27 August 2019

Indonesia Drives into the Future: A New Regulation on Battery-Powered Electric Road Vehicles

President Joko Widodo of Indonesia recently issued a new Presidential Regulation on battery-powered electric road vehicles. It regulates the manufacture of battery-powered electric road vehicles and components and the construction of electric vehicle charging stations, and it also sets out government incentives available to spur the new market.

Key takeaways:

PR 55/2019 is the first attempt by the Government of Indonesia (GoI) to grow a new market for battery-powered electric road vehicles. PR 55/2019 attempts grow both supply and demand for electric vehicles. PR 55/2019 and its implementing regulations must consider the following major challenges in order to succeed:

  • On the supply side, PR 55/2019 provides incentives to boost manufacturing of electric vehicles and vehicle components, but manufacturers must meet local component requirements. The minimum levels of local components will increase over time. The lack of availability and the cost of local components may make electric vehicles more expensive than conventional vehicles. Thus, local component requirements may ultimately reduce consumer demand for electric vehicles and discourage business investment in electric vehicle and component manufacturing.
  • It is unknown whether the GoI will favour public charging stations over private charging installations or vice versa. In practice, only PLN has the right to operate public charging stations, unless the electricity regulations are changed so that private alternatives are available to consumers.
  • Tariff design for public charging stations will be critical in creating demand for electric vehicles. Public charging stations will charge a Government-determined for electricity, but it is unknown at this stage if the Government will subsidize the consumer cost of electricity at charging stations. If the cost of electricity is too high, not enough consumers will shift to electric vehicles to establish a critical mass for market demand.

PR 55/2019 still lacks implementing details and guidance. The GoI will issue implementing rules in the next twelve months. A new market in electric vehicles will have many environmental and economic benefits in Indonesia.  In order to succeed, the GoI must ensure that the implementing rules give sufficient technical details and legal certainty for market participants. 

1.         Who Should Read This?

This article is relevant for companies who wish to invest in manufacturing of electric vehicle, battery and other associated components, developers of mining of minerals for battery and independent power producers (IPPs).

2.         A New Regime for Electric Vehicles

In August 2019, the President Joko Widodo of Indonesia issued Presidential Regulation No. 55 of 2019 on Acceleration of Battery-Based Electric Vehicles for Road Transportation (PR 55/2019), the first ‘umbrella’ regulation on battery powered electric vehicles[1].

There are several private sector entry points in the electric vehicle industry:  manufacturing of electric vehicles or components of the vehicles (e.g. batteries and electric powered drive trains), building charging facilities, and mining for raw materials such as copper and lithium. Mining activities fall under the existing mining and minerals regulatory regime. PR 55/2019 charges the GoI with creating a new domestic market for battery-powered electric vehicles. To achieve this, PR 55/2019 provides industry participants fiscal incentives such as lower taxes and reduction of certain import duties, and non-fiscal incentives as discussed below. PR 55/2019’s incentives may spur new business opportunities and investment in electric vehicles.

PR 55/2019 is consistent with President Jokowi’s economic and environmental agenda. From a policy perspective, PR 55/2019 is part of the GoI’s master plan to boost the country’s overall manufacturing capacity, including opening new industrial estates along the corridors of newly-built toll roads such as Trans Sumatra and Trans Java highways. PR 55/2019 is designed to encourage people to shift from fuel-based conventional vehicles to electric vehicles, which could reduce tailpipe emissions and the resulting air pollution in heavily trafficked areas.

3.         How does PR 55/2019 work?

PR 55/2019 regulates the manufacture of battery-powered electric road vehicles and components (including local component requirements) and the construction of electric vehicle charging stations, and sets out government incentives for the overall industry.

Manufacture of Electric Vehicles and Components

- Corporate and Business Requirements for Electric Vehicle and Component Manufacturers

  • PR 55/2019 requires that electric vehicle manufacturing companies must: (i) be organized as an Indonesian legal entity, and (ii) hold an industrial business license from the Ministry of Industry to assemble or produce electric vehicles or components.  
  • Manufacturing may be conducted as an integrated activity by a single manufacturer or through a production-cooperation with other manufacturers.
  • Electric vehicle and battery industries are not subject to any foreign investment restrictions.
  • Manufacturing industries must conduct activities in an industrial estate, unless a municipal area does not have an industrial estate or the area’s existing industrial estates are fully occupied.
  • PR 55/2019 also introduced the concept of a “National Electric Vehicle Company’.
    • A National Electric Vehicle Company will be given additional incentives upon obtaining a recommendation from the Team for Acceleration of Electric Vehicle Industry, which will be set up by the GoI.
    • Only a company with a domestic investment status[2] may achieve National Electric Vehicle Company, and as such, a foreign investment company may not qualify this. In addition, a National Electric Vehicle Company must also invest in research and development, though the level of such investment is not regulated yet.

- Manufacturing Requirements for Electric Vehicles and Components

  • The manufacturing facilities must be located in Indonesia.  
  • The manufacturing facilities must implement a waste management system.
  • PR 55/2019 permits imports of certain electric vehicle components, subject to meeting certain criteria that will be set by the Ministry of Industry at a later date.
  • PR 55/2019 permits electric vehicle manufacturers to import fully constructed electric vehicles, however, this concession is only valid for a limited period of time and for a limited number of units. Again, the details will be further regulated by the Ministry of Industry.
  • Existing manufacturers of vehicle components in Indonesia must support the program and cooperate with the electric vehicle industry players. It is not known yet at this stage what level of support is required of existing vehicle manufacturers and how such requirements will impact existing businesses.

- Local Component Requirements for Electric Vehicles and Components

  • Electric vehicle and components manufacturers must use a minimum level of local components[3] in their products. See the chart below.
Type of Electric Vehicle Year Minimum Local Components
Two and Three Wheeled- Vehicles 2019 – 2023 40%
2024 – 2025 60%
2026 ~ 80%
Four (or more) Wheeled- Vehicles 2019 – 2021 35%
2022 – 2023 40%
2024 – 2029 60%
2030 ~ 80%


Charging Infrastructure

Charging infrastructure for electric vehicles is equivalent to gas fuel infrastructure for conventional vehicles. Charging infrastructure may consist of charging stations and battery-swap stations, though PR 55/2019 is silent on requirements for battery swap stations. A charging station may be private, and located on private property such as office buildings or in private homes, or may be designated as public charging station, similar to a gas station[4].

PR 55/2019 states that the opportunity to operate charging stations  available to energy state owned entities such as PLN and Pertamina, and ‘other business entities’, which suggests PR 55/219 contemplates private ownership of charging station. In practice, however, the requirements set out below mean that, under the current regulatory scheme, only PLN may operate public charging stations.

The sale of electricity at public charging stations may only be carried out by (i) a holder of electricity supply license, and (ii) who has a business area.  PLN holds a de facto monopoly on the distribution of electricity, except for a small number of industrial estates and factories which may sell captive power within an assigned area.

The same is true for business areas. Apart from a handful of industrial estates and factories that are granted business areas for captive supply, PLN has a monopoly on all business areas across the country. Therefore, under the current regime, only PLN and captive power developers can operate public charging stations.

PR 55/2019 gives a mandate to PLN to pioneer the building of charging stations and in doing so, PLN may cooperate with other entities.  Note that the current Negative Investment List restricts foreign ownership in electricity distribution (including sale to end users) to a maximum of 95%.

Another element is the price of electricity for sale at public charging stations. According to PR 55/2019, the GoI will determine the price of electricity at public charging stations. A high electricity price would dent demand and deter people from shifting to electric vehicles, unless private charging installations can offer cheaper and more convenient alternatives.

Government Incentives

Fiscal and non-fiscal incentives will be available to both electric vehicle and component manufacturers, and consumers who shift to electric vehicles.. Industries entitled to the incentives  include: electric vehicle and component manufacturers (to the extent they satisfy he local component requirements), industries that use components produced by local EVB manufacturers, battery swap services, battery waste management, charging stations, buildings and houses that provide private charging installations, and public transportation that converts to electric vehicles.  

Fiscal incentives include reductions in: import duties of machinery and raw materials, national and regional taxes on vehicles, taxes on luxury goods (such as imported electric cars). Other fiscal incentives include subsidized electricity in public charging stations and reduced parking fees in public places. Non-fiscal incentives available to consumers include exemptions from road use restrictions such as the odd-even license plate restrictions on certain main roads in Jakarta.

4.         Future Opportunities under the PR 55/2019 Regime

It remains to be seen how the Government will regulate the industry.  The GoI should issue implementing rules that are market oriented, and not fall into the common pitfall of attempting to open a new market but then implementing rules that make it difficult for that market to grow.

The Government should be especially thoughtful in imposing local components particularly for an entirely new market such as this. It will be challenging for the investors to predict the availability and price of local components as the minimum thresholds increase. The local components obligation may cause the price of electric vehicles to be higher than substitute conventional vehicles, which would stifle demand in nascent market.

The market would also want to see where the real entry point is for investment in charging infrastructure. Will the GoI favour public charging stations over private charging installations or vice versa? If it is the former, then would PLN grant private a concession or a license to operate a network of public charging stations? Another entry point for investment is battery swap stations about which PR 55/2019 is silent.

PR 55/2019 is paving the way into Indonesia’s sustainable future. In order to accelerate the shift to electric vehicles, the GoI should design the regulatory regime carefully to foster private foreign investment and knowledge transfer while building domestic capabilities in manufacturing, engineering, and software. 


[1] Battery Electric Vehicle - kenderaan bermotor listrik berbasis baterai

[2] PMDN – penanaman modal dalam negeri

[3] TKDN – tingkat komponen dalam negeri

[4] SPKLU – stasiun pegisian kendaraanlListrik umum

Michael Tardif +62 21 2995 1702
Foreign Legal Consultant (Partner Level), Jakarta michael.tardif@allenovery.com
Cindy Riswantyo +62 21 2995 1721
Counsel, Jakarta cindy.riswantyo@allenovery.com
Ari Bessendorf +62 21 2995 1706
Foreign Legal Consultant, Jakarata ari.bessendorf@allenovery.com
Ferhat Afkar +62 21 2995 1716
Senior Associate, Jakarta ferhat.afkar@allenovery.com

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