Public rail in Indonesia
Managing Partner, Ginting & Reksodiputro in association with Allen & Overy
Foreign Legal Consultant (partner level), Ginting & Reksodiputro in association with Allen & Overy
Counsel, Ginting & Reksodiputro in association with Allen & Overy
Associate, Ginting & Reksodiputro in association with Allen & Overy
Associate, Ginting & Reksodiputro in Association with Allen & Overy
26 October 2022
1. Type of public rail business
a. Rail infrastructure
Rail infrastructure consists of railways, rail stations, and rail operation amenities (e.g. signaling equipment, telecommunications equipment and electrical installations).
b. Rail facilities
Rail facilities consist of locomotives, rolling stock and special equipment (e.g. lorries, cranes, measuring car trains, and railway maintenance train cars).
2. Implementing business entity (BUP)
Implementation of rail infrastructure and rail facilities is carried out by a BUP, either by itself or with the cooperation of other parties. Notwithstanding the distinction, there is nothing that prevents a BUP from conducting both rail infrastructure and rail facilities.
3. Rail infrastructure
3.1.1 Procurement of rail infrastructure BUP
The procurement is conducted by way of tender, direct appointment or government special assignment. Direct appointment may be carried out provided that: a) the land is owned or managed by the BUP; and b) all of the investment comes from the BUP without any funds from the state revenue and expenditure budget (anggaran pendapatan dan belanja negara) or the regional government revenue and expenditure budget (anggaran pendapatan dan belanja daerah) and there are no guarantees provided by the government.
3.1.2 Concession agreement or cooperation agreement
After being determined as a BUP of rail infrastructure, the BUP will enter into an agreement in the form of a concession agreement or cooperation agreement with the Ministry of Transportation (MOT), governor, mayor/regent (as relevant pursuant to its authority). The granting of concession rights is subject to a concession fee of 2.5% of the gross income per year. The concession period will depends on the amount of investment required and the rate of return on investment. Upon expiry of the term of the concession agreement or cooperation agreement, all assets must be handed over to the government.
a. Business license
The business license will be valid for so long as the BUP of rail infrastructure carries out its business.
b. Construction license
The construction license will be valid for a maximum of five years and may be extended, with each extension being for a maximum of five years.
c. Operational license
The operational license shall be valid for a term in accordance with the validity of the concession agreement or cooperation agreement.
4. Rail facilities
4.1.1 Procurement of rail facilities BUP
Unlike that of rail infrastructure BUP, the procurement of rail facilities BUP is carried out directly by the rail infrastructure BUP and the regulations do not set out any specific procurement method for this.
4.1.2 Cooperation agreement with BUP of rail infrastructure
In the event that the rail facilities are implemented by a BUP that is a different entity from the BUP of rail infrastructure, that BUP of rail facilities must execute a cooperation agreement with the BUP of rail infrastructure.
a. Business licence
The business licence will be valid for so long as the business entity carries out its business.
b. Operational licence
The operational licence will be valid for a maximum of five years and may be extended, with each extension being for a maximum of five years.
5. Foreign ownership
5.1. Minimum capital
Specific for rail facilities business, there is a minimum paid-up capital of 25% of the total investment value for three rails or a maximum of IDR 250 billion. This minimum paid-up capital constitutes part of the requirements to obtain a business licence of BUP.
5.2. Foreign ownership
a) In respect of rail infrastructure (under KBLI (i.e., business classification codes) 42103 which is construction of railway), the maximum foreign capital ownership for a non-ASEAN company is set at 67% and the maximum foreign capital ownership mad by an ASEAN company is set at 70%
b) In respect of rail facilities (Under KBLIs set out below), there is no foreign ownership restriction:
- KBLI 49110 – Long-distance passenger rail transportations,
- KBLI 49120 – Rail transportation of goods,
- KBLI 49441 – Urban rail transportation.
a) Determination and collection of tariff will be conducted by a BUP of the rail facilities.
b) Tariff is divided into tariff for passengers and tariff for goods and the MOT provides guidance for determining these tariffs. MOT has issued a guidelines on determination and collection of fares and charges under Ministry of Transportation Regulation No. 17 of 2018 on Guidelines for Calculation and Determination of Tariffs for People Transportation by Train (MOT Regulation 17/2018). In the case where the project in initiated or implemented by the regional government, the tariff regime will also be subject to regional government regulations in addition to being subject to MOT Regulation 17/2018
c) Tariff for passenger train is divided into tariff for scheduled train and tariff for scheduled train and tariff for non-scheduled train. Further, tariff is classified into class of services:
i. Non-economy class services train;
ii. Economy class service train; and
iii. Economy class service train delivered pursuant to public service obligation (PSO, typically by state-owned or regional government-owned entities).
BUP must first determine the tariff and it must submit the same to the MOT (via DJKA or Directorate General of Rail) for approval. If MOT, within 21 days, does not respond, the BUP may apply or effectuate the tariff provided that it has made a public announcement on the new tariff no later than three months prior to the tariff taking effect.
MOT Regulation 17/2018 does not stipulate the period of tariff adjustment. However, given the tariff components used in the formulation are based on annual calculation, the BUP may submit tariff adjustment to DJKA for the MOT approval annually. We understand this is consistent with the existing project.
d) Tariff components are:
I. Capital costs
II. Operating costs
III. Maintenance costs
IV. Provit margin
e) Tariff structure
i. Basic tariff, which calculated is as follows:
(100% profit) x (total of main cost, i.e. sum of capital costs, operating costs, maintenance costs) / (load factor x capacity x distance)
ii. Distance tariff, which calculation is as follows:
Distance tariff = basic tariff x distance
Additional service tarrif is calculated by summing up the products of the price for each type of additional service provided and the total number of passengers in one train.