New FinTech regulation: To provide more legal certainty for the growing FinTech sector in Indonesia, the Financial Services Authority (“OJK”) issued OJK Regulation 13/POJK.02/2018 on Digital Financial Innovation in Financial Services Sector (“POJK 13/2018”) on 16 August 2018. POJK 13/2018 applies to FinTech businesses that are not in the payment services space (which is under the remit of Bank Indonesia) such as investment, insurance and crowdfunding. POJK 13/2018 is intended as an umbrella regulation, as it foreshadows further implementing regulations that will more specifically regulate each type of FinTech activity in more detail. That said, the introduction of an OJK-supervised regulatory sandbox is notable. This regulatory sandbox is intended to provide the OJK (through its newly established Centre for Digital Financial Technology) with greater flexibility within the existing regulatory framework to facilitate product innovations and accelerate financial inclusion. FinTech services providers may operate in the regulatory sandbox for up to 1.5 years, after which OJK would determine whether such FinTech services may continue to operate.

OJK revamps e-money regulation: Bank Indonesia issued a new e-money regulation, BI Regulation 20/6/PBI/2018 (“PBI 20/2018”), on 3 May 2018, to replace the previous e-money regulation which was first issued in 2009. The new rules reflect a paradigm shift on the regulation of e-money issuers, and recognises the need to introduce limited prudential regulatory measures in view of the growing prevalence of e-money. Compared to the previous e-money regulation, Bank Indonesia has introduced more stringent requirements that include: (i) a minimum capital-to-managed floating fund ratio; (ii) licensing requirements for closed-loop e-money issuers; (iii) a single presence rule; and (iv) a minimum holding period for its shareholders. There is also now a foreign ownership cap of 49 per cent, which is significant as the previous regulation permitted 100 per cent foreign ownership.

Relaxation of licensing requirements for oil and gas supporting business activities: In line with the Government’s promise to facilitate doing business in the oil and gas industry, the Government issued MEMR Regulation 14 of 2018 on Oil and Gas Supporting Business Activities (“MEMR 14/2018”). This replaced the MEMR Regulation 27 of 2008 on Oil and Gas Supporting Business. The MEMR 14/2018 was intended to simplify the layered licensing approach taken under the previous regulation. The Government now classifies oil and gas supporting business into three types: (i) construction business (construction consultancy, actual construction work and integrated construction work); (ii) non-construction business (geological and geophysical services, drilling services, O&M services, inspection services); and (iii) supporting industry business (production of materials and tools used in upstream oil and gas operations). The new regulation provides for a single operating licence requirement, called the Certificate of Capability to Provide Supporting Business (Surat Kemampuan Usaha Penunjang or “SKUP”). This will be issued to the qualified businesses by the Director General of Oil and Natural Gas (“MIGAS”).

Government affirms its position on the performance of post-operation liabilities: The older Indonesian production sharing contract (“PSC”) model does not typically have clear provisions for post-operation liabilities. Post-operation liabilities were only clearly regulated in PSCs signed from 2001. In particular, provisions on the abandonment and site restoration fund (“AARF”, the fund reserved to cover the post-operation liabilities) were only included in the post-2003 PSC model. Therefore, the applicability of post-operation liabilities to older model PSCs has been the subject of debate between the government and the PSC contractors. In the MEMR Regulation 15 of 2018 on Post-Operation Activities in Upstream Oil and Gas Business Activities, the Government affirmed that contractors are liable for post-operation liabilities regardless of its PSC model. As a result, the AARF fund reservation model will apply to an older model PSC throughout its term, with expenses for post-operation liabilities treated as the PSC’s operating costs. However, as most older model PSCs will expire soon, it remains to be seen whether the new regulation could be effectively implemented.

Restructuring of natural gas business: The Government issued Minister of Energy and Mineral Resources (“MEMR”) Regulation 4 of 2018 on Utilisation of Natural Gas by Downstream Oil and Gas Business as part of its ongoing efforts to restructure the Indonesian gas market. Under the new regulation, the Government will determine the gas infrastructure masterplan and tender each portion of an area to a business entity for the purpose of creating an efficiently integrated infrastructure network and avoiding any overlapping in infrastructure construction. Each business entity is required to construct its own infrastructure for integration into a national integrated gas infrastructure network. The Government hoped that this new scheme would shift businesses’ focus on to the provision of gas infrastructure, instead of on securing gas allocations. Additionally, the new regulation also provides for non-pipeline gas business activities (CNG and LNG) to anticipate the potential future need to import gas. However, the challenge for the implementation of this regulation is the Government’s ability to ensure a steady supply of gas.

Government maintains its commitment to exclude Letters of Credit (“L/C”) requirement for export of oil and gas products: After some changes to the Government policy on the use of L/C as the payment means for oil and gas export and import transactions, the Government issued the Minister of Trade Regulation No. 102 of 2018 on Amendment of Minister of Trade Regulation No. 94 of 2018 on Provisions of the Use of Letters of Credit for Export of Certain Commodities. This excludes oil and gas products from the commodities which will be subject to the L/C requirement.

PPA Basic Provisions: The Government also issued MEMR Regulation 10 of 2018 (“MEMR 10/2018”). This serves as the second amendment to Regulation 10 of 2017 on Basic Provisions of Power Purchase Agreement (“PPA”) (“MEMR 10/2017”). This applies to PPAs between PT Perusahaan Listrik Negara (Persero) (“PLN”), as the state-owned enterprise assigned by the Government to implement an electricity supply business, and the IPP. This amendment further addressed concerns of investors and lenders to IPPs in relation to political risk allocation for IPP projects following the issuance of MEMR 10/2017. The ordinary market practice is that where there is a change in law or change in policy affecting the project, IPP should be entitled to compensation (i.e “deemed dispatch payments” and increased cost protection) where the plant would otherwise be available to generate power. However, as MEMR 10/2017 stated that both parties are released from any obligations relating to FM, this cast doubt on the availability of the market practice of providing these protections as a result of a change in law / change in policy, which would clearly be a key bankability point. MEMR 10/2018 removed change in law or regulation from the list of FM events for which PLN would be released from its obligations. These deletions (and other consequential changes) in our view mean that PLN is permitted to provide under the PPAs for the remedies and reliefs to apply in respect of a change in policy/change in law consistent with precedent and market practice.

Geothermal working area and geothermal licensing: In the geothermal sector, the Government issued MEMR Regulation 37 of 2018 which addresses (i) procedures for the offering of geothermal working areas; (ii) the issue of geothermal licences; and (iii) assignments of geothermal business. This regulation also incorporates comprehensive tender mechanisms. The MEMR is also authorised to assign Public Service Bodies (Badan Layanan Umum) or State-Owned Enterprises operating within the geothermal sector to undertake the exploration, exploitation and/or utilisation of working areas. The regulation has been in force since 5 July 2018 and replaces several provisions set out under the previous regulations, specifically those relating to the offering of geothermal working areas, as well as geothermal licences.