Foreign Direct Investment

Indonesia welcomes foreign investment but they have their own terms and
conditions. Government approaches go for surety from the foreign worker to
help Indonesia with to improve of the nation's economy and labor skill.
Indonesia demands for the improvement capital, and the specialized skills
and administration of foreigners. The Indonesian government has some
regulation to attract the interest of foreign people in Indonesia, the
regulations are as follows:
The investments will be sanction and checked by government.
Organizations can utilize just a predetermined number of expatriates, and
are obliged to show anticipates substitution of those ostracizes by
Indonesians.
Foreign people are allowed to buy/ rent land or plot rights with some
limitations.
An "outside speculator" is generally a remote organization which has the
same laws for the foreign organizations and considers the foreigners the
same.
Direct and Non-direct investment
There are many laws which assist the FDI in Indonesia; one of the laws is
Law No.25/2007 which states Investment that is the Foreign Investment it is
divided into 2 sub categories which are direct investment law and indirect

investment law. The Indirect investment law is known as the portfolio

investments, the indirect investments are done within the country that is by
the local capital of the investors and government bodies or the stock trades
of a nation. The value of the Indonesian business sector is systematized,
where in a certain period of 2002 to 2007 outside establishments of the
business sector was rated as 70% of the free-float estimation, and less than
5% of the free float quality business is owned by the native Indonesian. The
government empowers Direct outside speculation or foreign direct
investment in many zones of the countrys economic situation.
To invest in Indonesia, a financial specialist ought to first take a look at the
Negative side of the country which gets upgraded consistently with
arrangements. Appropriately, if a business doesnt come in the Negative List,
then it will be viewed as "open business" which is open to outside
speculation. The Government of Indonesia had arrangements to change the
Negative List in 2012 in order to support the foreign investments; however,
these changes came into existence in December 2012. The changes states
that to organize the straightforwardness interests in telecommunication,
pharmaceuticals and social insurance and also training divisions.
When everything is done on a theoretical basis, the circle of business is still
not open to the FDI in Indonesian market, the reason for restrictions are:
There are small scale industries, little, medium investment and lack of
cooperativeness.

 Business related to the needs of an organization.

The businesses which requires certain shareholders for them.
Businesses which are designed for a specialized areas.
Business which needs uncommon permit to work into the country.
The hidden standard is that there are certain industries which the
Indonesians wants their upper hand and that part of the industry is not open
for the foreign investing firms. Looking forward for the Foreign Investment
Law and Negative List together, both of them have different rules, the
particular industry law which are announced that overrides or supersede with
one another and the FIL /Negative List is full of problems, expert guidance is
suggested that the governmental bodies and other authorities at BKPM or
other ministries should come together and manage particular commercial
investment on field of a specific target business.

Foreign Direct Investment in oil industry.

(n.d.). Retrieved June 1, 2015, from http://www.kpmg.com/Ca/en/External

Documents/investing-in-indonesia-2013.pdf
Legal Framework of the country
The law which is regulating the oil and gas activities comes under the Law
No. 22/2001 (Law number 22). The main objective of this law is make sure
the activities related to oil and gas:

Guarantee the effectiveness, efficiency, competitiveness, and

sustainable exploration and exploitation.

Transparency in the transport, storage, and accountable processing of

the business competition.

Promoting the capacity of the nation.
It will increase the income of the state.
It will help in the conservation of the environment, public welfare and
equitability.

The Petroleum & Natural Gas ("the Oil & Gas Law") comes under Law
No.22/2001 which is controlled by two individual state owned legal entities
who are: BP Migas which takes care of upstream operations and BPH
Migas which looks on downstream operations, these two owners are the
main stakeholders of the oil and gas industry. The upstream operation which
comes under of BP Migas was regulated in 2002 and the control of the oil &
gas division was led by the provincial possessed oil & gas organization. BP
Migas had problems with the administration of the upstream operation which
was conducted as a joint participation contract and is predominated as the

Production-Sharing Contract (PSC), while the native party/foreman is

depended on to BP Migas for the execution of the operations; whereas, on
the other hand BPH Migas has problems with the allowance of the licenses
and looking over the operation of the downstream business. Industry
reporters have alluded to discontinuation of BP Migas as it is being negative
for speculation slant during an era when raw petroleum generation is
declining.
The court of Indonesia cancelled some of the articles from the Law No. 22, so
BP Migas which handles the upstream operations violated Article 33 of 1945
constitution and get dissolved. On the same day MoEMR (Ministry of
Energy and Mineral Resources) took the responsibility of the upstream
operations. They also came up with some of their own regulations and
decree for short term clarity:
1. All the functions and responsibility of BP Migas will be assumed as the
SKS(head of MoEMR)
2. All the employees from BP Migas will be transferred to SKS, as SKS is
heading the MoEMR.
3. All the PSCs (Production-Sharing Contract) given by BP Migas to oil and
gas contractors will still be in existence.
There are some other relevant laws which come under the Legal framework
of Indonesia:

The Energy law No. 30/2007: it includes the National Energy Policy.
The investment law No. 25/2007
Company law No. 40/2007

The environment law No. 32/2009

Forestry law No. 41/1999

The differences between the development of the industry when it

was under BPH Migas and MoEMR.

The Target of Indonesia in terms of Energy (Oil and gas)

(n.d.). Retrieved June 1, 2015, from

http://www.pwc.com/id/en/publications/assets/oil_and_gas_guide_2014.pdf