1. Background

As is the case in practically all jurisdictions around the world, Indonesia’s regulators have struggled to come to grips with the disruption caused to conventional public transportation models by the emergence and phenomenal growth of app-based ride-hailing services.

To date, the Minister of Transportation (the “Minister”) has made a total of four attempts to regulate the sector, with the latest being Reg. No. 118 of 2018 on the Provision of Special For-Hire Transportation Services (“Reg. 118”),[1] which entered into effect on 19 December 2018.

The Minister’s first attempt, back in 2016, proved short lived after an outcry from conventional taxi companies and drivers. The next attempt was Regulation No. 26 of 2017. However, the specific provisions of this regulation that related to ride-hailing services were struck down by the Supreme Court, which found that they contravened Law No. 20 of 2008 on Micro, Small and Medium Enterprises and Law No. 22 of 2009 on Road Traffic and Transportation.

The Minister responded by issuing Regulation 108 of 2017 (“Reg. 108”), whose ride-hailing provisions were once again annulled by the Supreme Court for essentially the same reasons as in the earlier decision.

2. Scope of Reg. 118

Reg. 118 is the first regulation issued by the Minister to specifically address ride-hailing services – the previous regulations covered for-hire road transportation services in general.

It should be noted that Reg. 118 does not apply to:

(a) motorcycle-based ride-hailing services, for which a separate regulation is currently being prepared by the Ministry; and

(b) other for-hire transportation services, such as those provided by regular taxi companies (even if accessed via an app), which continue to be governed by Reg. 108.

3. General Regulatory Scheme

A ride-hailing service is referred to in Reg. 118 as “Special For-Hire Transportation” (Angkutan Sewa Khusus), which is defined as a “point-to-point transportation service provided by a driver in an urban area, or to and from an airport, port or other transportation node, that is booked using an IT-based application and the tariff for which is displayed in the application.”

Reg. 118 differentiates between:

(a) a Special For-Hire Transportation Undertaking (Perusahaan Angkutan Sewa Khusus / “Ride-hailing Provider”), which may be a legal entity in the form of a state or local government enterprise, a limited liability company or a cooperative, or an unincorporated micro or small business. Micro and small businesses were not permitted to provide ride-hailing services under Reg. 108, so this marks a significant change that is clearly designed to satisfy the Supreme Court’s objections to the previous regulations based on Law No. 20 of 2008 on Micro, Small and Medium Enterprises; and

(b) an Application Provider (Perusahaan Aplikasi / “App Provider”), that is, an undertaking that operates a transportation app or, in other words, a third-party app provider. Such company must be incorporated as an Indonesian legal entity.

The distinction made by Reg. 118 between a Ride-hailing Provider and an App Provider reflects the usual business model employed by ride-hailing companies, where the app is owned and operated by one company and the transportation service provided by a sister or subsidiary company, or by a third-party provider.

4. Licensing Requirements for Ride-Hailing Providers

Reg. 118 requires a Ride-hailing Provider to apply for and obtain a Special For-Hire Transportation License (“License”).

Such License actually consists of two components, the head or principal component and a subsidiary component:

(i) The head or principal component is the official decree issued by the licensing authority, which attaches to the Ride-hailing Provider. The decree sets out such things as the Ride-hailing Provider’s particulars, the number of vehicles it is licensed to operate and the general particulars of the vehicles. New decrees issued under Reg. 118 are valid indefinitely, although of course they must be updated from time to time in accordance with changes on the ground.

(ii) The subsidiary component is the Service-Standards Electronic Card.(“E-card”). A separate E-card, which is subject to annual renewal, is issued for and attaches to each vehicle that is used in the provision of ride-hailing services. The E-card contains, among other things, specific details of the vehicle to which it attaches, including its maintenance record, vehicle registration number, licensed operating area, etc.

Licensing authority is vested in:

a. the Minister, where the permitted operating area extends beyond one province, and in the Greater Jakarta Area;

b. provincial governor (“Governor”), where the permitted operating area is confined to one province.

5. Operating Area

Operating areas are determined by the Minister in a case where more than one province is involved and in the Greater Jakarta Area, and by the relevant Governor in other cases. Operating areas are designated based on local five-year Needs Plans (Rencana Kebutuhan) adopted by the Minister or Governor, as the case may be.

6. Tariff Restrictions

Reg. 118 provides that tariffs are subject to upper and lower limits that are determined for each operating area based on a calculation of direct and indirect costs by the Minister or Governor, in consultation with stakeholders. Direct and indirect costs should be reassessed regularly, but not more frequently than every six months, save in the case of a sudden change of more than 20 percent in costs within one period of three consecutive months.

The Minister is required to issue guidelines for calculating maximum and minimum tariffs.

7. App Provider

An App Provider, which must be an Indonesian legal entity, is prohibited from (a) setting tariffs; and/or (b) offering discounts and promotions that result in lower tariffs than the permitted minimum tariffs.

Further, an App Provider must afford online “digital dashboard” access to the Minister or Governor, as the case may be. The digital dashboard should provide such information as the corporate particulars of the App Provider, a list of the ride-hailing providers with which it collaborates and information on their vehicles and drivers, and data on each order served by the app, including pick-up point, destination and tariff.

8. Administrative Sanctions

Reg. 118 establishes a range of administrative sanctions for non-compliance. These sanctions consist of:

a. written warnings

b. freezing of license; and

c. revocation of license.

9. Transitional Provisions

Reg. 118 provides that licenses issued prior to its coming into effect will remain valid until their expiration.

The same number of vehicles as operated in a particular area prior to the coming into effect of Reg. 118 will continue to be permitted. However, App Providers are prohibited from signing up new Ride-hailing Providers if this would result in the number of previously permitted vehicles being exceeded. This prohibition will continue until such time that the Minister or Governor has determined that more Ride-hailing Providers are required in a particular operating area based on a Needs Plan.

The tariffs applied prior to the coming into effect of Reg. 118 will also remain valid until such time as they are re-evaluated by the Minister or Governor.

Ride-hailing Providers and App Providers are afforded a transitional period of six months (counting from 19 December 2018) to make the necessary changes so as to bring their operations into compliance with Reg. 118. Effectively, this means that sanctions will not be applied to non-compliant providers until this transitional period has expired.

10. ABNR Commentary

The Supreme Court’s decision to annul many of the ride-hailing provisions of Reg. 108, and its previous ruling on Regulation No. 26 of 2017, clearly reflected the public mood. People have benefitted greatly from the emergence of the ride-hailing apps and, despite continuing concerns over safety and security, they are unwilling to accept anything that could restrict access to cheap and easily accessible transportation. Cost and convenience are the public’s prime concern.

In reality, Regulation 108 of 2017 (and its antecedents) attempted to restore, in so far as possible, the status quo that prevailed prior to the emergence of the ride-hailing phenomenon by imposing tight restrictions on the big Ride-hailing Providers so as to essentially convert them into what were, in effect, conventional taxi companies, albeit app-based. This attempt to restore the status quo has now, for the most part, been abandoned by Reg. 118.

Nevertheless, all in the garden is not rosy. Given that the rules on minimum and maximum tariffs that were contained in Regulation 108 have been perpetuated in Reg.118, the public and media reaction has been generally negative. It will be interesting to see whether this results in another challenge in the Courts going ahead, particularly if the implementation of Reg. 118 results in significantly higher tariffs.