The Ministry of Public Works and People’s Housing (MPWPH) recently issued Ministerial Regulation no. 9 year 2019 regarding Guidelines for Licensing Services for Foreign Construction Services Companies (MR 09/2019), which, as indicated by its title, contains some provisions for foreign construction company licensing procedures.
One of the most concerning parts of the MR requires foreign-invested construction services companies to sell 30 to 33 percent of ownership to local companies with similar scale and qualifications (Article 23). This provision, along with several others outlined in the MR, not only has negative implications on investment in the sector in the long-run, but is also not in line with existing regulations, such as Presidential Decree no. 44 year 2016 regarding the Negative Investment List (DNI regulation). The situation is not consistent with the government’s continuous campaigns to attract foreign direct investment (FDI).
In response to the need for advocacy in the sector, AmCham Indonesia has revived its Construction Committee. Joining forces with Japanese and Italian counterparts in the industry, the kick-off meeting was held on October 17 at the Jakarta Japan Club’s (JJC) office. Present were representatives from US companies, as well as several Japanese and Italian companies, JJC, the Italian Business Association in Indonesia (IBAI) and the US Embassy. The purpose of the inaugural meeting was to set up a joint advocacy agenda moving forward with the issue.
The meeting began by defining problematic parts of MR 09/2019 for each company. In addition to Article 23 on foreign-local ownership, foreign companies are also concerned about Articles 29k and 59-60, which require Foreign Construction Services Business (BUJKA) companies to have at least one high-tech, high-risk project during the license period (three years), with the possibility of license revocation if they fail to comply. Foreign companies are also required to share a minimum 50 percent of work value with their local counterparts (Article 33).
According to the companies, the main issue with the MR in general is its disregard of existing regulations as well as its impact on investment. Not many local companies are qualified as potential stakeholders, and between those who are, many are direct competitors of foreign companies. The MR also overlooked the grandfathering provision of the DNI regulation. This regulatory set-up is certainly in contrast with Indonesia’s investment vision and goals.
The meeting continued by discussing advocacy approaches.
“US Commerce Secretary Wilbur Ross took up this issue when he was here, which we appreciated,” said AmCham Managing Director Lin Neumann. “Going forward, I think you will see a robust multi-lateral advocacy effort on behalf of the construction sector.”
For more information on further advocacy efforts or the AmCham Construction Committee, please contact [email protected]
