Energy

5 0 The Negative List previously provided an exhaustive list of numerous fields which were closed to, or otherwise restricted in respect of, foreign investment. The Positive List effectively lifts many of these restrictions and prohibitions by prescribing that all sectors and business fields are open to investment (subject to certain sector-specific criteria) save in respect of fields which are specifically designated as closed for investment or in which operations are limited to those conducted by the Indonesian government.1 Though the Positive Law has yet to be tested with respect to enforcement and potential conflicts with existing regulations, investors should still view the new regime with cautious optimism as an indication of the Indonesian government's commitment to foreign investment and economic transparency. Most notably, the Positive List relaxes various foreign ownership restrictions which may encourage previously hesitant developers to bid on projects which they would not have otherwise considered. Financiers may similarly find the new regime encouraging, as it could allow them to exert greater control over assignment provisions given the decreased regulatory pressure for sponsors to divest their interests to local shareholders. The Positive List divides open business fields into four categories: 1. Priority Business Fields: Business fields in which foreign investors may receive fiscal incentives (e.g., tax holidays and import duty exemptions) and non-fiscal incentives (e.g., lower licensing requirements, procurement guarantees for required infrastructure and raw materials, and immigration-related assistance), including pioneer industries, export, R&D, high technology-related fields, and capital intensive industries. 2. Cooperatives and micro, small, and medium enterprises: Business fields which are allocated for or require partnerships with cooperatives and micro, small, and medium enterprises. These include business activities which do not require technology (or which otherwise use simple technology), are labor intensive, have a special or hereditary cultural heritage, and/or do not require capital exceeding RP. 10,000,000,000 (~USD690,000). 3. Criteria-driven fields: 43 specific fields2 (down from the Negative List's 350) which are open to foreign investment subject to certain requirements or conditions. These fields include media publication, private broadcasting agencies, postal services, scheduled commercial air transport and various sea transportation. 4. All other fields: All other business fields not included in the preceding three categories which are stated to be open to foreign investment without any restriction or conditions.3 Perhaps the most important development under the Positive List is the expansion of open fields which fall under the fourth category which, in particular, introduces a number of relaxations on the minimum required domestic investment and foreign ownership restrictions in several fields relating to power generation and petroleum operations. While much of the discussion has been focused on opportunities for foreign investors, Indonesia will be the main benefactor given: (i) the estimated power required over the next decade to meet the demand of its expanding population4 will necessitate significant direct foreign investment; and (ii) industry players will likely be more willing to add further value and employ new technology in the petroleum sector given their new level of control over operations. A summary of the new positions under the Positive List is set out within the table on the right. While Indonesia is already viewed as a mature jurisdiction with respect to power development and oil & gas operations compared to some of its neighbours in the region, the Positive List embodies a significant and progressive step which will provide new investors with greater comfort regarding financing projects within the energy space while allowing existing investors to explore ownership structures to gain a larger foothold in their industries. INSIGHTS 09 Indonesia's New 'Positive List': An Optimistic Outlook on Foreign Investments in the Energy Space

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