Indonesia: Commission for the Supervision of Business Competition

Indonesia has seen significant changes in the implementation of its competition policy since 2014, most significantly after the amendment of competition policy in the Medium Term National Development Plan 2015–2019 that was set by the Indonesian president following his inauguration. This is believed to be a stepping stone to the promotion of regulation and self reform. The Ministry of National Development Planning/BAPPENAS (formerly known as the Ministry of National Development Planning) has set optimistic targets to revise around 6,000 regulations in the year ahead. Indonesia will form a team to analyse and reform existing regulations and assess whether such regulation would make a positive or negative impact on the community. Competition policy is believed to be one area of regulation to be assessed. The government has initiated the deregulation of 134 rules, as part of the first package of economic policy reform that was launched in September 2015. The recent improvements will create positive developments for competition policy in Indonesia.

Enforcement actions

In 2014 the Commission for the Supervision of Business Competition (KPPU) issued eight decisions and handled 109 complaints. Around 80 per cent of these reports were estimated to involve bid rigging. There were 32 investigations that took place in 2014, 56 per cent of which were bid-rigging cases (a decrease from 68 per cent in 2013). Major cases involved a garlic importation case, a cartel case in domestic tyre production, and exclusive dealing by one of Indonesia’s state-owned banking enterprises. In terms of litigation, in the last three years the KPPU has recorded more than 120 objections made by reported parties. The results of 114 of these objections have been annouced, and most of them (around 59 per cent) were in favour of the KPPU’s decisions.

The KPPU ranks cartel activity in staple foods sectors as its highest priority this year. At least seven commodities are being closely observed by the commission, including beef, poultry, rice, salt, soybeans, sugar and corn. In the beef sector, it said that the growing increase of the price of beef may relate to import restrictions as part of the government’s efforts to maintain price stability in the market. As widely reported in the media, the amount of imported meat has been reduced from 250,000 head of cattle to 50,000 head of cattle, a drastic decrease of 80 per cent, in accordance with the aim of achieving self-sufficiency in meat production in the next five years. The price of meat skyrocketed from around 70,000 Indonesian rupiah per kilo to 140,000 rupiah in some areas. The KPPU opened an investigation and alleged that this scarcity was driven by cartel activity of 32 feedlots, both foreign and domestic, that refused to supply the market in Jakarta, Bogor, Depok, Tangerang and Bekasi (Jabodetabek).

Another commodity issue that rose to public attention was cartel activity regarding parent stock chickens. Parent stocks are broilers that produce fertilised eggs. A broiler hatching egg is never sold at stores and is not meant for human consumption. The issue began with a statement by the Ministry of Agriculture that agreed to destroy 6 million parent stock, following a meeting with an association of 12 chicken ranches. This was done to stabilise broiler prices at the producer level that had reached 40 per cent of their cost of production, and this action may reduce market supply and increase the price back to above the cost of production. The supply of broiler was deemed to exceed the demand. For instance, last August, there was a surplus of broiler production of 18 million broilers per week. In addition, the businesses were also faced with the high price of day-old chicks, which reached 5,100 to 5,300 rupiah per broiler, a marked increase from its normal price before the shock, which was approximately 4,000 rupiah.

Rice, a staple food in Indonesia, also raises significant issues for the KPPU due to its recent scarcity in Jakarta, and the problem of potential price increase by early 2016 is inevitable. Factors such as weather may contribute to this shortage, but are not believed to influence the fundamental cause of the supply issue, which is suspected to be control by a certain dominant enterprise over rice distribution in the Jakarta area.

In addition to the above, the KPPU has been focusing on the importation of industrial salt. The KPPU raised some concerns after a meeting with the Indonesian Minister of Maritime Affairs and Fisheries, in which she shared a complaint about the yearly declining price of salt, caused by salt importation, that has caused great losses for Indonesian salt farmers.

The KPPU has encountered a number of issues in recent years, but is lacking in resources to deal with them all. As in many other competition authorities, the KPPU seems to struggle with its human resources. It has small numbers of staff to deal with such large sectors and geographical areas. The KPPU has a total of 358 officials, with only half of this number able to deal with enforcement and advocacy. This number is still considered insufficient, so there have been efforts to establish a ‘Competition Corner’ in one of the pre-eminent public universities in Indonesia. The Competition Corner serves as a think tank and forum for scholars to improve their knowledge and experience of competition. It is believed that this will improve future public awareness and add increasing value to the KPPU’s public awareness index, was 6.71 on a scale of 7 in 2014, as well as helping to create new expertise in competition law and policy.

Policy reforms

Another important event in Indonesian competition policy this year was the increased trend of government intervention in market pricing, by allowing companies to jointly control their supplies. This mostly occurred at the commodity price level due to demand shock on some commodities during the year. Competition advocacy, through policy research and policy options, was implemented to prevent such intervention harmimg competition. To this extent, the KPPU conducted many policy analyses in strategic sectors such as gas, electricity, beef, sugar, rice, mining, shipping, ports, health and banking and other financial services.

Furthermore, to improve the effectiveness of competition law enforcement, Indonesia will accelerate the process of amendment of the competition law, Law No. 5/1999. Acknowledged as the first amendment in the Law’s 15 years of implementation, it is expected to be completed during next year’s parliamentary session. The amendment itself focuses on strategic issues, such as the increase of fines (almost 20 times the original totals), the introduction of pre-merger notification and leniency applications, broader definition of ‘enterprises’ (to include foreign enterprises in other countries) and the new institutional setting of the KPPU.

Therefore, improving public support for the KPPU and Indonesian competition law is important, in both Indonesia and abroad. To gain this support, the KPPU established the first-ever Jakarta International Competition Forum (JICF) in June 2015. This biennial event will serve as a multi-stakeholder forum to gather all types of stakeholder (such as the government, judiciary, law enforcers, legal practitioners, scholars and businesses) in one place to discuss current issues that affect them all. The Indonesian vice president and ministers, as well as some of their international counterparts, have contributed to this forum.

Commencement of partnership supervision and enforcement

Another new challenge for the KPPU, and Indonesia as a whole, is the implementation of supervision and enforcement of the partnership between micro, small and medium-sized enterprises (MSMEs) with large-sized enterprises. Currently, the KPPU has issued two regulations to carry out these new authorities, namely Commission Regulation No. 1 2015 on Procedures for Monitoring the Implementation of the Partnership that was signed on 30 June 2015, and the Commission Regulation No. 3 2015 on Procedures for Case Handling Procedure on the Implementation of Partnership that was signed later, on 30 September 2015. These rules are to implement the orders of Law No. 20 of 2008 on Micro, Small and Medium Enterprises and its implementing regulation, Government Regulation No. 17 2013. With the issuance of the two regulations, the Commission can formally receive complaints and conduct initiatives over alleged violations of partnership agreements.

It states in the Commission Regulation No.1 that there are two types of partnership agreement supervised by the Commission, namely partnerships between:

• MSMEs with large-sized enterprises; and
• micro and small-sized enterprises with medium-sized enterprises.

This covers various forms of partnership, including: contract farming, subcontracting, franchising, general trading, distribution and agency, profit sharing, operational cooperation, joint venture, outsourcing and others.

Legal enforcement is implemented on the breach of the Implementation of Partnership agreement, particularly in trading terms. The law enforcement process resembles the process of handling case procedure under competition law, as set forth by KPPU Regulation No. 1 2010 on Case Handling Procedure. The source of case, evidence, type of examination and case handling are arranged to resemble the stages of this ruling, but its differences lies in two things, namely:

• the termination of preliminary examination if all reported parties admit guilt; and
• the existence of a written warning to the reported party after the preliminary examination.

In the event that all reported parties admit guilt on the preliminary examination, the case can be stopped and the KPPU will draw up an examination report and provide corrective actions. If they did not comply, the reported parties will be given a written warning by the chairman of the KPPU, up to three times. The period between written warnings is 14 working days. However, if the reported parties respond upon receiving the written warning (either accepting or refusing to comply), the process will still be continued with the advanced examination at the KPPU’s discretion. So, the best choice for the reported party in this partnership case is to admit the offence during the preliminary examination, or implement the KPPU’s decision following its affirmation.

The sanctions can be the cancellation of a business licence (through recommendations to the authorised agency for licensing) and the imposition of financial penalties. The fine varies between types of enterprises. Large enterprises be fined up to 10 billion rupiah, medium-sized enterprises up to 5 billion rupiah. The financial penalties are lower than those of competition law enforcement, which can reach 25 billion rupiah. But sanctions on enterprises in partnerships may also involve changes to the partnership agreements and the cancellation of business licences, which can lead to huge losses for violators of the law.

With the two new regulations, the KPPU can further contribute to the development of MSMEs in Indonesia, especially in ensuring legal certainty and equal treatment in running their businesses. This is important given the increased intensity of competition in Indonesia, along with the commencement of the ASEAN Economic Community in 2015. Therefore, public education on the new tasks has been carried out intensively. What remains is to improve the institutional instrument, to prepare staff and units to effectively implement the mandate.

Enforcement direction in 2016

The KPPU will probably continue to focus its enforcement on the seven commodities mentioned previously, and other sector priorities like health and education, construction and infrastructure, energy and financial services. It will also focus its strategy towards effective partnership supervision and enforcement by creating a special unit for partnership, along with capacity improvement and intensive outreach activities to businesses. They shall also prepare for many adjustments when the new competition law is approved in 2016.

Conclusion

The KPPU shifted into a higher gear from the middle of 2015, soon after the inauguration of Dr Syarkawi Rauf as its new chairman (who will hold the position until the end of 2017). Activities are planned for strategic sectors such as food, commodities and health care, specifically after the strategic direction provided by the Indonesian president in November 2015. Beef, rice, sugar, salt, corn and soybean are some of the sectors highlighted by the president. Formal cooperation is being made with many universities to increase knowledge of competition. The amendment process of competition law has been started and is expected to be finalised in 2016. Meanwhile, the KPPU starts to implement its new authority on the partnership supervision and enforcement following the issuance of two implementing regulations in September 2015.