INDONESIA Trends and Developments Contributed by: Emir Nurmansyah, Ulyarta Naibaho, Muhammad Muslim and Adithya Lesmana, ABNR Counsellors at Law
laws of incorporation. On the other hand, the major - ity shares of the JV National Shipping Company may only be held by another National Shipping Company. Thus, the foreign investors must ensure that the inves - tor must engage another National Shipping Company wholly owned by Indonesian individuals which holds a valid SIUPAL to serve as the majority (51%) share - holder and the minority (49%) shareholder must either qualify as a shipping company or designate an affili - ated company that is considered a shipping company under its laws of incorporation. Inconsistencies of Regulatory Interpretation Based on recent experiences, there have been incon - sistencies between the provisions set out in ship - ping-related regulations and their implementation in practice, including the interpretations by the relevant government officials. For example, as explained above, the shareholding composition requirements introduced by the Third Amendment specify that the Indonesian shareholder(s) holding the 51% majority shares in a shipping compa - ny must be National Shipping Company(-ies) (entirely free of foreign ownership at any level) and must also hold a valid SIUPAL. This may also be interpreted as requiring that the 51% ownership in a shipping com - pany holding a SIUPAL be held by a single domestic shipping company. Consequently, under this interpre - tation, it would not be permissible for two or more domestic shipping companies to collectively own the 51% majority shares. Furthermore, the language of the provision under the Third Amendment may also be construed as implying that foreign shareholders holding the 49% shares in a shipping company must themselves be shipping com - panies. However, the requirement for both domestic/ national and foreign shareholders of a shipping com - pany to be duly established and licensed shipping companies is not expressly stated in the legislation. Rather, it is inferred from the interpretation of Article 29 (2) of the Third Amendment. Article 29 (2) of the Third Amendment stipulates that a wholly Indonesian-owned domestic shipping company may enter into a co-operation with foreign shipping companies to establish a JV sea transporta -
tion company, provided that the majority ownership remains with the domestic shipping company. The use of the term “may” in this provision suggests freedom to choose rather than exclusivity. Consequently, the wording of Article 29 (2) does not explicitly restrict co-operation solely to foreign shipping companies for the purpose of establishing a JV shipping company. Instead, it suggests an alternative interpretation where involving a foreign shipping company as a partner in the establishment of a JV shipping company is one of several possible approaches, rather than a mandatory requirement. In addition, the legislation does not expressly define what constitutes a “foreign shipping company”. Defi - nitions may vary across jurisdictions, and such dis - crepancies could lead to interpretational challenges when applying Indonesian law. It also remains unclear whether the regulator would require the foreign share - holder to submit their constitutional documents and relevant licences issued by their home jurisdiction when the JV company applies for a SIUPAL. This uncertainty is compounded by the practical difficulty local authorities may face in verifying foreign docu - ments and licences. Another inconsistency of regulatory interpretation that warrants highlighting concerns the application of non- binding administrative instruments in practice. Internal circulars or directives issued by the Directorate Gen - eral of Sea Transportation are intended as guidance rather than binding law. However, in practice, such instruments are often treated by certain local authori - ties as if they carry the same legal force as formal regulations. Differences in interpretation can lead to enforce - ment varying from port to port, particularly regarding requirements such as the composition of local share - holders in joint ventures. Some harbourmasters view these internal directives as non-binding guidelines that cannot override higher legislation, while others adopt a stricter approach, insisting on full compli - ance even when the directive introduces conditions not expressly stated in the underlying law. Such diver - gence results in inconsistencies between the formal hierarchy of laws and actual administrative practice.
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