Indonesia issues legal framework for electric vehicles

Indonesia is charging up to meet the electric vehicles industry. On August 8, 2019, President Joko Widodo signed a regulation on the promotion of battery-powered road vehicles (PP No. 55/2019), a move that was welcomed by industry associations.

Within 37 articles, the decree sets the legal framework for the future of the production of electric vehicles in Indonesia. Associations had long demanded clear regulations. The manufacturers now need laws for the detailed questions. These must come from the participating ministries (industry, transport, trade), but are no longer expected for 2019, according to Indonesian Automobile Association Gaikindo.

The regulation refers to "battery-powered vehicles". In addition to electric vehicles, this may also refer to hybrid models as well as plug-in hybrids, though this is not explicitly stated in the regulation. Thusly, for the most part, the legislation is therefore in the service of pure electro mobility, which is being shaped up as an exciting new market for Indonesia. Having said that, there have not yet been any manufacturer-confirmed intentions to produce electric vehicles in Indonesia.

The archipelago, which itself offers poor conditions for electro mobility, should become the production location of battery-powered vehicles, including for the export market. The main target groups are the major Japanese manufacturers in the country, which has been dominating the Indonesian market by more than 95%. They have also more than tripled their export figures of Completely Built-Up (CBU) since 2010, accounting to just under 265,000 units in 2018.

The goal of the Indonesian Ministry of Industry, which may prove to be too ambitious, is to provide 1 million cars for exports by 2025, of which twenty percent will be electric vehicles. New export markets would probably have to be tapped for this. So far, cars made in Indonesia are mainly exported to less developed countries in Asia, the Pacific, the Middle East and Central and South America, which have low purchasing power and are still lacking in infrastructure for battery-powered vehicles. Europe, North America and China are currently not among the target markets.

Less taxes, more local content
Among other things, the current Presidential Decree creates the legal basis for battery production, local content requirements, charging stations and possible tax incentives. For example, by 2021, electric cars produced in Indonesia must have at least 35 percent local content, at least 40 percent by 2023, at least 60 percent by 2029, and at least 80 percent by 2030. How exactly these seemingly high-priced shares are measured is not described, though these may be specified in subsequent regulations.

In addition, the Presidential Decree allows electric vehicles to be partially dismantled (IKD – Incompletely Knocked Down) or partially (CKD - Completely Knocked Down) – as long as the domestic industry cannot produce the required components. Moreover, until local companies are able to ramp up their own production, complete electric vehicles (CBU - Completely Built-Up) may be temporarily imported.

Electric charging stations should be easily accessible according to the regulation and they should have their own parking spaces. They are to be created primarily at petrol stations, shopping malls, rest areas, government buildings and apartment complexes. The development of a charging infrastructure should be fiscally promoted.

The production of electric vehicles should be supported by tax and non-tax incentives. The tax incentives include the reduction of import duties on components or the promotion of exports and the promotion of research and development. A non-fiscal measure could be about the exemption of electric vehicles from certain driving restrictions, such as the odd-even license plate policy currently implemented in Jakarta.

Coal flow instead of fuel imports
In Indonesia itself, battery-powered vehicles have unfavorable conditions. For the middle class, they are too expensive. Therefore, they are not much more than the hobby of a few well-off citizens with several conventional luxury cars in the garage. Direct state subsidies in the form of subsidies for the purchase of electric vehicles would be politically unjustifiable.

In addition, the tropical temperatures and the incessant, unpredictable congestion in cities means that electric vehicles are impractical. In addition, over 80% of Indonesian electricity is generated from fossil fuels. Although the use of electric vehicles could displace air pollution from cities, it would not be enough to substantially reduce the total emissions of climate-damaging carbon dioxide.

Nevertheless, electric cars would help to reduce the expensive import of gasoline. That may be the most important motive of the Indonesian government. The alternative is electricity generated from coal, which is abundant in Indonesia. However, most of the coal-fired power plants in the country work with outdated technology.

So far, niches of electro mobility have emerged. In Jakarta, the first electric bus line with ten corresponding buses is planned – a miniscule amount of the total of about 7,000 buses to be added by the city’s public transport company, Transjakarta. Meanwhile, the capital's largest taxi operator has gained 30 electric vehicles. However, these existing models cannot go too far from the few public charging stations available in the city. Further developments of electro mobility will take time, more so as a much larger number of public fast charging stations would be required – something that the Indonesian power grid is not designed for.

GTAI is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises foreign companies looking to expand their business activities in the German market. It provides information on foreign trade to German companies that seek to enter into foreign markets.