Indonesia: Further restriction on employment of expatriates in the oil and gas industry

On 24 October 2013, the Indonesian Ministry of Energy and Mineral Resources (ESDM) issued ESDM Decree No. 31/2013 on Expatriate Utilization and Development of National Employees in Oil and Gas Business (Decree 31), which introduces more stringent requirements and restrictions on the employment of expatriates for certain roles in the oil and gas sector.

Decree 31 imposes an obligation on both upstream and downstream companies in the Indonesian oil and gas sector, and related supporting industries, to prioritise the employment of Indonesian workers, and specifically prohibits employment of expatriates for the following roles:

• human resources;
• legal;
• health, safety and environment;
• supply chain management, including procurement and logistics;
• quality control, as well as inspection; and
• exploration and exploitation functions below superintendent level or equivalent positions.

Decree 31 permits the use of expatriates for oil and gas activities in limited circumstances, such as employment of expatriates:

• as director or commissioner for the purpose of encouraging investment in the oil and gas sector;
• for professional positions requiring specific skills and technological expertise in this sector in order to transfer knowledge relating to new technology; and
• for certain positions that cannot be filled by domestic workers.

The use of expatriates for ‘non-prohibited functions’ in the oil and gas industry must be approved by the Directorate General of Oil and Gas. Decree 31 provides for a fairly rigorous set of requirements that must be met by the expatriates in question. -For instance, they must have a minimum of 5 years relevant working experience, be 30 – 55 years of age, be able to communicate in the Indonesian language and willing to transfer knowledge and skills to Indonesian workers. The Indonesian language requirement for expatriates has featured in a number of regulations, though to date it has not been enforced strictly.

Although Decree 31 is aimed at encouraging the use of Indonesian workers in the oil and gas sector, it risks further restricting the availability of qualified senior international personnel that the Indonesian oil and gas industry currently needs.

Actions for employers

Businesses operating in the Indonesian oil and gas sector should be mindful of the above restrictions when hiring expatriates, as the consequences of non-compliance with such restrictions range from imposition of administrative sanctions, possible revocation of the relevant expatriate’s work permit and non-recovery of operating costs from the government. The degree to which the new requirements are enforced in practice should be monitored by companies operating in the Indonesian oil and gas sector.

Article written by David Dawborn, Partner and Vik Tang, International Counsel at HBT, Nadia Harto, Associate, Jakarta.