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W&P Newsletter – Construction Alert – New Policy on Licensing for Foreign Construction Services to Raise Indonesia’s Ranking of Ease Doing Business Index

Just 5 months after its issuance, Regulation of Minister of Public Works and Public Housing (“MPWPH”) No. 09/PRT/M/2019 on the Guidelines for the Licensing of  Foreign Construction Services Business Entities (“Reg 9/2019”) was revoked by Regulation of MPWPH No. 17/PRT/M/2019 (“Reg 17/2019”,  – see our previous newsletter on Reg 9/2019). The revocation was in line with President Jokowi’s commitment to cut the red tape in construction licensing procedures and raise Indonesia’s ranking in the ease of doing business index.

Following the revocation of Reg 9/2019, MPWPH issued a new MPWPH Circular Letter No. 22/SE/M/2019 on the Guidelines for the  Licensing of Foreign Construction Services Business Entities  (“CL 22/2019”), which is concerned with the general procedures and provisions for the application, extension or revocation of construction business licenses for Foreign Investment Construction Companies (“Badan Usaha Jasa Konstruksi Penanaman Modal Asing – BUJK PMA”) and Foreign Construction Company Representative Office (Kantor Perwakilan Badan Usaha Jasa Konstruksi Asing – “BUJKA ”).

However, CL 22/2019 does not significantly change the previous licensing procedures and provisions as laid down by Reg 9/2019, nor does it comprehensively touch on certain issues that were previously addressed by Reg 9/2019. As a result, the revocation of Reg 9/2019 leaves a certain degree of uncertainty and vagueness.

Some specific issues that are not addressed by CL 22/2019 in relation to the revocation of Reg 9/2019 include the following:

  1. Reg 9/2019 expressly required any National Construction Company (Badan Usaha Jasa Konstruksi Nasional – BUJKN”) to have big qualifications to hold shares in a BUJK PMA, while CL 22/2019 is silent on this matter. Therefore, after the revocation of Reg 9/2019, there is uncertainty as to whether or not such requirement remains applicable although logically; it is difficult not to interpret so regardless of the silent of CL 22/2019 on the issue.
  2. In contrast to the previous Reg 9/2019, CL 22/2019 does not expressly stipulate whether a joint operation between BUJKA and BUJKN must still be implemented with a certain proportional ratio, for example in Construction or Integrated Work: any construction work with at least 50% of the construction fee must be done in Indonesia and at least 30% of the construction fee must be done by the BUJKN.
  3. While Reg 9/2019 expressly stipulated that the proportion between expatriates and local employees hired by BUJKA is applicable for “expert qualifications”, CL 22/2019 is silent on this matter and therefore this issue is subject to open interpretations.

It has been noted from the news that the Government will soon issue the new ‘Omnibus Law’, which reportedly will overhaul the investment procedures, including those laid down in CL 22/2019, in order to provide a more investment-friendly approach. However, before the forthcoming enactment of the Omnibus Law, it is advisable that BUJKA, BUJK PMA, and those involved in a consortium should scrupulously observe the prevailing views and unwritten policies of MPWPH and consult with MPWPH before taking crucial course of actions or making important decisions to avoid any unwanted mishaps.

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