Session timeout

Sorry, your session timed out after a long time of inactivity. Please click OK and Sign In again.


Foreign investors risks

Uncertain times ahead for foreign investors as question marks hang over divestment requirements and the maximum foreign investment percentage.

The increasing risks of Indonesia’s regulatory climate for foreign investors

Foreign investors in Indonesia’s coal market often face unforeseen exposure to risk

“There is an entire host of issues foreign investors have to anticipate when investing in Indonesia,” said Johannes C. Sahetapy-Engel, a founding partner at AKSET LAW at the Coaltrans Asia conference.

The main issue is the divestment requirements for foreign shareholders that invest in coal mining companies in Indonesia. The divestment requirement was first introduced in the 2009 Mining Law.

Majority or wholly foreign-owned (PMA) companies holding mining business licenses (IUPs) in Indonesia must divest shares in stages to Indonesian participants starting at 6th year of production.

The schedule for divestment is 20% in the sixth year, 30% in the seventh year, 37% in the eighth year, 44% in the ninth year and 51% in the tenth year.

Unsuccessful divestments in any one-year are carried over to the following year. Indonesian shareholding may not be diluted by foreign capital increase, which often presents difficulty on how to increase capital.

This is especially true if more capital is needed and the Indonesian shareholder is not in a position to inject this capital.

Foreign investors are finding it hard to get around this requirement. “This is one possible issue we anticipate will develop in the future” said Sahetapy-Engel and the annual conference in Nusa Dua, Bali.

Acquiring an Indonesian company

PMA companies with foreign shareholders are under the Capital Investment Coordinating Board (BKPM). When conversion from a wholly-owned Indonesian company to a PMA occurs, approval from the BKPM is required.

The BKPM will not issue its approval without a recommendation from the Minister of Energy and Mineral Resources. The Minister will not issue the recommendation unless there is approval from the regent, mayor or governor at the provincial or regional level.

“This is a long chain of approvals and recommendations. Before the company is approved, it is necessary when drafting the agreement that these recommendations and approvals are subject to the transaction closing,” said


This clause in the agreement ensures that foreign investor’s risk is minimised before putting money into a company.

Divestment requirement of public companies

In terms of divestment of public companies, it is unclear whether public listed companies are still subject to the divestment requirement.

“From a foreign investor’s perspective, they will put in substantial capital and start exploration and production. They have committed millions of dollars and six years thereafter they are required to divest,” said Sahetapy-Engel at Coaltrans Asia.

A possible resolution to this issue is if the mining company goes public and lists on the Indonesian stock exchange. However, it is uncertain if the the company still needs to comply with the divestment requirement after listing.

Legal scholars have argued that once a company goes public, it is difficult or impossible to control shareholders, so it should be classed as a public company.

The Indonesian Broadcasting Law provides some suggestions on how this may proceed. In the Broadcasting Law, the restriction on foreign shareholding is 20%, much steeper than for the mining industry.

Regulations over the Broadcasting Law clarify that even if the broadcasting company goes public, the foreign shareholding limitation continues to be 20%.

“This defeats the argument that a public company is local company, but nonetheless that is the case for broadcasting companies,” said Sahetapy-Engel.

Investors should be cautious of the divestment requirement when listing the company on the stock exchange. They should also consider that the broadcasting requirement may be replicated in the Mining Law.

New divestment requirements

Sahetapy-Engel said at the conference that there is a Draft Ministerial Regulation that will accelerate the divest requirement of mining companies.

The Regulation is in its final stage and will be issued imminently. Unlike other Draft Ministerial Regulations, this one is not available to the public.

“We want the government to reconsider this Regulation. If it is issued, the Mining Law would need to be amended to provide the basis for this regulation as 49% is the maximum foreign ownership” said Sahetapy-Engel at the annual conference.

The risks are high for foreign investors in Indonesia’s coal mining sector. It is hoped the government will make the situation over publically listed companies clear and publish the Draft Regulation over divestments so foreign investors can be well-informed.

This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

Related Insights