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In brief

On 5 October 2020, the Parliament approved the job creation law (RUU Cipta Kerja, commonly known as the “Omnibus Law“), which introduces key amendments to several sectors, including the environment and forestry sectors by amending Law No. 32 of 2009 on Environmental Protection and Management (“Environmental Law“) and Law No. 41 of 1999 on Forestry (“Forestry Law“)[1].

[1] The Omnibus Law also amends Law No. 18 of 2013 on Prevention and Eradication of Forest Destruction in relation to certain adjustments regarding sanctions for various violations in forest areas.


Comment

Environment Sector

While the reforms in the Omnibus Law appear to simplify environmental reporting and licensing procedures, the government claims that the changes made in the law will not weaken its efforts to protect the environment.

In the context of increasing global focus on sustainability and sustainable finance, these reforms, when (and if) implemented, will be subject to close scrutiny from both local and global stakeholders.

Forestry Sector

The changes to the forestry regime, while potentially controversial, may lead to some welcome easing of restrictions around the issuance of forestry permits, which may significantly open up further investment and development throughout Indonesia.

As with many of the changes proposed by the Omnibus Law, we will need to see how these changes are implemented through regulation, before we can fully evaluate their impact.

Environment sector

Simplification of Licensing Requirements and Procedures

Streamlined environmental impact study

One of the key obligations for companies operating in Indonesia is to assess the environmental impact of their business or operational activities. Prior to the issuance of the Omnibus Law, a company was required to prepare one of the following environmental impact studies:

  1. a comprehensive environmental impact study in the form of an Environmental Impact Analysis Document (“AMDAL“)
  2. a simpler environmental impact study in the form of an Environmental Management/Environmental Monitoring Program (“UKL-UPL“)

Where an AMDAL or UKL-UPL is not required, because the company’s activities are low risk, the government may require a statement of environmental management and monitoring capability (“SPPL“). The form of environmental impact obligation to be followed depends on the type of business activity and the scale of potential impacts on the environment.

The Omnibus Law has streamlined these requirements by:

  1. requiring a company to provide a statement letter in which it undertakes to manage the environment as proof of its compliance with UKL-UPL study standards
  2. integrating the SPPL with the company’s Business Identity Number (Nomor Induk Berusaha, “NIB“)

The Omnibus Law is silent as to whether the statement letter referred to in (a) above will also be integrated into the company’s NIB. Further provisions regarding UKL-UPL will be further regulated in a government regulation.

As a result, there appears to be no ‘secondary’ category of environmental impact assessment (where there is an impact, but the impact is not significant). Rather there is, only a requirement for an AMDAL (in relation to any significant impact on the environment) or an undertaking statement letter (where there is no impact). This might potentially expand the categories of non-AMDAL operations.

It remains to be seen how the integration of the SPPL with the NIB will be implemented, i.e., whether the determination of ‘low risk’ activities will be self-assessed; whether the Online Single Submission system will automatically issue the integrated NIB and SPPL, or whether there will be a prior assessment by the relevant authority before the issuance of the integrated NIB and SPPL.

Environmental permit no longer required

Before the issuance of the Omnibus Law, an environmental permit was a prerequisite to obtaining a business license. As such, the revocation of an environmental permit adversely affected the validity of the business license. Furthermore, any changes in business and/or activities required the renewal of an environmental permit.

Under the Omnibus Law, the requirement to obtain an environmental permit is removed as this will be integrated into the business license (perizinan berusaha). Consequently, companies are only required to obtain an AMDAL approval or to provide a statement letter undertaking to comply with the UKL-UPL standards before they can obtain a business license.

In relation to this, it remains to be seen whether any changes to the business and/or activities of a company (whether or not it has a significant environmental impact) would require an adjustment to its business license. Further, it is not yet clear what impact a breach of environmental obligations might have on a company’s business license.

Removal of Strict Liability

Under the Environmental Law, a claimant is not required to prove “fault” in relation to an environmental claim involving Hazardous and Toxic Material (Bahan Berbahaya dan Beracun, “B3“) waste or serious environmental damage. Any person whose action, business and/or activity generates, uses or manages B3 waste or whose activities pose a serious threat to the environment, will be liable for any resulting environmental damage or harm.

Under the Omnibus Law, the wording “without the claimants having to prove fault” under the Environmental Law has been removed.  Therefore, the general rule under Article 1365 of the ICC should apply, as a result of which a claimant will need to establish that the respondent was at fault. This will make it harder for impacted parties or stakeholders to sue polluters.

Less Community Involvement

The Environmental Law encouraged a wide variety of stakeholders to be consulted during the AMDAL preparation stage, e.g.:

  1. affected persons and communities
  2. environmental activists
  3. parties affected by all types of decisions in the AMDAL process

The Omnibus Law limits the community’s involvement only to the community directly affected by an entity’s proposed activities. Further, the public will not be involved in any ‘decisions’ relating to AMDALs, as the provisions of the Environmental Law establishing the relevant commission responsible for assessing AMDALs, and which consist of experts, environmental organizations and potentially affected people, have been deleted.

Forestry Sector

Simplification of Licensing Requirements and Procedures

Under the Forestry Law, several licenses were required for the utilization of protected and production forest:

  • forest area utilization permit
  • environmental services utilization permit
  • non-timber/timber forest product collection permit
  • non-timber/timber forest product utilization permit

The Omnibus Law integrates all of these licenses into a business license (perizinan berusaha), granted by the central government, for entities seeking to utilize protected and production forest. It remains unclear whether each license will cover many forest utilization activities.

Use of Forest Areas for Development Purposes Outside Forestry Activities

In general, the requirements to use forest areas for development purposes outside forestry activities remains the same, i.e., such use can only be done in production and protected forest and should not change the main function of the forest area.

However, in relation to the use of forest areas for development purposes outside forestry activities, the Omnibus Law removes the requirement to:

  1. obtain borrow-use permits (izin pinjam pakai / IPPKH) from the Minister of Environment and Forestry
  2. obtain the House of Representatives’ prior approval to grant a borrow-use permit that has a significant impact, wide scope and strategic value

In relation to point (a), the Omnibus Law provides that the use of a forest area will be done through a borrow-use (pinjam pakai) arrangement (not specifically a permit) with the central government. Although we believe that the IPPKH permitting mechanism will still be used, this change opens up the possibility for other types of arrangement. This might also indicate a further easing of permitting requirements for certain non-forestry related development activities.

Requirements Relating to Forestry Areas

The previous Forestry Law required the total forested area within each river basin (daerah aliran sungai) and/or island to be maintained at 30% of the total land area. This was to minimize disturbance to the water system, and to prevent floods, erosion, sedimentation and water shortages.

This requirement has been removed by the Omnibus Law. The central government is authorized to determine the extent of the forest area to be maintained (including designating areas for national strategic projects) in accordance with the physical and geographical conditions of the relevant river basins and islands.

In addition, changes to the designation of forest areas and functions that have a significant impact, wide scope and strategic value will no longer require the prior approval of parliament. This would seem to suggest that the government is anticipating further reclassificaions of forest areas, to permit further development.

Financial Obligations

The Omnibus Law retains a number of financial obligations in relation to the payment of non-tax state revenues and investment funds for entities carrying out forest utilization activities.

However, the Omnibus Law seems to have done away with the requirement for business license holders to pay forest utilization license fees (iuran izin usaha) and to provide forest performance guarantee funds (dana jaminan kinerja).

Author

Norman S. Bissett routinely handles project and finance matters. He currently serves as a foreign legal consultant in the Finance and Projects Group of HHP, working specifically in the Energy and Resources practice. Mr. Bissett is admitted to practice in England and Wales and Scotland, and is a member of the Law Society of England and Wales as well as the Scottish Law Society.

Author

Nadia Soraya is a partner in the Finance & Projects Practice Group with many years of experience handling a wide range of finance and corporate transactions including project finance, general banking and finance, and mergers and acquisitions.

Author

Justin Nurdiansyah is a Senior Associate in Baker McKenzie's Jakarta office.

Author

Adella Kristi is an Associate in Baker McKenzie's Jakarta office.

Author

Martin David is a principal in the Finance and Projects Practice Group at Baker McKenzie Wong & Leow and heads the Projects practice in Asia and Singapore.

Author

Kim Hock Ang is a principal in Baker McKenzie Wong & Leow's Finance & Projects Team, where he focuses on major infrastructure project development and energy projects development (including LNG), from the inception stage where the consortium is formed and investment structure is designed, to the project documentation, financing and sale of such brownfield asset post commercial operation date. Kim Hock has acted in several award-winning projects such as the Sarulla Geothermal Power Project. It is the largest single-contract geothermal power project in the world, and it won Finance Deal of the Year (Project) at the 2015 American Lawyer Asia Legal Awards, among other accolades.