New Presidential Regulations on the Use of Indonesian Language

The new regulation, President of the Republic of Indonesia Regulation Number 63 of 2019 regarding the Use of Indonesian Language (“PR No. 63/2019”), affirms that agreements and memoranda of understanding (“MoU”) involving foreign parties must be signed in the Indonesian language.

PR No. 63/2019 provides that foreign parties may also use English, or their own foreign language, as the “equivalent” or translation to support the foreign party’s understanding of the arrangement. However, the parties may agree that the foreign language version would prevail, if there is an inconsistency. The option to choose a governing language other than Indonesian, whilst somewhat incongruent with the main thrust of the regulation, is welcomed given previous challenges to this approach by some Indonesian academics.

PR No. 63/2019 was issued to implement Law No. 24 of 2009 regarding National Flag, Language, Emblem and Anthem of Indonesia (“Language Law”), which provides that Bahasa Indonesia is the official language of transactions in Indonesia. This requires, among other things, the use of the Indonesian language when contracting with Indonesian parties and in official speeches by state officials. The Language Law has its origins in Indonesia’s constitution, which contemplates a law regulating Bahasa Indonesia.

Indonesian court decisions such as Supreme Court Decision 601K/PDT/2015 highlight the risk that non-compliance with the Language Law could result in the relevant agreement or MoU being declared null and void. These decisions do not form binding precedent as there is no such concept under Indonesian law, but nevertheless call into question the validity of agreements between foreign parties and Indonesian parties which have only been signed in a foreign language. The Language Law and its implementing regulations do not specify any sanctions for infringements, leaving the matter subject to further interpretation and decision by the Indonesian courts.

The Indonesian legal community has expressed a range of views on the interpretation of PR No. 63/2019, in particular whether the Indonesian version must be signed first, or at the same time as, the foreign language version. What is currently lacking, but much needed, is a practice note from the Indonesian law society or other authority on the steps for executing MoUs and agreements with foreign parties. This should address, among others, timing considerations and the use of bilingual and other formats, as well as practical considerations arising from translating technical documentation in a time-sensitive context. In the absence of such guidance, foreign parties are advised to adopt a conservative approach due to the potential enforcement risk.

Our top 5 tips for complying with the Language Law can be found here.

Indonesia is set to usher in a new regulatory framework for the management of water resources, following the approval by the House of Representatives of the Water Resources Bill at a plenary session on 17 September 2019 (the “Bill”).

The Bill affirms that water resources will be controlled by the State, rather than any individual or commercial public enterprise. Businesses may use water resources, subject to stringent conditions, if there is sufficient availability after the fulfilment of daily staples and people’s agriculture.

Private investors in the water sector will be particularly interested in the following provisions of the Bill:

• public enterprises (central or regional/village) have the priority right to use water resources; • private sector use of water resources is subject to a number of conditions, including the use of water resources for the welfare of the people as well as the procurement of recommendations from stakeholders in the resource area; • licences for commercial use of water resources will attract the payment of a management services fee; • private business entities may cooperate with the public sector for water resources infrastructure and water management activities. The form and structure of such cooperation will be clarified in future regulations; and • it is a criminal offence, among others, to use water resources for business needs without permission.

The Bill will be passed into law, and made publicly available, following formal presidential approval. It is intended to replace the previous water law, enacted in 1974, which was reinstated in 2015 following the annulment of Law No. 7 of 2004 regarding Water Resources by the Constitutional Court through Court Decision Number 85/PUU-XII/2013 on the grounds that it was unconstitutional.

It will be the task of the new government, formed under the incumbent President Jokowi following his inauguration on 20 October 2019, to prepare the detailed regulations required to implement the principles and concepts set out in the Bill.

Indonesian Government Accelerates Nickel Ore Export Ban and Intensifies Sanctions for Non-Compliance

The Ministry of Energy and Mineral Resources has issued two new directives relating to the ban on nickel ore exports:

  1. Firstly, the ban on export of nickel ore with content below 1.7% has now been accelerated to 31 December 2019. This is in contrast to the previous ban date of 11 January 2022, subject to the satisfaction of certain milestones for smelter construction.
  2. Secondly, mining companies which fail to construct smelters within a 6-month period from 26 August 2019, or otherwise cannot meet approved construction milestones, may be subject to new sanctions. These sanctions may include substantial fines linked to export proceeds during the relevant period, together with the suspension of export approvals. Offending companies would be also required to post a surety bond.

Mining companies should note that the previous relaxation of the export ban, as issued in 2017, will continue to apply to washed bauxite ore. This means that subject to smelter construction, mining companies may continue to export washed bauxite with a minimum Al2O3 content of 42% until 11 January 2022.

Relevant regulations include: • Minister of Energy and Mineral Resources Regulation No. 11 of 2019 regarding the Second Amendment to the Minister of Energy and Mineral Resources Regulation No. 25 of 2018 regarding Coal and Mineral Mining Business; • Minister of Energy and Mineral Resources Decision No. 154 K/30/MEM/2019 regarding Guidelines of Administrative Fine Imposition of Delay of Construction of Purification Facilities; and • Government Regulation No. 1 of 2017 regarding The Fourth Amendment of the Government Regulation No. 23 of 2010 regarding the Implementation of Mineral and Coal Mining Business Activities as lastly amended by Government Regulation No. 8 of 2018 regarding The Fifth Amendment of the Government Regulation No. 23 of 2010 regarding the Implementation of Mineral and Coal Mining Business Activities.

Merger Control Update: New Regulations to Require Asset Based Merger Filings

Due to anti-competitive concerns, the Indonesian Competition Authority (KPPU) recently issued a new implementing regulation to Indonesia’s competition laws which requires merger filings for asset acquisitions within 30 business days of the underlying transaction’s effective date, subject to the following thresholds: • the combined Indonesian asset value of the parties exceeds IDR 2.5 trillion; or • the combined Indonesian sales value of the parties exceeds IDR 5 trillion.

Buyers acquiring relevant assets must notify KPPU where the asset transaction results in a change of control or possession of the asset, and/or increases the ability of the buyer to control the market. As such, asset acquisitions are now treated in a similar manner to share acquisitions.

The new regulation broadly applies to all tangible and intangible assets owned by a business that are valuable or have economic value. On its face this would appear broad enough to include a partial disposal of non-core assets. It is currently unclear how the KPPU will determine “control” and “possession” for the purposes of the regulation.

Other changes include the codification of certain procedural matters relating to the KPPU, including as to the scope of assessments, and calculation of timeframes in the event of a failure to conduct a merger filing.

The President has issued a new regulation, being President of the Republic of Indonesia Regulation No. 55 of 2019 regarding Acceleration Program of the Battery-Powered Electric Motor Vehicles for Road Transportation (“PR 55/2019”), which has introduced various incentives for importing and selling battery electric vehicles, as well as a raft of incentives for producing, export financing and constructing public electricity charging stations.

Under PR 55/2019, the manufacture and assembly of battery electric vehicles (including their components) must take place in Indonesia, subject to a sliding scale of local content requirements and potential allowances for the importation of components and completely built up units.

PR 55/2019 contemplates that private sector, including companies holding an electricity supply business licence (“IUPTL”), may co-operate with PLN for the provision of charging facilities infrastructure. However, the electricity tariff for charging will be determined by the Ministry of Energy and Mineral resources. PR 55/2019 also contemplates battery swap facilities together with charging facilities.

Potential sites for charging facilities would be petrol stations, government offices, shopping malls and public parking lots at the side of the roadway.