Australian energy and resources companies should be
positioning themselves for the Indonesia-Australia FTA, which is
expected to be concluded in 2017.
Australian businesses in the energy and resources sector will
likely be in an excellent position to benefit from a free trade
agreement between Australia and Indonesia that is in final stages
of negotiation, and should be ready to take advantage of the
opportunities this could present.
The Indonesia-Australia Comprehensive Economic Partnership
Agreement (IA-CEPA) aims to build on the two
countries' unique relationship and strengthen their economic
and political bonds.
The sixth round of IA-CEPA negotiations is scheduled to take
place in Australia in February 2017. It is the intention of both
Governments to conclude negotiations of the IA-CEPA before the end
The current state of play in the Indonesian energy and
At first blush, it would seem that there are considerable
opportunities for Australian businesses in the energy and resources
Both Indonesia and Australia are large mining nations, and the
sector delivers important contributions to their respective exports
and GDP. Indonesia also has outstanding prospects for mineral
There are more than 40 ASX-listed companies with activities in
Indonesia's energy and resources sector. There is clearly
opportunity and demand in the energy and resources space for
Australian mining, engineering, technology and services companies
in Indonesia - the Department of Foreign Affairs and Trade
(DFAT), for example, reports that Indonesian
demand remains strong for mining and exploration software,
specialised mining equipment, education and training services and
mining consulting. In addition:
Indonesian energy demand is predicted to grow strongly over the
medium term, and Indonesian President Joko Widodo has signaled that
he wants to see a substantial expansion of oil and gas exploration
in particular; and
at a recent Ozmine mining conference in Jakarta, mine safety
and training were highlighted as growth opportunities for
Australian service providers with the Indonesian mining industry
suffering from considerable skills shortages.
There are, however, a number of issues in this sector in
Indonesia, which stem from a protective regulatory framework that
creates uncertainty, and policies that are generally not conducive
for foreign investors, particularly:
export taxes on certain commodities;
a ban on the export of unprocessed minerals from Indonesia;
an accelerated divestment requirement for foreign shareholders
in companies that hold a mining production permit, requiring
majority Indonesian ownership within 10 years.
IA-CEPA to remove trade barriers
A successfully negotiated FTA could resolve some of these issues
and enhance the economies of both countries.
According to DFAT, the aims of the IA-CEPA are:
addressing impediments to bilateral trade, including those
which impose additional costs on exporters and consumers, and
impede economic competitiveness;
addressing the impediments to increasing Australian investment
in Indonesia; and
exploring ways to enhance economic cooperation in specific
sectors identified as key drivers of economic growth, which
includes the energy and resources sector.
If these goals are achieved, the IA-CEPA could lead to legal
certainty, a liberalisation of investment, reduction in protective
regulations and therefore more cross-border trade and growth for
the energy and resources sector.
What Australian energy and resources companies should do to get
ready for the IA-CEPA
If your business is in this sector and could be benefit from
regulatory change, you should be involved in making submissions on
this topic through DFAT and share your experiences with market
challenges in Indonesia to be considered for the IA-CEPA.
You should also position your business to take advantage of the
agreement once negotiations conclude and the IA-CEPA is in place. A
successfully negotiated IA-CEPA will result in significant
opportunities for Australian businesses and, given the progress and
expected timeframe, it would be prudent to consider this potential
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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