Foreign investors do not lose money in Indonesia because they were chasing a weak business opportunity. They lose because of a poorly structured JV, lacking substance or with an overly vague or unevenly balanced setup, that depended too heavily on trust that was never fully tested.
Structuring a JV in Indonesia for AI and digital infrastructure projects needs more than just a standard partnership template. A properly structured JV would enable foreign capital and technology to be combined with a local partner’s land, permitting, power, telecoms access and other operating assets required to deliver a project in this market. A carelessly structured JV would create paper rights and little real control for the receiving party.
Why JV route is practical for foreign investors in Indonesia
This market is not just about software or cloud services. It is about infrastructure, access, and control.
Wholly-owned greenfield entry is only realistic for investors operating at Microsoft’s or Huawei’s scale. Most foreign investors do not have that profile. Pure acquisition also faces structural obstacles: many Indonesian data center assets sit inside telecom groups or local conglomerates that prefer strategic partners over outright buyers. Bersama Digital and Indosat, for example, both found JV or partnership paths more workable than full divestment.
By contrast, a JV can unlock execution capacity that foreign investors need. Data center construction and operation in Indonesia depend heavily on land access, State Electricity Company/Perusahaan Listrik Negara (PLN) power supply, telecom connectivity, and relationships with central and regional government. Without a local partner who can navigate those dependencies, project timelines slip. With the right one, they can be compressed.
Indonesia’s regulatory framework reinforces the same logic. Foreign investors operating here generally need a foreign investment company/Perseroaan Terbatas Penanaman Modal Asing (PT PMA) structure and business license and permit under the Online Single Submission Risk-Based Approach (OSS RBA) system. The Positive Investment List opens many sectors to full foreign ownership. In 2025, Indonesia reduced the minimum issued and paid-up capital for foreign investment companies from IDR 10 billion to IDR 2.5 billion. However, central regulatory approval does not eliminate local execution friction. Environmental impact assessments, building approvals, and spatial conformity approval involve regional agencies with their own timelines. Structure matters as much as legal form.
What a good JV structure must solve
A JV structure for this sector should solve four problems simultaneously: access, control, valuation, and exit.
First, it should secure access to the assets and relationships the project depends on: land, permits, and utility or telecom support. Second, it should give the foreign investor sufficient control to protect capital and manage downside risk, even where the local partner runs day-to-day operations. Third, it should handle valuation fairly when the parties contribute fundamentally different types of asset. Fourth, it should preserve exit flexibility from day one, not as a future negotiation item.
That fourth point is the one most commonly deferred. It should not be. The JV agreement is a transaction architecture document. It should be drafted as one.
Partner selection: the decision that determines everything else
Choosing the right local partner for a JV in the AI and digital infrastructure sector in Indonesia is the first major decision. As with any major deal, this is where things can start to go wrong.
JV partners in the AI and Digital Infrastructure space in Indonesia generally fall into three categories, each with their own unique characteristics.
- First, the local conglomerates such as Astra International and Sinar Mas who have the required land banks and government connections. However, they typically have family-run businesses with slow decision making.
- The second category would be the telecoms operators such as Indosat and Bersama Digital, who have the licenses and large customer bases, but this is often within a very complex group and requires approval from various levels within the group.
- Lastly, there are the sovereign wealth funds (e.g. INA) who bring large amounts of capital and also the policy backing. They, however, are extremely institutionalized and require to be governed in a very strict manner with high returns expected. An example of a highly effective JV in this space is the DayOne-INA JV at Nongsa Digital Park, which has the perfect balance of institutional discipline with direct state-level access.
Whether you have entered into a JV with a local conglomerate, a telecoms operator or a sovereign wealth fund, due diligence should be conducted beyond simply ascertaining the reputation of your JV partner. Due diligence should test whether the partner can actually deliver on specific commitments. Banking alone on reputation of the partner would be a risky proposition and naïve too.
Once the right partner is identified, the next challenge is agreeing on what each side is actually contributing and what that contribution is worth.
Getting valuation right when the contributions are asymmetric
Valuation becomes critical when the parties bring fundamentally different types of asset to the table. The Indonesian party typically contributes land use rights, licences, customer relationships, and an operational team. The foreign investor typically contributes cash and technology. That asymmetry sounds manageable. In practice, it is often where the first disagreements surface.
What HGB is and why it is not permanent
Land use rights in Indonesia take the form of Right to Build/Hak Guna Bangunan, or HGB. Unlike freehold ownership, HGB is a time-limited right. The standard term runs up to 30 years, extendable for a further 20 years, and renewable after that for up to 30 more years. The maximum aggregate tenure is 80 years.
What drives HGB value
Because HGB has a fixed horizon, valuation cannot treat land as a static input. Several factors determine what the right is actually worth.
Remaining term matters directly: a shorter remaining term reduces the asset’s value unless extension certainty is high. Extension certainty itself depends on whether the land has been used in accordance with its designated purpose, which affects whether renewal can be relied upon. Existing infrastructure already on the land, such as buildings or power connections, adds to the value independently of the tenure position.
Whether the site sits inside a Special Economic Zone adds a further dimension. SEZ eligibility comes with a tax incentive period. That incentive period is itself an economic benefit, and it should be factored into the valuation of the land contribution, not treated separately.
Valuing licences and customer relationships
For licences and customer relationships, independent valuation using a discounted cash flow methodology is the standard approach. Both parties should agree to be bound by the valuer’s conclusion in the JV agreement. That agreement prevents later disputes about whether one side over-contributed or under-paid — disputes that, once a project is underway, can be difficult to resolve without disrupting operations.
Governance needs real teeth, not just a consent list
Governance is where foreign investors either over-trust the structure or under-build it. In Indonesia’s AI infrastructure sector, the foreign party typically provides capital and technology but may not fully participate in the day-to-day operations. That creates information asymmetry. Left unaddressed, it creates control risk.
Management and finance appointments
The JV agreement should specify who nominates each senior role and on what basis. A common arrangement is for the Indonesian party to nominate the President Director, who handles day-to-day operations, while the foreign party nominates or retains approval rights over the finance director or chief financial officer.
That finance appointment is a practical protection mechanism, not a statutory requirement. Indonesian company law does not prescribe who holds the finance role. The protection comes from the contract, not the law, which is precisely why it needs to be specified in the JV agreement and, where appropriate, reflected in the Article of Association.
Reporting and audit rights
The JV agreement should set out what financial reports are produced, how often, and in what form. It should also specify the foreign party’s right to audit the company’s books and operations, and who appoints the external auditor. These are the information rights that give the foreign party visibility into whether the business is performing as agreed.
Veto rights over major decisions
The foreign party’s strongest governance lever is typically a defined list of reserved matters that require its consent before the company can act. The list should cover decisions that could fundamentally alter the deal economics: amendments to the articles of association, equity dilution, major capital expenditure, senior management appointments, new borrowings or guarantees, and the licensing or disposal of intellectual property.
The practical negotiation challenge is defining that list with enough precision to be meaningful and enough flexibility to survive the other side’s pushback. A consent provision that is too broad will be resisted and narrowed. One that is too vague will not hold when it is most needed.
Related party transaction controls
If the Indonesian party operates other businesses, transactions between the JV company and those affiliates above a defined threshold should require the foreign party’s consent and be priced on arm’s length terms. This is an easy provision to overlook in optimistic deal negotiations and an important one to have when the business is running.
The agreement is not enough: why the Article of Association matters
One of the most consequential structural points in any Indonesian JV is the relationship between the JV agreement and the Article of Association. Getting this wrong does not just create a legal problem. It can leave the foreign investor holding paper protections with no corporate effect.
The JV agreement is a private contract between shareholders. The Article of Association is the company’s constitutional document, notarised and registered with the Ministry of Law. Under Indonesian Company Law, where the two conflict, the articles of association carry greater corporate effect, particularly in relation to the company itself and third parties. A foreign investor that secures strong protective provisions only in the shareholder agreement may find those provisions difficult to enforce against the company or third parties in practice.
The protections secured in negotiation must therefore be simultaneously reflected in the Article of Association. In practice, this requires working with an Indonesian notary who applies substantive review standards to any proposed constitutional provisions. Structural provisions that the notary considers inconsistent with the spirit of Indonesian Company Law may not be notarised. This is a risk that should be assessed before the deal architecture is finalised, not after the shareholder agreement has been signed.
Exit must be designed at signing, not left for later
Never enter into a JV without solid exit mechanics in place. Most JV transactions in Indonesia’s AI and digital infrastructure sector are still in early construction or operational phases. Completed exit cases are limited. The foundation for asset liquidity is forming, but the ground is not yet firm. DCI Indonesia is listed on the Indonesia Stock Exchange. The sale of the data center assets of Indosat for USD 170 million has been completed. Telkom is currently searching for a strategic investor for NeutraDC.
Right of first refusal, tag-along, drag-along, lock-up, a pricing structure and the mechanics of the transfer all need to be clearly outlined when entering into a JV agreement. The terms and conditions of cooperation for an IPO and the lock-up arrangements for both parties also need to clearly be outlined and agreed upon. Often Indonesian partners require lock-up arrangements of 3 to 5 years, as the value that they have brought into the early stages of the value-creation process is in the form of resources. However, this can be negotiated and items such as length and any exceptions that may apply are open for discussion during negotiations of the JV agreement.
Holding the Indonesian assets through an offshore SPV, such as in Singapore or Hong Kong, would allow for easier transfer of equity without requiring approval from domestic Indonesian authorities. Such a structure would also allow for better tax planning and a more efficient dispute resolution architecture. However, this is a highly complex matter and requires specific analysis of tax, relevant treaties, regulatory environment and beneficial ownership structure. It is not suitable for all structures.
Why structure is the investment thesis, not an afterthought
Indonesia is not a market where paper structure substitutes for execution discipline.
The investment environment is open in many areas. The real bottlenecks are local: permits, land access, utility coordination, and operational delivery capacity. The strongest JV structures are the ones that convert commercial promises into measurable obligations, protect the investor through documented governance rights, and preserve remedies if the relationship breaks down.
That is why the best drafting mindset is not defensive. It is practical. Build the structure as if the business will succeed, but document it as if the partners may disagree.
Final Thoughts
For foreign investors in Indonesia’s AI and digital infrastructure sector, the JV is usually not the compromise choice. It is often the most workable one.
The challenge lies in turning such an arrangement into a true investment platform rather than a loose commercial arrangement. You need to choose a proper partner and verify what the chosen partner can do. Asymmetric investments must be priced correctly. Substantive provisions regarding governance must be incorporated into the JV Agreement as well as into the Articles of Association of the PT PMA. Provision for exit must be designed from the outset.
The third article in this series turns to the downside. It covers what happens when the JV goes wrong, how investors can protect themselves through self-help remedies and arbitration, and why exit design matters most before a dispute arises.
If you have not already, read the first article in this series Why Indonesia is emerging as the next AI infrastructure frontier for foreign investors which covers the investment case, the regulatory timing window, and why the market is moving now.
Partner Perspective
“Indonesia’s digital economy (the largest in Southeast Asia) presents a strong case for foreign investment in AI and digital infrastructure, backed by a liberalised investment framework and clear government prioritisation of the sector. However, the regulatory landscape around AI, data localisation, and critical infrastructure continues to evolve. Success in this market depends on selecting the right local partner and structuring the joint venture with genuine care, covering governance, control, deadlock resolution, and exit with full regard for Indonesian enforcement realities. The opportunity is real, but it rewards those who treat structuring as a substantive exercise rather than a procedural one.” – Jade Hwang
About Nusantara DFDL Partnership
Nusantara DFDL Partnership (NDP) is an Indonesian law firm and a collaborating firm of the DFDL network, operating across Southeast Asia and the Mekong region. NDP advises foreign corporations, Chinese enterprises, and institutional investors on market entry, joint ventures, M&A, corporate advisory, and dispute resolution in Indonesia.
Legal note: This article is for general informational purposes only and does not constitute legal advice. Laws and market conditions change. Readers should seek independent legal counsel before acting on any information contained here.
