An update upon the issuance of Minister of EMR Regulation Number 48/2017 as an amendment of MEMR Regulation 42/2017

As a follow up to discussions between the Ministry of Energy and Mineral Resources (“EMR”) with business actors regarding Minister of EMR Regulation Number 42/2017 concerning Supervision of Exploitation in Business Activities in the Energy and Mineral Resources Sector (“MEMR Regulation 42/2017”) on 3 August 2017, in the end the Minister of EMR issued Minister of EMR Regulation Number 48/2017 (“MEMR Regulation 48/2017”) as an amendment of MEMR Regulation 42/2017 issued in July 2017 which encountered many negative responses from the relevant business actors.

Particularly in electricity sector, what has been most criticized was where MEMR Regulation 42/2017 was considered not applicable in business and corporate practice because the procedure for changing shareholders and/or the management of companies holding Power Plant Business Licenses (“Izin Usaha Pembangkit Tenaga Listrik – IUPTL”) was made longer. Moreover, there was now possibility of rejection the two agenda items from the government which would cause uncertainty.

With the existence of MEMR Regulation 48/2017, the requirements to obtain prior approval for the agenda transferring shares (before the “Commercial Operational Date – COD”) and changes the Board of Directors and Commissioners as regulated in MEMR Regulation 42/2017 were changed into a concept of reporting to the Minister of EMR through the Directorate General of Electricity after the process of transfer of shares and/or change of Board of Directors and Commissioners is complete.

The important provisions in MEMR Regulation 48/2017 include:

1. Shares in a company holding IUPTL which sells electricity to PT Perusahaan Listrik Negara (Persero) can only be transferred after it reach the COD.
2. Transfers of shares can only be done before reaching COD if the transfer of shares is to an affiliate more than 90% (ninety per cent) of whose shares are owned by a sponsor intending to transfer shares located 1 (one) level below.
3. Transfers of shares shall obtain prior approval from the electricity purchaser.

The report must be made in 5 (five) business days as from the issuance of the ratification from the minister that administers government affairs in law and human right sector. Moreover, reports for companies holding IUPTL which sell electricity to PT Perusahaan Listrik Negara (Persero) with a power station based on new and renewable energies other than geothermal must be copied to the Directorate General of New and Renewable Energies and Conservation of Energy.

Our analysis of MEMR Regulation 48/2017, shows that the obligation to report to Minister of EMR applies to transfers of shares that take place before COD, while obligation transfers of shares after COD. Changes of Board of Directors and Commissioners however must always be reported.

MEMR Regulation 48/2017 is more applicable to business and corporate practice than MEMR Regulation 42/2017. Moreover, with the existence of MEMR Regulation 48/2017, the government can still exercise its role of supervision through the Ministry of EMR without any intervention in companies’ business activities.

The executive summary was prepared by Hendra Ong (partner) and Monica Elizabeth Dina (associate).