In this newsletter edition, we discuss the main updates brought by Government Regulation in Lieu of Law No. 2 of 2022 (“Perppu 2/2022”) – replacing the so-called ‘Omnibus Law on Job Creation’ (Undang-Undang Cipta Kerja) (“Omnibus Law”) – that may be relevant to your existing operations in Indonesia.
Our discussion will touch on updates of selected key areas relating to (a) manpower, (b) antitrust, (c) environment, (d) electricity, (e) mineral and coal, (f) water resources, and (g) food.
Brief Background of Perppu 2/2022
In October 2020, in efforts to resolve the issues on overlapping and contradictory existing legislations, the Government passed the Omnibus Law. You may find our previous analysis on the changes introduced by the Omnibus Law in these following links:
Part 1: click here
Part 2: click here
Part 3: click here
Part 4: click here
After a judicial review of the Omnibus Law, on 25 November 2021, the Constitutional Court rendered its decision and ordered the Government and the Parliament to “revise” the Omnibus Law within 2 years (i.e., up to 25 November 2023). To respond to this decision, the Government enacted Perppu 2/2022, which essentially restated most of the provisions of the Omnibus Law, with some drafting improvements and adjustments. Perppu 2/2022 is effective on 30 December 2022 and must be presented by the President to the Parliament, which upon the Parliament’s approval, this ‘Government Regulation in Lieu of Law’ will then become a full-force law replacing the Omnibus Law.
- No dramatic change on the “substance” compared to its predecessor Omnibus Law.
- All existing regulations, including those implementing regulations issued under the Omnibus Law regime, remain valid and continue to be effective (provided they do not contradict with Perppu 2/2022).
- All existing business authorizations (licenses, permits, and certificates) issued under the Omnibus Law regime remain valid and continue to be effective until their expiration.
- Undergoing business permits applications will be processed based on Perppu 2/2022.
The major highlight in this area relates to permitted outsourced activities.
The Omnibus Law regime omitted the previous limitation set by Law No. 13 of 2003 on companies to outsource non-core activities, therefore, this was considered by businesses as a signal from the Government to allow the outsourcing of non-core activities. Perppu 2/2022 clarifies this by mandating the Government to issue an implementing regulation to further regulate outsourcing issues, which according to the Minister of Manpower will set some limitations on the scope of outsourcing activities.
One of the key highlights of the Omnibus Law in this area is the shift of jurisdiction to examine an objection to a decision of the Indonesia Business Competition Supervisory Commission (“KPPU”) from district courts to commercial courts.
The jurisdiction change has also been applied to execution of KPPU’s decisions; hence, if a KPPU’s decision is not challenged, the execution of the decision is then requested to the commercial court.
According to the Omnibus Law, in addition to criminal sanctions, failures of a businessperson to manage hazardous and toxic wastes (B3 Wastes) that are produced from its activities can also be subject to administrative sanctions. Perppu 2/2022 removes the administrative sanctions; hence, in theory, such failures are subject to criminal sanctions only as set out in Article 103 of Law No. 32 of 2009 on Environment.
Under the Omnibus Law regime, electricity-supporting business providers conducting their operation illegally (i.e., without a proper business license) are subject to criminal sanctions in the form of imprisonment and fines. Perppu 2/2022 clarifies this by providing that those whose operations have caused damage to health, safety or the environment can be subject to criminal sanctions.
Mineral and Coal
One of the highlighted changes introduced by Perppu 2/2022 relates to the description of parties entitled to enjoy the 0% royalty incentives.
Article 128 A of the Omnibus Law stated that those who carry out coal value-adding activities may receive special treatment in the form of 0% royalty. Government Regulation No. 25 of 2021 on Administration of the Energy and Mineral Resources Sector (“GR 25/2021”) further clarified that 0% royalty incentives may be given to holders of the following business licenses whose operation engaged in coal value-adding activities: (i) a mining business license for production operations (“IUP-OP”), (ii) a special mining business license for production operations (“IUPK-OP”) and (iii) a special mining business license as the continuation of a Contract of Work (CoW) or a Coal Contract of Work (CCoW).
Perppu 2/2022 expressly states the first two groups (i.e., IUP-OP and IUPK-OP holders) are entitled to receive the 0% royalty treatment – however, Perppu 2/2022 was silent on the third group and hence, may lead to an interpretation that the incentives do not apply to those belong to the third group.
Prior to Perppu 2/2022, diversion of river channel was only regulated by certain ministerial regulation.
Perppu 2/2022 now regulates the issue on the construction of water sources, including the diversion of river channel, which can be carried out, among others, by (i) the central government and/or regional governments; (ii) government agencies; (iii) state-owned enterprises; (iv) regional-owned enterprises; (v) cooperatives; and (vi) private business.
In addition to criminal sanctions as set out in Law No. 18 of 2012 on Food, Perppu 2/2022 introduces administrative sanctions for failures to obtain proper authorization for the distribution of packaged processed food for retail. The administrative sanctions range from fines to revocation of business license. No further clarification as to whether the authority intends to impose administrative sanctions as an initial sanction before the criminal sanctions can be imposed. We anticipate this to be further clarified in implementing regulations.
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