Global | Publication | April 2023
Law No 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition (the Competition Law) is administered by the the Commission for the Supervision of Business Competition (the KPPU), which has the authority to issue implementing regulations and guidelines. Law No 5/1999 prohibits a range of restrictive agreements and abusive behaviours, including mergers and acquisitions that may result in monopolistic practices or unfair business competition.
In particular, the Competition Law prohibits:
The Competition Law prohibits agreements between business operators if the agreement may result in monopolistic practices or unfair competition. The prohibition on restrictive agreements covers both horizontal and vertical agreements. Contrary to the approach in other jurisdictions, the Competition Law does not provide for a broad prohibition of restrictive practices, but instead lists a number of specific prohibited practices. That said, while the law appears quite strict, in its interpretative guidelines the KPPU has largely adopted an effects-based approach, leading to an enforcement which is closer to international practice.
The prohibition of cartels and horizontal restricted agreements under the Competition Law covers:
While there is no general definition of vertical restraints in the Competition Law, the following vertical practices are prohibited:
The Competition Law prohibits business actors from abusing their dominant positions. A dominant player is generally defined as:
A business is presumed dominant if it controls at least a 50 per cent share of the relevant market. Two or three businesses collectively will be presumed to be dominant if they control at least a 75 per cent share of the relevant market.
The Competition Law does not specify what constitutes an abuse, but the KPPU considers the following practices to amount to abuses of dominance:
Business actors are prohibited from merging or consolidating business entities or acquiring shares in companies if these actions may result in monopolistic practices or unfair competition.
Transactions are subject to post-merger control clearance by the KPPU if they meet the following asset or turnover thresholds:
Both asset acquisitions and share acquisitions are caught. Since the adoption of Regulation No 3 of 2023 on the assessment of mergers, consolidations and acquisitions (Regulation 3/2023, effective 31 March 2023), both thresholds now refer to the value of the parties’ assets and sales in Indonesia, calculated at group level.
Notifications must be submitted to the KPPU no later than 30 business days (as of 1 May 2022)1 since the merger, amalgamation or share acquisition becomes legally effective, which in most instances for domestic transactions will correspond to the date the relevant transaction documents are received by the Minister of Law and Human Rights.
Since Regulation 3/2023, parties are also required to submit the notifications online through the KPPU’s website.2 However, as of the date of this publication, notifications are still submitted through the designated KPPU email address for a transitional period.
The Competition Law also contains provisions meant to limit the advent of conglomerate power.
First, the law contains a prohibition on interlocking directorates in some cases. A person who is serving as a director or a commissioner of a company is prohibited from simultaneously holding the position of director or commissioner in another company if these companies operate in the same relevant market, have strong links in terms of their field or type of business, or together have the potential to control the market share of certain products.
Second, the law also prohibits the formation of conglomerates with a single parent company holding the majority of shares in several companies which together account for over 50 per cent of the market, or when two or three companies control over 75 per cent of the market.
Infringements of the Competition Law can attract both administrative and criminal sanctions. To date however, the KPPU has never attempted to seek criminal penalties.
The KPPU may impose a wide range of administrative sanctions, including fines up to 50 per cent of the relevant parties’ net profits or up to 10 per cent of the relevant parties’ turnover during the infringement period. The KPPU may also declare agreements to be void, award damages or order business actors to cease any practices found to infringe the Competition Law.
The criminal courts can also impose a variety of sanctions, including criminal fines ranging from IDR1 bn (approx. US$67,000) to IDR100 bn (approx. US$6.7 m); imprisonment of individuals for up to five months (for certain violations including price fixing, resale price maintenance, closed agreements and price discrimination) or up to six months (for example, for an oligopoly, territory division, boycott, cartels and market control); disqualification orders for directors and commissioners for between two to five years; and orders revoking business licences.
An agreement made or conduct that occurred in a foreign country will be caught by the Competition Law as long as it affects the Indonesian market. In that respect, there have been two cases where the KPPU has asserted jurisdiction over overseas tender participants who otherwise did not have any connection with Indonesia.
The primary enforcement authority is the KPPU which has the power to investigate alleged violations and impose administrative sanctions. The KPPU also has powers to undertake market studies and review government policies to determine whether they are consistent with fair competition. Criminal courts can also impose sanctions at the request of the public prosecutor’s office.
A relevant third party can submit a request for damages, during either the examination or the trial at the KPPU, or following the KPPU’s decision. In the former case, the third party must volunteer to be examined as a witness first. In the latter, the request is submitted to the relevant commercial courts, using the KPPU’s decision as the legal basis.
There is no recognition of leniency in the Competition Law or any KPPU implementing regulations.
To supervise the application of the Competition Law, the KPPU has been granted broad powers to proceed with investigations and adjudication in competition cases. The KPPU can start an investigation based on its independent regular market monitoring efforts and findings or information from third parties. In practice, this also covers requests for investigations from other government entities.
The KPPU is able to examine agreements, business activities and actions performed by business actors. This includes the power to summon witnesses of fact and expert witnesses, as well as to order disclosure of documents from private and government institutions.
The KPPU’s powers of investigation do not extend to conducting raids on the premises of suspected infringers or other relevant persons.
Sanctions for non-compliance with the KPPU’s investigations can lead to three months’ imprisonment or fines from IDR1 bn (approx. US$67,000) to IDR3 bn (approx. US$200,000).
Notifications of mergers and acquisitions to the KPPU experienced a significant increase in 2021. There were 233 notifications received by the KPPU in 2021, an increase of about 20 per cent from 2020 which recorded 195 notifications.3Notifications mainly came from the property, logistics and technology sectors. Foreign-to-foreign transactions amounted to 41 per cent of notified transactions in 2021 (96 notifications out 233) while another 16 per cent involved at least one foreign party (38 notifications).4 This represents a significant increase from 2020, when foreign companies accounted for only 12 per cent of notified transactions (23 out 195 notifications)5, but also in comparison to 2019 before the Covid pandemic hit, when foreign companies accounted for 31 per cent of notifications that year (38 out of 124 notifications).6
In 2021, the KPPU continued to actively enforce and fine companies that failed to notify transactions within the required 30 business days post-transaction. Up to the date of publication, the KPPU has issued 50 decisions for failures to notify or delayed notifications of mergers and acquisitions, out which 12 were issued in 20217 (and 7 to date in 2022) renewing with pre-pandemic enforcement levels (12 decisions in 2019, which fell to 7 in 2020).
Since the entry into force of the law, the vast majority of decisions regarding violations of the Competition Law related to bid-rigging conduct (257 out of 394 decisions as at end 2019). That has remained the case throughout 2021 with 45 out 65 of the investigations conducted by the KPPU in 2021 (i.e. almost 70 per cent) relating to allegations of bid-rigging.8 The KPPU issued 26 decisions in 2021, out which 10 related to bid-rigging. The average fine imposed by the KPPU in 2021 was of IDR 1,78 bn (approx. US$114,000).9
Since the enactment of the Competition Law, the KPPU has rarely initiated an investigation for cases related to vertical restraint prohibitions or abuses of dominance.10 That said, the KPPU launched an investigation in September 2022 in relation to Google’s app-store payment mechanisms to determine whether Google’s requirement for certain apps to use the Google Pay Billing system, which imposes a 15-30 per cent fee, could amount to an abuse of dominance through tying and discrimination. Arguably, such investigation would rather illustrate the KPPU's continued focus on the digital sector – as detailed below – rather than a shift towards a more stringent approach towards possible abuses of dominance.
Following the KPPU’s review of the digital economy in 2017, the KPPU has increasingly focused on this sector in recent years. In 2021, the KPPU notably conducted a market study on market definition in the digital economy which is meant to establish a framework for potential amendments to the KPPU Regulation 3/2009 on Guidelines for the Interpretation of Relevant Market, which had been adopted in July 2009 and has remained unchanged since then. Such amendments are expected to outline how the KPPU will assess relevant markets in the digital economy sector.
In addition to the above mentioned investigation into Google's app-store payment mechanisms, on the enforcement side, the KPPU imposed total fines of IDR 49 bn (approx. US$3 m) on Grab Indonesia and a leasing company in 2020, as it considered that the preferential terms the parties had agreed on were discriminatory and anticompetitive. In a significant blow for the KPPU, in April 2021, the Supreme Court of Indonesia upheld the South Jakarta District Court’s decision which overturned the KPPU decision that had found that the parties had been involved in discriminatory practices, essentially repealing the KPPU decision against Grab and cancelling the fines that had been imposed.
On the merger front, the merger between Indonesia’s leading mobile on-demand services and payments platform, Gojek, and leading online marketplace Tokopedia, has led the KPPU to open a rare in-depth comprehensive assessment review, akin to a phase 2 merger review under Indonesia's post-merger review regime. A transaction would only proceed to the comprehensive assessment stage review in the event the initial assessment phase review concluded that potential anti-competitive impacts may arise from the transaction. The merger between Gojek and Tokopedia was estimated to be worth at least US$18 bn and to be the largest ever in Indonesia and largest between two Asia-based Internet and media services companies to date. Until now, each comprehensive assessment merger review resulted in a decision from the KPPU imposing behavioural conditions on the merged entity. In the Gojek/Tokopedia merger however, while it is understood that the assessment indicated an increase in market concentration, the KPPU ultimately concluded that the impact on competition was not such that it warranted imposing remedies on the parties and cleared the deal unconditionally only two weeks after the opening of the comprehensive assessment review.
Law No 11/2020 on Jobs Creation (known as the “Omnibus Law”), which was passed by Parliament and included the revision of various provisions of the Competition Law, was ultimately declared unconstitutional by the Constitutional Court of Indonesia at the end of 2021. In particular, the Omnibus Law included the removal of the IDR 25 bn (approx. US$1.78 m) cap on administrative fines, the replacement of the District Court by commercial courts to hear appeals on the KPPU’s decisions and the elimination of the additional criminal sanctions that could be imposed under Article 49 (i.e. revocation of licenses, prohibition on the violating party acting as the director or commissioner of a company, or suspension of business activity). With the legislative efforts put on hold, the KPPU has been focusing on implementing some of the changes through regulations. The KPPU notably issued a regulation outlining how it will determine a company’s net profit or turnover for the purpose of calculating fines, as well the circumstances under which companies may request to pay fines in instalments or what level of penalties can be imposed in case of late payments of fines.
In March 2022, the KPPU issued Regulation 1/2022 in relation to compliance programmes. Under the regulation, companies have the possibility to register their competition law compliance programmes with the KPPU and obtain KPPU’s approval for it. A KPPU-approved compliance programme will be valid for an initial five years and will be taking into account by the KPPU in case of an investigation or when imposing fines for breach of competition law. However, the criteria and amount of possible reduction of fines are not specified in the regulation. The regulation nonetheless details what the KPPU will consider when reviewing and approving compliance programmes, including how competition law risks are identified in the programme, how the company plans to mitigate them as well as the company’s internal training plans, reporting mechanism, and internal sanctions in case breach of competition law are uncovered.
Law of the Republic of Indonesia No 5 of 1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition
KPPU Building
Jl. Ir H Juanda No36
Jakarta Pusat, 10120
Indonesia
Tel: +62 21 3519144
Fax: +62 21 3507008
Email: international@kppu.go.id
Website: www.kppu.go.id
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