ARMA Update SOE Law Series - Series 3: Strengthening SOE Governance Following the Enactment of Law 1/2025
Authors
The governance of State-Owned Enterprises (“SOE(s)”), previously regulated explicitly under Minister of SOEs Regulation No. PER-2/MBU/03/2023 concerning Guidelines for Governance and Significant Corporate Activities of State-Owned Enterprises (“MoSOE Regulation 2/03/2023”), has undergone significant changes with the enactment of Law No. 1 of 2025 concerning the Third Amendment to Law No. 19 of 2003 concerning State-Owned Enterprises (“SOE Law”) (“Law 1/2025”).
This final edition of our ARMA Update series completes the examination of Indonesia’s SOE governance reforms under Law 1/2025, building on Series 1 ’s which explored the expanded classification of SOE and the strengthened Business Judgment Rule’s protections for SOE’s managements, and Series 2, which reviewed the establishment of BPI Danantara as the landmark of strategic investment coordination.
In addition to these headline reforms Law 1/2025 introduces several other governance-related changes that merit close attention. These include refinements to provisions on SOE boards of directors and commissioners; SOE asset management; write-offs and debt cancellations; regulation of SOE subsidiaries; monopoly rights for SOEs; special government assignments for SOEs; corporate social and environmental responsibility obligations; and modifications to SOE dispute resolution mechanisms.
Write-Offs and Debt Cancellations
A write-off (hapus buku) refers to the removal of a SOE’s fixed assets from its financial records. 1 Write-offs and/or debt cancellations (hapus tagih) may be applied to SOE assets, particularly in the form of non-performing loans, after optimal collection efforts have been made. 2
Prior to Law 1/2025, write-offs were regulated under MoSOE Regulation 2/03/2023. Under that regulatory framework, proposals for write-off were submitted by the Board of Directors to the General Meeting of Shareholders (“GMS”) /Minister of SOEs and/or the Board of Commissioners/Supervisory Board. 3 Law 1/2025 introduces a shift in this process. Under the new regime, proposals for write-offs or debt cancellations may now be initiated by either Operational or Investment Holdings, with final approval resting jointly with BPI Danantara and Minister of SOEs (“MoSOE”).
As a result, the authority to approve such proposals no longer lies with the GMS, the MoSOE individually, or the Board of Commissioners/Supervisory Board, but has been reallocated to BPI Danantara and the MoSOE under the new structure.
Additionally, Law 1/2025 provides that existing SOEs regulations will remain in effect insofar as they do not contradict with its provisions. In this context, the provisions concerning the authority to carry out write-offs or debt cancellations may not constitute a direct conflict but rather reflect a regulatory discrepancy. Further clarification on this issue is expected to be addressed through implementing regulations.
SOE Subsidiaries, Monopoly Rights, and Special Government Assignments
Law 1/2025 introduces important clarifications regarding SOE subsidiaries, which were previously unregulated. It allows SOEs to establish subsidiaries and hold shares with special rights to support their founding objectives. However, these subsidiaries should ideally operate in sectors aligned with their parent companies to maintain strategic coherence and strengthen the SOEs’ contribution the national economy. 4
As affiliates, subsidiaries also entitled to access loans or guarantees from Investment and Operational Holdings and may receive state capital injections from the state budget (APBN) for government-mandated projects. 5
In addition, Law 1/2025 allows SOEs and their subsidiaries to receive special assignments and monopoly rights in the production and/or distribution of goods and services related to public needs or strategic national sectors. 6
- Special assignments, which previously unregulated in the SOE Law, are granted to facilitate public utility functions, research and development, and national innovation. 7
- Monopoly rights, a reaffirmation of SOEs’ monopoly privileges under Article 51 of Law No. 5 of 1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition, may be granted based on presidential consideration, primarily to safeguard national interests and ensure economic stability and the availability of essential public services.
That said, it should be noted that granting monopoly rights to SOEs or their subsidiaries may restrict market access for private businesses and investors, particularly in industries previously open to competition. While this policy could ensure certainty in public service provision, especially in sectors vital to public welfare, transparency in implementing monopoly rights and strict oversight mechanisms will be essential to balance state interests with the principles of fair and open competition.
SOE Dispute Resolution
Referring to MoSOE Regulation No. 2/03/2023, as further clarified by the Minister of SOE Circular Letter No. SE-1/MBU/DHK/04/2024, the Minister of SOE, acting in their capacity as GMS/shareholder/capital owner, in the context of SOE oversight may serve as a mediator upon request from the SOE Board of Directors/Subsidiary/Affiliate to resolve disputes between SOEs, their subsidiaries, or affiliates. 8 Mediation resolutions under the MoSOE’s facilitation are final and binding on the involved parties. 9 The MoSOE’s mediation authority may also be delegated to senior officials (pimpinan tinggi madya) overseeing legal functions within the SOE Ministry.
In line with previous regulations, Law 1/2025 reaffirms that disputing parties must first attempt resolution through deliberation and consensus. 10 If these efforts fail and mediation is pursued, the parties must first agree on a mediator. The key update under Law 1/2025 is that if no mediator is agreed upon within 14 (fourteen) calendar days after failed negotiations, the SOE Ministry, rather than acting as mediator as before, is now authorized to directly appoint a mediator to facilitate dispute resolution.
However, Law 1/2025 does not provide detailed guidance on the next steps if disputes between SOEs or their affiliates remain unresolved following mediation facilitated by the SOE Ministry. This absence of guidance may lead to uncertainty in practice, particularly in situations where disputes progress to litigation or arbitration. Accordingly, further technical regulations may be necessary to clarify the available legal avenues when mediation through the SOE Ministry does not result in a resolution.
- Article 1 number 73 of Minister of SOE Regulation 2/03/2023 ↩
- Article 62D of SOE Law ↩
- Article 162(1) of MoSOE Regulation 2/03/2023 ↩
- Articles 62M–62N of SOE Law ↩
- Article 3AC, Article 3AL, and Article 4 of SOE Law ↩
- Article 86M of SOE Law ↩
- Article 87C of SOE Law ↩
- Article 7(1) letter b of MoSOE Regulation 2/03/2023 ↩
- Article 7(3) of MoSOE Regulation 2/03/2023 ↩
- Article 87F(1) of SOE Law ↩
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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