03 Mar 2021
Little Change for Indonesias Rail Sector under New Omnibus Law Regulation
Despite significant ongoing deregulation in some other key sectors, a recently issued government regulation makes it clear that there are to be no major changes to the basic licensing and regulatory regime in the rail sector -- business, construction and operating licenses will continue to be required for businesses in the rail infrastructure field, while business and operating licenses will still be needed for the operation of rail facilities.
Rail infrastructure covers the tracks, signalling systems, stations and other infrastructure used to support rail operations, while rail facilities refers to the locomotives and rolling stock.
The new regulation (Government Regulation No. 33 of 2021 on Railway Operations (“GR 33”)), has been issued to give effect to changes in the principal legislation governing Indonesia’s rail sector (Law Number 23 of 2007 on Rail Transportation), following its amendment by Law Number 11 of 2020on Job Creation (colloquially, the “Omnibus Law”). GR 33 entered into effect on 2 February 2021.
As under the previous regime, GR 33 provides that a rail-infrastructure operator must be selected through a procurement process conducted by the government using one of the following procedures:
- Tender - where the investment is partially or wholly financed by central or local government.
- Direct Appointment - where none of the investment is financed by central or local government and a guarantee has not been provided by central government.
- Assignment (penugasan) - where a tender is conducted but attracts no bidders due to financial viability issues.
A legal entity that is selected to operate rail infrastructure using one of the above schemes, must sign an agreement for the operation of public rail infrastructure with the Transportation Minister (the “Minister”) or relevant governor or regent or mayor, as the case may be. Such agreement may take the form of a concession or cooperation scheme. Cooperation schemes include agreements for utilization, rental, management, joint operation, etc. These can be take the form of build, operate, and transfer (BOT), build, transfer, operate (BTO) or other commonly used arrangements.
With regard to a concession agreement, upon its expiry the rail infrastructure, land and all of the assets that constitute the investment in the rail infrastructure must be handed over to:
- the State (for a national railway);
- the relevant province (for a railway located within one province); or
- the relevant regency or municipality (for a railway located within one regency or municipality).
As for a cooperation agreement, there is no requirement that the assets be handed over to central or local government, unless otherwise agreed by the parties.
After the execution of a concession or cooperation agreement, the new operator may apply for construction and/or operating licenses from the Minister, governor, or regent/mayor, as the case may be.
GR 33 makes no significant changes as regards rail facility licenses. The issuance of business licenses for the operation of rail facilities continues to come within the authority of the Minister and they remain valid for as long as the holder continues to run the railway facilities. Meanwhile, operating licenses are issued by the Minister or relevant governor or regent/mayor, as the case may be.
It had been hoped that GR 33 would reduce the licensing and regulatory burden on businesses in Indonesia’s rail sector. However, this has not happened to a significant extent, with the regulation of Indonesia’s railways continuing to be pretty much as it was previously. However, it is still possible that some relaxation could be forthcoming in the ministerial regulations that will need to be issued to give effect to GR 33. In this regard, one thing that is new is that GR 33 expressly confers a wide-ranging power of discretion on the Minister to make policy decisions on any issues not clearly covered by GR 33 or where new initiatives are needed to address policy gaps and avoid “governmental stagnation.” While this provision might simply be a reflection of the inherent authority vested in a minister, it could also have more significance, depending on how it is subsequently interpreted. Unfortunately, GR 33 provides no further guidance on the Government’s intention in this regard.
By partners Ms. Rita Tyastuti Taufik (firstname.lastname@example.org) and Mr. Ayik Candrawulan Gunadi (email@example.com), and senior associate Mr. Novario Asca Hutagalung (firstname.lastname@example.org).
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.