Problems relating to Trade and Investment on Indonesia
2. Grant of a preferential tariff rates based on increased home production, and/or local procurements |
|||
Issue |
Issue details |
Requests |
Reference |
| (1) Local Contents Requirement becoming more Stringent | - Implementing regulation concerning procurement of goods and services on upstream oil and gas businesses was amended. The amendment includes tightening of local content requirement (minimum 25% on goods and 30% on services) and of procurement procedures, etc., forcing increased cost to enterprises related to government procurement. - Preparation of new regulation (draft) is under way on the local content requirement, TKDN (Tingkat Komponen Dalam Negri, meaning local procurement rate) on products that satisfy the LTE (long term evolution) standard. The draft regulation is without grace period so that 20% TKDN applies on the enforcement date, and will be raised to 30% on 1 January 2017. |
- It is requested that SKKMigas (supervisory institution) will flexibly deal with goods and services, which are difficult to procure locally. - It is requested that GOI: -- clarifies the calculation basis of the TKDN percentage, and -- provides grace period, and sets forth the basis for TKDN exemption. |
- BPMIGAS (The Upstream Oil and Gas Executive Agency) Procurement Guideline (Amendment To PTK-007 Rev. 2) - Regulation No. 54/M-IND/PER/3/2012 on Guidelines to Utilize Domestic Products in Erecting Electricity Infrastructures, and many other Related Laws and Regulations. |
| (Action) - On 14 April 2010, Ministry of Industry promulgated (for enforcement from 19 April 2010) Decree No. 48/MIND/PER/4/2010, mandating the electric power infrastructure (EPI) enterprises engaged in public infrastructure business under national or state governmental budget or subsidy or financing from abroad to use domestically manufactured goods and services. The term EPI herein used implies power generator and power transmission/distribution. TKDN varies by business sector, .to be more precise, it comprise of 6 infrastructure businesses, namely, (1) steam power generation plant using coal as fuel, (2) hydro power generation plant, (3) geothermal generation plant, (4) steam power generation plant using gas as fuel, (5) solar power generation plant, and (6) power generator and power transmission/distribution. TKDN (Tingkat Komponen Dalam Negeri or the portion of cost carried out in Indonesia) is specified for each business category under Chapter 2 of this Decree. - On 24 August 2012, MOT promulgated Minister of Trade Regulation No. 53/M-DAG/PER/8/2012, compelling the use of minimum 80% of the product lines, services, equipment, etc. that originate from Indonesia. - On 13 January, Ministry of Industry promulgated New Minister's Regulation No.2 (2014) (enforced on 13 January 2014) concerning expanded preferential measures on use of the domestic products in Indonesian Government's procurement for goods and services. -- (in Indonesian) (http://regulasi.kemenperin.go.id/site/baca_peraturan/1658) - In March 2014, Ministry of Industry added to the list of goods subject to preferential measures certain electric machinery and equipment. It seems the amended list will add TV set top box (Full HD DVD-T2 Compliant), low voltage electrical panel, electric cables, fuse cut out polymer-link, polymer isolator, lighting arrester, distribution transformer, transformator, single phase kwh meter, etc. included in HS Chapters 84 and 85. - On 6 May 2015. Regulation No.18 of 2015 on amendment of tax allowance, adding the conditions for grant of tax allowance, namely, (1) High investment amount, or destined to export, (2) Employment of many workers, and (3) Local procurement. Industrial minister Decree No. 18, 2015 sets forth the local procurement rate of 20% or more on materials, spare parts, machineries, etc., adding introduction of advanced technology on certain sectors (textiles, organic chemicals, steel products, etc.), environment friendly technology (copiers, refrigerators, dry cell batteries, cement, etc.), setting forth the minimum requirements for each business sector: the investment amount, and the minimum number of workers employed (e.g. car parts IDR l,000 billion, 100-workers; refrigerators/washing machines: 300 billion, 100-workers (50-workers in case of investment for expansion of the existing business). |
|||
| (2) Nebulous Definition of Local Procurement Requirement and its Basic Policy | - GOI requires local procurement to make the vehicle compatible with low cost green car (LCGC). While this is a regulatory requirement, clear definition is available neither on the substantive numerical target nor on the localisation. | - It is requested that GOI publishes in writing the subject parts, numerical target, and the definition of localisation. | |
| (Action) - On 27 July 2015, ministry of information and communication technology promulgated rules that compels satisfaction of local procurement requirement and observance of technological rules on "long term evolution (LTE) machines and equipment" (due for enforcement from 1 January 2017, but 2-years later from 1 January 2019 on some items). - On 31 August 2015, ministry of industry promulgated ministerial regulation No.68/M-IND/PER/8/2015 (enforced from 24 August 2015) "The terms and procedures for calculating the local contents on electronic and telematics (computer science, including telecommunication) products in the originating country." [Reference: URL for ministerial regulation No.68: http://regulasi.kemenperin.go.id/site/baca_peraturan/2102 [in Indonesian] |
|||
| (3) Mandatory Domestic Supply Obligations of the Produce/Products Locally Grown, Procured or Manufactured | - GOI has tightened its compulsion of domestic supply (for more than 25% of the total production) of products (particularly gas). GOI's measures can affect the volume of products available for export. | - It is requested that GOI: -- ensures sufficient consultation on the domestic supply of the products with the business concerns to avoid interference with the long-term purchase agreement with overseas purchasers, and -- pays a careful attention to the competitive pricing of the domestic products to assure economy and in such form and manner as would not interfere with propulsion of the project. |
- Constitutional Court Decision - Ministerial Decree No.55 [2009] - Ministry of Energy and Mineral Resources Order No.3 [2010] (Bill for New Oil and Gas)(unpromulgated) |
| (Action) - On 13 January 2010, Ministry of Energy and Natural Resources (MENR) published its intention to impose obligations to domestic coal mining enterprises to supply certain amount (likely to be about 25%) of their coal output to the domestic market (Domestic Market Obligations, "DMO"). - The New Mining Act compels enterprises procuring copper, nickel, coals, etc. from Indonesia to start the domestic Indonesian refinery and process operation by 2014. - GOI decided to terminate Indonesia-The Netherlands Investment Agreement with effect from 1 July 2015. According to the Netherlands Embassy in Jakarta, the matter is now under consultation between the governments of the two countries. - On 23 June 2015, Indonesian president promulgated and enforced on the same day government regulation No.41 year 2015. This regulation, for the sake of protecting domestic industries tolerates GOI's export restriction, or export embargo under certain, constant circumstances, such as sustenance of stable supply, domestic price maintenance, contribution to the added value activity, etc. It provides for export embargo, restrictions, etc. on natural resources. It also empowers GOI to levy export tax, allocate export quota, and spell out the supply duty to the domestic industry, etc. [Reference]: Government regulation No.41 year 2015 [in Indonesian] is available for download at: http://sipuu.setkab.go.id/PUUdoc/174554/PP0412015.pdf. |
|||
| (4) Restricted Offshore Ceding Reinsurance | - Movements such as OJK circular letter suggest the intent to maximising the allowable volume of the onshore acceptance of reinsurance, while restricting offshore exodus of reinsurance on objects located domestically in Indonesia. While this OJK's intent is understandable to secure own profit as a nation, it is a matter of concern, if the loss resulting from the accumulated claim paid or payable, the risk of collecting reinsurance, certain risks, such as great natural disaster risks, corporate failure of one or more of the reinsurers, etc. could make it impossible to recover part or all of the amount reinsured. | - It is requested that The financial services authority (Otoritas Jasa Kuangan)("OJK") takes step to ensure that reinsurers in Indonesia, among other things: -- secure re-re-insurance with high security measuring up to the risks, and -- disclose its contents. |
- OJK Circular Letter No.S-77-D.05.2014 |
<<BACK |