The Dynamic Rise of Indonesia Joint Operation: Fueling Collaborative Construction Success

The latest phenomena have clearly shown the significant growth of Joint Operation (JO) as a scheme of partnerships between construction companies in Indonesia. This is apparent from several large-scale infrastructure projects such as transportation, communications, water supply, spatial planning, and energy, which are generally implemented within a joint operation scheme. But later, the form of JO was used in food and beverage projects, telecommunications, to export-import.

Definition of Joint Operation in Indonesia

Indonesia Joint Operation

Indonesia Joint Operation Under the Regulation of Minister of Public Works

According to the Regulation of Minister of Public Works in 1991, joint operation is defined as a form of business cooperation between a foreign construction company and a local construction company, which are temporary and not forming a new legal entity in Indonesia, which has the same characteristics with the joint venture project in overseas. The regulation obligates the foreign construction company to collaborate with local construction company through Indonesia joint operation scheme in performing their project. The objective of the regulation is to encourage the national economy and to improve the internal capacity of local construction company, especially in transfer of knowledge through joint operation. 

The regulation was last amended in 2011 to Regulation of Public Works Minister No. 05/PRT/M/2011, which on this newer regulation, joint operation is defined as a form of co-operation between one or several foreign construction company (FC) with one or several local construction company, which is temporary to handling one or several projects and did not constitute a new legal entity under the laws of Indonesia.

The two definitions provided above are quite substantial in defining joint operation in the context of both regulations is the same. The essence of the definition is: (1) joint operation is a collaboration of foreign construction company and local construction company in handling project in Indonesia, (2) is temporary and is not a new legal entity under the laws of Indonesia. Indonesia joint operation scheme is illustrated in Figure 1.

Indonesia Joint Operation Under PSAK 66

Joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.

The classification of a joint arrangement as a joint operation depends upon the rights and obligations of the parties to the arrangement. An entity determines the type of joint arrangement in which it is involved by considering the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances. Regardless of the purpose, structure or form of the arrangement, the classification of joint arrangements depends upon the parties’ rights and obligations arising from the arrangement.

A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle can be either a joint venture or a joint operation. A joint arrangement that is not structured through a separate vehicle is automatically a joint operation. In such cases, the contractual arrangement establishes the parties’ rights to the assets, and obligations for the liabilities, relating to the arrangement, and the parties’ rights to the corresponding revenues and obligations for the corresponding expenses.

Types of Indonesia Joint Operation

There are two types of Indonesia joint operation cooperation scheme, namely administrative and non-administrative cooperation.

Indonesia Joint Operations: Administrative

This type of JO is often referred to as Operational Cooperation (KSO) where the administration is under the auspices of the KSO itself. Starting from submitting tenders, collecting work results, labor, project financing, issuing invoices to signing employment contracts. That means that all work on the project is the responsibility of the KSO entity, not each member of the cooperation in it. Even so, the administrative portion is agreed upon in the KSO agreement or joint operation agreement.

Indonesia Joint Operations: Non-Administrative

The type of JO in question is a type of cooperation where each JO member is responsible for each project. That means that JO in terms of cooperation only acts as a coordination tool. In terms of bookkeeping, if the administrative cooperation of bookkeeping is carried out by the project owner, then in non-administrative cooperation bookkeeping is carried out by each member. In Indonesia, non-administrative forms of cooperation are often referred to as consortia.

Process of Joint Operation

The regulation divides the process of joint arrangement in construction project (JO) into three main phases, which are: (1) Start-up phase, (2) Operation Phase and (3) Dismantle Phase. Start-up phase is the phase that started in the beginning or the early contact phase between the companies, which will involve in concluding the negotiation process until the signing agreement. Operation is the phase in which construction work begins until its eventual finish, while the Dismantle phase is the phase in which the work has been completed and has entered a phase in which each of participants involved, negotiate to end the JO.

Accounting for Joint Operation

A joint operator recognizes in relation to its interest in a joint operation:

  • its assets, including its share of any assets held jointly;
  • its liabilities, including its share of liabilities incurred jointly;
  • its revenue from the sale of its share of the output arising from the joint operation;
  • its share of the revenue from the sale of the output by the joint operation; and
  • its expenses, including its share of any expenses incurred jointly.

It should be noted that the share of assets and liabilities is not the same as proportionate consolidation. “Share of assets and liabilities” means that the investor should consider their interest or obligation in each underlying asset and liability under the terms of the arrangement— it will not necessarily be the case that they have a single, standard percentage interest in all assets and liabilities.

With the necessity of compliance with the local and international statutory reporting, foreign companies with joint operation arrangements who needs orientation as to accounting treatments and also required to submit annual audited financial statements or other financial reporting requirements, may seek the assistance from consultants or professional service providers who possess depth understanding and experience as to the accounting and financial reporting complexities of the joint operations.

KAP Suharli Sugiharto dan Rekan (the “Firm”), a business unit of SW Indonesia, who provides audit and other assurance services, is perfectly fit for the assistance needed. The firm has relative broad experience in auditing and other assurance servicing of JOs and are supported by experienced practitioners and consultants together with an extensive network that spreads both local and international.

For professional assistance and guidance on navigating the intricacies of Indonesia’s Joint Operation in the construction industry, look no further than SW Indonesia. As a reputable business unit, SW Indonesia offers a wealth of expertise in auditing and other assurance services related to Joint Operations. Backed by a team of experienced practitioners and consultants, we possess a deep understanding of the accounting and financial reporting complexities involved. Whether you require orientation on accounting treatments or need help with annual audited financial statements, SW Indonesia is dedicated to providing reliable support. Contact us today at +62 2993 2132 or email us at [email protected] to unlock the full potential of your Joint Operation endeavors in Indonesia.

Author

  • SW Indonesia

    As the webmaster and author for SW Indonesia, I am dedicated to providing informative and insightful content related to accounting, taxation, and business practices in Indonesia. With a strong background in web management and a deep understanding of the accounting industry, my aim is to deliver valuable knowledge and resources to our audience. From articles on VAT regulations to tips for e-commerce taxation, I strive to help businesses navigate the complexities of the Indonesian tax system. Trust SW Indonesia as your go-to source for reliable and up-to-date information, empowering you to make informed decisions and drive success in your business ventures.