Indonesia: The Government Finally Regulates Local Content Calculation Methods of Pharmaceutical Products

In brief

On 26 May, the Ministry of Industry ("MOI") finally issued MOI Regulation No. 16 of 2020 on the Provisions and Procedures for the Calculation of Local Content Level of Pharmaceutical Products ("MOI Regulation 16").

MOI Regulation 16 regulates the methods to calculate the local content level of pharmaceutical products only. That can then be used by the government as a reference in tenders for procurement. Based on MOI Regulation 16, pharmaceutical manufacturing companies are required to calculate local content level in their products and/or manufacturing processes through selfassessment. MOI Regulation 16 does not require pharmaceutical manufacturers to obtain any approval in respect of the local content level of their products, or to prove compliance with MOI Regulation 16.

However, MOI Regulation 16 sets out the calculation of the local content level for general pharmaceutical products only, without focusing on any particular pharmaceutical products. It seems that the government will issue another regulation to further clarify or supplement the calculation in MOI Regulation 16.


Contents

Key Takeaways

There are several key takeaways to be considered from the new MOI Regulation 16:

  1. Although MOI Regulation 16 does not regulate certain local content thresholds to be fulfilled, the Indonesian government will consider the local content level in procuring goods and/or services (including pharmaceutical products).
  2. As mandated by Presidential Regulation No. 16 of 2018 on the Procurement of Government Goods/Services ("PR 16"), the Indonesian government must prioritize the use of local products and resources. Consequently, in participating in the government's procurement of pharmaceutical products, pharmaceutical manufacturing companies should consider the local content level of their pharmaceutical products.
  3. There is no specific action that is required from pharmaceutical manufacturing companies at the moment, as there is no specific approval in relation to the local content. However, this new regulation will certainly have a big impact on pharmaceutical manufacturing companies that gain profit mostly from sales through e-catalogues or government tenders.

In Depth Summary of New Local Content Calculation for Pharmaceutical Products

Calculation of Local Content of Pharmaceutical Products

There are layers of calculation to determine the final percentage of the local content level of a pharmaceutical product. The location of the manufacturing activities has a major impact on the calculation result. MOI Regulation 16 regulates several items to determine the local content level of pharmaceutical products:

  1. raw materials (50%), which must be proportionally valued for the following contents:
  1. active raw materials (65%)
  2. additive raw materials (35%)
  1. research and development process (30%), which must be proportionally valued for the following processes:
  1. new drugs development (25%)
  2. clinical trial (30%)
  3. formulation (35%)
  4. bioavailability/bioequivalence ("BA/BE") (10%)
  1. production process (15%), which must be proportionally valued for the following processes:
  1. mixing process (60%)
  2. dosage forming process (40%)
  1. packaging process (5%), which must be proportionally valued for the following processes:
  1. batch release process (50%)
  2. primary packaging process (40%)
  3. secondary packaging process (10%)

We set out below a summary of layers of local content calculation for pharmaceutical products:

GPH 2020-06-25_17-02-50

There are several main variables to be considered in calculating the local content level of local pharmaceutical manufacturing activities:

  1. the nationality of the employees
  2. the ownership of the manufacturing facilities
  3. the use of local materials

Attachment I and Attachment II of MOI Regulation 16 set out further details of the calculation methods.

Procedures to Obtain a Pharmaceutical Local Content Certificate

The final output of the pharmaceutical product local content certification procedures is the issuance of a pharmaceutical local content certificate (sertifikat TKDN produk farmasi). To obtain a pharmaceutical local content certificate, pharmaceutical companies must calculate their own local content level and report it to the MOI.

The following is the procedure to obtain a local content certificate for pharmaceutical products:

  1. The company calculates the local content level of its pharmaceutical products.
  2. The company submits the following documents to the MOI:
  1. industrial business license (Izin Usaha Industri)
  2. company profile, organizational structure and production data of the company
  3. local content self-assessment report
  4. production certificate issued by the Ministry of Health.
  5. annual production and marketing realization report as required by the Drug and Food Supervisory Agency
  1. The MOI assesses the submitted documents.
  2. The MOI issues a local content calculation approval.
  3. The company submits the local content calculation approval to an independent verifier.
  4. The independent verifier verifies and re-calculates the local content level of the pharmaceutical product.
  5. The company submits the verification and calculation report to the Head of the Local Product Development Center (Kepala Pusat Peningkatan Penggunaan Produk Dalam Negeri).
  6. The Head of the Local Product Development Center issues the pharmaceutical local content certificate.

The pharmaceutical local content certificate is valid for two years.

References to Foreign and Indonesian Companies

MOI Regulation 16 uses the terms 'foreign companies' (perusahaan luar negeri) and 'domestic companies' (perusahaan dalam negeri) when referring to business players or stakeholders of this regulation, but neither term is defined under MOI Regulation 16. It is thus unclear whether these terms are referring to the capital investment nature of the company or the ownership of property (e.g., manufacturing facilities). This is one of the items that are still left unclear under MOI Regulation 16 and it may be clarified in other regulations that will be issued.


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