Cabotage Except Ship

7/28/2019 Cabotage Except Ship

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H H R printed matters December 2011

Content :

The New Currency Law In

Indonesia ... 1

New Procurement Guideline of

BP Migas ....... 4

The Cabotage Principles and itsImplementation in Indonesia

Subsequent to the Issuance of

the Regulation of the Ministerof Transportation Number 48Year 2011 ...... 7

JakartaWisma 46 Kota BNI, 34

thFloor

Jl. Jend. Sudirman Kav.1. Jakarta10220 IndonesiaTel. +62 21 547 9820Fax. +62 21 547 9821Email. [email protected]

THE NEW CURRENCY LAW IN INDONESIA

By: Jenny Sadarangani (HHR Senior Associate)

I. INTRODUCTION

The Indonesian government through its House of Representative has on 31 May 20

enacted Law Number 7 of 2011 on Currency (Currency Law), which came ineffect on 28 June 2011. The law focuses amongst others on the management of Rupi

bank notes and coins by Bank Indonesia, which covers activities such as printin

issuance, circulation and revocation. In the effort to implement transparency, the la

has also imposed an obligation to Bank Indonesia to convey a periodical report to t

House of Representatives on such management activities.

Conversely, the issuance of the Currency Law has created a stir in the busine

activities in Indonesia due to the provision, which requires the use Rupiah for paymen

settlement of obligations and other financial transactions, which take place

Indonesia. This requirement is apparently contrary to the governments effort

developing effective policy framework to promote foreign investment.

II. PROVISIONS IN REVIEW

The following are the provisions of the Currency Law relating to the matter of o

review:

Article 21 paragraph (1) of the Currency Law stipulates that Rupiah must be used in:

a. each transaction which has payment purposes;b. the settlement of other obligations that must be fulfilled with the use of mone

and/or

c. other financial transactions

which are carried out within the territory of the Republic of Indonesia

An exemption to the above Article 21 paragraph (1) is set forth in Article 21 paragrap

(2) of the Currency Law which stipulates that the use of Rupiah shall not apply to:

a. certain transactions in the framework of implementing the government incomand expense budget;

b. grants to be given to or received from offshore sources;c. international trade transactions;d. foreign currency savings in a bank; ore. international financing transactions.


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H H R December 2011 page 2

In addition to the above Article 21, it is also essential to

note the stipulation as set forth in Article 23 paragraph

(1) of the Currency Law, whereby it is prohibited to

refuse to accept Rupiah where the transfer of Rupiah is

intended as a payment, or as a settlement of obligations

that must be fulfilled in Rupiah and/or other financial

transactions within the territory of the Republic of

Indonesia, except when there is doubt as to the

authenticity of the Rupiah.

However, Article 23 paragraph (2) of the Currency Law

provides that the prohibition as referred to in Article 23

paragraph (1) is exempted for payment or settlement of

obligations made in foreign currency, which has been

agreed in writing.

The relevant articles

of the Currency Law

as elaborated above

are seen as lacking in

clarity and this may

lead to various

interpretations. The

situation is also

compounded by the imposition of an imprisonment for a

maximum of 1 (one) year and a fine of IDR 200.000.000

(two hundred million Rupiah) for a breach of Article 21and Article 23 of the Currency Law.

III. REVIEW

Following is our preliminary review, which may be

subject to further adjustment once the implementing

regulation has been issued.

1. The mandatory use of Rupiah applies only for the

payment, settlement of obligations and other financialtransactions, which are carried out in Indonesia.

Based on Article 23 paragraph (2) of the Currency

Law, it can be concluded that for so long as the

parties have agreed in writing to have a contractual

currency other than the Rupiah currency, these

method of payment by using the currency other than

the Rupiah is permitted.

However, to avoid any unnecessary possibility of any

party to such contract nullifying the contract on the

basis of non-compliance to the Currency Law, the

parties may consider inserting a provision of applying

an exchange rate, either by determining a certain

exchange rate in the contract or by using an exchange

rate which prevails on the day the payment or

settlement of an obligation is to be made. Such

currency clause should carefully be drafted and

inserted in a writing contract.

2. We are of the view that the mandatory use of Rupiah

as payment shall also apply to foreign investment

companies (PMA) and foreign citizens who reside in

Indonesia. For example, the payment of remuneration

of a foreign individual who works and resides in

Indonesia, and

domestic trading

activities, shall

be included

under the

mandatory use

of Rupiah.

3. Exceptions to the use of Rupiah apply in the fields of

international trade and financing transactions. The

lawmakers did not address these exceptions clearly.

We refer to the term international trade as the

transfer of goods and/or services which requires cross

border payment and transactions such as export and

import; the payment for certain services may likely

fall under this scope of transaction.

On the other hand, it appears that foreign loans

obtained from foreign banks, foreign legal entities or

foreign financial institutions are considered as

international financing transactions. Thus, payment

or settlement of obligation for both international trade

and financing transactions may remain to be made in

foreign currency.

4. The Currency Law came into effect on 28 June 2011,

therefore the mandatory use of Rupiah in payment for

the settlement of obligations shall only apply to

commercial contracts signed on or after 28 June

2011.

Conversely, the issuance of the Currency Law has

created a stir in the business activities in Indonesia due

to the provision which requires the use Rupiah for

payment, settlement of monetary obligations and other

financial transactions, which take place in Indonesia.


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In relation to the exception that Rupiah shall not be

mandatory for payment or settlement of obligations,

which has been agreed in writing to be made in

foreign currency - we are of the view that this

provision applies to contracts, which existed prior to

28 June 2011.

Thus, such contracts will remain in place and will not

be subject to the requirement as set forth in Article 23

paragraph (1) of the Currency Law.

5. On the current schedule, the implementing regulation

is not due to be issued until 28 June 2012. Since it

appears that the Currency Law will lead to additional

uncertainty regarding transactions carried out in

Indonesia, we hope that the relevant Indonesian

authority will try to provide a clear meaning of the

provisions of the Currency Law through the issuance

of the implementing regulation.

We believe this law creates confusion that our clients

need to anticipate. We are aware that there are still issues

which need further review and as such, we advise you to

seek our immediate clarification should you have any

questions in respect to this law.

Hutabarat Halim & Rekan

lawyers

Wishing You

A Very Merry Christmas 2011

&

Happy New Year 2012

Having counted the votes, read the supporting documents and looked into the firm's achievements

throughout the course of 2011, Hutabarat Halim & Rekan has won the Acquisition International

Legal Award Indonesian Capital Markets Law Firm of the Year


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NEW PROCUREMENT GUIDELINES OF BP MIGAS

By: R. Aji Wibisono (HHR Lawyer)

I. INTRODUCTION

Based on Government Regulation Number 42 of 2002

concerning the Executive Agency of the Oil and Gas

Upstream Business Activities, Badan Pelaksana Minyak

dan Gas Bumi (BP MIGAS), this agency is authorized to

control and supervise the implementation of

goods/service procurement in oil and gas upstream

business activities.

The issuance by BP MIGAS of Decision Letter Number:

KEP-0003/BP00000/2011/SO has brought into effect the

Second Book of 2nd Revision of Guidelines Procedures of

Supply Chain Management of Cooperation Contract

Contractor Number 007-REVISI-1/PTK/IX/2009

concerning the Implementation Guidelines of

Goods/Service Procurement for All Cooperation Contract

Contractors in the Scope of Upstream Oil and Gas

Business Activities (hereinafter referred to as New

Procurement Guidelines).

These purposes are

expected to give support

and create the national

ability to compete in the

national, regional and

international level.

The provision in the

New Procurement Guidelines is generally centered in the

status of the supplier companies of goods/services and the

Domestic Content Level (Tingkat Komponen DalamNegeri TKDN). The status and the Domestic Content

Level are used as the basis for price preference which is

one of the comparison tools of the bidding price at the

evaluation price stage, for bidding which complies with

the administrative and technical requirements.

II. NEW PROCUREMENT GUIDELINES

The Status

The New Procurement Guidelines divide the types of

business entities as follows: (i) National Companies,

established under the Indonesian law which divided into

Domestic Investment Companies and Foreign Investment

Companies; (ii) the Foreign Companies, established

under the laws of foreign countries.

Domestic Investment Companies are National Companies

with more than 50% (fifty percent) of their shares owned

by an Individual Indonesian Citizen, the Republic of

Indonesia, Regional Government, a State-Owned

Enterprise, or a Regionally-Owned Enterprise.

The Price Preference Based on the Status of The

Companies

In goods procurement activities, the factory participant

with the status of Domestic Investment Company with a

Domestic Content Level of at least 25% (twenty fivepercent), in addition to

the price preference

given based on the

Domestic Content Level,

is given an additional

preference based on its

status as a Domestic

Investment Company in

the amount of 2.5% (two point five percent).

In service procurement activities with a DomesticContent Level commitment or Domestic Content Level

combination of at least 30%, in addition to the price

preference given based on the Domestic Content Level,

there is given an additional preference based on Domestic

Investment Companies status as follows:

The main purposes of the New Procurement

Guidelines are to prioritize the use of domestic

production and competence and to ensure that the

implementation of work is conducted in the territory

of the Republic of Indonesia


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(i) In the amount of 7.5% (seven point five percent), if:

(a) The implementer of the contract is a Domestic

Investment Company without conducting a

consortium with a Foreign Investment

Company and/or Foreign Companies; and

(b) At least 50% (fifty percent) of Work Service is

conducted by Domestic Investment Companies;

and

(c) At least 50% (fifty percent) of Work Service is

undertake in the territory of the Republic of

Indonesia.

(ii) In the amount of 5% (five percent), if:

(a) The implementer of the contract is a Domestic

Investment Company which undertakes a

consortium with a Foreign Investment Company

and/or Foreign Company, and the Domestic

Investment Company acts as the leader in such

consortium; and

(b) At least 50% (fifty percent) of Work Service is

conducted by a Domestic Investment Company;

and

(c) At least 50% (fifty percent) of Work Service is

undertaken in the territory of the Republic of

Indonesia.

Domestic Content Level

The Domestic Content Level is the scale domestic

content of goods/service or combination of goods and

service, which is stated as a percentage. The new

provision in the New Procurement Guidelines calculates

the Domestic Content Level of the tools utilization

service value in the chartering work implementation and

other services as follows:

(i) Domestic production tools and owned by a Domestic

Investment Company or Indonesian Citizen - the

utilization service value is calculated as 100% (one

hundred percent) of domestic content.

(ii) Foreign production tools and owned by a Domestic

Investment Company or Indonesian Citizen, the

utilization service value is calculated as 100% (one

hundred percent) of domestic content.

(iii)Domestic production tools and owned by a National

Company with more than 50% (fifty percent) of its

shares owned by foreign citizens or foreign

companies (including foreign companies which

operate as the partner of a Domestic Investment

Company in the form of a consortium or sub

contractor of a Domestic Investment Company or act

as the principal in the procurement of goods), the

utilization service value is calculated as 75% (seventy

five percent) of domestic content.

(iv)Foreign production tools and owned by a National

Company with more than 50% (fifty percent) of its

shares owned by foreign citizens or foreign

companies (includes foreign companies which

operate as the partner of Domestic Investment

Companies in the form of a consortium or sub

contractor of Domestic Investment Companies or act

as the principal in the procurement of goods), the

utilization service value is calculated as 0% (zero

percent) of domestic content.

The Price Preference Based on the Domestic Content

Level

The Price preference is given if the Domestic Content

Level of goods is at least 25% (twenty five percent) or

promise/commitment to achieve of Domestic Content

Level of service is at least 30% (thirty percent).

Goods/service with the Domestic Content Level

achievement of less than the abovementioned shall not be

given a price preference based on the Domestic Content

Level.

In the activities of the procurement of goods and

chartering services, the domestic production goods

element shall be given a price preference based on the

Domestic Content Level in the maximum of 15% (fifteen

percent), which is proportionally calculated based on the

achievement of the Domestic Content Level.

In the activities of chartering service procurement, other

services, consultation services, the domestic service

element shall be given a price preference based on

Domestic Content Level of a maximum 7.5% (seven


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point five percent), which is proportionally calculated

based on the achievement commitment of the

Domestic Content Level.

Price Preference is Not Calculated

Procurement is conducted without calculating the price

preference in order to determine the bidding evaluation

price, if:

(i) The procurement is conducted with the direct

appointment method; or

(ii) It is believed that in Indonesia, there is no company

that can produce goods with the specification and

technical quality standard to meet the needs; or

(iii)In order to provide half the need for goods which are

impossible to be provided from domestic sources

because production capacity in Indonesia is not

enough to provide the needs in the required time; or

(iv)The procurement has a maximum value of Rp.

1,000,000,000.00 (one billion Rupiah) or a maximum

value of US$ 100,000.00 (one hundred thousand

United States Dollar) which is not the result of

package splitting, and it is not domestic production of

goods procurement which is included in the

compulsory use category.

The New Procurement Guidelines are made to make

Domestic Investment Companies significant business

actors in the oil and gas upstream business activities.

Domestic Investment Company status gives an advantage

based on price preference that can be used in the

evaluation price stage in order to determine a

procurement-bidding winner. However, the price

preference is only one of the elements used in order to

determine a procurement-bidding winner and does notguarantee a victory in procurement-bidding activities.

Therefore these New Procurement Guidelines will not

immediately eliminate opportunities for other than the

Domestic Investment Companies in procurement-bidding

activities.

The Procurement for the Foreign Companies

Foreign Companies may participate in import goods

procurement activities with a value more than Rp.

25,000,000,000.00 (twenty five billion Rupiah) or more

than US$ 2,500,000.00 (two million five hundred

thousand United States Dollars), with an obligation to

cooperate in the form of agency with Domestic

Investment Companies or as a consortium partner. Such

cooperation shall be set forth in an agreement and

become a part of the bidding document and become one

of the engagement elements in the procurement contract.

Procurement of information technology software may

conducted directly with Foreign Companies in foreign

countries, prior to the approval of BP MIGAS, for:

(i) Goods/services which are attached with the

requirement of proprietary right; and

(ii) In Indonesia, there is no supplier of goods/services

which acts as an agent or the representative or license

owner, or the owner of the proprietary right is

unwilling to appoint an agent or representative in

Indonesia.

Inconsultancy service procurement, Foreign Companies

may participate if the value is more than Rp.

10,000,000,000.00 (ten billion Rupiah) or more than US$

1,000,000.00 (one million United States Dollar) with an

obligation to cooperate in the form of a consortium with a

Domestic Investment Company or subcontract to a

Domestic Investment Company which shall be set forth

in an agreement and become a part of the bidding

document and become one of the engagement elements in

the procurement contract.


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The Cabotage Principles and its Implementation in Indonesia Subsequent to the Issuance

of the Regulation of the Minister of Transportation Number 48 Year 2011 regarding the

Procedures and Requirements for Granting Permission to Use Foreign Vessels for Other

Activities Excluding Passenger and/or Cargo Transportation in the Domestic Sea

Transportation ActivitiesBy: Erin Diananita (HHR Lawyer)

As an archipelago country which 2/3 of its territory

contains of water1, it is obvious that the water

transportation is significantly crucial for the defense and

the economic growth of Indonesia. As it has been realized

that the water transportation has a significant role in

connecting between regions, either nationally or

internationally, therefore it is important to develop the

potential and roles of water transportation, especially the

sea transportation. Further such development in potential

and roles of sea transportation is crucial to be carried out

for supporting the national development as to increasing

the welfare of the nation as well as to unifying the

territory of the Republic of Indonesia.

In view of the important and strategic role of the sea

transportation, which dominates the lives of the people,

the existence of such

transportation iscontrolled by the state

which implementation

and development are

carried out by the

government.

The realization of the said control by the government is

regulated in the shipping law of the Republic of

Indonesia. As publicly known, since the issuance of the

Law Number 17 Year 2008 regarding Shipping Law

(Law 17/2008), which is reinforced by the GovernmentRegulation of the Republic of Indonesia Number 20 Year

2010 regarding Water Transportation (GR 20/2010),

foreign vessels are prohibited to carry any passengers

and/or goods between islands and between ports within

the territorial water of Indonesia. Every vessels which

sails and conducts shipping activities in the territory of

1 http://indomaritimeinstitute.org

Indonesia, shall bear the Indonesian flag and be operated

by Indonesian citizens.

The prohibition as set out in the Law 17/2008 and GR

20/2010 is being known as cabotage principle, which

principle commenced as of the effectuation of Law

17/2008 on May 7th, 2008.

Lack of Sufficient Vessel

It is clearly stated above that the GR 20/2010 prohibits

the usage of foreign vessels for any activities in carrying

passengers and/or goods. However, on the other hand, it

is undeniable that the usage of foreign flagged vessels is

significantly essential, especially for supporting the

mining activities of offshore oil and gas.

The availability of the

vessels for the mining

activities as mentioned

above currently cannot be

fulfilled by Indonesian

flagged vessels, due to the

fact that the procurement

of these vessels require a considerable amount of

investment, advance technology, and the number of such

vessels as well as the experts to operate the vessels are

very limited, while on the contrary the usage of those

vessels is global in nature and unsustainable.

Since the occurrence of the lack of sufficient vessels, The

implementation of cabotage principle could not be done

consistently in exploration and exploitation of oil and gas

in water territorial or offshore because there is no or not

enough supporting vessels for oil and gas operational in

Indonesian flagged.

GR 22/2011 and RMT 48/2011 provideexception or dispensation for foreign vessels

from the cabotage principle to participate in

activities offshore Indonesia.


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This lack of sufficient vessels condition will cause the

disturbance of activities related to offshore oil and gas,

which affect to national energy security and continuous

national development. Such effect will further have

adverse effect to the economic sector in Indonesia.

The exception

In the beginning of this year, the government of

Indonesia issued the Government Regulation of the

Republic of Indonesia Number 22 Year 2011 regarding

Amendment to the Government Regulation Number 20

Year 2010 regarding Water Transportation (GR

22/2011). The government also issued the Regulation of

the Minister of Transportation Number 48 Year 2011

regarding the Procedures and Requirements for Granting

Permission To Use Foreign Vessels for Other Activitiesthat do not Include Passenger and/or Cargo

Transportation in the Domestic Sea Transportation

Activities (RMT 48/2011), as its technical regulation.

GR 22/2011 and RMT 48/2011 provide exception or

dispensation for foreign vessels from the cabotage

principle to participate in activities offshore Indonesia.

The issuance of the regulation is expected to enable

Indonesia to come out of the dilemmatic situation caused

by the legislative demands and the demands from

business communities in Indonesia's offshore oil and gas

sector.

GR 22/2011 has been issued on April 4th 2011 to allow

certain types of foreign vessels for shipping activities

such as: supporting activities for oil and gas survey,

drilling, offshore construction, DSV for offshore

construction, supporting offshore operations, dredging,

and underwater salvage and works to operate in

Indonesia.

The abovementioned activities can only be carried out ifthe foreign vessels have met the following requirements:

1) Foreign vessels are allowed to conduct other

activities excluding the transportation activities of

passengers and/or goods in domestic sea

transportation activities within Indonesian waters,

provided that Indonesian flagged vessels are not

available or are not sufficiently available.

2) Foreign vessels as mentioned in paragraph (1) are

obligated to obtain permition from the Minister of

Transportation of the Republic of Indonesia

(Minister).

The followings are the details of the activities that are not

included in the transportation of passengers and/or goods

in domestic sea transportation activities within

Indonesian waters:

1. Survey of oil and gas, which includes:

a. Seismic survey;b. Geophysical survey; andc. Geotechnical survey.

2. Drilling, which includes:

a. jack up rig;b. semi submersible rig;c. deep water drill ship;d. tender assist rig; ande. swamp barge rig.

3. Offshore construction, which includes:

a. derrick/crane, pipe/ cable/ Subsea UmbilicalRiser Flexible (SURF) laying barge/ vessel; and

b. Diving Support Vessel(DSV).

4. Supporting offshore operations, which includes:

a. anchor handling tug supply vessel more than5000 BHP withDynamic Position (DP2/DP3);

b. platform supply vessels; andc. Diving Support Vessel (DSV).

5. Dredging; which includes:

a. drag-head suction hopper dredger; andb. trailing suction hopper dredger.

6. Salvage and underwater works, which includes:

a. heavy floating crane;b. heavy crane barge; andc. survey salvage.

The permit to use the foreign vessels is granted by theMinister subsequent to the compliance of theadministrative requirements and it has been proven by the


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announcement of the auction that there has been an effortin procuring the Indonesian-flagged vessels.Pursuant to the RMT 48/2011, the permit to use the

foreign vessels as reffered in Article 2 paragraph (2) will

be granted by the Minister subsequent to the compliance

of following administrative requirements:

a. work plan that is accompanied by the time table andactivities working area that has been marked bygeographic coordinate;

b. to own a charter party between national seatransportation company and foreign vessels owner aswell as work agreement and/or Letter of Intent(LOl)from the employee;

c. copy of Sea Transportation Business License (SuratIzin Usaha Perusahaan Angkutan Laut- SIUPAL);

d. copy of Nationality certificate/vessels registration;

e. copy of vessel safety and security Certificate;f. copy of Vessel Pollution prevention Certificate;g. copy of Vessel classification Certificate;h. copy of list of the vessel crew; andi. copy of safety management Certificate.

This usage of foreign vessels permition will be given formaximum 3 (three) months and may be extended after anevaluation.

Based on the MRT 48/2011, the grace period for the

usage of foreign-flagged vessels in the oil and gas

activities in Indonesia are given as follows:

Type of Activity Time

Oil and gas survey December 2014

Drilling December 2015

Offshore construction December 2013

DSV for offshore construction December 2012

Supporting offshore operations December 2012

Dredging December 2013

Underwater Salvage and Works December 2013

Therefore, although it is prohibited, there is still a

possibility for foreign-flagged vessels to be utilized in

Indonesia, for so long the activity carried out by foreign-

flagged vessels is allowed and the implementation of

such activity is carried out by national sea transportation

company.

All articles and information in this Newsletter inevitably contain generalizations on the matters in question and should not be regarded as presentingdefinitive legal advice, nor is it intended to provide the reader with the substitution expert legal advice. The reader should be aware that the Indonesian

laws are constantly changing from time to time and this article only reflects the prevailing laws and regulations, which are applicable at the time of

writing. Therefore, any specific issues raised by reader in connection whit the relevant matter will require further legal consultation.

This attorney work product is a copyright.No part of this work product my be reproduced, stored,

in a retrieval system or transmitted in any form or by any means, electronic,mechanical, photocopying, recording, or otherwise without the prior permission of

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Cabotage Except Ship