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Public procurement localisation
On 22 February 2013, the Indonesian Ministry of Energy and Natural Resources (hereinafter: MEMR) issued regulation 15/2013 increasing local content requirements (LCRs) in the oil and natural gas industry. The new restrictions replace regulation 007/Revisi-II/PTK/I/2011 set by the state-owned enterprise BPMigas, which by Presidential regulation 95/2012 is controlled by MEMR. The new regulation was necessary, as, on 13 November 2012, BPMigas in its previous form was declared unconstitutional by the Indonesian Constitutional Court.
With the new regulation, the general LCR target of 35% has been changed depending on the different services and work stages in the industry. For onshore drilling, it has been raised to 70% and for offshore drilling to 45%. The target for offshore EPCI (Engineering, Procurement, Construction and Installation) has been increased to 45%, whereas shipping services should consist of at least 75% of domestic content. A full list of the targets is available in the appendix of the original regulation (cf. Sources). Depending on the specific sector, the targets should be achieved between 2013 and 2025.
The local content levels are calculated based on the origin of all input costs apart from transportation costs.
In order to achieve the specified LCR targets, article 9 of the regulation stipulates that procurement preference will be given to products with over 25% of domestic content levels (hereinafter: DCL) or goods with a promise/commitment of achieving more than 30% of DCL (art. 9(2)). The maximum given price preference is 30% for goods and 15% for services (art. 9(3) & 9(4)). This represents a doubling of each maximal price preference (cf. Related Measures).
Furthermore, the supervisory role of the government in keeping track of the local content requirements has been increased. On the other hand, the price preference for domestic goods suppliers in the given industry has been reduced from 5-7.5% to a maximum of 2.5% (art. 10).
The regulation came into force three months after its issuance, i.e. on 22 May 2013.
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