2.500
%
Positive
36
mm boe
13
%
Indonesia has continued to recover from a period of underinvestment, and the "Gross Split" approach is starting to yield greater interest in the region. Consequently, we upgrade our outlook to Positive and reduced the Risk Premia to 2.50%.
November 28, 2024
Asia - South East
mm bbl
bcf
South eastern Asia, archipelago between the Indian Ocean and the Pacific Ocean.
Multiple (PSC/Concession)
1Q'17 saw the new “gross split” regulation for PSCs introduced, and there is yet to be a body of evidence to support the fact that it is making a difference to investment. Under a gross split PSC, gross production will be allocated between the Government and the contractor. The initial base production split will be: (a) Government’s share of 57% and contractor’s share of 43% for oil; and (b) Government’s share of 52% and contractor’s share of 48% for gas. The initial based production split can be adjusted further based on the Government’s discretion depending on the commercial projections of the field(s). The taxable income of the contractors will be based on their contractor share less deductible expenses. The deductible expenses will follow the applicable general income tax law, with income tax rates based on the general income tax law. The profit after tax is also subject to a 20% branch profit tax, if applicable, and may be subject to tax treaty relief if available.
Indonesia’s 276mm population, USD 1trn economy, growing middle class, abundant natural resources, and stable economy are attractive features to outside investors; however, investing in Indonesia remains challenging. President Joko Widodo (“President Jokowi”), now in his second five-year term, has prioritized pandemic recovery, infrastructure investment, and human capital development. The government’s marquee reform effort — the 2020 Omnibus Law on Job Creation (Omnibus Law) — was ratified in March 2023. When fully implemented, the Omnibus Law is touted to improve competitiveness by lowering corporate taxes, reforming labor laws, and reducing bureaucratic and regulatory barriers. The United States does not have a bilateral investment treaty (BIT) with Indonesia. In February 2021, Indonesia replaced its 2016 Negative Investment List, liberalizing nearly all sectors to foreign investment, except for seven “strategic” sectors reserved for central government oversight. In 2021, the government established the Risk-Based Online Single Submission System (OSS), to streamline the business license and import permit process. Indonesia established a sovereign wealth fund (Indonesian Investment Authority, i.e., INA) in 2021 that has a goal of attracting foreign investment for government infrastructure projects in sectors such as transportation, oil and gas, health, tourism, and digital technologies, with a large nexus to the Ministry of State-Owned Enterprises (BUMN).
Source: ESRI, Heritage Index, HMG Foreign & Commonwealth Office, US Department of State, International Trade Administration, International Law Review, Ernst & Young, Wood Makenzie & OGA data.
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