17 Mar 2021
New Omnibus Law Regulation on Indonesias National Strategic Projects Expands Availability of State Guarantees

February 2021 saw the issuance of a raft of new government regulations to give effect to the reformist Job Creation Law (colloquially known as the Omnibus Law), which entered into force on 2 November 2020. In this ABNR legal update, we discuss Government Regulation No. 42 of 2021 on the Facilitation of National Strategic Projects.

The Indonesian government is hoping to maintain momentum in the development of national strategic infrastructure through Government Regulation No. 42 of 2021 on the Facilitation of National Strategic Projects (the “Regulation”).[1] It broadens the definition of “national strategic project” (“NSP”) and expands access to government guarantees as part of the effort to achieve the government’s overarching goal of boosting economic development and employment, as mandated by the recently enacted Omnibus Law,[2] for which the Regulation is an implementing instrument. However, no changes have been made to the list of NSPs set out in previous presidential regulations on the topic (No. 3/2016,[3] as lastly amended by No. 109/2020[4]), the provisions of which continue in effect to the extent that they are consistent with the Regulation.

Project Coordination and Availability of Government Guarantees and Support

The Regulation reaffirms the right of the President to approve amendments to the list of NSPs. It also mandates the Government to ensure coordination as between ministries, government agencies, local governments and other related parties in the planning and financing of NSPs.

The regulation also states that financing for an NSP may be accessed from the state budget, local government budget or other financing source that is permitted under the laws and regulations. This opens the door to the possibility of state guarantees for NSPs funded by sources other than state and local government budgets, something that was not expressly provided for by the previous regulations on national strategic projects.

A state guarantee may be given in respect of: (i) loan or shariah financing; (ii) commercial viability; (iii) a public-private partnership; and/or (iv) political risk. However, a guarantee will only be available to an NSP that is financially and technically feasible and if the relevant government contracting agency has prepared a complete set of project-background documentation and a risk-mitigation plan.

The Ministry of Finance (“MoF”) may also provide a “project development facility” (“PDF”) to help ensure that NSPs get off the ground. It is not entirely clear what a PDF actually entails as the Regulation only informs us that this is a “fiscal mechanism” to boost effectiveness in the preparation and implementation of NSPs. The MoF is now required to prepare a priority list of NSPs that are eligible for PDF assistance.

Project Licensing and Panels

The Regulation mandates the relevant minister/agency head, governor, regent or mayor to adopt a pro-active approach by identifying and issuing the business licenses required for an NSP. The Ministry of Agrarian Affairs and Spatial Planning is also required to pro-actively identify the land needed for NSPs so as to accelerate project implementation.

The government is required to establish panels to accelerate the process of selecting qualified contractors and consultants (usually from a shortlist of at least 5 based on technical and cost criteria that are appropriate to the relevant project).

ABNR Commentary

The availability of state guarantees and support for NSPs that are not in receipt of state or local government funding should help boost the attractiveness of such projects to investors (although the ongoing coronavirus pandemic continues to present challenges in this regard). Financial institutions are likely to view such state guarantees and supports as offering an attractive addition to conventional guarantee and security arrangements.

The establishment of eligible contractor and consultant panels should help to streamline the conventional NSP tender mechanisms. However, we will need to await the issuance of the necessary implementing regulations for the Regulation before we can assess the government’s precise plans in this regard.

The Regulation should also result in more systematic and comprehensive coordination between central and local government, something that has often been noticeably lacking in the past. This has frequently led to undue delays to NSPs, despite their priority status and critical importance to national economic development and job creation.

By partner Mr. Ayik Candrawulan Gunadi (agunadi@abnrlaw.com) and associate Mr. Rendi Prahara Septiawedi (rseptiawedi@abnrlaw.com).

[1] Peraturan Pemerintah Nomor 42 Tahun 2021 tentang Kemudahan Proyek Strategis Nasional

[2] Law No. 11 of 2020 on Job Creation (Undang-Undang Nomor I I Tahun 2O2O tentang Cipta Kerja)

[3] Presidential Regulation No. 3 of 2016 on Accelerated Development of National Strategic Projects / Peraturan Presiden Nomor 3 Tahun 2016 tentang Percepatan Pelaksanaan Proyek Strategis Nasional

[4] Presidential Regulation No. 109 of 2020 on the Third Amendment of Presidential Regulation No. 3 of 2016 on Accelerated Development of National Strategic Projects / Peraturan Presiden Nomor 109 Tahun 2020 Tentang Perubahan Ketiga Atas Peraturan Presiden Nomor 3 Tahun 2016 tentang Percepatan Pelaksanaan Proyek Strategis Nasional

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.