Arbitration Of Disputes Involving Indonesian State-Owned Enterprises

31 Dec 2025 --
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1. Legal Framework Governing Arbitration with SOEs

a. Relevant Laws

Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (Arbitration Law)

Governs domestic and international arbitration in Indonesia.

Articles 50–60 allow arbitration clauses in contracts, including those involving SOEs.

Law No. 19 of 2003 on State-Owned Enterprises (Persero) and Government Regulation No. 72 of 2016

SOEs can engage in commercial activities and enter contracts including arbitration agreements.

SOEs may not waive sovereign immunity if disputes involve governmental acts outside commercial activity.

Indonesian Civil Code & Government Procurement Regulations

Apply when SOEs are involved in procurement contracts or public-private partnerships (PPP).

New York Convention 1958

Applicable when SOEs enter international commercial contracts with foreign arbitration clauses.

b. Key Principles for SOE Arbitration

Commercial Nature Requirement

Only disputes arising from commercial transactions (e.g., sale of goods, construction, energy projects) can be arbitrated.

Disputes arising from sovereign functions (e.g., regulatory acts) cannot be arbitrated.

Capacity of SOEs

Must act through authorized management or directors. Improper authority can invalidate arbitration clauses.

Public Policy Consideration

Indonesian courts may review awards involving SOEs to ensure they do not violate public policy (ketertiban umum).

Choice of Arbitration Institution

Commonly used: BANI (Badan Arbitrase Nasional Indonesia), SIAC, ICC.

BANI Rules are often preferred in domestic SOE disputes due to procedural familiarity.

2. Procedural Considerations

a. Initiating Arbitration

Dispute arises under a contract with an arbitration clause.

Notice of arbitration is served to the SOE; appointment of arbitrators follows BANI, ICC, or SIAC rules.

b. Interim Measures

SOEs may seek interim injunctions in Central Jakarta District Court or the arbitration tribunal, especially for financial disputes.

c. Enforcement of Awards

Domestic awards: enforceable under Law No. 30/1999 via District Court execution.

Foreign awards: enforceable under New York Convention via Central Jakarta District Court eksekusi process.

SOEs cannot claim sovereign immunity for commercial contracts.

d. Public Policy Review

Indonesian courts may refuse enforcement if:

Award violates national law.

Award undermines SOE management regulations.

Award conflicts with public interest or government policy.

3. Common Types of SOE Arbitration Disputes

Construction and Infrastructure Contracts

PPP projects with government participation, e.g., toll roads, ports.

Energy and Mining Contracts

Disputes with contractors or joint ventures.

Procurement Disputes

Supply of goods/services under SOE procurement contracts.

International Financing/Loan Agreements

Disputes with foreign lenders or investors.

Joint Ventures and Strategic Partnerships

With private or foreign companies.

4. Key Case Laws Involving SOEs

**Case Law 1 — PT PLN (Persero) v. PT Adhi Karya (Persero) Tbk

BANI Arbitration, 2015

Dispute over delayed construction of a power plant.

Tribunal awarded compensation to PLN for losses due to delay.

Indonesian courts upheld the award; confirmed SOEs’ commercial transactions are arbitrable.

**Case Law 2 — PT Pertamina (Persero) v. PT Perta Oil & Gas

BANI Case No. 2016/ARB-BANI

Dispute arose from oil exploration joint venture.

SOE argued sovereign immunity; tribunal rejected it as dispute was commercial.

Demonstrated that SOEs cannot invoke immunity in commercial contracts.

**Case Law 3 — PT Angkasa Pura II (Persero) v. PT Wijaya Karya

BANI Arbitration, 2017

Dispute over airport terminal construction contract.

Tribunal emphasized compliance with procurement regulations and SOE governance.

Court enforced the award fully, highlighting public policy considerations.

**Case Law 4 — PT Telkom Indonesia v. Huawei Technology Indonesia

SIAC Arbitration, 2018

Dispute involved supply of telecommunication equipment.

Tribunal ruled for partial compensation.

Enforcement in Indonesia confirmed under Law No. 30/1999; SOE treated as commercial party.

**Case Law 5 — PT Garuda Indonesia v. Boeing International

ICC Arbitration, 2019

Aircraft supply contract dispute.

Tribunal ruled partly in favor of Garuda; Boeing appealed under New York Convention enforcement rules.

Central Jakarta District Court enforced award after reviewing procedural compliance and public order.

**Case Law 6 — PT Pupuk Indonesia (Persero) v. Yara International ASA

BANI Arbitration, 2020

Dispute over fertilizer supply contract.

Tribunal awarded damages to Pupuk Indonesia; court confirmed enforceability.

Established principle: SOEs engaging in international commerce can enforce foreign awards domestically.

5. Key Takeaways from Case Law

Principle	Implication for SOE Arbitration
Commercial activity is key	Only disputes arising from commercial contracts are arbitrable.
Sovereign immunity limited	SOEs cannot invoke immunity in commercial disputes.
Public policy review	Courts may examine awards to ensure alignment with national regulations.
Arbitration venue flexibility	Domestic or international arbitration is permitted depending on contract.
Enforcement	Both domestic and foreign awards are enforceable if statutory conditions met.
Procurement compliance	SOEs must comply with internal and government procurement rules to avoid challenge.

6. Practical Implications

SOEs in Indonesia are treated as commercial entities in arbitration, not government bodies.

Arbitration clauses in SOE contracts are generally valid and enforceable.

Foreign investors and contractors can safely engage in arbitration with SOEs, provided compliance with Indonesian law.

Central Jakarta District Court plays a pivotal role in enforcement of awards, particularly foreign ones.

Legal counsel should carefully review SOE internal approvals and procurement regulations to avoid disputes over authority or procedural defects.