Key Components of Legal Framework

• 1. Ownership and access to geothermal resources

• 1.1 What are the rules on ownership of geothermal resources? Can private parties hold ownership of geothermal resources?

  Pursuant to the Indonesian Constitution, all-natural resources in Indonesia (including geothermal resources) are controlled by the State and must be used for the greatest welfare of the people of Indonesia. As a result, the ownership of geothermal resources in Indonesia resides with the State. 

  However, private parties may utilize geothermal resources by obtaining an appropriate geothermal concession or license.

  The regulatory framework for geothermal operations in Indonesia is mainly governed by Law No. 21 of 2014 on Geothermal (the “2014 Geothermal Law”), which revoked the previous 2003 law regarding geothermal operations (the “2003 Geothermal Law”). The 2014 Geothermal Law was issued with the aim to accelerate the development of the geothermal business sector as an alternative source of energy and to address Indonesia’s current electricity shortage and energy needs. 

  In 2016, the Governor of East Java submitted a petition for judicial review to the Indonesian Constitutional Court in relation to several provisions of the 2014 Geothermal Law. This judicial review alleged that several provisions of the 2014 Geothermal Law are contrary to the regional autonomy principle set out under the Indonesian Constitution because (under the 2014 Geothermal Law) regional governments are no longer authorized to issue geothermal licenses in relation to the use of geothermal energy for electricity purposes. In September 2017, the Indonesian Constitutional Court rejected the judicial review petition submitted by the Governor of East Java and therefore confirmed that the disputed provisions of the 2014 Geothermal Law are not contrary to the regional autonomy principle set out under the Indonesian Constitution.

  Under previous regulatory regimes, PT Pertamina (Persero) (“Pertamina”) (the state-owned energy company) held a monopoly over geothermal business activities in Indonesia. Under this regime, Pertamina was granted special privileges to appoint local and international contractors to carry out geothermal activities under joint operation contracts entered into with Pertamina. However, Pertamina’s monopoly over geothermal development in Indonesia ended in the year 2000. Since then, the Indonesian government has allowed the private sector to independently engage in geothermal business activities in Indonesia.

  Nonetheless, Pertamina (through its subsidiary, PT Pertamina Geothermal Energy) still operates four producing geothermal working areas (i.e. Kamojang, Lahendong, Sibayak, and Ulubelu Working Areas) and has a further seven geothermal development projects in Indonesia. Pertamina has retained the ability to appoint local and international contractors to carry out geothermal activities in co-operation with Pertamina in relation to these concession areas.

• 1.2 Who can grant access to geothermal resources, only state or also landowner?

  As the owner of all geothermal resources in Indonesia, only the State may grant access to geothermal resources. Under the 2014 Geothermal Law, utilization of geothermal resources for: (i) non-electricity purposes (such as tourism and agribusiness (which is outside the scope of this guide)) is granted through licenses issued by the central government of Indonesia, the relevant provincial government or the relevant regency or municipality government pursuant to their respective authorities; and (ii) for electricity purposes is granted through licenses issued by the central government of Indonesia. 

  However, a geothermal license issued under the 2014 Geothermal Law does not include any right of access over the land surface within the area of the geothermal license. In order to access such areas, the license holder must first settle the use of land with the relevant land owner or occupier and/or obtain a forestry permit for its geothermal activities if such activities are conducted in a production forest, a protected forest or a conservation forest.

• 1.3 Is exploration/exploitation open to foreign investment?

  Yes, geothermal power plant projects with a capacity of ≤ 10 MW are open to a maximum of 67% foreign ownership. Geothermal power plant projects with a capacity of > 10 MW are open to a maximum of 95% foreign ownership, or 100% foreign ownership if the project is part of a public private partnership.

• 2. Involvement of administrative bodies

• 2.1 Which administrative bodies (ministry and/or governmental agencies) are involved in the licensing of geothermal resources, including licensing and developing?

  The Indonesian Ministry of Energy and Mineral Resources (“MEMR”) and the relevant regional governments are the governmental bodies involved in the licensing and development of geothermal resources.

• 2.2 Do administrative bodies assign any of their respective roles to a third party, including but not limited to a peer review, during the period of exploration, exploitation and/or production of geothermal resources?

  In particular to the preparation of a geothermal working area, MEMR is required to conduct exploration and/or preliminary surveys in relation to the relevant open working area. These activities can be assigned to third parties. Preliminary survey activities may be assigned to Indonesian universities or research institutions. Exploration (together with preliminary survey) activities can be assigned to Indonesian business entities. In certain circumstances (including in relation to relinquished working areas), MEMR may also assign the activities of exploration and/or exploitation/utilization to any state-owned enterprise (Badan Usaha Milik Negara – “BUMN”) engaged in the geothermal sector. MEMR has also delegated some of its authority (particularly in relation to the foreign investors) to the Indonesian Investment Board (“BKPM”).

• 2.3 Is there a government policy in place concerning geothermal resources? If so, what is the object and to what end?

  Under the Indonesian national energy policy (“National Energy Policy”), the Indonesian government has adopted a policy of aiming to accelerate the development of geothermal businesses in Indonesia. The National Energy Policy sets the target for the development of new and renewable energy in Indonesia (including the electricity generated from geothermal power plants) to be 23% of the national energy supply by 2025, with the geothermal sector expected to contribute 7.2 GW or 7.3% of the total new and renewable energy supply. To achieve this target, MEMR is seeking to enter into cooperation with other institutions or Indonesian business entities to develop the Indonesian geothermal sector and to attract new investors by granting geothermal infrastructure funding (as discussed further below in the “Incentive” section).

• 3. Allowed Exploitation

• 3.1 Is exploitation of resources subject to licensing? Do landowners have the right to exploit recourses without a license? If yes, to what extent?

  Under the 2014 Geothermal Law and the current regulatory framework, the exploitation and utilization of geothermal resources in Indonesia is subject to a licensing regime, namely: (i) a license for the direct utilization of geothermal resources for non-electricity purposes, such as tourism and agribusiness (which is outside the scope of this guide), and (ii) a geothermal license (Izin Panas Bumi – “Geothermal License”) for electricity purposes and an electricity power supply business license (Izin Usaha Penyediaan Tenaga Listrik – “IUPTL”). Under previous regulatory regimes (pursuant to which several geothermal projects in Indonesia still operate), the Indonesian Government (typically through Pertamina) has also entered into various concession agreements directly with private parties to permit the exploitation of geothermal resources for electricity purposes.

  The licenses referred to above are not directly linked to land ownership and landowners in Indonesia do not have any right to exploit geothermal resources without a license.

• 4. Role and voice of landowner or “project affected people” in the licensing procedure and land lease agreements

• 4.1 Does the landowner or any “project affected people” have a role in the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  Landowners or any project affected people in Indonesia do not have any specific or formal role in the process for the issuance of Geothermal Licenses. 

  However, Geothermal Licenses do not include any right of access over the land surface within the area of the Geothermal License. As a result, in order to actually conduct geothermal activities within a particular area, the Geothermal License holder must obtain an underlying land right. This land right is typically obtained through the following mechanisms:

  1. land acquisition, whereby the Geothermal License holder formally acquires certified (or uncertified) land title/rights; and/or
  2. leases or compensation agreements, whereby the Geothermal License holder pays periodic rent or makes a one-off payment to the relevant landowner for the use of and access to the relevant land.

  In addition, in relation to geothermal activities which are conducted in a production forest, a protected forest or a conservation forest, the Geothermal License holder must obtain a forestry permit from the relevant governmental authority to allow it to conduct geothermal activities within those forestry areas.

• 4.2 Will an opposition of a landowner or any “project affected people” have a bearing on the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  As landowners and project affected people in Indonesia do not have any specific or formal role in the process for the issuance of Geothermal Licenses in Indonesia, landowners and project affected people cannot formally oppose the licensing process. 

  However, in practice, land acquisition and access issues remain a significant impediment to the development of geothermal projects in Indonesia. In practice, negotiations with a (typically large) number of individual landowners or project affected people can be complex and protracted. While a compulsory land acquisition process was recently introduced in Indonesia, such processes are still unclear in the context of private projects and, in practice, must be led by government backed projects.

• 4.3 Are the terms of land lease agreements regulated and if so, (i) what is a general timeframe of land lease agreements and (ii) what are the obligations for decommissioning at the end of the term?

  There is no specific provision under the relevant national regulations which specifically stipulate the term of land lease arrangements in the geothermal sector or the obligations for decommissioning at the end of the term. However, there are various regional regulations which can (depending on the region) stipulate the maximum term of land lease arrangements of regional-owned land, typically for a maximum period of 5 years (unless the relevant use of land requires a longer period, which is typically applicable for geothermal projects). Apart from the lease of regional-owned land, the contents of land lease arrangements are typically based on “business to business” arrangement between the parties (including in relation to any obligations for decommissioning at the end of the term). Land lease agreements between private parties usually cover the term of the relevant Geothermal License (and may allow an option for extension connected with any renewal/extension of the relevant Geothermal License).

• 5. Criteria for granting of a license

• 5.1 Which documents need to be submitted and what is the criteria for obtaining a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  The process for exploring and exploiting geothermal resources begins with a tender offer by the MEMR for a geothermal utilization working area. The tender offer is implemented in two stages, as follows:

  1. The first tender aims to determine the eligible tender participants (which must be Indonesian legal business entities, including state-owned enterprises, regional owned enterprises, cooperatives and privately owned companies) based on the completed tender documents. These tender documents comprise of administrative, technical and financial documents, the details of which are set out in the relevant tender offer document.
  2. The second tender aims to determine the winner of the tender. The tender documents for the second tender comprises of (a) the project development proposal and (b) the exploration commitment offer, as discussed further below.

  The project development proposal must at least contain the following:

  • a review on the geothermal data and information to estimate the feasibility of the working area to be exploited/utilized;
  • a strategy for the performance of exploration and exploitation activities, including a completion target and budgeting plan; and
  • a commitment on the commercial operation date.

  The exploration commitment offer must at least contain the following;

  • a statement letter stating that the participant is committed to conduct the drilling of exploration well(s); and
  • a statement letter on the ability of the participant to deposit an exploration well drilling guarantee.

  The evaluation of the second tender documents will be based on the amount of exploration commitment offer of the eligible participants. Within 4 months of the determination of the tender, the winning party must: (i) pay the basic price for the working area data, and (ii) deposit the exploration commitment fund (being at least US$10 million for projects with generation capacity of 10MW or more and at least US$5 million for projects with generation capacity of less than 10MW). Once these obligations have been satisfied, the wining party will submit an application to MEMR for a Geothermal License by enclosing the evidence of the exploration commitment fund deposit.

  In order to exploit the geothermal resources and actually generate electricity, the Geothermal License holder must obtain an IUPTL (as defined above). If the electricity generated from the geothermal power plant is supplied to PT PLN (Persero) (being the state-owned entity which has an effective monopoly over power distribution in Indonesia) (“PLN”), the IUPTL will be issued by the Head of Indonesian Investment Board on behalf of MEMR; otherwise, the IUPTL will be issued by the relevant governor, or the relevant regent/mayor. To obtain an IUPTL, the Geothermal License holder must satisfy the following requirements:

  1. administrative and financial requirements (including an IUPTL application form, corporate documents, company profile, taxpayer registration number, and evidence of financial capability);  
  2. technical requirements (including a feasibility study on the electricity supply business, details on the location of the installation and the type and capacity of the plant, the construction and operation schedule, and a copy of the relevant power purchase agreement); and 
  3. environmental requirements, as discussed further below.

• 6. Duration of Licenses and Renewal

• 6.1 What is the maximum duration of a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  A Geothermal License may be granted for a period of up to 37 years and may be subsequently extended for up to 20 years for each extension. While only a single Geothermal License is issued for both exploration and exploitation activities, the Geothermal License will comprise of two stages:

  • exploration / feasibility study, for a maximum period of 5 years which may be extended twice for a maximum period of 1 year per extension; and 
  • exploitation / utilization stage, for a maximum period of 30 years.

  An IUPTL is granted for up to 30 years and can be extended. There are no express limitations or restrictions on the number (or period) of extensions that can be obtained by an IUPTL holder. We note that the issuing authority has broad discretion on this matter by considering the term of the relevant power purchase agreement.

• 7. Terms of License

• 7.1 What are the general terms of the license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) exploration drilling and other drilling,
     (iv) power plant (generation license)?

  Each Geothermal License (which includes exploration drilling, exploitation, and utilization activities) must contain the details of the rights and obligations of the holder of the Geothermal License, which include the following obligations:

  • to control the environmental pollution and/or damage, including the activities of prevention, mitigation and restoration of environmental function;
  • to conduct geothermal activities in accordance with good engineering practice;
  • to prioritize the utilization of domestic goods, services, engineering and design;
  • to conduct local community development and empowerment programs;
  • to submit a long-term plan of exploration, exploitation and utilization activities to MEMR;
  • to maintain books and records in good faith by reflecting the actual business conditions and activities; and
  • to submit periodical reports to MEMR on the work plan and budget and the realization of the work plan and budget.

• 7.2 Are exploration license holders granted pre-emptive rights with regards to exploitation or do exploration licenses automatically convert into exploitation licenses if the resource has been substantiated? If so, are there any conditions?

  A single Geothermal License is issued for both exploration and exploitation activities. However, in order to move from the exploration (feasibility stage) of the Geothermal License to the exploitation (utilization stage), the Geothermal License holder must submit to MEMR for prior approval the results of its feasibility study evidencing a technically and economically feasible geothermal project and a copy of its environmental permit. In this sense, the holders of a Geothermal License in the exploration/feasibility stage effectively have a pre-emptive/exclusive right with regards to exploitation in that area provided that they can prove that the project is technically, economically and environmentally feasible.

• 7.3 Is an exploitation license included in a power plant license or are these licenses separate?

  The authorisation to exploit and utilize geothermal resources (contained in the Geothermal License) is separate to the authorization to supply electricity (contained in an IUPTL).

• 7.4 Are there any encumbrances in place for the licence holder to keep a license, once granted?

  During its term, the holder of a Geothermal License is required to satisfy certain payment obligations for state revenue and regional revenue. The state revenue payable by the Geothermal License holder comprises of tax revenue and non-tax revenue (i.e. deadrent, production royalties and other levies), while regional revenue comprises of regional taxes, regional charges and other revenue as determined under the relevant regional regulations.

• 8. Termination and revision of licenses

• 8.1 What actions by the license holder would warrant revision of exploration-, exploitation- and power plant (generation) licenses?

  Once issued, there is no formal process for a license granting authority or a license holder to amend an existing Geothermal License or IUPTL (except for manifest error). However, in practice, the license holder will typically apply for a revision to its license if there have been any changes to the details set out in such license (including, for example, an expansion of the capacity or location of the project or a change in the name of the license holder).  

• 8.2 Does the license granting authority license have the power to revoke or terminate licenses? If yes, what actions of the license holder would warrant the termination of the license?
     (i) exploration license,
     (ii) exploitation license,
     (iii) power plant (generation license)?

  In general, any substantive breach of the 2014 Geothermal Law or the terms of the relevant Geothermal License could result in administrative sanctions which could, ultimately, lead to the revocation of a Geothermal License. For example, the relevant issuing authority may revoke a Geothermal License if the license holder: (i) does not settle land right issues prior to the utilization of the geothermal resources, (ii) does not perform exploration, feasibility study, exploitation or utilization activities within the required timeframes, (iii) does not pay the required state revenues, or (iv) does not comply with relevant work health and safety, environmental protection, and geothermal mining technical requirements.

  In addition, any non-compliance by an IUPTL holder with the relevant electricity law and regulations or terms of the relevant IUPTL (for example, non-compliance with: (i) periodical reporting obligations, (ii) electrical safety requirements, (iii) local content requirements, or (iv) environmental protection and management requirements) may also ultimately lead to revocation of the IUPTL by the relevant issuing authority.

• 8.3 Can the license granting authority set forth conditions into licenses which provide for (i) stricter terms and conditions of licensees or (ii) more lenient terms and conditions for licensees, when such terms and conditions (whether stricter or more lenient) are not otherwise provided for by law?

  Typically, license granting authorities have relatively clear guidelines and/or regulations which set out the specific terms and conditions which should attach to a license, including (in some cases) template license documents which are attached to the relevant guidelines and/or regulations. As a result, issuing authorities typically do not include additional conditions into licenses which are not otherwise provided for by law. However, to the extent that clear guidelines and/or regulations are not available, then licensing granting authorities will have the general discretion to determine the specific terms and conditions that will attach to the relevant license. In those circumstances, it would be possible for the licensing granting authority to exercise its discretion to attach stricter or more lenient terms for certain licenses or licensees.

• 8.4 What remedies does the License granting authority have in order to enforce compliance to the terms and conditions of a license, other than by revoking the license?

  Typically, license granting authorities may impose a series of administrative sanctions to enforce compliance to the terms and conditions of a license prior to ultimately revoking the license for continued non-compliance. These administrative sanctions may include written warnings, the temporary suspension of the license or the suspension of business activities.

• 9. Regulatory and information obligation

• 9.1 Briefly outline the surveillance carried out by the regulatory authorities during the license period, e.g. with regards to reporting duties and/or on-site visits.

  Under the 2014 Geothermal Law, the relevant issuing authority can manage and supervise geothermal activities through examining the periodical reports required to be submitted by license holders and by conducting on-site visits. Typically, areas of particular scrutiny include environmental protection management and reclamation, local content utilization, development of Indonesian manpower, and local community development. In practice, the management and supervision of geothermal activities by regulatory authorities can be inconsistent and vary widely between provinces and regions. 

• 9.2 Which information is required to be submitted to regulatory authorities during the license period for the holder of a license for:
     (i) exploration,
     (ii) exploitation,
     (iii) power plant (generation license)?

  A Geothermal License holder must submit to MEMR: (i) quarterly reports and annual reports in relation to its work plan and budget and the implementation of such work plan and budget during the exploration stage and (ii) monthly reports, quarterly reports and annual reports in relation to its work plan and budget and the implementation of such work plan and budget during the exploitation stage. In addition, the holder of a Geothermal License is also required to submit (i) a long term plan for its exploration stage covering a maximum period of 5 years and (ii) a long term plan for its exploitation stage covering a maximum period of 30 years.

  An IUPTL holder must submit semester reports to the Director General of Electricity which must contain: (i) general data on electricity supply, (ii) details of the stage of electricity supply, (iii) investment realization data, (iv) compliance with local content obligations, (v) manpower data, (vi) data on installation of electricity supply, (vii) consumer data, (viii) electricity production and purchase data, (ix) operation disturbance information, (x) environmental management and monitoring compliance, and (xi) compliance with corporate social responsibility requirements.

• 10. Power purchase agreements

• 10.1 Are general terms and conditions, such as duration of Power Purchase Agreements regulated? If no, are there any soft law or general recommendations in place in your jurisdiction?

  Yes, the general terms and conditions of power purchase agreements are regulated under the prevailing electricity regulations issued by MEMR. Each power purchase agreement must at least contain terms and conditions relation to the following: (i) the duration of the power purchase agreement, (ii) the rights and obligations of the power producer and PLN, (iii) risk allocation, (iv) project performance guarantee, (v) the commissioning and commercial operating date, (vi) fuel supply, (vii) power purchase transaction, (viii) system operation control, (ix) penalties related to power plant performance, (x) termination, (xi) transfer of rights, (xii) price adjustment requirements, (xiii) dispute resolution and (xiv) force majeure.

• 10.2 What is the permitted or general duration of PPA's?

  The maximum duration of power purchase agreements (including in the geothermal sector) is 30 years from the commercial operation date of the relevant project.

• 10.3 Are public and/or national regulatory authorities involved in any way in forming the terms of PPA's, either directly or indirectly?

  Yes, MEMR is directly involved in the formation of the terms of PPAs as the terms of PPAs are expressly regulated under MEMR regulations.

• 11. Incentives

• 11.1 Is there any governmental support or funding available for exploration activities?

  In May 2017, the Minister of Finance (“MOF”) enacted a ministerial regulation on fund management in PT Sarana Multi Infrastruktur (Persero) (“PT SMI”) for the financing of infrastructure in the geothermal sector. Under the MOF regulation, PT SMI (as a financing BUMN) is granted the authority to (i) grant a loan for the purpose of funding the exploration, exploitation and/or development of geothermal power plant projects, (ii) participate as a shareholder, and/or (iii) provide geothermal data and information pursuant to a special assignment from the MOF – all for the management of the geothermal infrastructure financing fund.

  Loans for the purpose of funding the exploration, exploitation and/or development of geothermal power plant projects may be granted by PT SMI to: (i) any BUMN which engages in geothermal power plant projects, (ii) any business entity which engages in geothermal power plant projects whose majority of shares are owned by a BUMN, (iii) PLN and/or (iv) the holder of Geothermal License.

• 11.2 Are there any incentives offered by the government or local authorities for utilization of geothermal energy? If yes, in what form (e.g. tax and/or feed-in tariffs) and what are the maximum amounts permitted?

  The above mentioned incentives are not subject to recovery.

• 11.3 What requirements must the project fulfil in order to be eligible to receive such incentives?

  In order to be eligible for a Tax Holiday, the license holder must meet several criteria, being, among others: (i) a newly registered taxpayer, (ii) conduct business activities in a pioneering industry (including geothermal activities), (iii) have a minimum investment plan of one trillion Indonesian Rupiah, as approved by the Head of BKPM, and (iv) comply with the prescribed debt to equity ratio. 

  The import duty exemption is generally available for the geothermal industry but only for the import of machinery, goods, and materials which cannot be produced domestically and/or where the technical specification and quantity of domestic goods do not meet the requirements of the project.

  As for Business Viability Guarantee Letters, this guarantee letter must be requested by the President Director of PLN to the MOF before conducting the procurement process for the relevant electricity infrastructure development.  Further detailed provisions on the granting of a Business Viability Guarantee Letter are governed by the MOF.

• 11.4 Are the incentives subject to recovery in any instances?

  The abovementioned incentives are not subject to recovery.

• 11.5 In the case of production of electricity from geothermal, are there any incentives/rewards for utilizing the geothermal energy for other than producing electricity, such as waste heat?

  Currently there are no government incentives or rewards for the utilization of geothermal energy for other than producing electricity.

• 12. Participation and authority of indigenous people

• 12.1 Are the rights of indigenous peoples in connection to geothermal resources regulated?

  The 2014 Geothermal Law (and Indonesian laws and regulations more generally) do not specifically govern the rights of indigenous people in relation to geothermal projects. However, as Geothermal Licenses do not include the right of access over the land surface within the area of the Geothermal License, to the extent that relevant land is occupied by indigenous people, the holder of Geothermal Licenses must settle the relevant land rights with the indigenous people (like all other land owners/occupiers) prior to carrying out any geothermal activities.

• 12.2 To what extent are indigenous municipalities involved in the process of granting licenses?

  Indigenous municipalities are not involved in the process of granting licenses in the geothermal industry in Indonesia.

• 13. Alteration of law and regulation

• 13.1 What are the principles regarding retroactivity of laws and regulations, can changes in such rules affect license holders?

  It is possible and, in practice, relatively common for new laws and regulations to affect the rights and obligations of the holders of pre-existing Geothermal Licenses. However, new laws and regulations are not permitted to be retroactive in respect of: (i) criminal provisions, unless they pursue gross violations of human rights; or (ii) any provisions which impose any tax and retribution collection in previous tax years. Pursuant to Indonesian Law No. 12 of 2011 on the Enactment of Laws and Regulations, if any laws and regulations are intended to be retroactive then that law or regulation must contain transitional provisions on the status of the legal actions committed or legal relationships formed during the period between the retroactive date and the enactment date. In practice, it is not uncommon for new Indonesian laws and regulations to include transitional provisions which require the holders of existing licenses or concessions to amend or adjust the terms of their license or concession so that they are in accordance with the new law or regulation within a certain period of time. 

  In this regard we note that there is no clear guidance under Indonesian law on stabilization clauses which may be sought to be included in various types of investment agreements. As such, stabilisation clauses are not commonly adopted in Indonesian power purchase agreements (specifically, power purchase agreements with PLN) or other investment/project agreements. Typically, political risk in Indonesia is managed through government force majeure clauses which may provide time and/or cost relief in the event of a prescribed set out political events (including, in some cases, change of law). Such government force majeure clauses are typical included in power purchase agreements entered into with PLN.

• 14. Taxation and capital controls

• 14.1 How does taxation in the sector affect license holders?

  HBT is not qualified or licensed to advice on taxation matter.

• 14.2 Please describe and provide information on the applicable tax rate and resource tax.

  HBT is not qualified or licensed to advice on taxation matter.

• 14.3 Is the sale of energy subject to VAT?

  HBT is not qualified or licensed to advice on taxation matter.

• 14.4 Is VAT refundable and what is the procedure for VAT refunding?

  HBT is not qualified or licensed to advice on taxation matter.

• 14.5 Is the flow of foreign capital restricted with capital controls? If so, briefly describe the nature of such controls.

  No, the flow of foreign capital in any Indonesian foreign investment company is not expressly restricted by the Indonesian Government (except that Indonesian Rupiah cannot be transferred overseas and must first be converted to a foreign currency).

• 15. Environmental Impact Assessment

• 15.1 What demands are there regarding environmental impact assessment prior to exploration, exploitation and or production of geothermal energy?

  All companies performing geothermal exploitation activities are required to obtain relevant environmental approvals and permits. An Environmental Impact Assessment (“AMDAL”) document is required for geothermal exploitation activities where: (i) the geothermal working area is ≥ 200 Ha, (ii) the open space area for geothermal utilization is ≥ 50 Ha, or (iii) the geothermal power plant has a capacity of ≥ 55 MW. Geothermal activities which are not required to have an AMDAL (including geothermal exploration activities), must prepare an Environmental Management Plan/Environmental Monitoring Plan (“UKL-UPL”) document or a statement letter regarding the readiness for managing and monitoring the environment, depending on the applicable relevant regional regulations. 

  Any business which conducts activities under an AMDAL or UKL-UPL (issued after 23 February 2012) must also obtain an environmental permit issued by the Minister of Environment and Forestry, the relevant governor, or regent/mayor (as applicable). An environmental permit is a pre-requisite for the relevant project to obtain its relevant operational or business activities license (and, for example, is a pre-requisite to obtaining an IUPTL).

• 16. Other regulatory requirements or permits needed

• 16.1 What other licenses are needed in order to commence exploration, exploitation and/or production with geothermal energy?

  Numerous other licenses are required to commence exploration, exploitation and/or production of geothermal energy, including various general corporate, manpower and health and safety licenses (as well as any regional licenses required under the relevant regional regulations). However, the main ancillary licenses to conduct geothermal activities include:

  1. a Borrow and Use of Forest Area Permit, if exploration or exploitation activity is conducted in a production forest or protected forest area, or an Environmental Services Utilization Permit if the geothermal activities are conducted in a conservation forest; 
  2. a water resource utilization license issued by the Minister of Public Works or the regional government (as relevant);
  3. an investment approval from BKPM if the project is owned by an Indonesian company with any direct foreign investment; and 
  4. various approvals from the relevant authorities if the license holder manages, stores, disposes or uses hazardous or toxic materials.

• 16.2 Which other regulatory requirements are in place, including but not limited to the need to provide insurances or guarantees, in connection with the commencing or continuing of exploration, exploitation and/or production of geothermal energy?

  Other than the various licenses and requirements discussed above, there are no other regulatory requirements in connection with the commencing or continuing of exploration, exploitation and/or production of geothermal energy in Indonesia.

• 17. Legislation

• 17.1 Have there been any recent amendments to the legislation for licensing, exploration and/or exploitation of geothermal energy in the last 15 years? If so, have these amendments made a noticeable impact on the increase or decrease of production of electricity from geothermal resources?

  Yes, the Indonesian Government has actively amended several regulations related to the geothermal sector over the last 15 years. Such amendments include the issuance of, among others, the 2014 Geothermal Law and implementing regulations on (i) the indirect utilisation of geothermal energy, (ii) the procedures for the assignment of geothermal preliminary survey and exploration activities, and (iii) geothermal working areas.

  The main reforms introduced by the 2014 Geothermal Law (compared to the 2003 Geothermal Law) are as follows: (i) geothermal activities are no longer categorized as a mining activity and (ii) allowing regional governments to issue Direct Utilization Licences for non-electricity purposes in certain circumstances. Under the 2003 Geothermal Law regime geothermal activities were prohibited from being conducted in conservation forests. However, now that the geothermal activities are no longer categorized as a mining activity, the exploration and exploitation of geothermal resources can be carried out in conservation forest. This reform has increased the opportunity for investment in the Indonesian geothermal sector as Indonesia’s geothermal reserves are mainly found in conservation and protected forests.

  Another recent reform is the ability for Indonesian business entities to carry out preliminary survey and exploration activities in a working area (under assignment from MEMR). Under these arrangements, the tender for the working area will then be conducted under a limited tender mechanism and the Indonesian business entity performing such activities will be invited to participate in such limited tender. However, given that this is only a very recently implemented reform, it remains to be seen how investors will respond.

• 17.2 Have any other factors made a strong impact on the production of electricity from geothermal in the last 15 years? If so, for what reasons.

  One of the key factors which has accelerated the production of electricity from geothermal activities in the last 15 years is the National Energy Policy which sets the target for new and renewable energy (including electricity derived from geothermal) to be 23% of the national energy supply by 2025. This has led to the Indonesian government seeking to expedite the commercial operation date of geothermal power plant projects in Indonesia and has also been supported by the Indonesian government’s broader 35,000 MW new electricity program announced in 2014.

• 17.3 Is there a specific legislation in place regarding geothermal extraction?

  To date, there is no specific legislation regarding the technical activities of geothermal extraction.

• 18. Alternative or cascade use of resources

• 18.1 When applying for a licence, is it possible to apply for one license or authorization, which provides for multiple or cascade use of the resource, e.g. direct and indirect utilization (generation of electricity, district heating and cooling)?

  Under the 2014 Geothermal Law, different licences are applicable for direct and indirect utilisation of geothermal energy. A Geothermal Licence is issued for the indirect utilisation of geothermal energy which is related to electricity purposes and a Direct Utilization Licence is issued for the direct utilisation of geothermal for non-electricity purposes. As a result, it is not possible to apply for one license for the multiple utilisation of geothermal resource (however, it is still possible for an Indonesian business entity to hold separate licenses for both direct and indirect utilisation of geothermal energy).

• 18.2 Could mineral extraction from geothermal fluid be included under such cascade usage clauses?

  As noted above, it is not possible for a Geothermal License to include cascade usage clauses.

• 19. Water rights

• 19.1 Once an exploitation license has been granted for the operation of a power plant, along with access to fresh water for power plant operation, can the licence allow for sales and distribution of fresh water to local communities?

  The holder of a Geothermal License is only granted the right to conduct the exploration, exploitation, and utilisation of the geothermal resource. Any intake of water from any water resources in the working area would require the Geothermal License holder to obtain an additional water resource utilization license issued by the Minister of Public Works or the regional government (as relevant). Further, such water intake must only be used for its geothermal utilization and the Geothermal License holder would not be permitted to on-sell or otherwise distribute such water to any third parties (including local communities).