Indonesia’s New Negative List

Welcoming the ASEAN Economic Community in 2015, the Indonesian Government is planning to revise the current Negative List (Presidential Regulation No. 36 of 2010) to create more business opportunities for foreign investors and to improve the nation’s competitiveness. The Investment Coordinating Board (“BKPM”) is currently drafting the New Negative List in coordination with several other relevant government authorities.

The New Negative List also aims to improve infrastructure development, as the infrastructure in Indonesia is considered to be relatively inadequate. Giving bigger proportions for Public Private Partnership (“PPP”) projects is deemed one way to boost development. On the other hand, the New Negative List will give more protection to local investors by reducing foreign investment proportions in several business fields.

At the time this article was written, the New Negative List had not been issued (the exact date has not been confirmed although it had been scheduled for the end of January 2014). However, we should expect that the business fields that are going to be affected by the New Negative List include the transportation, energy and mineral resources, trade, advertising, and pharmaceuticals industries.

Anticipated changes for the transportation field include (i) Land Terminal Construction for Public Facilities – from being closed to open for up to 49% foreign investment, (ii) Goods Terminal Construction – from being closed to open for up to 49% foreign investment, (iii) Vehicle Testing – from being closed to open for up to 49% foreign investment, and (iv) Port facilities (piers, buildings, container delay terminals, liquid bulk terminals, dry bulk terminals and Ro-Ro terminals) – from 49% to 95% for PPP projects during the concession period. For energy and mineral resources, the changes cover (i) Large Scale Power Plants (> 10 MW) – from 95% to 100% for PPP, (ii) Small Scale Power Plants (1-10 MW) – from Partnership to 49% for both Non PPP and PPP, and (iii) Power Plant Transmission and Electric Power Distribution – from 95% to 100% for PPP.

It is interesting that it looks like the Government plans to boost the use of PPP schemes for project developments. This is occurring despite ongoing delays in the implementation of various PPP projects such as the 2000 MW coal fired power plant in Central Java, and water projects due to various reasons, including land issues. Nevertheless, this is a move that we should appreciate because for projects that require massive funding, PPP schemes may be one of the best ways to attract foreign investors who have access to the finance required.

Distribution, warehouse, and cold storage businesses that are included in the Trade Industry sector are expected to be reduced to a maximum of 33% foreign investment on Java, Sumatra, and Bali while eastern Indonesia will also be affected with the percentage reduced to 67. It appears the Government intends these sectors to be managed by more local players and thus they need to be developed evenly and focusing local players on developing the eastern part of Indonesia.

Advertising is expected to be open to a maximum of 51% foreign investment from being closed. The Government considers that foreign companies need to advertise in Indonesia in the upcoming ASEAN Economic Community, but this investment relaxation will apply only to companies registered in ASEAN countries.

The Pharmaceuticals Industry will likely also be affected – from a maximum 75% foreign investment to 85%. It is understood that industry players want the Government to increase the percentage to 100%; however, there are concerns with respect to the prices of drugs if the business is entirely open for foreign investors (regardless of possible transfer of technology benefits for local players).

Critics feel that the changes proposed by the Government in the New Negative List are too liberal while others believe that some sectors should be liberalized still more or have remained at previous levels of maximum foreign ownership. Regardless of the different views amongst critics, supporters and industrial players, the Government will certainly have a lot of homework to do to ensure the smooth implementation of the New Negative List. Among others this will include the need to amend and adjust relevant regulations in those sectors that will be affected by the New Negative List.