INTENSIVE TRAINING: OIL AND GAS – Batch IV
Johannes C. Sahetapy-Engel will be one of the speakers on Intensive Training of Oil and Gas, organized by Emli Training. The two-day training will be held on March 11-13, 2014 at Grand Mercure Jakarta Harmoni, Jakarta, Indonesia.
New Provisions on Expatriate Working Permits
On December 30, 2013, the Minister of Manpower and Transmigration of the Republic of Indonesia (“MOMT”) enacted MOMT Regulation No. 12 of 2013 on Procedure for Employing Expatriate Workers (“Regulation No. 12/2013”), which replaced the previous regulation on the same subject (“Regulation No. 02/2008”). Regulation No. 12/2013 does not make major amendments to the expatriate working permit requirements contained in Regulation No. 02/2008. However, there are some changes and additions to the types of work expatriates may perform and requirements to obtain working permits in Indonesia.
Under Regulation No. 12/2013, employers may now employ expatriates not only under limited term or emergency contracts, but also on a temporary basis, either for a one-time project, or related to machinery and electrical installation, after sales services, or market assessment of trial products. The maximum period for temporary work is 6 months, which cannot be extended.
One of the new requirements under Regulation No. 12/2013 is that expatriates must possess both relevant education and professional certification or five years relevant experience. Under Regulation No. 02/2008, the requirement was for education or professional certification/experience.
Similar to the previous expatriate working permit requirements stated in Regulation No. 02/2008, to employ an expatriate in Indonesia, the employer must obtain an approved expatriate recruitment plan (RPTKA), visa recommendation (TA-01) and expatriate recruitment permit (IMTA). To obtain RPTKA, TA-01 or IMTA, including extension periods, the employer may apply in writing or through an online system to the Director of Expatriate Worker Utilization Control (Direktur Pengendalian Penggunaan Tenaga Kerja Asing – “Director”). If the requirements are complete, the Director is supposed to issue the permits within four working days (for each permit). Extensions of RPTKA and IMTA can be processed by regional officials, depending on the geographic scope of the work.
For expatriates married to Indonesian citizens, the TA-01 for limited stay visa is no longer required.
The RPTKA can be granted for up to five years and may be extended for the same period. The IMTA is granted for one year, and extensions can be granted for one year at a time. For expatriate directors and commissioners of companies, IMTA may be extended for two years at a time.
Regulation No. 12/2013 also regulates what types of employers may employ expatriate workers. Employers in the form of government institution, international agency, foreign representative, foreign chamber of commerce, foreign representative office, foreign representative news office, foreign private company, legal entity, social, religious, educational and cultural institutions, and performing arts businesses may employ foreign workers, while employers in the form of civil partnership, firm, limited partnership (CV), and business enterprise (UD) are prohibited from employing expatriates, unless otherwise permitted by law.
Other requirements for employers and expatriates remain as under the prevailing manpower and immigration laws and regulations.
Please contact Johannes C. Sahetapy-Engel at jsahetapyengel@aksetlaw.com or Rizki H. Nugraha at rnugraha@aksetlaw.com if you need more information.
Government Allows Export of Some Minerals until 2017; Progressive Export Duty Imposed
Following the closing date for export of unprocessed minerals and the obligation of IUP holders and Contract of Work companies in the production phase to domestically “add value” to mining products by 12 January 2014, the Government has issued four regulations: (i) Government Regulation No. 1 of 2014 (“GR 1”), (ii) Minister of Energy and Mineral Resources Regulation No. 1 of 2014 (“MEMR 1”), Minister of Finance Regulation No. 6/PMK.011/2014 (“MOF 6”), and Minister of Trade Regulation No. 4/M-DAG/PER/1/2014 (“MOT 4”). The regulations allow certain key industry players to keep operating, while incentivizing the sector as a whole to make meaningful progress toward developing a minerals processing infrastructure.
Export May Continue
As a group, the regulations amend the mineral export policy originally stipulated under GR No. 23/2010 on Implementation of Mineral and Coal Mining Business Activities and its implementing regulations: (i) Contract of Work and IUP companies that partially process metal minerals may export certain processed minerals in limited quantities until January 2017, (ii) companies that purify metal minerals to stipulated standards may export in unlimited amounts, and (iii) companies that process non-metal minerals and rocks can also export in unlimited amounts if they process to legal standards.
Copper, Iron Can Still Be Exported; Nickel, Bauxite Cannot
To accommodate the need of some companies to carry on production, and mitigate the potential impact on employees of an outright export ban, MEMR 1 allows export of certain processed (as opposed to “purified”) minerals until 2017 for IUP OP and Contract of Work companies that meet requirements and obtain MEMR recommendation.
MEMR 1 revokes MEMR Regulation No. 7 of 2012 (which was annulled last year by the Supreme Court) and imposes a 2017 sunset date for exportation of processed metal minerals. The key lies in the distinction between purification and processing: while most minerals must be purified to very high standards in order to be exported, eight specific mining products can be exported with minimal processing, for three more years.
The standards for “processing” and “purification” are listed in the Appendices of MEMR 1. Concentrates and processed copper, iron sand, iron ore, zinc, lead, manganese, anode slime (lumpur anoda) and telluride copper (tembaga telurid) may be exported in certain amounts, provided that insufficient domestic refining facilities are available to reach the minimum level of purification. Other important minerals, namely nickel, bauxite, tin, gold, silver, and chromium, do not receive any such exemption—export is forbidden unless they are purified to the standards listed in the Appendices.
Progressive Export Duty, 20-60%
On the few substances that may still be exported with minimal processing, the Government has imposed a progressive export duty (bea keluar) under MOF 6. The tariffs are imposed gradually per semester, and vary among substances, ranging from 20% in the first semester of 2014 to 60% on 31 December 2016. The Government expects all metal minerals to be domestically purified by January 2017.
Export Approval Granted for Certain Processed Products after Survey
MOT 4 replaces the previous regulation from the Minister of Trade, which prescribed procedures for mining companies to obtain Export Approval (SP Ekspor) and Registered Exporter (ET) status in order to continue exporting mining products. As under the previous regulation, Registered Exporter status is granted to companies for three years, while each shipment must obtain Export Approval based on a recommendation from the Directorate General of Minerals and Coal and a technical assessment of the shipment by a licensed Surveyor. Registered Exporters and licensed Surveyors must file monthly reports on the realization of mineral exports. Companies that falsify documents, fail to report, or make shipments that differ from the Export Approval in terms of type or amount of mining products exported are subject to revocation of Registered Exporter status and are prohibited from reapplying for Registered Exporter status for a period of one year.
Industry Reacts
Members of the business community plan to request government review of the policies, particularly the amount of the export duty, on the basis that the new regulations are unduly burdensome and unfairly allow producers of certain minerals to continue exporting while other producers are effectively shut down until they can secure proper processing arrangements. The new policy, while intended to incentivize the fulfillment of domestic processing and refining by 2017, is perceived as counterproductive by companies that need more revenue from mineral sales to fund the construction of the required smelters and processing facilities.
22 January 2014,
ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA
INTENSIVE TRAINING: PLANTATION LAW – Batch I
Mohamad Kadri will be one of the speakers on Intensive Training of Plantation Law, organized by Emli Training. The training will be held on January 28, 2014 at Grand Mercure Jakarta Harmoni, Jakarta, Indonesia.
MEMR Issues Guidelines On Mining Permits For Transportation And Sale, Processing And Refining
The Minister of Energy and Mineral Resources (“MEMR”) promulgated Regulation No. 32 of 2013 on Procedure for Granting Special Permits in the Field of Mineral and Coal Mining (“Regulation”) on November 19, 2013. This Regulation sets guidelines on how to acquire the Special Permits, which are not clearly regulated by Law No. 4 of 2009 on Mineral and Coal and Mining (“Mining Law”) and Government Regulation No. 23 of 2010 on Implementation of Mineral and Coal Mining Business Activities, as amended.
The Regulation recognizes four types of Special Permit:
- Temporary Permit for Transportation and Sale
This permit may be granted to holders of Exploration Mining Business Permit (“IUP”)/Special Mining Business Permit (“IUPK”) that wish to transport and sell minerals or coal that are unearthed during the course of exploration and feasibility study. This permit is granted by the authority that issued the underlying IUP/IUPK; it can only be granted once, and it cannot be extended. The holder can only transport and sell the unearthed minerals or coal within the same island, and it cannot export to foreign countries.
- Production Operation IUP for Sale
This permit may be granted to Business Entities not engaged in mining business, such as building construction and infrastructure companies, that unearth minerals or coal in the course of conducting their primary activities. Similar to the Temporary Permit for Transportation and Sale, holders are entitled to transport and sell excavated minerals or coal domestically within one island, and the permit can only be granted one time and cannot be extended. Companies that intend to use excavated rocks or non-metal minerals solely for their own purposes (e.g., for road building) must still obtain a Production Operation IUP for Sale.
This permit cannot be used to sell minerals or coal that are discovered within the territory of an existing mining area, because the rights to those minerals or coal are retained by the IUP/IUPK or Contract of Work holder.
The issuing authority of this permit correlates to the location of the unearthed minerals or coal. If they are located across provinces or immediately adjacent to another country, the MEMR is the issuing authority. If across regencies/cities within the same province or within a single regency, the relevant governor or regent/mayor, respectively, shall act as the issuing authority.
- Production Operation IUP specifically for Transportation and Sale
This permit, which may be granted for three to five years, allows holders to transport and sell mineral or coal mining commodities from holders of Production Operation IUP/IUPK, Production Operation IUP specifically for processing and/or refining, People’s Mining Permit (IPR), and certain other holders of Production Operation IUP specifically for transportation and sale. This permit can be extended for three years at a time.
Permits for transportation and sale of mineral or coal mining commodities across regencies/cities within the same province or within a single regency/city are issued by the relevant governor or regent/mayor, respectively, while permits for transportation and sale across provinces or outside of Indonesia are granted by the MEMR. As with other types of IUPs, foreign investment (PMA) companies must apply directly to the MEMR.
Holders of this permit may trade among themselves, but only to holders whose permits are issued by a higher-level authority. For example, companies whose permits are issued by a governor can only sell to companies whose permits are issued by the Minister, and companies whose permits are issued by the MEMR cannot trade among themselves.
- Production Operation IUP specifically for Processing and/or Refining
This permit, which may be granted for twenty years, enables holders to process and refine mining products in order to meet the needs of the market and regulatory requirements on mineral processing. Holders can transport and sell processed/refined products, as well as the byproducts of their industrial process.
The period of this permit includes two years for construction of facilities, and it can be extended for up to ten years at a time. Prospective holders must first acquire a Principal License for processing and/or refining, which gives the holder three years (extendable by one year) in which to conduct a feasibility study, prepare cooperation agreements with suppliers and customers, and acquire ancillary licenses.
PMA companies must obtain their permit directly from the MEMR. Likewise, companies who intend to process and/or refine a mining commodity originating from an importer of a mining commodity, a holder of Production Operation IUPK, a holder of Production Operation IUP issued by the MEMR, or a holder of Production Operation IUP whose mining area is located in another province must obtain their permit directly from the MEMR. By contrast, companies who intend to process and/or refine mining commodities originating from a holder of Production Operation IUP issued by a governor or a holder of Production Operation IUP located across regencies/cities in the same province apply to the relevant governor. For companies that will process mining commodities from the same regency/city from holders of Production Operation IUP issued by the regent/mayor, they must obtain their permit from the relevant regent/mayor, unless they intend to expand their raw materials sources to include supplies from different provinces.
The Regulation incorporates several provisions on administrative sanctions in order to deter the relevant actors from violating the Regulation, ranging from temporary suspension of the violator’s permit to permanent revocation.
January 15, 2014
ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA
SUPREME COURT ANNULS MEMR No. 7/2012: IMPLICATIONS FOR DOMESTIC MINERAL PROCESSING AND REFINING
Indonesia’s Supreme Court recently published Decision No. 13 P/HUM/2012, dated April 3, 2013, (“Decision”), ordering the Minister of Energy and Mineral Resources (“MEMR”) to revoke MEMR Regulation No. 7 of 2012 regarding Increasing the Added Value of Minerals through Processing and Refining Activities (“MEMR No. 7/2012” or “Regulation”). The Court annulled specific provisions of the Regulation in two separate decisions in 2012,¹ but now it must be revoked in its entirety.
The Court annulled the Regulation on the basis that it was not in line with Law Number 4 of 2009 on Mineral and Coal Mining (“Mining Law”), particularly with respect to the commencement of the raw mineral export ban (May 6, 2012), which was deemed to violate Article 170 of the Mining Law, which requires that minerals be refined domestically no later than January 2014.
As a result of the Decision, the Regulation is null and void, along with its amendments (MEMR Reg. No. 11/2012 and Reg. No. 20/2013) and annexes, meaning there are no longer any minimum legal standards for purification and processing.
Nevertheless, mining companies (both IUP holders and Contract of Work companies in the
production phase) still have a legal obligation under the Mining Law to “add value” to mining products domestically by January 12, 2014.
Pairing with the Regulation, the Ministers of Trade and Finance had issued companion regulations² to MEMR No. 7/2012 relating to the authorization and taxation of raw mineral exports. Those regulations were not annulled by the Court, but the provisions of MEMR No. 11/2012 authorizing mining companies to continue exporting subject to certain recommendations and approvals have been stricken. As a result, it is no longer clear whether mining companies can continue to export unprocessed minerals after January 12, 2014.
We believe that export approvals that have already been granted will be allowed to proceed as planned, and Contract of Work companies may receive additional time to complete construction of processing plants, subject to MEMR approval of plant feasibility study reports and the ongoing renegotiation of particular provisions in the Contracts of Work.
Considering the needs of the mining industry to carry on production in spite of the imminent arrival of the domestic processing deadline, and the dramatic impact suspension of business would have on employees and the communities surrounding mining areas, it is anticipated that the Government will issue a new regulation soon, which may extend raw minerals export up to 2017 for Contract of Work
¹Supreme Court Decision No. 09 P/HUM/2012 and Decision No. 10 P/HUM/2012, both awarded on September 12, 2012.The cases were brought by the Indonesian Nickel Association and the Association of Indonesian Regency Governments,
respectively.
²Minister of Trade Regulation No. 29/M-DAG/PER/5/2012, Minister of Trade Regulation No. 33/M-DAG/PER/5/2012,
Minister of Trade Circular No. 04/M-DAG/ED/12/2013, and Minister of Finance Regulation No. 75/PMK.11/2012.
companies that meet requirements and demonstrate progress toward building processing and refining facilities.
December 23, 2013
ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA
Statute of Limitation to Claim Payment under Manpower Law
The Constitutional Court has added yet another complication to employer-employee relations in Indonesia. In Decision No. 100/PUU-X/2012 dated September 19, 2013 (the “Decision”), the Court revoked Article 96 of the Manpower Law (Law No. 13 of 2003) on the basis that it was inconsistent with the Constitution. Article 96 provided that claims with respect to payments arising from employment must be made no later than two years from the date the right to payment arose.
The Constitutional Court held that Article 96 of the Manpower Law contradicts Article 28D of the Constitution, which provides that every person is entitled to employment, to receive compensation, and to be treated fairly and reasonably in matters of employment. The Court held that such rights cannot be taken away by any person or by any law or regulation, and Article 96 was deemed to take away the rights of employees.
The petition for revocation of Article 96 was submitted by a former employee of a security company. Accordingly, it is ostensible that the petition was driven by that individual’s (or a group of individuals’) specific need, rather than the interests of employees in general under the Constitution. In our view, the Court failed to take this into account. According to the Decision, the petitioner was still in the process of resolving his dispute with the employer. We think the Court should have rejected the petition and directed the petitioner to continue pursuing his rights under the Manpower Law.
The Court also failed to consider the arguments presented by the Indonesian Parliament and the Association of Indonesian Entrepreneurs (APINDO), both of whom argued that for legal certainty it was reasonable to have a statute of limitation on claims for payment. Statutes of limitation for employment related claims are found in Government Regulation No. 8 of 1981 and in the Indonesian Civil Code. The Court did not address either of those statutes of limitation in its Decision.
It is interesting to note that one of the nine judges on the panel dissented from the Decision. The dissenting judge expressly agreed that there needs to be a statute of limitation in the Manpower Law and stated that removing Article 96 will create uncertainty for employers. Unfortunately, the dissenting opinion has no legal force.
A major problem that arises is whether the Decision applies retroactively, i.e., whether it allows current or former employees to claim damages based on events that occurred more than two years prior to the issuance of the Decision. Again, the Court failed to address this, and if the Decision does apply retroactively, the number of potential claims is almost limitless.
The Decision raises particular concern for employers when employment ends. The employer will need to ensure that departing employees waive their right to future claims, because the employer can no longer rely on Article 96 to protect them over the long term. We are reviewing the Decision further, and, in spite of the problems presented, we can continue assisting employers in ensuring that their rights and interests arepreserved when dealing with termination of employment (especially termination that took place before the Decision was issued).
September 25, 2013
ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA
Coastal and Small Island Reclamation
Presidential Regulation No. 122 of 2012 on Reclamation of Coastal Areas and Small Islands (“Regulation”) requires reclamation projects (dredging, draining, and landfill) to comply with permitting requirements and to account for the technical, environmental, and socio-economic impacts of the activity.
Most importantly, the Regulation does not apply to reclamation in (i) certain aspects of major ports and harbors or territorial waters of special terminals; (ii) mining, oil & gas, and geothermal areas; or (iii) restoration or improvement of forest areas. Reclamation is prohibited altogether in conservation areas and sea lanes.
PROCEDURES
Parties planning a reclamation project must submit a Reclamation Plan and obtain a Location Permit and an Implementation Permit. Detailed permitting procedures are contained in an implementing regulation, Minister of Marine Affairs and Fisheries (MMAF) Reg. No. 17/PERMEN-KP/2013. The authority to approve a plan and issue permits is relative to the scale of the project: Projects within a single Regency/City or 4 miles from the coast are under local jurisdiction; cross-Regency projects and projects within the 12 mile territorial waters are under the Governor; and cross-Province projects and projects in National Strategic Areas (KSN) or fishing harbors that are managed by the Central Government are under the authority of the MMAF. All reclamation projects must be aligned with regional- and island-level Coastal and Small Island Zoning Plans (RZWP-3-K) and Spatial Plans.
Implementation must commence within one year from the date the Implementation Permit is issued. The implementation permit may be revoked if it is not in accordance with the reclamation plan or the environmental permit is revoked.
CONSIDERATION OF IMPACTS
Technical, environmental, and socioeconomic factors must be observed throughout implementation. Technical factors include hydrological, hydro-oceanographic, bathymetric, topographical, geomorphological, and geotechnical (physical/mechanical) aspects. Environmental factors include marine water quality, groundwater quality, and air quality, as well as impacts on coastal ecosystems (mangrove, seagrass, coral reef) and aquatic and terrestrial biota. Socioeconomic factors include demographic factors (population size and density, income and education levels, sources of livelihood, culture/religion, health), public access to coastal/marine areas and resources, and the potential need to relocate or compensate affected communities and facilities/infrastructure. Community aspects will be elaborated in a regulation of the Ministry of Marine Affairs and Fisheries (MMAF).The Regulation took effect on December 5, 2012.
(Updated) August 27, 2013
ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA
Transnational Electricity Licensing
Indonesia has committed to a number of cross-border power projects with Singapore and Malaysia as part of the ASEAN Power Grid (“APG”), which was devised to support economic growth in Southeast Asia by facilitating intra-regional sale of electricity. A recent regulation from the Ministry of Energy and Mineral Resources (“MEMR”), No. 26 of 2012 on Application Procedures for Licenses for Transnational Sale and Purchase of Electricity and Interconnection of Power Grids (“MEMR 26/2012”), stipulates the licensing requirements for entities that will be involved in the APG and similar projects.
BACKGROUND: Electricity Regulation in Indonesia
The first regulation on electricity was Law No. 15 of 1985, which granted monopoly power to the state-owned
electricity company, PLN. In 2009, Law No. 30 of 2009 (“Electricity Law”) allowed private sector participation
in electric power supply and supporting businesses. Subsequent regulations, including GR No. 14 of 2012 on
Electric Power Supply Business (“GR 14/2012”) and GR No. 42 of 2012 on Transnational Sale and Purchase of
Electric Power (“GR 42/2012”), elaborated the role of the private sector and paved the way for regional
interconnectedness.
At the regional level, Indonesia is involved in several programs under the ASEAN Interconnection Master Plan
Study, including the APG, which was ratified in GR No. 77 of 2008 on Ratification of Memorandum of
Understanding on the ASEAN Power Grid.
Based on the above, Indonesia has prepared the legal basis for PLN and/or Independent Power Plant
Companies (“IPPs”) to engage in transnational sale, purchase, and interconnection of electricity and electric
power grids.
LICENSING OF TRANSNATIONAL ELECTRICITY PROVIDERS
Electricity providers desiring to engage in transnational sale or purchase of electric power must obtain the
general electric utility business license (Electric Power Supply Business License for Public Purpose – Izin Usaha
Penyedia Tenaga Listrik (“IUPTL”)) and a Transnational Sale of Electric Power License or Transnational
Purchase of Electric Power License from MEMR.
In order to sell electricity outside the country, the licensee must show that (i) the demand for electric power
in the local and surrounding area has been fulfilled; (ii) the sale price does not contain subsidies; and (iii) the
sale does not impair the quality or reliability of the local electric power supply.
To purchase electricity from abroad, the licensee must show that (i) the demand for electric power in the local
and surrounding area has not been fulfilled; (ii) the purchase will support the fulfillment of demand in the
local area; (iii) the purchase does not injure the national interest with respect to sovereignty, security, or
economic development; (iv) the purpose is to increase the quality and reliability of the local electric power
supply; (v) the purchase does not disregard the development of domestic electric power supply capacity; and(vi) the purchase does not cause dependency on overseas electric power procurement. The purchase price
should consider the economic value of the electricity bought, and the purchaser must obtain MEMR approval
of the price, as stated in GR 42/2012.
MEMR 26/2012 contains detailed application requirements for IUPTL holders to obtain licenses for
Transnational Sale, Transnational Purchase, or Transnational Interconnection from the Director General of
Electricity. Each type of license is subject to different application requirements. All of the licenses will be valid
for 5 years and can be extended. The license should be amended if there is any change in the amount of
electric power that will be bought or sold. Sale and Purchase license holders must submit implementation
reports to MEMR every 6 months.
Licenses for Transnational Sale and for Transnational Purchase also function as licenses for Transnational
Interconnection; therefore, power companies that already have a license to sell or to purchase need not also
obtain an Interconnection license.
July 24, 2013
ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA
Microfinance Law Finally Enacted
Law No. 1 of 2013, dated January 8, 2013, on Microfinance Institutions (“Microfinance Law”) has been enacted after more than two years of deliberation in the House of Representatives. The Microfinance Law forms the legal basis for the establishment of Microfinance Institutions (“MFIs”) to increase access
to credit, promote productivity and economic empowerment, and support the financial and social welfare of poor/low‐income people.
MFIs are defined as financial institutions that are not exclusively motivated by profit and that support community development by offering loans or financing to micro‐enterprise, limited consumer banking (savings deposit management), and business development consultation services. Lending, financing, and
deposit management can be based on conventional or sharia banking principles.
MFIs can be established as cooperatives or as limited liability companies (PTs) and must meet applicable capitalization and licensing requirements, both of which will be regulated by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan – OJK). An MFI may be owned by Indonesian citizens,
village/sub‐district Government‐owned Enterprises (Badan Usaha Milik Desa/Kelurahan –BUMDes/BUMK1), local governments, or cooperatives. Foreign ownership, direct or indirect, is prohibited. Limitations on share ownership and participation apply to MFIs in the form of PT: at least
60% of shares must be owned by the local government or BUMDes/BUMK, while the remaining shares can be owned by Indonesian citizens and/or cooperatives. Indonesian citizens can hold shares up to 20% of shares.
MFIs are prohibited from receiving deposits in the form of giro and participating in payment flow, conducting foreign exchange, engaging in insurance business, acting as guarantor, or making loans to other MFIs, other than to assist with liquidity problems of MFIs in the same regency/city. MFIs and local
government agencies can form deposit insurance organizations to protect depositors’ funds. Further elaboration on permitted business activities will be issued under OJK regulation, and elaboration of deposit insurance requirements will be issued in a Government Regulation.
MFI operations are limited to one village/sub‐district, district, or regency/city and will be adjusted to the MFI’s business scale as set out in Government Regulation. In order to expand business outside the regency/municipality where the MFI is domiciled, the MFI must be converted into a Bank, meeting all relevant requirements determined by the OJK.
1 Locally owned enterprises such as BUMDes are authorized in Minister of Home Affairs Reg. No. 39 of 2010 on Village‐owned Enterprise, Law No. 32 of 2004 on Regional Government, and Government Regulation No. 72 of 2005 on Villages. M‐00357
2 MFIs are obliged to maintain records in accordance with accepted financial accounting standards and to submit financial reports to OJK every four months, along with other reports as required by regulation. The Microfinance Law also contains provisions on consumer protection, confidentiality, and information sharing among MFIs.
MFIs must obtain prior approval from the OJK before merging or consolidating with other MFIs. If an MFI encounters liquidity or solvency problems, the OJK may order it to conduct necessary corporate actions, including selling property or assets, changing the board of commissioners or directors, raising capital, transferring liability, and merging or consolidating with another MFI, among others. OJK has the authority to revoke an MFI’s business license and dissolve the entity if such action does not resolve the liquidity or solvency problem. Revocation and liquidation will be further regulated by the OJK.
The Microfinance Law stipulates administrative and criminal sanctions for MFIs that do not fulfill their obligations. Administrative sanctions include fine, warning letter, suspension of business activities, dismissal of directors or managers, and revocation of the business license. Criminal sanctions include imprisonment for one to three years and criminal fine of up to Rp.1 billion.
Institutions engaging in microfinance business prior to the issuance of the Microfinance Law may continue to operate for up to one year after the Microfinance Law comes into effect, during which time they must obtain a new business license and OJK permit. The Microfinance Law will enter into force on January 8, 2015—two years after the date of enactment—during which time the necessary implementing regulations will be promulgated.