Indonesia Briefing Bulletin – March 2021 | Bryan Cave Leighton Paisner
[co-author: with Vivica Fu]
New “priority list” for foreign investments
The Indonesian government promulgated Presidential Regulation No. 10 of 2021 (the “Regulation”) in late February, following the passage of its Job Creation Law last year, known as the Omnibus Law. .
Notably in the regulation, the previous list of negative investments established in Presidential Regulation No.44 of 2016 (the “negative list”) is now considerably shortened and what has been referred to as the list of positive investments (the “positive list”). ‘) Is introduced. The positive list aims to remove certain restrictions on foreign shareholding from the negative list, while providing fiscal and fiscal incentives to priority sectors, as well as government support, including the provision of support infrastructure and energy supply. and simplified business licensing procedures. The new rules came into effect on March 4, 2021.
The general principle of the positive list is that a business sector is 100% open to foreign investment, unless it is subject to some specific type of limitation. Sectors / companies where (a) foreign ownership restrictions have been lifted (if not already in the negative list) and / or (b) will benefit from certain tax incentives are:
- power plant and power generation, including geothermal power plants, transmission, distribution, construction and installation of electricity;
- renewable energy;
- transport and mobility, including land transport, electric vehicles (“EV”) and the supply of electric vehicle parts, ship traffic information systems and air navigation;
- oil and gas;
- coal; and
- pharmaceuticals, including the manufacture of vaccines.
In addition, there are also priority areas of activity (“Priority List”), which benefit from the incentives mentioned in paragraph 2 above. For a business area to be eligible as a business in the priority list, it must meet the following criteria:
- be included as a strategic national project / program;
- be labor intensive;
- be capital intensive;
- be oriented towards research and development, and other innovative activities;
- be export oriented;
- involve a pioneer industry (metals, oil refining, renewable energies, maritime transport, etc.); and
- use advanced technologies.
One of the key things to remember is that the regulations are not the only place to look when considering (a) foreign ownership restrictions and (b) other laws that require compliance in certain sectors. . The cohesion and implementation of the nested legislative instruments (and in the perspective of a greater number of rules for implementing the omnibus law) will be essential to determine the effectiveness of the positive list and the foreign investments that it can attract.
Indonesia’s new sovereign wealth fund for infrastructure projects
The creation of the Indonesian sovereign wealth fund follows their new omnibus job creation law to address the investment bottleneck caused by the country’s degree of legal insecurity. The Indonesia Investment Authority (abbreviated INA) has, since its inception, established itself as a different type of sovereign wealth fund because it aims to attract foreign funds as co-investors, unlike other sovereign funds which manage foreign exchange or oil reserves. income.
INA also differentiates itself from the Indonesian Investment Coordination Council or BKPM because it accepts not only incoming funds in the form of loans, but also in the form of equity or shares.
INA will be a strategic partner for local and foreign investors to help finance development programs, especially in the area of infrastructure and currently, investment interest has been obtained and expressed for toll road projects, ports and airports. Health, tourism and technology are other sectors identified as potential targets.
Some of the investment commitments through the INA are as follows:
- United Arab Emirates: USD 22.8 billion
- Japanese Bank for International Cooperation: USD 4 billion
- United States International Development Finance Corporation: $ 2 billion
- Pension Fund of Canada, CDPQ: $ 2 billion
And that’s just the beginning. With a management target of USD 20 billion, the Indonesian government invested approximately USD 5.4 billion (IDR 75 trillion) in 2021 alone.
The fund is expected to be operational by mid-2021.
Clean energy investments in Indonesia
Indonesia has been accelerating its development of electric vehicles (“EVs”) since President Joko Widodo issued a decree in late 2019 outlining the roadmap for the development of electric vehicles.
The Indonesian Ministry of State-Owned Enterprises is in the process of forming a State-owned Battery Holding Company (the “Company”). Founded by state-owned MIND ID foundry, mining company Aneka Tambang, oil and gas giant Pertamina and electricity giant PLN, the company is expected to develop an end-to-end national supply chain for vehicle batteries. electric, with the goal of producing between 8 to 10 gigawatt hours of batteries each year for the next four years. In terms of development, the Company may form joint companies or join potential partners from China, South Korea, the United States or Europe.
Indonesia’s abundant nickel reserves, about a quarter of the world’s reserves, have attracted investment from global manufacturers of electric vehicle batteries including Contemporary Amperex Technology Co., Limited (“CATL”), LG Chem and more recently Tesla to create a supply chain of batteries for electric vehicles. In 2015, Indonesia started construction of a nickel industrial park in Indonesia’s Central Sulawesi Province, which has now grown to be the largest in the world.
Along with the development of batteries for electric vehicles, the Ministry of Public Enterprises also announced plans to form a holding company to develop geothermal energy. The holding company can be made up of three state-owned companies that have worked on the development and operation of a geothermal power plant. Once incorporated, this holding company would be the largest geothermal company in the world in terms of geothermal power generation capacity.
Tesla’s investment plan in Indonesia
In February 2021, Tesla submitted a proposal to the Indonesian government on its investment plans to set up factories in the country to manufacture electric vehicles, lithium batteries and generator sets. An energy storage system can also be planned.
It is worth noting that the Indonesian government reinstated its ban on the export of nickel ore in January 2020 to support the development of the country’s nickel industry.
Indonesia’s Deputy Minister for Mines and Investments Septian Hario Seto said Tesla’s proposal to the Indonesian government is slightly different from CATL and LG Chem’s because the core technology Tesla will use is different. A key consideration for the Indonesian government in approving Tesla’s investment plan would be the transfer of relevant technology from Tesla to the local community. Tesla’s proposal is being negotiated at this point.
Banks enter the digital ecosystem in Indonesia
The COVID-19 pandemic has accelerated digitization around the world and in Indonesia banks are foraying into the digital ecosystem. This prompted the Indonesian Financial Services Authority, OJK, to set guidelines for digital banks, which are expected to be released by mid-2021.
OJK claimed that these guidelines would not be rules-based but rather constitute a set of guiding principles for banks to operate digitally. Banks will have to mitigate their own risks and fight for market share.
Despite being the largest economy in Southeast Asia, banking penetration in Indonesia remains low, with the World Bank reporting that up to 52% of Indonesian adults or 95 million people do not have bank account. Thus, digital banking is expected to be a game-changer in the country by increasing access to online banking services and digital payment methods, a boon during the COVID-19 pandemic, as physical travel in banks and stores can be discouraged.
Local banks have responded to the wave of digitization. Bank Jago, for example, is on track to become the first fully digital bank as a result of its partnership with ride-sharing and digital payment services company Gojek. Customers can then be offered banking services provided by Bank Jago on the application operated by Gojek.
Watch this space for our update on OJK’s guidelines for digital banking once they are released.