27 June 2024

Overview of The New Indonesia-Singapore Bilateral Investment Treaty

The new Indonesia-Singapore Bilateral Investment Treaty (“New BIT”) has entered into force. This New BIT replaces the 2005 Singapore-Indonesia BIT which expired on 20 June 2016.

| Karen Mills, Rizki Karim & Daniel Pakpahan

On 9 March 2021, the Indonesia-Singapore Bilateral Investment Treaty (“New BIT”) entered into force. It is among the first investment agreements that Indonesia has concluded after announcing, in 2015, its intention to renegotiate all of its BITs. This New BIT, replacing the 2005 Singapore-Indonesia BIT which expired on 20 June 2016, seeks to preserve and promote both countries’ economic cooperation.

Indonesia and Singapore have enjoyed strong bilateral economic ties despite the disruption caused by the Covid-19 pandemic; Indonesia maintained its position as one of Singapore’s top ten trading partners in 2020, with bilateral trade reaching SG$ 48.8 billion. Singapore also remained  Indonesia’s top source of foreign direct investments in 2020, with the total value of investment reaching US$ 9.8 billion.

The New BIT applies to investments “in existence” as of 9 March 2021, as well as to investments “made, established, acquired or expanded thereafter”. The New BIT includes various conditions that investors from both countries must satisfy to be entitled to protection, as well as carve-outs that deny some investors such protection, in line with the trend seen in an increasing number of modern BITs. Investors that satisfy these conditions will be entitled to certain protections and procedural safeguards, such as Fair and Equitable Treatment (“FET”), protection from expropriation, Most-Favored Nation (“MFN”) status, and dispute-settlement mechanisms.

These conditions, carve-outs, and protections contain certain modifications from the earlier BIT, which are summarized below:


Covered Investments

Article 1 of the New BIT defines an “investment” as “any type of asset owned or controlled, directly or indirectly, by an investor, that has the characteristics of an investment”. A further elucidation in a footnote explains that such characteristics include: “the commitment of capital, the expectation of gain or profit, the assumption of risk or certain duration.” The adoption of these criteria broadens the definition of investment covered by the New BIT to include forms of investment that are not expressedly listed in Article 1 sub-paragraphs (a) to (g).

Furthermore, an investment must comply with the laws of the jurisdiction where such investment is made (the "Host State"), and, if required, must be specifically approved in writing by a competent, authorised, party in that jurisdiction. This legality requirement expressly shields the Host State from claims made by investors that had obtained or were operating their investment illegally. This may have been influenced by the case of Churchill Mining v. Indonesia, which case was dismissed by the International Center for Settlement of Investment Disputes (ICSID) tribunal, as well as an  annullment committee, both of whom found that the investor had obtained its licenses in a fraudulent manner.

Several forms of investments are excluded from protection (Article 2(3),  departing from the earlier BIT. These are: (i) subsidies or grants from either country, including government-supported loans, guarantees, insurance, or conditions attached to the receipt  of such subsidies or grants, regardless of whether such subsidies or grants are offered exclusively to the investor or more broadly; (ii) government procurement; (iii) services supplied in the exercise of governmental authority; and (iv) taxation matters, which remain governed by the laws of either country and any tax treaty between Indonesia and Singapore. However, regarding taxation, Article 43 of the New BIT clarifies that an investor could bring a claim in relation to taxation measures insofar as such measures constitute expropriation.


Corporate Investors and Investors Holding Dual Nationality

The New BIT requires investors to carry out business activities in their own home country. Article 1 of the New BIT requires a corporate investor from the Home State to be: (i) “constituted or organized under the law of [that] Party”; and (ii) importantly, be “carrying out business activities there” (see Article 1 of New BIT). This appears to be  an attempt to address the often abusive practice  of "treaty-shopping", whereby investors restructure their investments to a country in which they are not actually active in order  to avail themselves of the protection of a  treaty to which such state is party, without actually being based nor conducting business in that country. Article 36(1) of the New BIT expressly denies investment protection to an enterprise “with no substantive business operations” in either Singapore or Indonesia.

As regards to natural persons as investors, Article 1 of the New BIT defines that “if a natural person possesses dual nationality, she or he shall be deemed to possess exclusively the nationality of the Party of her or his dominant and effective nationality.” This precludes an investor from relying on secondary citizenship to bring claim against the host country. However, considering that both Indonesia and Singapore do not allow dual-citizenship, it is difficult to see how this clause can be of any effect.


FET and Expropriation Clause

The Fair and Equitable Treatment ("FET") clause in the New BIT (Article 3) contains several key modifications from that of the earlier BIT. First, it clarifies that Host States are not required to afford investors treatment beyond the minimum standard established by customary international law (Article 3(2)(d)). Secondly, the FET clause expands the protection to require each Host State not to "deny justice in any legal or administrative process" (Article 3(2)(a). Third, the FET clause makes clear that “the mere fact that either State takes or fails to take action that is inconsistent with an investor's expectations does not constitute a breach of the protection, even in the event of loss or damage to the said investor” (Article 3(2)(c)).

Investors' expectations are the centerpiece of most FET discussions in investor-state dispute settlement. It is uncertain how this new provision in Article 3(2)(c) will affect the position of investors claiming that their legitimate expectations have been frustrated under the BIT, although on the surface the language seems to have granted States additional safeguards.

Regarding expropriation, in addition to the common guarantee of compensation in the case of lawful expropriation, the BIT gives the States discretion to regulate the expropriation of land in accordance with their own domestic legislation, which shall determine the legitimate purposes and appropriate payment of compensation (Article 6(4)).


MFN Clause

The Most Favored Nation ("MFN") clause requires the Host State to extend to investors  treatment not less favorable than that it affords investors from any third states or to its own investors (Article 5(1)). This only applies to substantive protection and does not give investors the right to invoke the dispute resolution provisions contained in other BITs or mulateral investment treaties to which the investor's Home State is not a party (Article 5(3)). This clarifies the ongoing debate regarding the extent of application, and often abuse of, MFN clauses with respect to investors’ protections.

This New BIT also modifies the MFN privilege in two ways: First, Article 5 of the New BIT excludes the possibility of accessing MFN clauses in investment agreements that were concluded prior to the BIT’s entry into force. Secondly, under Article 5(4) of the New BIT, an investor may not claim the right to MFN treatment where “no measures have been adopted or maintained” by the State towards investors of the third State. This precludes an investor from simply importing favorable provisions and substantive protections from other treaties using the MFN clause. These modifications limit the possibility of investors claiming more favorable treatment and avoid reviving the provisions of terminated and renegotiated BITs through the MFN clause.


Dispute Settlement

The New BIT provides, in Chapter III, a comprehensive dispute settlement mechanism consisting of (i) voluntary mediation, (ii) mandatory consultations, and (iii) international arbitration. This enables an investor to initiate arbitration under the ICSID Convention or the UNCITRAL Rules, but only if the dispute “cannot be resolved within 1 year from the date of delivery of the written request for consultations” (Article 17(1)). This significantly longer “cooling-off” period than the usual three to six months reflects both States’ preference for dispute avoidance.



The New BIT incorporates some of the recent trends and developments in international investment law. Through meticulous drafting, it also adds certain features that would enhance the States’ right to regulate, and shield them from some investor claims. Nonetheless, novel provisions such as those in the FET clause will need further clarification, which will primarily be the task of investment tribunals  to interpret.  It is hoped that such tribunals will appreciate the spirit and purpose behind the New BIT and not adapt the same interpretation they usually have done in old BITs, most of which provisions were taken from some of the earliest BITs, dating back as early as 1968 and thus not always applicable to today's economic conditions.



Disclaimer: The content above is intended to provide a general guide to the subject matter, and should not be treated as legal advice. For more information on the subject matter, please feel free to contact KarimSyah Law Firm at, or




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