This newsletter is one of our quarterly publications for Asia, covering a range of topics that are of interest to the industry in the region. In this edition, we examine Indonesia's 'New Negative List'. We also highlight recent developments across the region in our "Soundbites" section, and profile a member of our affiliate firm Hiswara, Bunjamin & Tandjung in Jakarta.

Construction newsletter, July 2016: Indonesia's New Negative List

Introduction

On 18 May 2016, the Indonesian Government issued the much anticipated new negative investment list through Presidential Regulation No. 44 of 2016 (the “New Negative List”). The negative list is a series of Presidential Regulations issued over time by the Indonesian Government which sets out an evolving list of sectors that are either completely closed or partially open to  foreign direct investment where the foreign ownership level in the entity licensed by the Capital Investment Coordinating Board (“BKPM”) is capped at a certain percentage.

The new Negative List dramatically increases the minimum work value of construction projects open for foreign investment to IDR 50 billion for construction performance services (up from IDR 1 billion) and to IDR 10 billion for construction planning services and construction supervision services (also up from IDR 1 billion).

New Negative List

Construction services activities in Indonesia are categorized into construction planning services, construction supervision services and construction performance services. Previously, construction planning services and construction supervision services were subject to a maximum foreign ownership of 55% while construction performance services were subject to maximum foreign ownership of 67%. The New Negative List simplifies this structure by providing that all construction services activities (including construction planning services and construction supervision services) are subject to a maximum foreign ownership of 67%.

However, the New Negative List dramatically increases the minimum works value of construction projects open for foreign investment to IDR 50 billion for construction performance services (up from IDR 1 billion) and to IDR 10 billion for construction planning services and construction supervision services (also up from IDR 1 billion). We expect that this development will effectively shut-out new foreign investment in small to medium construction work in Indonesia. We also note that the New Negative List creates an apparent inconsistency with the recently issued Minister of Public Works Regulation No. 03/PRT/M/2016 which even further increased the minimum work value of construction projects open for foreign investment to IDR 100 billion.

In order to resolve the inconsistency, the BKPM and Minister of Public Works agreed on IDR 100 billion minimum work value of construction projects for foreign investment. The decision is in line with the New Negative List which provides that its implementation will not overrule the requirement of technical institution (e.g. Minister of Public Works).

Please find below the New Negative List table on the relevant sectors:

Click here to view table.

Soundbites

Hong Kong Court of Appeal declines leave to appeal stay in favour of arbitration notwithstanding procedural irregularity

In Wing Bo Building Construction Co Ltd v Discreet Ltd (HCMP 775/2016), the Hong Kong Court of Appeal (CA) has declined an application for leave to appeal a decision by the Court of First Instance (CFI) to stay the action in favour of arbitration. (Click here for the full judgment)

The dispute arose out of a construction contract containing an arbitration clause. A master in Chambers, who in fact lacked jurisdiction to hear the application, refused to stay the proceedings in favour of arbitration. Wing Bo appealed that decision to   the CFI. Ng J noted that the application should not have been brought before her by way of appeal, since the master lacked jurisdiction to hear it at first instance. However, counsel for both parties urged the judge to deal with the substantive issues. She agreed to do so, and ordered a stay pursuant to s.20 of the Arbitration Ordinance, which mandates a stay of court proceedings if the dispute is the subject of a valid arbitration agreement.

Please click here for further details regarding the judgment.

Indonesia’s Tangguh LNG set for Final Investment Decision

Based on press release of Indonesian Ministry of Energy and Mineral Resources, the final investment decision of Tangguh LNG expansion project (Train III) was submitted on 1 July 2016. The USD 8 billion expansion project is designed to increase production capacity of the existing LNG facility by 3.8 mtpa. The project will add 2 offshore rigs, 13 new production wells, new LNG port, and other supporting infrastructure in West Papua, Indonesia. The Indonesian Upstream Special Task Force/SKK

Migas has agreed on the appointment of EPC tender winner, and the construction is expected to commence on the third quarter of 2016.

PLN pushed Java 1 LNG bid to end of July 2016

The bid of the 1600MW (2 x 800MW) Java 1 cycle gas‐fired power plant (West Java, Indonesia) has been delayed to 25 July 2016. This USD 2 billion tender is without a Government guarantee. Indonesia’s state owned utility PLN, who is the awarding authority for the project, has confirmed on the 10% upfront payment rule in the bid. PLN will be the offtaker of the project and has signed a 25-year power purchase agreement.