Guidelines For State Owned Enterprise For Cooperation

Minister of State Owned Enterprise (MSOE) has recently issued Regulation No. PER03/MBU/08/2017 on Guideline of State Owned Enterprise Cooperation (Regulation), replacing the previous Regulation No. PER-13/MBU/09/2014 on Guideline of Fixed Asset Utilization of State Owned Company.

The Regulation provides a clear guideline for a state-owned enterprise (BUMN) in conducting partnership with its subsidiary, its affiliate or other third party. The following are the highlights of the guidelines:

General Principles for Cooperation
• The cooperation must ensure transparency, independency, accountability, beneficial, proper,and in accordance with laws and regulations;
• The duration of the cooperation must be specified in the contract, and any cooperation without specific term shall not be allowed except for cooperation in the form of joint venture company;
• The cooperation is prioritized to form synergy between the BUMN and/or subsidiary of BUMN and/or the affiliation of BUMN;
• The company’s organization of BUMN shall have the right in the process of decision-making an no other party may interfere it;
• The board of directors shall be responsible for the implementation of the cooperation and ensure the benefit of the cooperation for BUMN;
• The cooperation shall provide an optimal benefit to the state owned enterprise and ensure to fulfill the characteristic and/or the dynamic of industrial, sector and/or needs of the relevant state owned enterprise.

Type of Cooperation by BUMN
The Regulation provides two types of cooperation, namely:

    (i) As a partner, it must ensure the benefit and merit of cooperation for the BUMN; and
    (ii) As a prospective partner, a state enterprise is seeking Partner for cooperation.

Guidelines for State Enterprise Seeking Partner for Cooperation
The following are guidelines for BUMN in seeking partner for cooperation:
• The board of directors must establish the standard operating procedures or SOP for the cooperation, and the SOP must be approved by the board of commissioners/board of supervisor.
• The SOP must be approved by the board of directors 6 (six) months after the effective date of the Regulation (which will be on February 2017).
• The SOP shall be at least contains the following:

    (i) the mechanism of selection of partner including the direct appointment mechanism (including if the
    cooperation solicited by the potential partner);
    (ii) required documents, among others, feasibility study (to include the benefit assessment of the cooperation for BUMN), business plan (including operational, financial, legal and market aspects), risk management and risk mitigation study;
    (iii) requirement/qualification of the partner;
    (iv) mechanism on the extension of cooperation with regard to the expiry term of the contract or the ongoing contract or the future contract;
    (v) the content of the contract for the benefit of BUMN.

• In the event a BUMN already has a standard operating procedure with regard to the cooperation with partner, then such standard operating procedure must be adjusted in accordance with the Regulation, at the latest 6 (six) months after the issuance of this Regulation.
• The SOP must be reported to MSOE within 1 (one) month after the stipulation of such SOP.

Minimum Requirements for the Contract
• The minimum requirement to be stated in the agreement between BUMN and partner shall be as follows:

    a) type and amount of compensation/reward, payment mechanism and/or deliverable, time of payment and deliverable of compensation/reward (may be in the form of money, other reward or other benefit for BUMN or state);
    b) rights and obligations of each party;
    c) default and sanction if the partner is unable to fulfill its obligations under the agreement;
    d) dispute settlement;
    e) indemnify to BUMN by the partner from any legal liability after the agreement is expired or
    f) transfer of knowledge from partner to BUMN (if applicable);
    g) end of term of agreement and its consequences, including the transfer of object of agreement (this clause may not be included in the agreement if the cooperation is in the form of joint venture);
    h) no obligation by BUMN to extend the agreement (this clause may not be included in the agreement if the cooperation is in the form of joint venture);
    i) specific restrictions for cooperation related to BUMN’s assets (land, building and/or fixed assets):
    - prohibition for transferring, except the cooperation;
    - prohibition in pledging the object of the agreement;
    - prohibition in pledging exceed the term of agreement;
    - quality warranty.

Evaluation by Board of Directors
In case the cooperation is not fully implemented, then the board of directors of BUMN shall evaluate the contract and the evaluation is made by considering the relevant laws and regulation.

Transition Provision
As of the date of the Regulation:

    (i) for any ongoing contract for cooperation of utilization of fixed asset or other form, or has been approved in accordance with the provisions of articles of associations of the relevant BUMN, then such cooperation still be in effect.
    (ii) for any ongoing cooperation of utilization of fixed asset or other form in which still in the process of study and/or internal approval, it may be continued in accordance with the previous regulation to the extent that the SOP has not been established or adjusted with this Regulation within 6 (six) months (which one is earlier).
    (iii) for any SOP established prior to the issuance of Regulation shall be valid to the extent it shall not
    conflict with the provisions under the Regulation or has not been adjusted in accordance with the Regulation.