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:

  1. up to 25% for local products; and
  2. 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:

  1. 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);
  2. 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;
  3. 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
  4. 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:

  1. work that requires more than 12 months or one fiscal year to complete;
  2. work that will provide an added value if the contract lasts for a period of one to three fiscal years;
  3. work that requires a long-term investment; and
  4. 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

Copyright © 2020 AKSET. All rights reserved.

by Adho Fadillah Putera

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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

Copyright © 2020 AKSET. All rights reserved.

by Adho Fadillah Putera

KPPU Launches New Regulation on Post-Closing Notifications on Mergers, Consolidations, and Acquisitions (Including Asset Transfers)

 

  • Overview

On October 2, 2019, the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or “KPPU”) issued Regulation No. 3 of 2019 on Assessment of Mergers or Consolidations of Business Entities, or Acquisition of Shares of Companies which May Result in Monopolistic Practices and/or Unfair Business Competition (“Regulation 3/2019”). Regulation 3/2019 entered into force as of October 3, 2019.

Regulation 3/2019 replaces KPPU Regulation No. 13 of 2010 dated October 18, 2010 as lastly amended by KPPU Regulation No. 2 of 2013 dated April 5, 2013 (collectively, “Regulation 13/2010”). Regulation 13/2010 was the implementing regulation of Government Regulation No. 57 of 2010 dated July 22, 2010 on Mergers or Consolidations of Business Entities, and Acquisitions of Company Shares Which May Result in Monopolistic Practices and/or Unfair Business Competition (“GR 57/2010”) in terms of post-transaction notifications processes and requirements.

Regulation 3/2019 re-affirms the criteria for mergers, consolidations, and acquisitions of shares transactions that must be notified to KPPU upon its completion and re-stipulate the notification procedures and requirements as stated in KPPU Reg. 2/2013—with notable changes as follows.

  • Transfers of Assets under Regulation 3/2019

Asset transfers are not referred to in Law No. 5 of 1999 dated March 5, 1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition (the “Competition Law”) nor GR 57/2010. Thus, it was understood by the market that assets transfers did not fall under the authority of KPPU. The Competition Law and GR  57/2010 only recognize mergers, consolidations, and acquisitions of shares.

Now, Regulation 3/2019 requires an asset transfer that meets the criteria set out thereunder to be notified to KPPU. KPPU then will assess and determine whether such asset transfer constitute any monopolistic practice and/or unfair business competition. Article 5 of Regulation 3/2019 provides that a asset transfer is treated like an acquisition of shares if such asset transfer (i) results in the transfer of the management and control of the asset, and/or (ii) increases the ability of control of a certain market by the acquiring party. The first criterion, in effect, requires all asset transfers to be subject to Regulation 3/2019, subject only to the value noted below.

Asset transfers that must be notified to KPPU are those that result in: (i) a combined assets value of the acquiring party and the target to exceed Rp2,500,000,000,000 (two trillion five hundred billion Rupiah), and/or (ii) a combined sales value of the acquiring party and the target to exceed Rp5,000,000,000,000 (five trillion Rupiah).

  • New Requirement on the Asset and/or Sales Value Calculation

Under Regulation 13/2010, in the case that there is a minimum of 30% (thirty percent) gap between the asset and/or sales value owned by one of the acquiring parties calculated from the latest year to the previous year, then the calculation of the asset and/or sales value of such company will be based on the average value between the asset and/or the sales value from the last 3 (three) years. Now in Regulation 3/2019, KPPU introduces a clarification regarding such calculation. The calculation applies only if the asset and/or the sales value of the latest year is lower than the previous year. Moreover, under Regulation 3/2019 if a company runs its business for less than 3 (three) years, then the value of asset and/or shares of such company is calculated based on the average of asset and/or sales value for the last 2 (two) years.

  • New Format for Post-Transaction Notification Forms

Regulation 3/2019 provides a new form of the post-transaction notification form, together with a brief guideline to fill such form.

It is to be noted that the information on competitors, consumers, and suppliers (of the parties involved in the said transaction) are categorized as ‘additional information’ which is only required to be filled at the request of KPPU—which indicates that this ‘additional information’ might not be needed by KPPU for its assessment. Previously, KPPU required the information of competitors, consumers, and suppliers to be submitted for every notification submission.

  • Use of KPPU’s own Assumption, Data, and Information

While it was a mere practice of KPPU in the past, Regulation 3/2019 now clearly stipulates that KPPU may use assumptions, data, and/or information that it owns or obtains for the purpose of KPPU’s assessment over any post-transaction notification in the case that the notifying party fails to deliver the ‘additional information’ (information on competitors, consumers, and/or suppliers) or any other supporting data/document as might be requested by KPPU.

  • Reporting Obligation on Transactions Conducted Outside Indonesia

Prior to Regulation 3/2019, business actors were not required to notify KPPU on any merger, consolidation, and acquisition of shares transactions occurring outside Indonesia that do not have any significance to the domestic competition conditions and market. Now under Regulation 3/2019, KPPU requires all mergers, consolidations, acquisitions of shares, and asset transfers that occur outside Indonesia to be notified to KPPU if all or one of the parties involved in such transactions conduct business activity or sales in Indonesia. Thus, the transactions that are required to be notified to KPPU do not have to directly impact Indonesian market.

Please note that the criteria of combined assets value and/or combined sales value applies to overseas transactions as well.

 

November 28, 2019

Copyright © 2019 AKSET. All rights reserved.

by Adho Fadillah Putera