INDONESIA Trends and Developments Contributed by: Emir Nurmansyah, Ulyarta Naibaho, Muhammad Muslim and Adithya Lesmana, ABNR Counsellors at Law
Under the old regime, foreign investors could partner with any Indonesian individual or enti - ty to hold the 51% majority shares. However, under the Third Amendment, the majority share - holder must now be a national sea transporta - tion company that holds a valid sea transpor - tation business licence. This requirement also extends beyond the shipping industry to foreign joint venture companies in non-shipping sectors operating vessels for their own use. They must also own at least one 50,000 GT vessel. Exemptions Regardless of this vessel ownership require - ment change, the Third Amendment includes a grandfathering provision that exempts joint venture sea transportation companies, which already own vessels and began operations prior to the enactment of the legislation, from the new vessel ownership requirement. Additionally, the Third Amendment stipulates that the new ves - sel ownership requirement will come into effect one year after the legislation’s enactment on 28 October 2024. However, there are limitations to the applicabil - ity of this grandfathering provision. Joint venture sea transportation companies that began opera - tions before the enactment of the Third Amend - ment may not benefit from the grandfathering provision if they undertake any of the following corporate actions after the new vessel owner - ship requirement comes into effect: • amend their articles of association; • change their shareholding composition or structure; and/or • acquire a new vessel. As a result, the exemption will be revoked if these companies alter their shareholding structure or acquire new vessels. Regardless, the legislation
does not clearly specify whether joint venture companies undertaking any of these actions would be prohibited from operating their existing fleet or whether their existing business licence would be suspended or revoked, creating further complexity for the general business practice. New business barrier for FDI in shipping industries While the intention behind increasing the ves - sel ownership requirement to 50,000 GT may be to support domestic shipping companies, it will create a significant additional barrier for foreign businesses interested in investing in Indonesia’s shipping sector. To do so now, the prospective investor must, first, be a shipping company that owns a vessel slightly larger than a Panamax- sized ship, which entails significant operating expenses and would require substantial invest - ment therefore. Secondly, they must collaborate with a local shipping company that is mandated to hold at least a 51% stake in the joint venture. This requirement may present difficulties in securing appropriate partners due to the substantial fund - ing needed. Additionally, these two requirements also extend to joint venture companies in non-shipping sec - tors that intend to own and operate vessels in support of their primary businesses. As a result, the adoption of the Third Amendment poses a challenge, especially in the mining transporta - tion and offshore oil and gas and construction sectors. These industries do not require 50,000 GT vessels generally, but employ smaller, more specialised hi-tech vessels instead, which are mostly procured through an FDI scheme. The exemption to the two requirements only offers temporary relief as a company availing
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