14 Feb 2018
MEMR Announces Easing of Regulatory Burden: New & Renewable Energy Sector to Benefit

On 5 February 2018, the Ministry of Energy and Mineral Resources (“MEMR”) issued a press release announcing the revocation of 32 regulations in the energy and mineral resources sector. Subsequent checking revealed that the bulk, if not all, of the regulations have not yet been revoked but are due to be revoked at some time in the future. However, there is no time line yet as to when this will happen. In the meantime, the MEMR has unofficially stated that the regulations in question will no longer be enforced. In this regard, it is important to remember that until such time as the regulations are legally revoked by another legal instrument of the same or higher status in the legal hierarchy, they remain legally binding, which is something that could have consequences should a dispute involving the relevant regulations subsequently come before the courts.

In the power sector, the ministry has announced that 11 regulations will be revoked, of which 3 are of particular importance to independent power producers (‘IPP”) in the new and renewable power sub-sector, namely:

1. MEMR Regulation No. 19 of 2015 on the Purchase of Electricity by PT PLN from Hydro Power Plants with a Capacity of Up To 10 MW (“MEMR Regulation 19/2015”);
2. MEMR Regulation No. 19 of 2016 on the Purchase of Electricity by PT PLN from Photovoltaic Solar Power Plants (“MEMR Regulation 19/2016”); and
3. MEMR Regulation No. 21 of 2016 on the Purchase of Electricity by PT PLN from Biomass and Biogas Power Plants (“MEMR Regulation 21/2016”).

The revocation of the above regulations will simplify the licensing process and eliminate certain obligations placed on IPPs operating in the new and renewable energy sub-sector, namely:

1. Under MEMR Regulation 19/2015:
   • The requirement to register with the MEMR to obtain the designation of Water Manager for Power Plant Purposes (pengelola tenaga air untuk pembangkit listrik).
   • The requirement to post a performance bond amounting to 5% of the total investment value.
   • Late-performance sanction in the form of a reduction in the price payable for the electricity supplied by the IPP in the event that the physical construction of the plant has not commenced within 3 months after the issuance of the Electricity Supply Business License (Izin Usaha Penyediaan Tenaga Listrik / “IUPTL”).
2. Under MEMR Regulation 19/2016:
   • The requirement to register with the MEMR as the Developer of a Photovoltaic Solar Power Plant.
   • Late performance sanction in the form of a reduction in the price payable for the electricity supplied by the IPP in the event that the Commercial Operation Date is not achieved within a period of 12 months (for plants with a capacity of up to 10 MW) or 24 months (for plants with a capacity of more than 10 MW) subsequent to the issuance of the IUPTL.
3. Under MEMR Regulation 21/2016:
   • The requirement to register with the MEMR as the Developer of a Biogas or Biomass for Biogas or Biomass Power Plant.
   • The requirement to achieve financial close within 12 months subsequent to the signing of the Power Purchase Agreement.
   • Late performance sanction in the form of a reduction in the price payable for the electricity supplied by the IPP in the event that the Commercial Operation Date is not achieved within a period of 36 months subsequent to the signing of the Power Purchase Agreement.

The MEMR states in its press release that the wholesale revocation of regulations is being undertaken as part of the government’s economic reform program, one of the goals of which is to enhance transparency. While any reduction in the regulatory burden on investors is to be welcomed, one nevertheless has to question the ministry’s commitment to transparency, given the lack of clarity over which regulations have been revoked and which will be revoked in the future. Consequently, we will continue to monitor and report on the situation going ahead.(By: Giffy Pardede: gpardede@abnrlaw.com & Serafina Muryanti H.P.: smuryanti@abnrlaw.com)