The Indonesian government officially enacted Minister of Energy and Mineral Resources Regulation (MoEMR) No. 10 of 2025, outlining the Energy Transition Roadmap for the Power Sector, which marks a critical milestone in Indonesia’s commitment to building a cleaner, more sustainable energy system.
In today’s unpredictable global environment, businesses and investors face increasing risks from unforeseen disruptions. From pandemics to financial crises, such events can have significant implications on contractual relationships. In Indonesia, two important legal concepts often arise in this context—force majeure and hardship. While they may seem similar at first glance, they carry distinct meanings and legal consequences that businesses must understand in order to safeguard their interests.
Understanding Force Majeure and Hardship
Both force majeure and hardship deal with unforeseen events that disrupt contractual performance, but the severity of the impact is what differentiates them. Force majeure refers to events that occur after a contract has been signed, outside the control of the parties, and that prevent one party from fulfilling its obligations altogether. By contrast, hardship does not make performance impossible, but instead renders it far more difficult, costly, or unbalanced for one of the parties.
In Indonesia, the principle of force majeure is explicitly recognized under Articles 1244 and 1245 of the Indonesian Civil Code. Hardship, however, is not formally codified. Instead, it is more commonly recognized in international practice, particularly within Common Law systems and the UNIDROIT Principles (Articles 6.2.1–6.2.3).
Qualification for Force Majeure and Hardship
For an event to qualify as force majeure, three conditions must be met; the event must have been unforeseeable at the time of signing the contract, must be beyond the control of the parties, and it must prevent the performance of obligations. Within this concept, Indonesian legal theory also distinguishes between absolute force majeure, which makes performance entirely impossible, and relative force majeure, which only temporarily hinders obligations. The COVID-19 pandemic, for instance, has often been treated as relative force majeure, since its impact disrupted contracts but did not automatically render them null and void.
Hardship, on the other hand, comes into play when unforeseen circumstances create a significant imbalance in the contractual relationship. While performance remains technically possible, it becomes excessively burdensome for one party. A common example is a drastic currency devaluation that suddenly increases costs for a party bound by payment obligations in foreign currency, thereby upsetting the economic balance of the contract.
Practice May Differ in Certain Sector
In certain industries, these concepts are further refined. For instance, in the oil and gas sector, the Special Task Force for Upstream Oil and Gas (SKK Migas) has issued Pedoman Tata Kerja No. 007 (“PTK 007”), a regulatory framework that provides guidance on force majeure as well as related conditions. PTK 007 not only addresses force majeure events but also defines urgent conditions—sudden disruptions to production facilities that threaten operations—and emergency conditions, such as accidents that endanger human safety. For Production Sharing Contractors (PSCs) and other industry players, this framework is critical for ensuring both compliance and operational resilience.
Contract Clarity is Critical
Although hardship is not expressly recognized under Indonesian statutory law, it can still be binding if expressly included in a contract. This principle is consistent with Article 1338(1) of the Civil Code, which upholds that valid agreements carry the force of law between the contracting parties.
Given the inherent uncertainties in business, companies entering contracts in Indonesia should ensure that force majeure and hardship provisions are drafted with precision. A vague clause leaves room for dispute, whereas a well-defined one can prevent costly litigation. Parties should also agree on practical mechanisms, such as requiring timely notification of a force majeure or hardship event, supported by evidence like photographs, government circulars, or official statements. Moreover, including renegotiation clauses can provide flexibility to adjust contractual terms fairly when hardship arises.
For businesses and investors operating in Indonesia, understanding the nuances of force majeure and hardship is crucial for effective risk management. Contracts must not only anticipate potential disruptions but also provide clear, workable solutions to maintain fairness and continuity.
If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.
Author:
Budhi Satya Makmur