Constructing a factory marks one of the key milestones in industrial development and business expansion. A well-equipped production facility helps companies boost capacity, improve efficiency, and enhance market competitiveness.
Therefore, companies must not approach construction carelessly. Legal and administrative frameworks stand firmly behind the solid building structure and modern technology, requiring careful attention from the very beginning.
Moreover, legal and licensing processes play a crucial role in ensuring smooth construction progress. Unfortunately, many companies overlook this essential stage, causing them to face serious consequences such as legal sanctions, project suspension, or even significant investment loss.
Why Legal Aspects Are Essential in Industrial Projects
In fact, legal compliance is not an added burden, but the very foundation for creating a safe, lawful, and sustainable project. Below are the key reasons why legal and licensing aspects are vital in the industrial world:
1. Compliance with Applicable Regulations
Every region enforces strict rules on spatial planning, industrial zoning, and environmental compliance. As a result, companies must secure the proper permits before starting construction. Failing to do so can violate both local and national laws, which could lead to project delays or costly penalties.
2.Mitigating Legal Risks
The absence of permits can lead to various issues, from administrative sanctions and legal disputes to complete project shutdowns. By adhering to the applicable laws, companies can safeguard their projects from such risks.
3. Enhancing Project Credibility
Investors, financial institutions, and business partners have greater trust in projects with clear legal standing. For bank financing or international cooperation, legal compliance is a fundamental requirement.
4.Facilitating Future Expansion and Development
Factories with official documentation are easier to expand, repurpose, or transfer to third parties. Solid legal standing is a valuable long-term asset.
Legal and Licensing Stages in Factory Construction
To build a factory with a lawful foundation, several administrative steps must be taken. Each stage plays a strategic role and requires different supporting documents:
1.PKKPR (Approval of Spatial Utilization Suitability)
This is the first document required to ensure that the construction site is within a permitted industrial zone. PKKPR replaces the previous Location Permit under the OSS-RBA (Online Single Submission Risk-Based Approach) system.
Without a PKKPR, you cannot proceed to the next stages. This process involves coordination with the National Land Agency (BPN) and the local Spatial Planning Office.
2.Environmental Documents (SPPL, UKL-UPL, or AMDAL)
Depending on the project’s scale and risk, companies must prepare the appropriate environmental documents. Small to medium-sized factories usually require UKL-UPL, while large or high-impact projects require an AMDAL. These documents assess and manage environmental impacts resulting from industrial activities.
3.NIB (Business Identification Number)
Once the location and environmental aspects are approved, the company must obtain an NIB through the OSS system. This serves as the company’s legal identity and consolidates basic permits such as NPWP, TDP, and SIUP.
4.PBG (Building Construction Approval)
Formerly known as IMB (Building Permit), the PBG is required to construct or renovate buildings in accordance with their designated functions. Industrial buildings must meet the technical and design standards set by the government. Without a PBG, a factory structure may be considered illegal, even if built on privately owned land.
5.SLF (Certificate of Proper Functionality)
The SLF certifies that the building meets safety, structural, and installation standards and is fit for use. This certificate is required before the factory can officially begin operations. It is issued by the local government following a feasibility inspection.
6.Industrial Operating License
Once the facility is ready for use, the company must obtain an operating license. This serves as the legal foundation for officially commencing production and business operations. Typically, this license includes the type of business activity, production capacity, and types of products to be manufactured.
Additional Licenses You May Need
Beyond the main stages, several additional licenses may be required depending on your industry sector and factory location:
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Groundwater Extraction Permit: Mandatory if the company uses bore wells in production.
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Wastewater Discharge Permit: Required for activities that discharge liquid waste into water bodies or drainage systems.
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Electrical Installation Certification: Ensures all electrical systems meet safety standards.
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Fire Department Permit: Fire protection certification to guarantee the safety of the facility and its employees.
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Halal Certification and BPOM License: Required for factories in the food, pharmaceutical, or cosmetics industries.
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ISO Certification: International standards for quality and environmental management to enhance product competitiveness.
Common Challenges in Licensing Processes
Even though the government has implemented the OSS-RBA system to simplify bureaucracy, industry players still face various challenges in the process, such as:
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Unsynchronized Bureaucracy
Despite the “single window” system, coordination between departments, especially at the local level, can still pose problems. -
Lack of Technical Information
Many companies struggle to understand technical specifications such as environmental document formats, building standards, or business risk classifications. -
Sudden Regulatory Changes
Industrial and environmental regulations often undergo revisions. These changes may lead to delays or force a repeat of the licensing process. -
Incorrect Site Selection
Companies sometimes purchase land before verifying its zoning status. If it turns out to be incompatible with spatial regulations, the entire process must be restarted or even canceled.
Strategies to Speed Up and Simplify the Process
To avoid getting stuck in a lengthy and confusing process, consider the following effective strategies:
a. Comprehensive Early Planning
Conduct spatial research, environmental impact analysis, and technical feasibility studies in advance. Well-prepared documents accelerate subsequent stages.
b. Engage Experienced Consultants
Licensing consultants can help prepare standard-compliant documents, identify the correct application routes, and minimize rejection risks.
c. Maximize the OSS-RBA System
Learn how OSS-RBA works and prepare all digital documents in the required formats. This allows you to track application statuses in real time.
d. Submit Multiple Licenses in Parallel
Where possible, submit several applications simultaneously. For instance, apply for the PKKPR while preparing UKL-UPL and building designs for the PBG.
e. Build Good Relations with Local Government
Maintaining a good relationship with relevant agencies such as the Environmental Office, Public Works and Housing Department, and Investment Office (DPMPTSP) can help speed up document verification.
Conclusion
Every factory construction project must be supported by complete and valid legal documents. The legal and licensing processes is not just an obligation but a strategic step to secure the future of your business.
By following each licensing stage and implementing the right strategies, you will not only avoid legal risks but also accelerate the realization and operation of your factory.
Do not underestimate the legal and licensing processes. Ensure all administrative aspects are fulfilled before commencing physical construction—because long-term success begins with compliance to applicable laws.
Ready to build your factory? Don’t ignore the legal and licensing processes it is the legal foundation of your business. We are here to assist you through the entire journey, from initial planning to full-scale production. Contact us today!