PP 38/2026 Transfers Control of SOEs to BP BUMN and Danantara

Introduction

On 21 August 2026, the Government issued and enacted Government Regulation Number 38 of 2026 concerning the Management of State-Owned Enterprises (“PP 38/2026”). PP 38/2026 constitutes an implementing regulation of Law Number 19 of 2003 concerning State-Owned Enterprises, as amended several times, most recently by Law Number 16 of 2025 concerning the Fourth Amendment to Law Number 19 of 2003 concerning State-Owned Enterprises (“Law 16/2025”). PP 38/2026 regulates the framework for the management of SOEs, including authorities and duties in SOE management, the administration of Persero and Perum, the establishment, change of legal form, and dissolution of SOEs, as well as the granting of monopoly rights to SOEs or SOE Subsidiaries.

PP 38/2026 was formulated to follow up on institutional changes to SOEs under Law 16/2025. Through these changes, the supervisory and shareholder functions previously exercised by the Ministry of SOEs are transferred to the State-Owned Enterprise Regulatory Agency (“BP BUMN”), while the management of SOE shares and assets is transferred to the Daya Anagata Nusantara Investment Management Agency (“the Agency” or “Danantara”). These changes also reaffirm the separation of SOE assets from state assets.

Comparison

PP 38/2026 revokes and declares Government Regulation Number 45 of 2005 concerning the Establishment, Management, Supervision, and Dissolution of State-Owned Enterprises, as amended by Government Regulation Number 23 of 2022, to be no longer in force, as well as the provisions of Articles 29 through 43 of Government Regulation Number 43 of 2005 concerning the Merger, Consolidation, Acquisition, and Change of Legal Form of State-Owned Enterprises (Article 172). Meanwhile, the implementing regulations of the two Government Regulations remain in force insofar as they do not conflict with PP 38/2026 (Article 171). The changes may be seen in the following provisions:

Key Provisions

• Three Pillars of Authority: the President, BP BUMN, and the Agency (Danantara)

As provided in Article 3, the President, as Head of Government, holds the power to manage SOEs as part of the governmental power in the field of state financial management, including ownership of separated state assets in SOEs. Such power is delegated to BP BUMN and/or the Agency as shareholders and representatives of the Central Government in the ownership of separated state assets. Specifically for SOEs designated as fiscal instruments, such authority is delegated to the Minister of Finance. SOEs designated as fiscal instruments are determined by the President based on the proposal of the Minister of Finance submitted through the Head of BP BUMN.

Articles 4 through 6 further allocate duties between BP BUMN and the Agency. The Head of BP BUMN acts as the representative of the Central Government through ownership of 1% of the Series A Dwiwarna shares in Persero and as the capital owner of Perum. In addition, the Head of BP BUMN serves as the regulator responsible for establishing policies, regulating, supervising, coordinating, and overseeing the implementation of SOE management policies. Meanwhile, the Agency holds 99% of the Series B shares in SOEs and is responsible for managing Persero, including through the establishment of an Investment Holding and an Operational Holding.

In its implementation, the Investment Holding is responsible for managing investments and optimizing assets to increase investment value, while the Operational Holding is responsible for managing SOE operations. With this allocation, BP BUMN primarily performs the functions of state ownership and regulation, while the Agency focuses on investment management and the operations of Persero.

• Authority of BP BUMN as Regulator

Referring to Article 7, the Head of BP BUMN, as regulator, with the approval of the President, is authorized to determine general policy directions and SOE governance policies, establish the SOE roadmap, regulate SOE assignments and key performance indicators, establish criteria for the write-off and debt write-off of SOE Assets, establish and inspect SOEs, propose privatization plans, approve the Agency's work plan, optimize the role of SOEs as agents of development, and supervise SOE compliance with government policies and assignments.

Article 8 provides that the general SOE policy direction applies for a period of 20 years and is prepared by BP BUMN together with the Agency, and subsequently determined by the Head of BP BUMN after obtaining the approval of the President. Furthermore, Article 10 stipulates that the SOE roadmap applies for a period of 5 years, is prepared by BP BUMN together with the Agency, and is determined by the Head of BP BUMN after obtaining the approval of the President. For SOEs designated as fiscal instruments, the authority to prepare and determine the general policy direction and SOE roadmap is exercised by the Minister of Finance after obtaining the approval of the President.

Article 9 regulates the authority of the Head of BP BUMN to determine SOE governance policies after obtaining the approval of the President. The technical implementation of such policies is determined by the Agency for Persero and by the Head of BP BUMN for Perum. Meanwhile, Article 11 regulates the authority of the Head of BP BUMN to determine general policies concerning the procedures and substantive content of key performance indicators through a BP BUMN Regulation with the approval of the President. Article 12 also grants the Head of BP BUMN the authority to determine criteria for the write-off and debt write-off of SOE Assets through a BP BUMN Regulation after obtaining the approval of the President.

Article 14 reaffirms the role of BP BUMN in optimizing SOEs as agents of economic and social development in alignment with national development priorities. Such efforts are carried out, among others, through regulatory functions, policy harmonization and alignment, facilitation and synergy between the government and SOEs, as well as supervision of national development priority programs implemented by SOEs.

From the supervisory perspective, Article 15 provides that the Head of BP BUMN supervises the implementation of SOE management policies, including compliance with governance policies, performance indicators, and government assignments. Supervision is conducted in an integrated and risk-based manner, both directly through on-site inspections and indirectly through the examination of periodic reports, incidental reports, and other reports. Article 16 stipulates that SOEs are required to follow up on the results of supervision and report their implementation to the Head of BP BUMN. If an SOE fails to implement such follow-up measures, the Head of BP BUMN may impose administrative sanctions in the form of a warning and/or a proposal for corrective action.

Furthermore, Article 18 provides that the results of supervision may serve as the basis for the Head of BP BUMN to conduct an inspection where there are indications of failure to achieve government program targets, non-conformity in the management and use of government funds in connection with a Special Assignment, or failure to implement follow-up measures arising from the results of supervision. Such inspection is conducted after obtaining the approval of the President. Further provisions concerning supervisory authority and procedures are regulated in a BP BUMN Regulation, while for SOEs designated as fiscal instruments, such matters are regulated in a Regulation of the Minister of Finance, as affirmed in Article 19.

• Special Rights of Series A Dwiwarna Shares

Article 20 stipulates that the Republic of Indonesia holds Series A Dwiwarna shares carrying special rights in SOEs through BP BUMN to safeguard public interests and the continuity of government programs. Such rights include the right to approve and propose certain agendas at the GMS, request and access corporate data and documents, and appoint and dismiss Directors and Board of Commissioners with the approval of the President. Referring to Articles 21 and 22, such GMS rights cover strategic matters such as the implementation of the general policy direction and SOE roadmap, government programs including Special Assignments, and amendments to the articles of association relating to the existence and capital structure. Furthermore, Articles 23 through 25 regulate the exercise of data access rights, the appointment and dismissal of SOE organs, and the determination of the implementation of such rights in the articles of association of Persero.

• Authority of the Agency (Danantara) as Operational Shareholder

Referring to Article 26, the Agency is authorized to manage SOEs, including through the management of dividends in accordance with share ownership, approval of increases or decreases in capital participation, establishment of an Investment Holding and an Operational Holding, approval of proposals for the write-off and/or debt write-off of SOE Assets, and the granting, receipt, and guarantee of loans with the approval of the President. The Agency is also authorized to establish guidelines or strategic policies in the fields of finance, investment, operations and procurement, information technology, human resources, risk management, legal and compliance matters, as well as social and environmental responsibility and ESG. Furthermore, Articles 28 through 30 provide that the Agency may determine the technical implementation of the authorities of the Investment Holding and Operational Holding, including the preparation of the RKAP, management of dividends and assets, issuance of debt securities or receipt of loans, provision of loans and/or guarantees, as well as submission of proposals for write-offs and/or debt write-offs and management contracts to the Agency for approval. All such authorities are exercised in accordance with the applicable laws and regulations, as affirmed in Article 27.

• Talent Management and SOE Employees

Referring to Article 102, SOE human resources management is carried out in an integrated manner through talent management and succession management aligned with the company's needs and business strategy. In this regard, the Agency is required to submit talent data to the Head of BP BUMN periodically or at any time if necessary. Furthermore, Article 103 stipulates that SOE employees are appointed and dismissed and have their status, rights, and obligations determined based on company regulations or a collective labor agreement that, at a minimum, complies with the provisions of laws and regulations in the field of employment. SOE employees may also be recruited from local communities and/or persons with disabilities, hold positions as Directors, Board of Commissioners, Supervisory Board members, or other managerial positions with due regard to gender equality, and be assigned or seconded to other SOEs for a specified period. Article 104 provides that an SOE employee appointed as a member of the Board of Directors who has reached the age of 50, whether at the time of appointment or thereafter, shall retire as an employee with the highest rank and highest pension rights as of the time of appointment as a Director. For employees appointed as Directors of another SOE, the relevant employee may request retirement after reaching the age of 50 in accordance with the provisions applicable to the SOE where the employee works. Further provisions concerning SOE employees are regulated in a BP BUMN Regulation.

• Establishment, Change of Legal Form, and Dissolution of SOEs

CHAPTER VI regulates three stages in the legal existence of SOEs. Referring to Article 105, an SOE may be established through the establishment of a new Persero or Perum, the conversion of a government agency unit into an SOE, establishment resulting from a consolidation, or establishment resulting from the issuance of Series A Dwiwarna shares in a limited liability company. Furthermore, Article 106 stipulates that the establishment of an SOE is determined by a separate Government Regulation. For the establishment of a Persero, Article 107 provides that a proposal is submitted by the Head of BP BUMN to the President based on a study prepared by the Agency, with authority for the implementation of the establishment capable of being delegated to the Agency. Meanwhile, changes to the legal form of SOEs are regulated in Part Two of CHAPTER VI, while the dissolution of SOEs is regulated in Part Three. Referring to Articles 138 and 139, the dissolution of a Persero is carried out in accordance with the laws and regulations governing limited liability companies, unless otherwise stipulated, and may be carried out, among others, based on a GMS resolution, expiry of its term of existence, a court determination, bankruptcy where the bankrupt estate is insufficient to pay the costs of the bankruptcy proceedings, insolvency, or revocation of its business license. The dissolution of such SOE is determined by a Government Regulation.

• Granting of Monopoly Rights to SOEs or SOE Subsidiaries

CHAPTER VII regulates the granting of monopoly rights to SOEs or SOE Subsidiaries to produce and/or market goods and/or services relating to the livelihood of the people and important branches of production for the state, in the interest of the state and/or based on the consideration of the President, as referred to in Article 158. Such monopoly rights are granted through a Government Regulation or Presidential Regulation and are intended to increase public benefit, ensure the needs of the community, perform governmental functions, and realize national defense and security, as regulated in Article 159. Pursuant to Article 160, goods and/or services relating to the livelihood of the people include goods and/or services having allocation, distribution, and/or stabilization functions, while important branches of production for the state include strategic production sectors for the protection of national defense and security interests and production sectors relating to national economic stability, including monetary stability, tax guarantees, and the financial services sector for the public interest. Furthermore, Article 161 stipulates that monopoly rights are granted for a limited period and within a limited scope and are accompanied by an obligation to achieve measurable targets in accordance with performance indicators, with their implementation and achievement supervised pursuant to the applicable laws and regulations. In their implementation, SOEs or SOE Subsidiaries must continue to observe the principles of fair business competition and are prohibited from re-delegating the right to exercise their monopoly, whether in whole or in part, to another party, as affirmed in Article 162.

• Procurement, Write-Off/Debt Write-Off/Cut Loss, and Dispute Resolution

CHAPTER VIII contains a number of provisions that directly affect the day-to-day operations of SOEs. Article 163 provides that the procurement of goods and services financed from an SOE's budget is carried out by the SOE's Board of Directors based on general guidelines determined by the Head of BP BUMN, with due regard to the principles of efficiency and transparency. Articles 164 through 166 regulate the write-off (Penghapusbukuan) and debt write-off (Penghapustagihan) of SOE Assets, including the Cut Loss mechanism (disposal of assets below their book value to prevent greater losses), which may only be carried out following adequate analysis, without any element of fault/negligence or conflict of interest, and with an assessment conducted by an independent consultant or government institution; losses resulting from a qualifying Cut Loss may not give rise to liability and are declared not to constitute state losses. Lastly, Article 167 regulates a tiered mechanism for resolving disputes among SOEs, SOE Subsidiaries, and/or affiliated companies: commencing with deliberation to reach consensus, followed by facilitation of discussions by the Agency and/or Operational Holding, and then mediation (with the mediator jointly appointed or, if the parties fail to agree within 14 calendar days, appointed by BP BUMN), before the dispute may be submitted to arbitration or the courts in accordance with the applicable contractual clause.

Transitional Provisions

Article 168 provides that where the Head of BP BUMN acts as the GMS, the appointment and dismissal of the Directors of Persero and the Board of Commissioners are determined by the Head of BP BUMN. This provision confirms the authority of the Head of BP BUMN to exercise GMS functions during the transitional period of SOE institutional restructuring.

Closing

PP 38/2026 introduces fundamental changes to SOE governance by affirming the separation of regulatory functions from the operational and investment management of SOEs between BP BUMN and the Agency (Danantara). These changes affect not only the allocation of authority in SOE management, but also clarify mechanisms for supervision, human resources management, the establishment and dissolution of SOEs, the granting of monopoly rights, as well as procurement and dispute resolution. On the other hand, PP 38/2026 reaffirms the status of SOE assets as assets belonging to the SOEs themselves and provides scope for business decision-making, including through the Cut Loss mechanism, while continuing to observe good governance principles and applicable laws and regulations. Accordingly, PP 38/2026 constitutes an important foundation for establishing a more structured SOE governance framework through the allocation of authority between BP BUMN as regulator and holder of Series A Dwiwarna shares and the Agency as investment manager and operational shareholder.