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Indonesia: New Rapid Licensing Available for Energy Companies

(Feb. 2, 2017) On January 30, 2017, Indonesia’s Investment Coordinating Board and the Ministry of Energy and Mineral Resources jointly initiated a rapid, one-stop process for licensing some energy businesses.  Temporary licenses for eight types of operations in the oil and gas sector and for one in the electricity procurement industry will be available.  Applicants will be eligible to apply using a three-hour licensing procedure.  The new process, designed to increase investment in the energy industry, will be available through the government’s one-stop service center in Jakarta.  (Fedina S. Sundaryani & Viriya P. Singgih, Speedy Licensing Pushed for Energy, JAKARTA POST (Jan. 31, 2017), available at Press Reader, online subscription database.

The fields in which the stream-lined temporary licensing procedure is available include:

  • electricity;
  • oil/fuel/liquefied petroleum gas (LPG);
  • storage of processed products/compressed natural gas (CNG);
  • liquefied natural gas (LNG) storage;
  • oil refining;
  • oil residue processing industry;
  • natural gas processing;
  • general trade in oil/fuel; and
  • general trade in processed products. (Three-Hour License Service for Energy Sector Launched, Embassy of the Republic of Indonesia in Ottawa, Canada website (last visited Jan. 31, 2017).)

The regulation that authorized the implementation of the three-hour procedure was issued last year by the Ministry. (Id.; Peraturan Menteri Energi dan Sumbar Daya Mineral Republik Indonesia, Nomor 15 Tahun 2016, Tentang Pemberian Layanan Cepat Perizinan 3 (Tiga) Jam Terkait Infrastruktur di Sektor Energi dan Sumber Daya Mineral [Regulation of the Ministry of Energy and Mineral Resources No. 15, 2016, Concerning  Three-Hour Rapid Service Related to the Infrastructure of the Energy and Mineral Resources Sector] (promulgated June 30, 2016), Ministry of Energy and Mineral Resources website.)

Background 

The previous process to obtain a temporary license to launch an energy business took from 20 to 45 days, with many layers of bureaucratic procedure. In addition, if an error occurred in any of the paperwork, the license applicant had to begin the process anew, as no revisions were permitted.  (Sundaryani & Singgih, supra.)  An Asian Development Bank report from December 2015 noted that it would be beneficial to the various sub-sectors of the energy industry to streamline licensing and local approvals.  (Pradeep Tharakan, Summary of Indonesia’s Energy Sector Assessment, ADB PAPERS ON INDONESIA, No. 9 (Dec. 2015), ¶¶ 48, 75, & 115.) Similar streamlining was introduced previously for business investment, but with requirements of minimum levels of investment and of local workers hired.  (Sundaryani & Singgih, supra.)

Reaction from the Chamber of Commerce and Industry

The Deputy Chairman for oil and gas of the Indonesian Chamber of Commerce and Industry, Bobby Gafur-Umar, called the adoption of the expedited licensing procedure a “breath of fresh air.” (Id.)  He added, however, that a number of obstacles to investment in the energy sector in Indonesia remain, including the high cost of transportation and distribution, due in part to the lack of good transportation infrastructure.  He also cited the high interest rates charged by banks as a problem for investors, and recommended that the government do more to boost investment in energy.  (Id.)