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Hutabarat Halim & Rekan - Lawyers 20/F DBS Bank Tower, Ciputra World 1 Jl. Prof. DR. Satrio Kav. 3-5 Jakarta 12940 – Indonesia www.hhrlawyers.com

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Investing In Indonesia’s Ports,

Shipbuilding & Shipping Lines Sectors:

Legal Perspectives

By: Nini N. Halim

Hutabarat Halim & Rekan

Presented on 5 September 2016

At the

Indonesian Business Updates on Ports, Shipbuilding & Shipping Line

Hamburg Chambers of Commerce, Hamburg – Germany

FACTS

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The world’s largest archipelago.

Made up of over 17,000 islands, water transportation plays a vital role for Indonesia’s

economy.

Has an immense need for transporting goods and people across the archipelago.

The shipping business is a strategic industry.

Indonesia has ratified several international conventions on shipping and navigation.

Negative List of Investment 2016: Liberation of 35 business activities out of Negative List,

additional of 20 new business activities open for foreign investment

OVERVIEW

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FSCs can engage in the Indonesian shipping business only by establishing an Indonesian

JVSC licensed to engage in this business.

The capitalization, permitted foreign shares ownership, manpower requirements and mainline

of business of the JVSC must be in line with the prevailing regulations. The JVSC must

directly own at least one seaworthy Indonesian-flagged vessel with a minimum 5,000 GT.

Cabotage regulations & its implications.

• Domestic shipping routes can only be undertaken by Indonesian flagged vessels or by

foreign vessels with a fully Indonesian crew on board.

• Cabotage regulations have recently been revised to exempt vessels which perform: (i) oil

and gas survey; (ii) drilling; (iii) offshore production; (iv) offshore support; (v) dredging; or (vi)

salvage and underwater works.

BEFORE ENTERING THE MARKET

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Understanding the culture & language

Take time to explain the business you wish to do in Indonesia

ISIC (Indonesian Standard Industrial Classification) or the KBLI Code (Klasifikasi Baku

Lapangan Usaha Indonesia)

Indonesia’s spider-web of regulations & bureaucracy

No centralized information system

Business partner

Market entry format

Local assistance & people on-ground

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REGULATORY FRAMEWORK

Company Law

• MOLHR’s Regulations

• MOF Regulations

Investment Law

• Negative List of Investment

• KBLI

• BKPM Guidelines

Shipping Law

• Shipping Regulations

• Port Regulations

• Shipyard Regulations

Manpower Law

• Minister of Manpower Regulations

• BPJS Regulations

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THE SCOPE OF ACTIVITIES (Regulation Based)

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Port Shipbuilding/Shipyard Shipping

Art. 1 para. 14 Shipping Law:

Elucidation of Art. 124 para. 1

Shipping Law:

Art 1 para 3 Shipping

Law:

Everything associated with the

implementation of port functions to

support the smooth, security, and

orderly flow of the vessel traffic,

passengers and/or goods, the safety

and security of sailing, the

displacement of intra and/or

intermodal and to encourage the

national and regional economy with

regard to spatial.

What is meant by "ship building" is

a new shipbuilding, both

domestically and abroad, that is

immediately Indonesian flagged.

Transport in the waters, is

an activity of

transporting

and/or moving

passengers and/or goods

using a vessel.

THE SCOPE OF ACTIVITIES (Indonesian Standard Industrial Classification or KBLI Code)

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Port Shipbuilding/Shipyard Shipping

KBLI 52221 - Activities on Sea

Port Services

KBLI 30111 - Industry of Ships

and Boats

KBLI 5011 - Domestic Sea

Shipping for Passengers

Port services related to water

transportation for passengers,

animals or goods, such as the

operation of terminal facilities for

example ports and docks,

operation to secure the

waterways and others,

navigation, shipping and berthing

activities, mooring services,

guiding services

Which includes the

manufacturing or assembling

of a variety of commercial

ships and boats, made of

steel, fiber glass, wood or ferro

cement, both motorized and

non-motorized, such as

passenger ships, ferry boats,

cargo ships, tankers, towboat,

commercial sailboat, war ships,

ships for research, fishing

vessels and fish processing

plant vessels.

KBLI 5013 - Domestic

Sea Shipping for Goods

KBLI 5012 - Overseas

Shipping for Passengers

KBLI 5014 - Overseas

Shipping for Goods

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THE SCOPE OF ACTIVITIES … (… cont’d)

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Items Port Shipbuilding/Shipyard Shipping

Who can conduct

the business

Indonesian legal entity:

(i) wholly-local owned,

(ii) PTPMA, (iii) state-

owned companies, (iv)

regional state-owned

companies, or (v)

cooperative

(Art 26 para 1, Art 27

para 2, jis. Art 1 para 20,

21 and 22 MOTR No.

51/2015)

(i) Legal entity, and (ii)

non-legal entity domiciled

in Indonesia, for wholly

local owned.

(Art 1 para 8, 9, and 10

Industry Law)

A legal entity/PTPMA for

foreign investment.

(Art. 5 (2) Investment

Law)

Indonesian legal entity:

(i) wholly-local owned,

(ii) PTPMA, (iii) state-

owned companies, (iv)

regional state-owned

companies, or (v)

cooperative

(Art 68 para 1 MOTR

No. 93/2013)

Type Single purpose

company.

Not specifically

determined

(manufacturer)

Single purpose

company.

Scheme Concession or other

arrangement with the

Port Authority

(government)

JV JV

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THE PERMITTED FOREIGN SHARES OWNERSHIP & CAPITALIZATION REQUIREMENTS

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Items Port Shipbuilding/Shipyard Shipping

Negative List of

Investment &

Permitted foreign

SHARES

ownership.

Max 49% foreign ownership. Shipbuilding made of wooden

materials: partnership with local

Micro, Small and Medium

Enterprises. The permitted

foreign ownership is not

determined.

Shipbuilding made of other

materials: 100% foreign

ownership.

Max 49% foreign ownership.

Capitalization

Requirements

Minimum paid-up capital:

IDR 1 trillion: main ports.

IDR 200 billion: collecting

ports.

IDR 25 billion: crossing ports.

Minimum capitalization:

Authorized capital: min IDR 10

billion.

Issued and Paid-up capital: min

IDR 2.5 billion.

Minimum capitalization:

Authorized capital: IDR 50

billion.

Paid-up capital: IDR 12.5

billion.

Other

Requirements

Owns at least one seaworthy

Indonesian-flagged vessel with

a minimum 5,000 GT.

Fully Indonesian crew.

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KEY ITEMS - INCORPORATING BUSINESS IN INDONESIA

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Issues Discussion Notes

Investment Value Must be >IDR 10 billion or its USD equivalent Minimum shares owned

must be at least IDR 10

million

Source of investment funds Paid-up capital and/or reinvested profit, combined (if

necessary) with loan.

Structuring the investment May comprise of EQUITY (only) or a combination

between EQUITY and LOAN.

Debt to equity ratio 4:1

Domicile & project location Company domicile must be pre-determined. Project location will greatly

affect the total Investment

value to be made.

Shareholders Minimum 2 shareholders. Legal entities or individuals

or a combination of the

two.

Management structure Two-tiers management system:

Board of Directors (BOD)

Board of Commissioners (BOC)

BOD day-to-day

operations

BOC supervisory duties

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KEY ITEMS - INCORPORATING BUSINESS IN INDONESIA (… cont’d)

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Issues Discussion Notes Capitalization structure Authorized capital

Issued capital

Paid-up capital

Issued Capital & Paid-up

capital at least 25% of the

authorized capital.

Minimum paid-up capital: IDR

2,5 billion

Special treatment Will be applied to certain business sectors

having:

An investment value of at least IDR 100

billion

Employing at least 1.000 workers

The License will be issued

within 3 hours

Employment related matters Technical certification based on type of

industry.

Prohibition of double position.

Positions that are prohibited for expatriates.

Mandatory work permit & stay permit for

expatriates.

Expatriate President Director must possess

a work permit & stay permit.

Indonesia Social Security (BPJS) obligation.

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THE ENTRY FORMAT – GENERAL PROCESS & PROCEDURES

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Acquisition Process Period*) Establishment Process

Pre-acquisition Actions: Pre-incorporation Actions:

Identification of target company Identifying local partner (if applicable)

Due Diligence of target company & negotiations -

Identification of activities in Negative List & KBLI Identification of activities in Negative List & KBLI

Identifying the permitted foreign shares ownership

%

Identifying the permitted foreign shares ownership

%

Other administrative notification (if applicable) -

Identifying the new name of the target company

(if any)

Identifying the name of PTPMA

Identifying the management composition (BOD-

BOC) & shares ownership composition of the

target company that will be restructured

-

Terms of JV Agreement (if applicable) JV Agreement (if applicable)

POAs to process the acquisition POAs to process the establishment

Shares Sale Agreement & other related

agreements

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THE GENERAL PROCESS & PROCEDURES (cont…)

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Acquisition Process Period*) Establishment Process

Acquisition: Incorporation Actions:

BKPM Approval Investment In-Principle

License

14 WD BKPM Approval Investment In-Principle License

Amendment to the Articles of Association 2 WD Deed of Establishment

- Basic licenses

- 2 WD Bank account of PTPMA

MOLHR Approval 3 WD MOLHR Approval to Deed of Establishment

Updating the Register of Shareholders 2 WD Register of Shareholders

Post-acquisition: Post-incorporation

Other administrative notification (if applicable) Corporate Housekeeping actions

- Business License by BKPM

- Operational licenses / related business sectors’

licenses

Period*): is an estimate only and cannot be deemed as a commitment to time.

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Thank You