The new 2014 Negative Investment List: A Brief Review

After much delay and plenty of false alarms, the Government of Indonesia (GOI) finally issued the new and revised negative Investment List (Negative List) through issuance of Presidential Regulation Number 39 year 2014 (“PR 39/2014“) last month which revised the previous 2010 negative list.

Like its predecessor, this Negative List explicitly mention that the revision was made in order to fulfill Indonesia’s commitment in relation the ASEAN Economic Community by 2015, an objective reflected in some of the list’s business sectors and therefore, provides broader opportunities for investors based in ASEAN countries. Investors based outside of ASEAN countries may capitalize on the Negative List by investing through a vehicle in one of ASEAN’s member states such as Singapore.

Conceptually, unlike the previous changes between negative lists (2007 version to the 2010), the Negative List does not greatly alter concepts contained in the 2010’s negative list. However, we should note that the Negative List effectively divides business sectors into three categories (instead of the previously two in the 2010):

1)      closed to foreign investment;

2)      open conditionally to foreign investment; and

3)      open to foreign investment.

The Negative List inserts an article stating that the list of business contained in the Annexures is exhaustive, meaning  that if a business sector or activity is not explicitly mentioned in the list, it is completely open to foreign investment without condition or restriction.

Like its predecessor, the Negative List also requires that share ownership as a result of merger, acquisition and consolidation has to observe the ownership limits set out in the Annexure of PR 39/2014:

  1. In cases of merger, the surviving company’s percentage of foreign shareholding must comply with the foreign shareholding limit stated in the surviving company’s investment approval;
  2. For acquisition, the percentage of foreign ownership in the acquiring company must comply with the foreign shareholding limit prescribed in the investment approval of the said company;
  3. While in cases of consolidation, foreign shareholding limit of the new company formed as a result of consolidation must be in accordance with prevailing regulations at the time the new company is formed.

Like the previous 2010 negative list, PR 39/2014 also sets out divestment obligation for foreign investors should their shareholding falls above the limit sets out in the Negative List as a result of rights issue. Divestment shall be completed within two years and may be done either through:

1)      private sales of shares;

2)      public offering in a domestic stock market; or

3)      company buyback of subscribed shares

Other similar provision is that the Negative List does not apply to indirect investments (also known as portfolio investments, indirect investments are investments made through transactions at the domestic stock exchange).

One thing that we should note is that the Negative List is not retroactive, which means that companies that have received foreign investment approval prior to issuance of PR 39/2014 are not required to comply with categories and/or ownership limits set out in the Annexures of PR 39/2014, except if the new categories and/or limit are more beneficial in nature.

Revisions to Key Sectors


Foreign ownership of up to 30 percent will be permitted for seeding, cultivation, processing and research for horticulture products (such as grapes, apples, oranges and vegetables). The same upper threshold will also applicable for horticultural tourism and other horticulture-related services such as post-harvest services, consultancy and landscaping).

Energy and Natural Resources

The most significant and wide-ranging changes can be found in this sector. Oil and gas related construction sector, which was previously not specifically regulated, has entered the Negative List:

  1. Construction of oil/natural gas platform is now only permitted up to 75% foreign-owned;
  2. Construction of oil and gas capable spherical tank (previously unregulated) and ocean-based pipelines (previously up to 95 percent foreign shareholding allowed) are now only permitted up to 49 percent foreign-owned;
  3. Construction of upstream oil and gas production installation which was previously may be owned maximum 95 percent by foreign parties, now fully reserved for domestic investors;
  4. Construction of land-based pipelines is now entirely reserved for domestic investor; and
  5. Oil and gas storage and distribution installation construction is now closed to foreign shareholding.

Foreign shareholding of drilling services for oil and natural gas at sea now may only reach 75 percent (previously up to 95 percent), while its land-based equivalent is now completely closed for foreign capital (previously 95 percent); on this point it appears the GOI thinks that capital and technical capacity of local players are sufficient to take more active role in this sector. The same cannot be said of geothermal drilling which may require more intensive capital and know-how, hence 95 percent foreign shareholding  are still permitted in this sector.

Supporting services in the oil and gas industry: (i) well operation and maintenance, (ii) design and engineering, and (iii) technical inspection are now exclusively reserved for domestic capital. On the first sector, we note that in the previous negative list, “operation and maintenance” service are open to foreign investor up to 95%, since the Negative List only explicitly mentions well operation and maintenance, other objects are still 95 percent open to foreign investment. On the second sector, the old negative list mentioned Engineering, Procurement and Construction (“EPC“) service as a whole while the Negative List separates the construction aspect. Commonly, EPC contracts cover designing the installation, procuring the necessary materials and building the project; the structure of the Negative List may compel future foreign investment companies to only engage in construction barring design and engineering. It remains to be seen what interpretation the Indonesian Investment Coordinating Board (IICB) has on this matter.

It appears that the GOI intends to spruce up infrastructure development through Private-Public Partnership (PPP) scheme; this can be seen in the electricity generation sector. Large scale power plants (above 10MW output) may have foreign shareholding up to 95 percent and may reach 100 percent for PPP projects during concession period; the same limit applies both for electricity transmission and distribution business. Other changes in this sector include small scale power plants (1-10MW output) with 49 percent foreign shareholding (previously on partnership basis). For PPP opportunities in infrastructure projects, investors should also consult the PPP Blue Book issued by the National Development and Planning Agency.

Oil and gas, geological and geophysical survey services is now open to 49 percent foreign shareholding.

Defense and Security

Despite abundant local capacity in this sector, private security provider (consulting, security detail, monies/valuables transportation escort and security training) is open to foreign investment up to 49 percent while not explicitly mentioned in the previous 2010 negative list.


Commodity futures brokerage business is open to foreign ownership up to 95 percent. Distribution, warehousing and cold storage business is open up to 33 percent foreign ownership. Specifically for cold storage the 33 percent limit is applicable only in Sumatera, Java and Bali; an even higher (67 percent) foreign ownership is permitted only in Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua.

Public survey business and market research is open in full only for domestic investors, foreign investors may only hold shareholding up to 51 percent.


Foreign ownership of up to 49 percent is permitted for travel agency business and 51 percent is permitted if cooperation with Micro, Small, Medium Enterprises and Cooperatives. A decrease in foreign ownership limit is set for hotel ownership. Non-star hotel is open for foreign investors up to 51 percent. While motel ownership is open only up to 49 percent; that limit is increased to 51 percent if conducted in partnership scheme with Micro, Small, Medium Enterprises and Cooperatives; and may reach 70 percent only for ASEAN-based investors.

Previously only open for domestic investors, the advertising business (film promotion, commercials, posters, stills, photos, slides, banners, pamphlets, folders, etc.) is now also open for ASEAN investors up to 51 percent. Perhaps in a move to facilitate cultural integration amongst ASEAN member nations, the recreation, arts and leisure business is fully permitted for ASEAN-based investors; whereas foreign investors from non-ASEAN countries could only hold ownership up to 49 percent or 51 percent in partnership scheme.


In the transportation sector, port facility services (piers, buildings, container terminal ship tugging services, liquid and dry bulk terminal and ro-ro terminal) may be owned by foreign parties up to 49 percent, exactly like the previous 2010 negative list. However, if the project is under PPP scheme, shares may be held by foreign investors up to 90 percent during concession period. Furthermore, construction of public-use land transport terminal and public-use land cargo terminal which were previously closed is now open to foreign investor up to 49 percent (with special permit from the Minister for Transportation). Lastly, multimodal transport may be foreign-owned up to 49 percent currently.


Fixed line network provider business is permitted to be foreign-owned up to 65 percent from previously 49 percent. All telecommunication services business (content, call center and other telephony value-added services, internet service provider, data communication provider, public use voice over internet provider, internet interconnectivity (NAP) and other multimedia services) is now open to foreign investment with an ownership threshold of up to 49 percent. Provider of telecommunication network and integrated telecommunication services is open to foreign ownership up to 65 percent, previously unmentioned in the old list. Concerning foreign ownership of telecommunication towers, no changes are made in the Negative List, this sector remains closed to foreign investment.


No extensive change exist in the Negative List for the financial services industry. All sectors, like the previous negative list, capped foreign ownership around 80 to 85 percent except for pension funds that is reserved fully for domestic investors. Only the venture capital sector is having an increase in foreign ownership limit from 80 percent to 85 percent.


On pharmaceutical industry (production of raw material and finished medicine), there has been an increase of ten percent in permissible foreign ownership from 75 percent to 85 percent. For hospital, specialist healthcare and dental clinic, foreign ownership limit remains the same at 67 percent throughout Indonesia, except in provincial capital in the eastern part of the country (excluding Makassar and Manado) where 70 percent ownership limit is open for ASEAN-based investors. Similar opportunity also exist for ASEAN-based investors wishing to participate in specialist nursing services; while the previous upper limit of 49 percent remains the same throughout Indonesia, ASEAN-based investors may own specialist nursing services up to 51 percent in Makassar and Manado, and up to 70 percent in every provincial capital in eastern Indonesia.


Hersapta Mulyono

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This article contains general information on legal topic. The statements and opinions expressed by the author are those of the author.