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W&P Newsletter – Omnibus Law – W&P Analysis Series (Part 4) Simplification and Liberalization in Various Business Sectors

This fourth part of our updates on the Omnibus Law highlights the simplification and liberalization of the Energy and Mineral Resources Sector, Maritime and Fishery Sector, Plantation Sector, Forestry Sector, and Halal Product Certification Process.

For Part 1, Part 2 and Part 3 of the analytical reviews, please refer to the following:

The Omnibus Law simplifies and liberalizes various inter-sectoral and inter-level regulatory requirements and systems, aiming to cut the bureaucratic red tape and enhance transparency throughout government agencies, which in turn is expected to improve Indonesia’s ease of doing business in the following sectors, as summarized below:

  1. Energy and Mineral Resources Sector
    1. Mineral and Coal
      The Omnibus Law provides a fiscal incentive for mining companies that carry out coal value-added activities to their mined coal by offering a 0% royalty rate.
    2. Oil and Gas
      In the oil and gas industry, the Omnibus Law integrates various types of downstream licenses into the Business Authorization, thus allowing the holder to conduct processing, transportation, storage and/or trading activities with less time and cost.
    3. Geothermal Energy
      The Omnibus Law streamlines the licensing procedure and deals with the overlapping government authorities by mandating the central government to set the standard norms, guidance and criteria for the geothermal energy industry and eliminating the previous requirement to obtain prior approval from the Minister of Maritime Affairs and Fisheries for indirect utilization businesses in water conservation areas and from the Minister of Forestry for direct utilization businesses in forest areas. In addition, a direct utilization license holder is no longer required to pay production contributions (iuran produksi) nor submit its business plan, budgeting plan and implementation report to governmental institutions
    4. Electricity
      • Synchronization of authority between the central and regional governments. In the electricity industry, the Omnibus Law seeks to sort out the overlapping government authorities by mandating the central government to set the standard norms, guidance, and criteria for electricity supply (including, determination of the electricity selling price and the electricity grid rental price), which must be applied consistently by regional governments.
      • Streamlining of licensing procedure and liberalization in certain business activities. The Omnibus Law integrates the previous multi-layer licenses—the Electricity Supply Business License (Izin Usaha Penyediaan Tenaga Listrik, or IUPTL) and the Operational License (Izin Operasi)—into a single license, namely the Business Authorization. If the electricity business is carried on for public interest, the same Business Authorization also serves as the approval for cross-border electricity trading activities. Moreover, the Omnibus Law allows companies carrying out an integrated electricity business for public interest to conduct electricity generation and/or transmission businesses outside their working areas, which was not otherwise permitted under the previous regime of Electricity Law (Law No. 30 of 2009).
  2. Maritime and Fishery Sector
    • Simplified licensing procedure. The Omnibus Law simplifies the previously required multi-layer business licenses in the maritime and fishery sector (i.e. Fishery Business License, Fish Catching License, and Fish Cargo Vessel License) into a single license, i.e., the Business Authorization (Perizinan Berusaha).
    • Decriminalization. The Omnibus Law omits certain criminal sanctions against the failure to obtain the Business Authorization and to register any Indonesian-owned fishery vessel operated within Indonesia’s fisheries management areas and high sea zones (laut lepas), replacing them with administrative sanctions, which will be regulated in the implementing Government Regulation.
  3. Plantation Sector
    Simplification and relaxation of various procedures and requirements:

    • The Omnibus Law omits various complicated prerequisite plantation business licenses and in turn eliminates the confusingly overlapping authorities by vesting the central government with substantial authority to perform the regulatory and supervisory duties and mandating all regional governments to follow all the guidelines prescribed by the central government.
    • The obligation to allocate at least 20% of the total plantation area for the benefit of the local community (i.e. by developing a community plantation area) is now only applicable to cultivation-plantation companies whose plantation area, whether in part or in whole, emanates from: (a) any land areas with other designated uses (area penggunaan lain) outside the cultivation right (Hak Guna Usaha, or HGU) area; and/or (b) any land areas originating from the released forestry areas.
    • Compared to the previous regulatory regime, which required plantation companies to cultivate at least 30% of the plantation land within 3 years and 100% of the plantation land within 6 years after receiving the land title, the Omnibus Law does not specify any minimum target land area to be cultivated, but it shortens the deadline to 2 years, leading to an interpretation that the obligation will be deemed satisfied when the plantation land is cultivated within the 2-year time frame regardless of the size of the cultivated land area. We expect this will be clarified by the government in the implementing Government Regulation.
    • In addition, the Omnibus Law omits the strict deadline previously imposed on plantation processing companies that use imported raw materials to develop an integrated plantation (kebun) within 3 years after the operational commencement of their processing units.
    • The Omnibus Law also lifts criminal sanctions against carrying on a plantation business without duly obtaining the Business Authorization, replacing them with administrative sanctions, which will be further regulated in the implementing Government Regulation.
  4. Forestry Sector
    In the forestry sector, the Omnibus Law simplifies the 3 types of business licenses existing in the old regime for forest area utilization (i.e. area utilization business permit, environmental service utilization business permit, and timber/non-timber forest product collection or utilization business permit) into a single license: the Business Authorization.  In addition, it no longer requires the government to obtain the House of Representatives’ approval for issuing forest borrow-use permits in relation to areas with significant impact and strategic value.

    However, it remains to be seen whether the implementing Government Regulation will allow licensed companies to carry out the following previously prohibited activities: (i) utilization of protected and/or production forest areas, (ii) collection of non-timber forest products in protected forest areas, and (iii) collection of timber and non-timber forest products in production forest areas.
  5. Acceleration of Halal Product Certification Process
    The Omnibus Law accelerates the processing time for the issuance of a Halal Certificate by the Halal Product Guarantee Agency (Badan Penyelenggara Jaminan Produk Halal) to approximately 21 business days (in striking contrast with the previous regime of Law No. 33 of 2014 on Halal Product Guarantee, being approximately 95 business days’ processing time). This acceleration is expected to shorten the period required by the relevant businesses to commence their commercial operations.

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