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Indonesia’s Competition Commission (the KPPU) has issued a new merger control regulation with revised thresholds for triggering a merger filing in Indonesia. The changes include, among other things, removing the filing requirement for transactions that do not have a significant impact on the Indonesian market, which had contributed to a lengthy backlog in cases being handled by the KPPU over the past few years.
In tandem, the government has for the first time introduced a fee for making merger filings.
KPPU Regulation No. 3 of 2023 on Evaluation of Mergers, Consolidations, and Share/Asset Acquisitions (the 2023 Regulation) came into effect on 30 March 2023, replacing KPPU Regulation No. 3 of 2019 (the 2019 Regulation) on the same topic. The 2023 Regulation appears to return to some earlier positions in place prior to the 2019 Regulation.
Around the same time as the issuance of the 2023 Regulation, the Government of Indonesia has also issued Government Regulation No. 20 of 2023 on Types and Tariffs for Types of Non-Tax State Revenues Applicable to the KPPU (GR 20/2023). Under GR 20/2023, merger control filings will be subject to a filing fee payable to the government.
KEY CHANGE 1 – LOCAL ASSET-BASED THRESHOLD
In Indonesia, a merger filing can be triggered if one of two jurisdictional thresholds is met: (a) a turnover-based threshold of 5 trillion rupiah (US$340 million) or (b) an asset-based threshold of 2.5 trillion rupiah (US$170 million). Under the 2023 Regulation, the asset-based threshold is now expressly limited to assets located in Indonesia.
Previously, under the 2019 Regulation, the asset-based threshold was calculated based on the value of the worldwide assets of the company group, resulting in Indonesian merger filings very easily being triggered by multinational companies when their Indonesian business was minimal (or non-existent).
With the new local asset-based threshold, Indonesian merger filings will only be triggered where there is a clear nexus to Indonesia.
KEY CHANGE 2 – LOCAL EFFECT TEST FOR FOREIGN-TO-FOREIGN TRANSACTIONS
The 2023 Regulation clarifies that an Indonesian merger filing is needed for transactions between companies with sales or assets in Indonesia. Previously, the 2019 Regulation had removed this “local effect” test, effectively requiring merger filings where the nexus to Indonesia was minimal or only applied to one party. Unsurprisingly, there were concerns that the removal of the local effect test, combined with the worldwide assets value test mentioned above, could result in the KPPU requiring filings to be made for transactions that were unlikely to affect the competitive conditions of the relevant market in Indonesia.
With the re-inclusion of the “local effect” test and the reversal of the asset-based threshold from being applied on a worldwide basis to being applied only to assets located in Indonesia, we expect that the 2023 Regulation will help the KPPU to better focus its resources on transactions that could have a potential impact on the Indonesian market.
KEY CHANGE 3 – INTRODUCTION OF A FILING FEE
GR20/2023 requires a notifying party to pay an official fee for each merger filing.
This fee is calculated at 0.004 percent of the combined asset value or turnover of the parties (whichever is lower), up to a maximum fee of 150 million rupiah (US$10,000). According to GR 20/2023, the KPPU will issue an implementing regulation on the filing fee, covering both the payment procedure and any potential fee reductions upon meeting certain criteria.
While we await the issuance of this implementing regulation, it is still unclear when or how the filing payment should be made. So, we would expect an implementing regulation to be issued before 4 May 2023, when the new filing fee comes into effect.
KPPU web portal for merger filings
Merger filings will need to be made using a new web portal maintained by the KPPU. Such filings were previously made either at in-person meetings or through the KPPU’s official email account. Although the new requirement is effective upon enactment of the 2023 Regulation, we note that the web portal has not been in operation in the early weeks of April 2023.
The KPPU has been developing its web portal to simplify the filing process for some time. It remains to be seen whether the web portal will, in fact, simplify the filing process. In any event, given the web portal is still under development, technical issues and delays should be anticipated in the early stages of implementing this online system.
New review process
Under the previous regime, the KPPU review process would consist of a clarification phase lasting up to 60 business days, and an examination phase lasting up to 90 business days.
Under the 2023 Regulation, the entire review process is shortened to 90 business days after the filing is formally received by the KPPU, and will consist of a preliminary review and, potentially, a comprehensive review. A comprehensive review is only required if the KPPU deems there to be a significant change in market concentration following the transaction.
If during the comprehensive review the KPPU finds a potential anti-competitive impact, the notifying party will be invited to present its case at a KPPU Tribunal, which will then decide on the case. The process will be completed if the notifying parties accept the decision of the KPPU Tribunal (with either an unconditional clearance or a conditional clearance with remedies). If the notifying parties either (a) refuse to accept the KPPU Tribunal’s decision (including any remedies proposed) or (b) fail to comply with the agreed conditions and remedies imposed, then the case will be escalated to a “further examination” phase, which will comply with the KPPU’s procedural rules for handling competition law violations.
The new regulation (re-)introduces some welcome changes to the Indonesian merger control regime, which we anticipate will lead to fewer filings for companies, and provide a clear legal basis for filing or not filing, as appropriate.
If you have any questions about the new rules, please contact the authors below (or your usual contact at HBT or Herbert Smith Freehills).