NEW CONTRACT RESTRICTIONS FOR PMA IUJK COMPANIES – FOREIGN INVESTMENT DISCONNECT

01 July 2016

by Bill Sullivan

INTRODUCTION

A 2016 Minister of Public Works & Housing regulation restricts the right of PMA Companies to carry out construction work and construction related consultancy services.

The new contract restrictions have the potential to greatly limit the choices of energy, infrastructure, mining and O&G companies in developing new projects and in carrying out work in respect of existing projects. At a time when mining and O&G companies, in particular, are experiencing very challenging business conditions, any initiative that prevents them from letting contracts, for construction work and construction related consultancy services, to the service provider offering the best combination of technical expertise, practical experience and cost effectiveness is to be very much regretted.

There is clearly a growing disconnect between what Indonesia says is its new found openness to foreign investment and the reality of increasing, preferential treatment for domestic investors in some parts of the Indonesian economy.

The problems created by this foreign investment disconnect, in the case of PMA Companies carrying out construction work and construction related consultancy services, have been exacerbated by the conflicting wording of the more recent 2016 Negative Investment List which imposes different restrictions on these PMA Companies.

In this article, the writer will examine the new contract restrictions and why the same are such a bad idea at this stage of Indonesia’s economic development.

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