INDONESIA

Singapore and Indonesia Sign LOI to Work on Cross-border Carbon Capture and Storage

In a press release posted on its website on 15 February 2024, the Ministry of Trade and Industry Singapore announced that Singapore and Indonesia have signed a Letter of Intent ("LOI") to work together on cross-border carbon capture and storage ("CCS"). This follows the issuance on 30 January 2024 of Indonesia's presidential regulation on CCS allowing CCS operators to reserve storage capacity for foreign carbon dioxide. Click here to read our Legal Update on Indonesia's regulatory framework on CCS. 

CCS involves capturing, transporting and storing carbon dioxide that is produced as a byproduct from other activities, such as power generation.  The carbon dioxide that is captured will therefore not be released into the atmosphere. CCS provides a pathway to decarbonise hard-to-abate sectors such as energy and chemicals (E&C) and power sectors, and is one of the key tools to achieve both countries' respective net-zero emission targets to mitigate the effects of global warming.

The LOI, the first of its kind in Southeast Asia, reflects the commitment of both countries to achieve regional decarbonisation outcomes in a sustainable manner.

A working group will be formed to develop a legally binding bilateral agreement relating to the details of the cross-border CCS cooperation.

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Indonesia’s Carbon Capture and Storage (CCS) Regulatory Overview: Steps to Become Asia-Pacific Hub?

Indonesia is aggressively pursuing net-zero emission targets, with a focus on carbon capture and storage ("CCS") as a crucial tool to achieve its domestic net-zero target by 2060. Through a series of recent regulations, including Presidential Regulation 14/2024 on the Implementation of Carbon Capture and Storage, the country has laid out a comprehensive framework for CCS operations. This framework delineates two main avenues for CCS implementation: (i) within existing production sharing contract ("PSC") blocks; and (ii) in designated CCS areas. Within PSC blocks, CCS projects will integrate with petroleum operations, while designated areas will undergo a tender process, exploration, and development phases. The regulations provide clarity on various aspects such as taxation incentives, business processes, liability, and potential sanctions, although some gaps remain, particularly in defining royalty amounts, bilateral cooperation requirements, and post-monitoring liability.

While the regulatory framework marks a significant step towards CCS development in Indonesia, additional clarifications and implementations are necessary to fully underpin investment decisions and establish a successful CCS hub. Key areas requiring further elaboration include (i) defining royalty structures; (ii) outlining requirements for bilateral cooperation; (iii) specifying liability limitations in the post-monitoring period; and (iv) providing tax incentives. Beyond regulations, the success of CCS ventures will hinge on finding suitable injection target zones, fostering multilateral policies, and encouraging regional cooperation to establish a robust value chain. Additionally, financial considerations and international collaboration will play pivotal roles in assessing the economic viability of CCS projects and ensuring their long-term sustainability in mitigating greenhouse gas emissions while meeting global energy demands.

For more information, click here to read our Legal Update.

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Adjustment to the Rooftop Solar System Regulation: A Step Back for Indonesia?

In January 2024, Indonesia’s Ministry of Energy and Mineral Resources ("MEMR") introduced MEMR Regulation No. 2 of 2024, replacing MEMR Regulation No. 26 of 2021 and ushering in significant changes to the rooftop solar system regulatory framework. The new regulation mandates PT PLN (Persero) Tbk. ("PLN") to allocate development quotas for rooftop solar systems within each electricity system, fundamentally altering the installation process. Consumers must now verify the availability of clustered quotas before applying for system installation, with PLN obliged to either approve or reject applications within 30 days, failing which applications are deemed approved. The elimination of kWh metering and parallel operation payments reshapes the landscape – surplus electricity generated by consumers' rooftop solar systems will no longer impact their bills, while consumers are relieved of parallel operation charges. Penalties for unauthorised installations and the introduction of carbon trading add layers of complexity to the regulatory environment, potentially affecting stakeholders across the industry.

These regulatory shifts mark a departure from previous incentives driving rooftop solar system adoption, posing challenges and uncertainties for stakeholders in Indonesia's renewable energy sector. While the removal of certain fees may ease financial burdens, the elimination of bill-reducing mechanisms and the imposition of penalties for non-compliance could dampen consumer enthusiasm. Additionally, ambiguities regarding carbon credit ownership and the broader impact on renewable energy adoption underscore the need for clarity and further regulatory guidance. As the industry navigates these changes, the outcome will shape investment patterns, market dynamics, and the trajectory of renewable energy adoption in Indonesia, emphasising the importance of ongoing dialogue and collaboration among stakeholders to navigate this evolving landscape effectively.

For more information, click here to read our Legal Update.

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OJK’s New Rule Tightens Share Buyback and Expands Scope of Disclosure

The enactment of Indonesia's Financial Services Authority's (OJK) Regulation No. 29 of 2023 on Share Buyback by Public Companies ("New Regulation") brings significant changes to share buyback practices for public companies. Under the new framework, stringent provisions tighten the conditions for buybacks, mandating careful planning and execution to ensure compliance. Notably, restrictions on buybacks now include prohibitions on concurrent buybacks under fluctuating market conditions and requirements to transfer previously bought treasury shares within a specified timeframe. Moreover, the regulation introduces extended methods for treasury share transfers, including distributing shares to existing shareholders and utilising shares for asset acquisitions or debt repayments, all under the umbrella of heightened transparency and accountability. Enhanced disclosure requirements further bolster transparency by requiring public companies to provide detailed information on buyback funding sources and progress, reinforcing market stability and investor confidence.

The New Regulation emphasises timeliness and efficiency, shortening buyback periods and expanding transfer methods, all while mandating consistent reporting to regulatory authorities. By imposing stricter standards and enhancing disclosure, the regulation aims to ensure that buybacks do not compromise companies' financial stability or market dynamics. Additionally, the provision for a smooth transitional period allows ongoing processes to continue under the previous regulatory frameworks, ensuring uninterrupted operations while facilitating compliance with the new guidelines. In essence, the New Regulation not only enhances regulatory clarity and compliance but also promotes market efficiency and stability, safeguarding the interests of both investors and public companies alike in Indonesia’s financial landscape.

For more information, click here to read our Legal Update.

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The Revamped Electronic Information and Transaction Law: A New Year’s Transformation

The second amendment to Indonesia's Electronic Information and Transaction Law (EIT Law), enacted on 2 January 2024 ("Second Amendment"), brings about significant changes aimed at enhancing online child safety, bolstering the security of high-risk electronic transactions, and clarifying legal parameters for international electronic contracts. Notably, the Second Amendment requires electronic system operators ("ESOs") to implement (i) measures safeguarding children from harmful online content; (ii) age verification systems; and (iii) and accessible reporting channels for misuse. Moreover, it compels the use of certified electronic signatures for high-risk transactions and designates Indonesian law as governing law in international contracts under specific conditions, aiming to foster legal clarity and consumer protection in cross-border transactions.

However, while the Second Amendment introduces essential safeguards and regulations, clarity on certain aspects remain pending, such as the definition of standard clauses and enforcement mechanisms for non-compliance. Nonetheless, businesses are urged to adopt proactive compliance measures despite awaiting further implementing regulations.

Furthermore, the Second Amendment strengthens government supervision over prohibited online content, empowering civil service investigators to order ESOs to block offenders' assets linked to criminal activities. It also refines the definition of prohibited content, emphasising the intention to disseminate content violating decency or containing false information resulting in material consumer losses. These measures reflect Indonesia's commitment to curbing online harms, combating fraud, and ensuring the integrity of electronic transactions. However, the effectiveness of these regulations hinges on comprehensive implementation strategies and clear enforcement mechanisms. Therefore, businesses operating within Indonesia's digital landscape must navigate evolving regulatory frameworks, prioritise compliance, and remain vigilant in adapting to forthcoming guidelines to mitigate legal risks and uphold consumer trust in the digital realm.

For more information, click here to read our Legal Update.

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Could 2024 be the Year of Insurance Companies’ Consolidation

In December 2023, Indonesia's Financial Services Authority (OJK) enacted Regulation No. 23 of 2023 on Business and Institutional Licensing for Insurance Companies, Sharia Insurance Companies, Reinsurance Companies, and Sharia Reinsurance Companies ("Regulation 23/2023"), reshaping the insurance sector in alignment with the objectives set forth in recent financial laws and regulations. This comprehensive regulation introduces increased minimum capital requirements across all categories of insurance and reinsurance companies, driving potential consolidation within the industry. Notably, the regulation permits strategic measures similar to those in the banking sector, allowing insurance companies to pursue mergers, acquisitions, or the formation of business groups to meet these capital demands. With only a fraction of insurance companies currently meeting the heightened equity thresholds, the prospect of consolidation emerges as a compelling solution, potentially fostering a more robust and financially resilient insurance landscape in Indonesia.

Regulation 23/2023 also introduces new foreign ownership requirements, maintaining the 80% limit while imposing additional criteria on foreign shareholders. Examples of these criteria include engagement in similar businesses, maintaining minimum equity, and attaining a minimum rating from internationally recognised agencies. Moreover, the regulation introduces various provisions aimed at enhancing corporate governance, risk management, and regulatory oversight within the insurance sector, including prohibitions on concurrent directorship positions, certification requirements for management-level officers, registration of insurance agents, and collaboration opportunities among companies under common ownership structures. This proactive regulatory approach sets the stage for transformative changes within Indonesia's insurance industry, fostering collaboration, innovation, and resilience to navigate the evolving financial landscape effectively.

For more information, click here to read our Legal Update.

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