Local Content Calculation for Pharma

The government has added to the long-list of sectors affected by the rising trend of local content rules in the country

By Gilang Ardana
Thursday, July 5, 2018

The Ministry of Industry has prepared a draft regulation on how to calculate local content (TKDN) for pharmaceutical products. The draft is a response to Presidential Directive No. 6 of 2016 on the acceleration of the development of the pharmaceutical and medical-equipment industries that mandated the ministry to monitor and evaluate the implementation of TKDN.

Previously, foreign investors have struggled with the implementation of TKDN in sectors including information and communications technology (ICT) and oil and gas. Localization, which in the past sometimes came in the form of forced manufacturing or forced partnerships, contrasts with the best practices of international business that pushes companies to strategize with the global supply chain. Sometimes TKDN implementation lacked the readiness of many supporting industries.

In the pharma sector, the current draft prepared by the industry ministry says that TKDN calculation for pharma products will be a process-based calculation that covers these items:

  1. Raw materials (30 percent), which consists of active ingredients (70 percent) and additional ingredients (30 percent)
  2. Research and development (25 percent) – research and development (25 percent), clinical trials (non bioavailability/bioequivalence) (30 percent), formulation (35 percent) and bioavailability/bioequivalence (10 percent)
  3. Production process (35 percent) - of formulation (60 percent) and dosage forming (40 percent)
  4. Packaging process (10 percent) - batch release (50 percent), primary packaging (40 percent) and secondary packaging (10 percent).

The draft regulation says that TKDN scoring will be based on self-assessment. However, there is no clarity yet on how the government will implement TKDN in the pharma industry (including what percent of TKDN a company should comply to), as the draft only regulates on the “how” part of the calculation.

One concern is that the calculation may eventually be linked to government procurement and limit the ability of foreign companies to participate in the national social security system (JKN) procurement/e-catalogue, if they need to have a certain level of TKDN to take part.

AmCham Indonesia will continue to monitor this issue through our pharma committee.

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