheless, POJK No. 39/2019 still requires commercial banks (“Bank”) to implement the same anti-fraud strategy through four pillars namely (a) prevention (b) detection (c) investigation, reporting and sanction, and (d) monitoring, evaluation and follow-up as previously determined in SEBI No. 13/2011.
POJK No. 39/2019 affirms the type of conducts that are considered as ‘Fraud’ which was previously not stipulated under SEBI No. 13/2011, consisting of: deception, fraudulence, asset embezzlement, information leaks, criminal banking offence, and other conducts similar to fraud stipulated under the applicable laws and regulations.
The key changes as stipulated in POJK No. 39/2019, among others, are (i) the preparation of policy and procedures for the implementation of risk management system, (ii) the obligation for the head of anti-Fraud working unit to hold a certification of expertise in the field of anti-Fraud or adequate banking and sharia banking expertise, (iii) the requirement to report the perpetrator of Fraud in a more detailed manner, (iv) online and offline reporting submission, and (v) the sanction which can be imposed to Directors and/or Board of Commissioners’ of Bank.
- Implementation of Risk Management to Strengthen Internal Controlling System of a Bank
To minimize the risk of Fraud, POJK No. 39/2019 obliges Bank to have anti-Fraud strategy that serves as part of the implementation of risk management in strengthening internal controlling system. Anti-fraud strategy means Bank’s strategy to control fraud that is designed, implement and improve anti-fraud compliance program in a Bank.
For implementing risk management system, POJK No. 39/2019 now obliges Bank to do preparation of policy and procedures which previously unregulated under SEBI No. 13/2011. The preparation and application of policy and procedures should cover at least: (a) directors and Board of Commissioners’ commitment, (b) determining comprehensive internal control systems and risk assessment procedures (c), due diligence of Bank’s related third parties, (d) remuneration system subsequent to the relevant task and responsibilities, (e) implementation of Bank’s good corporate governance, (f) financial control and implementation of accounting in accordance with the applicable accounting and financial standard, (g) prevention of conflict of interest in decision making, delegation of authorization and separation of function, (h) Fraud reporting mechanism that includes procedure for whistleblowing system (i) enforcement of disciplinary and sanction against breach of anti-fraud regulation, (j) communication and training over policy and procedure of Fraud prevention, (k) periodical monitoring and evaluation of policy and procedure of Fraud prevention, and (l) other matters that are seen as necessary.
Further, in addition to the establishment of anti-Fraud working unit, POJK No. 39/2019 also requires such working unit to be led by a head who holds a certificate of expertise in the field of anti-Fraud and or have adequate experience in the field of banking or sharia banking.
- Comprehensive Form and Procedures of anti-Fraud Report
POJK No. 39/2019 complements the form and procedures of reporting to OJK more comprehensive, including the incorporation of form of report specifically for the perpetrators of Fraud. Unlike SEBI No. 13/2019 that only provides form for incidents of Fraud and the follow up, the new POJK No. 39/2019 also sets out specific form to report the detailed identification of the perpetrators of Fraud that may come from internal and/or external parties, consist of; (a) name, (b) type of identity, (c) identity number, (d) gender, (e) address, (f) date and place of birth. Moreover, POJK No. 39/2019 divides the reporting submission for the anti-fraud strategy, namely: (i) offline reporting to OJK office for anti-fraud strategy report, and (ii) online reporting through OJK system for anti-fraud strategy implementation report and (if any) its correction. In the case that online reporting is not available yet, Banks shall conduct the report on offline basis.
- Sanctions
Under new POJK No. 39/2019, sanctions may not only be imposed to Banks but also its directors and/or Board of Commissioner. Set out below are the summary of sanctions stipulated under POJK No. 39/2019:
- Bank that fails to prepare and implement anti-Fraud strategy is subject to administrative sanction in the form of written warning. In the case that bank, its directors and/or its Board of Commissioner remains fail to prepare and implement the anti-Fraud strategy after receiving the written warning, then Bank will be subject to additional sanction in the form of (i) reduction of Banks’ soundness level, (ii) prohibition on the introduction of any new products or to conduct any new activities, (iii) suspension of certain business activities, and/or (iv) prohibition on acting as the main parties of financial services institutions, which should be carried out in accordance with the Regulation of OJK.
- Directors and/or Board of Commissioner that fails to prepare and implement anti-Fraud strategy is subject to administrative sanction in the form of written warning.
- Bank that fails and/or is late in submitting the anti-Fraud strategy related report is subject to administrative in the form of written warning and fines amounting to IDR 1 million per business day, up to a total of IDR 30 million for each type of required document.
- Bank that submits false data or information of the report is subject to written warning and fines amounting to IDR 100,000 per piece of false information, up to a total of IDR 10 million per report.
February 5, 2020
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AKSET New Partners Announcement
AKSET Law is pleased to announce the admissions of Ms. Alfa Dewi Setiawati and Mr. Suharsanto Raharjo (Anto) as Partners effective as of January 1, 2020.
Alfa is one of AKSET’s core practitioners in M&A, finance, and corporate. You may find more information about Alfa in the following link.
Anto is a seasoned litigator with a variety of commercial dispute resolutions experience (before courts of law and arbitration proceedings). He is instrumental to AKSET’s litigation team. He also registered as a mediator. More information about Anto may be found in the following link.
Currently, AKSET has seven (7) Partners, and we believe with these admissions AKSET will continue growing as a full-service law firm, serving clients across and beyond Indonesia.
Legal 500 Leading Firm 2020
AKSET has been recognized as one of Indonesia’s Leading Firm for IT and Telecom in 2020 by Legal500.
Chambers Asia-Pacific 2020
AKSET has been recognized as one of Indonesia’s Ranked Firm in 2020 by Chambers Asia-Pacific.
Indonesian Constitutional Court Reviewed Fiduciary Security Law
On January 6, 2020, the Indonesian Constitutional Court (Mahkamah Konstitusi) rendered its decision number 18/PUU-XVII/2019 (“Decision No. 18/2019”) in relation to the judicial review of Article 15 paragraphs (2) and (3) of Law Number 42 of 1999 dated September 30, 1999, on Fiduciary Security (the “Fiduciary Security Law”). Briefly, the petition for the review was submitted by Apriliani Dewi and Suri Agung Prabowo, a married couple whose fiduciary security over their car was enforced by a multi-finance company, PT Astra Sedaya Finance. The petitioner claimed that certain provisions in the Fiduciary Security Law were unjustifiable and unfair, and against their constitutional rights.
Decision No. 18/2019 declares that interpretations of certain provisions in the Fiduciary Security Law are unconstitutional and do not have legal effect if not interpreted according to Decision No. 18/2019. Those phrases are the ‘enforcement power’ (kekuatan eksekutorial) phrase and the ‘similar to a final and binding decision’ (sama dengan putusan pengadilan yang berkekuatan hukum tetap) phrase contained in Article 15 paragraph (2) of the Fiduciary Security Law and the ‘event of default’ (cidera janji) phrase contained in Article 15 paragraph (3) of the Fiduciary Security Law.
Decision No. 18/2019 stipulates that Article 15 paragraph (2) of Fiduciary Security Law must be interpreted that if the parties do not agree on an event of default and the debtor does not voluntarily surrender the object of the fiduciary security, the enforcement of the fiduciary security must then be conducted in the manner and mechanism for the enforcement of a final and binding court decision (i.e., through court enforcement procedures).
Further, Decision No. 18/2019 stipulates that in interpreting Article 15 paragraph (3) of the Fiduciary Security Law, an event of default should not be decided unilaterally by a creditor, but by an agreement of the parties or through a legal measure determining such event of default.
Given this, financing documents should be carefully drafted to expressly set out the events of default provisions. Failing which, creditors may have to go through a lengthy dispute resolution mechanism merely to determine an event of default before seeking repayment of the loan or enforcement of security interest. This should not be an issue for sophisticated financing transactions as, we are certain, the documents for these transactions will set out detailed and comprehensive provisions regarding events of default and the consequences thereof.
January 24, 2020
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Government Introduces Regulatory Framework on Rooftop Solar Panel for Captive Use
On November 16, 2018, the Minister of Energy and Mineral Resources of the Republic of Indonesia (the “MEMR”) enacted MEMR Regulation No. 49 of 2018 on the Utilization of Rooftop Solar Power Generation System by the Customer of PT Perusahaan Listrik Negara (Persero) (“MEMR 49/2018”).
MEMR 49/2018 was enacted as an attempt of the government to increase energy efficiency for captive power usage through the utilization of rooftop solar power generation system to be installed by the customers of PLN. The regulation also aims to enhance the usage of solar as part of renewable energy.
As of its issuance on November 2018, MEMR 49/2018 has been amended twice by MEMR Regulation No. 13 of 2019 dated September 6, 2019 (“MEMR 13/2019”) and MEMR Regulation No. 16 of 2019 dated October 14, 2019 (“MEMR 16/2019”).
- Criteria of Rooftop Solar Panel
A Rooftop Solar Power Generation System (Sistem Pembangkit Listrik Tenaga Surya Atap) is defined as a power generation process which utilizes photovoltaic module that will be installed and placed on the roof, walls or other parts of the building owned by the customer of PLN which transmits the electricity generated through the customer’s electricity installation (hereinafter, the “Rooftop Solar Panel”).
The objective of installation and use of Rooftop Solar Panel is to reduce customers electricity usage from PLN and reduce the customers’ electricity bill.
Rooftop Solar Panel itself consists of solar module, inverter, electricity interconnection, secure system as well as the kWh meter for export and import.
For safety reasons, Indonesia’s National Standard (known as “SNI”), International Standard and/or PLN’s standard will be applicable to the installation of a Rooftop Solar Panel.
- Permits and Licenses
Customers of PLN intending to install Rooftop Solar Panel shall submit an application for its construction and installation to the General Manager of the relevant PLN Distribution Office.
PLN will evaluate and verify the application within 15 (fifteen) business days as of the receipt of a correct and complete application before issuing its approval.
Customers intending to construct and install Rooftop Solar Panel shall also obtain an Operational License (Izin Operasi) which allows power generation for captive use in accordance with the prevailing electricity regulations.
Further, such Rooftop Solar Panel installation shall have an Operational Feasibility Certificate (Sertifikat Laik Operasi or “SLO”).
SLO involves a series of assessment, examination, and verification performed by a Technical Inspection Institution accredited by MEMR to ensure that the electrical installation functions in accordance with necessary requirements and can be declared ready to operate.
Please note that the Rooftop Solar Panel itself may only be constructed by a construction service provided holding an Electricity Supporting Services Business License (Izin Usaha Jasa Penunjang Tenaga Listrik).
- Other Requirements and Restrictions
To utilize Rooftop Solar Panel, pre-paid customers of PLN must first become post-paid customers. The application to switch to post-paid customer shall be submitted by the applicant along with the application for Rooftop Solar Panel construction and installation to the General Manager of the relevant PLN Distribution Office.
The capacity of the customer’s Rooftop Solar Panel is limited to 100% (one hundred percent) of the connected capacity of such customer to PLN as determined through the total capacity of the inverter.
PLN will also install an electricity export-import meter (meter kWh ekspor-impor energi listrik) for the customers after the Rooftop Solar Panel has obtained an SLO the cost of the consumer.
In the event the electricity exported by the customer to PLN is higher than the electricity imported from PLN in a proceeding month, such difference will be accumulated and accounted as a reduction of the customer’s electricity billing for the subsequent month. The electricity of PLN’s customer exported to PLN shall be multiplied by 65% of the electricity imported.
- Installation of Rooftop Solar Panel for Industrial Purpose
Industrial customers of PLN may install Rooftop Solar Panel either in as on-grid (connected to PLN’s grid) or off-grid (separated from PLN’s grid).
In the event the Rooftop Solar Panel is installed in as on-grid, the industrial customers will be subject to capacity charges to be paid every month. The customer shall also report the operational plan of the on-grid Rooftop Solar Panel to PLN.
For off-grid Rooftop Solar Panel, no capacity charge nor emergency energy charge will be charged by PLN.
- Installation of Rooftop Solar Panel by Non-Customer of PLN
Entities who are not customer of PLN are theoretically allowed to install Rooftop Solar Panel for captive use by reporting to the Directorate General of New and Renewable Energy and Energy Conservation (“DJ EBTKE”).
The regulations appear to be well-accepted by the relevant industries, from manufacturing, utilities, constructions, electricity supporting services, solar panel manufacturing and/or trading, and other companies.
January 17, 2020
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