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In brief

Under Law No. 11 of 2020 on Job Creation (Omnibus Law), which came into force on 2 November 2020, the government is mandated to promptly issue implementing regulations of the Omnibus Law. To have Indonesia’s sovereign wealth fund (Lembaga Pengelola Investasi or LPI) up and running, the government has issued two government regulations on LPI. The first one1 is on state participation in LPI’s capital, and the other one regulates governance and operational matters of LPI.2

With the required government regulations already in place, LPI, which may also use the name “Indonesia Investment Authority” or INA, is expected to commence its activities within Q1 2021.

To see our previous client alert on LPI, please click here.

Key highlights

Here are some of the key features of the two government regulations on LPI.

Status and Governance

LPI is an Indonesian legal entity that is wholly owned by the Indonesian government. It has a special authority to manage the investments of the Indonesian central government. LPI is responsible to the President of Indonesia.

As already announced, LPI will have a supervisory board comprising the Minister of Finance (as chairperson), the Minister of State-Owned Enterprises, and three members from professional elements, all of whom will be appointed (and dismissed) by the President.

In implementing its duties, the supervisory board will be assisted by several committees. The committees that will be formed to assist the supervisory board must at least include an audit committee, an ethics committee and a remuneration and human resources committee. The supervisory board will determine the roles and responsibilities of these committees.

The board of directors, which will comprise members from professional elements, will carry out the day-to-day work of LPI. The directors will be appointed (and dismissed) by the supervisory board. One of the members of the board of directors will be appointed as the chairperson of the board of directors.

The board of directors will also form committees whose members are the directors or employees of LPI, or other parties that have sufficient experience that is needed by the committee. The committees that will be formed to assist the board of directors must include an investment committee and a risk management committee.

Capital contributions by the government to LPI

The government will first inject capital of IDR 15 trillion in cash into LPI, with additional capital that may or may not be in the form of cash to follow until it reaches IDR 75 trillion by the end of 2021.

Investment by LPI

There is no specific limitation on what sectors LPI can invest in. We understand from media reports that LPI might focus on investing in the infrastructure sector (e.g., toll roads, airports and seaports) in its first phase of investment. However, as the aim is for LPI to draw more foreign investment to Indonesia to support economic growth, LPI could, at any time, also cover other sectors and industries.

LPI may invest together with other investors. As LPI is wholly owned by the Indonesian government, other investors will be investing alongside LPI either directly in the target company or by forming a joint venture (investment) company with LPI. While generally the cooperation or the joint venture arrangements between LPI and the investors will be subject to the commercial discussions and agreements among them, the government regulation does specifically require LPI to have majority ownership and to be the “decision-maker” if the target company is:

  • the sole drinking water distribution company in that city/regency
  • a domestic oil and gas mining company

Given this requirement, for the above two sectors, it is expected that LPI will have more veto rights in the relevant agreement (e.g., the shareholders’ agreement) between LPI and the investors.

In managing its assets, LPI may also appoint external investment managers. LPI can also form its own fund or invest in funds established by other parties. The funds can be established in Indonesia or outside Indonesia. LPI may also incur debt to finance its activities (e.g., by issuing debt instruments that can be subscribed by third parties) and there could be incentives given by Indonesian regulators to third parties that subscribe for the debt instruments issued by LPI.

Transfer of government assets or SOEs assets into LPI, and preferential right of LPI

The Indonesian government or state-owned enterprises (SOE) may transfer their assets to LPI or to the funds or joint venture companies formed by LPI. When LPI acquires assets from SOEs, it is said that LPI will have a “preferential right”. The elucidation of this provision under the government regulation does not provide a clear explanation, as it only says that LPI obtains priority from the SOE when there is a transfer of an SOE asset. Nevertheless, the government regulation also says that despite having a preferential right, assets must be transferred at their fair market value.

The preferential right could be interpreted as enabling LPI to purchase certain SOE assets through a different set of processes and not following the usual asset sale mechanism (e.g., through a tender process). We do not expect this to mean that the existing arrangements in place (e.g., a right of first refusal that the shareholders of the target company may have) can be disregarded. However, we should wait and see how this will be implemented in practice.

Latest Development

We understand that the recruitment of the members of the supervisory board from professional elements is currently ongoing. A selection committee led by the Minister of Finance has completed the selection process and the names of the candidates have been identified and submitted by the President to the Parliament for consultation. After the consultation period is finished, the President will appoint the selected supervisory board members. Once the supervisory board has been formed, the supervisory board will appoint the members of the board of directors.

Given the Indonesian government’s target for this institution to start its operations in the near future, we can expect the main personnel of this institution to be announced to the public soon.

1 Government Regulation No. 73 of 2020 on the Initial Capital of Lembaga Pengelola Investasi.

2 Government Regulation No. 74 of 2020 on Lembaga Pengelola Investasi.


Iqbal is the Head of the Capital Markets Practice Group. Iqbal has been involved in various capital market transactions, representing both issuers and banks/underwriters, in both equity and debt capital market. His work encompasses various sectors, including IT, plantations, healthcare, mining and transportation sectors. When representing issuers, Iqbal's work often also involves pre-IPO work. This includes assisting the issuer in putting in place the appropriate corporate and shareholding structures (which may include selling out or injecting new assets). Other than capital raising, over the years Iqbal has also been involved and led teams in doing most of the delisting and going private transactions in Indonesia. Iqbal has also been involved in debt issuance transactions, both USD and IDR denominations. Iqbal also regularly advises clients on various capital market issues such as disclosures, good corporate governance, related party and material transactions, and takeover issues.


Armand Harahap is an Associate in Baker McKenzie Jakarta office.