Bank Indonesia Tightens Up Corporate Offshore Debt Rules

As pressure against the Rupiah continues and fears mount about the possible overleveraging of Indonesian corporates on the offshore debt markets following years of cheap credit, Bank Indonesia (Indonesia's central bank) moved to limit exposure by issuing a new regulation that requires non-bank corporations to satisfy a number of prudential requirements in the form of explicit hedging and liquidity ratios, as well as to have secured a minimum credit rating. The new regulation shows once again that Bank Indonesia has learned well the lessons of the 1998 financial crisis, which was in part precipitated by the bursting of a corporate offshore debt bubble. With a world awash in cheap funds for the last few years, the temptation is always there to "borrow first, ask questions later".  Thus, the new regulation is to be welcomed.

Please click here to refer to our Firm's update on this subject.

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Constitutional Court: A company in Process of Extending License Cannot be Prosecuted for Lacking Such License

On 21 January 2015, the Constitutional Court held that a party whose environmental management license had recently expired, and which was in the process of obtaining a new one, could not be prosecuted for lacking such license. The Petitioner in this case was one Bachtiar Abdul Fatah, a former General Manager of PT Chevron Pacific Indonesia ("Petitioner"). He was prosecuted on corruption charges and was convicted by the Anticorruption Court on account of breaches of the Environmental Protection Act. One of the reasons was that a bioremediation project for land contaminated by hazardous and poisonous waste produced by PT Chevron Pacific Indonesia was conducted without a license, even though at the time the company had submitted an application for a renewal of their previous license and was awaiting its issuance by the relevant authority. Corruption charges were laid by the Prosecution Service on the ground that the Petitioner's actions had inflicted losses on the state.

The Constitutional Court's decision in this case is of paramount importance to the enforcement of environmental law, where parties that are in the process of renewing their environmental management licenses in accordance with the law must be deemed to have a license until such time as a definitive decision is made by the relevant authority. This means that they cannot be prosecuted for not having one, including on charges of corruption for inflicting losses on the state. In the interests of legal certainty, it is to be earnestly hoped that this decision will serve as an important precedent, and that the law enforcement authorities will apply the reasoning and principles contained in the judgment to other sectors.

We had published a client update on this subject. Please click here to read the full update.

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New Power Purchase Procedures and Prices

On 13 January 2015, the Minister of Energy and Mineral Resources ("MEMR") issued a new regulation governing power purchase procedures and benchmark prices payable by the state power utility, PT Perusahaan Listrik Negara (Persero) ("PLN") for the purchase of power sourced from mine-mouth power plants, coal-fired power plants, gas-fired power plants / dual-fuel power plants, and hydro power plants. The new regulation, MEMR No. 03 of 2015, came into operation on 13 January 2015.

The key provisions of the new regulation are discussed in more detail in our Update which can be accessed here.

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Energy and Mineral Resources Ministry Delegates New Power Licensing Authority to BKPM

If the Government's plan to install an additional 35,000 megawatts of power generation capacity during the 2015 – 2019 period is to have any chance of success, a comprehensive one-stop integrated service to facilitate the licensing process will be essential. 

An earlier attempt to streamline the licensing process had been made by the Minister of Energy and Mineral Resources ("MEMR") through Regulation No. 05 of 2010 ("MEMR No. 5/2010") which delegated a limited amount of licensing authority in the energy and mineral resources sectors to the Investment Coordinating Board ("BKPM") However, this regulation was revoked in so far as it refers to the electrical power sector, by MEMR Regulation No. 35/2014 (the "New Regulation"). The New Regulation entered into effect on 24 December 2014. While the New Regulation sees the BKPM lose the (limited) power-sector licensing authority it was granted by MEMR No. 5/2010, such loss is more than offset by the significant new licensing authority in the power sector granted to the BKPM by the New Regulation. Under the New regulation, the BKPM, acting on behalf of the MEMR, has now been granted the authority to license 10 types of license / approval:

• Electrical Power Supply Licenses / Izin Usaha Penyediaan Tenaga Listrik;
• Operating Licenses / Izin Operasi;
• Work Area Determinations  / Penetapan Wilayah Usaha;
• Power Support Service Licenses / Izin Usaha Jasa Penunjang Tenaga Listrik;
• Cross-border Power Purchase & Sale Licenses / Izin Jual Beli Tenaga Listrik Lintas Negara;
• Power Network Utilization for Telecommunications, Multimedia and Informatics / Izin Pemanfaatan Jaringan Tenaga Listrik Untuk Kepentingan Telekomunikasi, Multimedia dan Informatika;
• Geothermal Preliminary Survey Assignments / Penugasan Survei Pendahuluan Panas Bumi;
• Geothermal Licenses / Izin Panas Bumi;
• Geothermal Support Service Approvals / Persetujuan Usaha Penunjang Panas Bumi; and
• Explosives Storage Licenses for the Geothermal Industry / Izin Penggunaan Gudang Bahan Peledak Panas Bumi.

For further information, please refer to the Firm's update here. 

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