Client Alert 20 June 2014



Long Awaited Regulation on Geothermal Power Prices a Step in the Right Direction … Almost

The Minister of Energy and Mineral Resources (the “Minister”) has issued a new regulation governing the purchase prices payable by state power utility PT Perusahaan Listrik Negara (Persero) (“PLN”) for electricity produced by geothermal power plants and for geothermal steam that is used in generating electricity. The regulation (the “New Regulation”),  which was issued on 3 June 2014, entered into effect on the same date and specifically revokes Minister of Energy and Mineral Resources Regulation No. 22 of 2012.


Located on the Pacific Ring of Fire, Indonesia boasts enormous geothermal potential. According to the Ministry of Energy and Mineral Resources, the country’s harnessable geothermal resources are sufficient to generate 28,000 Megawatts of electricity. To put this into context, PLN’s Java-Bali operations area currently has a total capacity of some 6,511 Megawatts. Despite the potential, however, the industry has been very slow to develop. This is not just due to the expense and cutting-edge technology required to harness geothermal energy, but also other factors such as frequent changes in the regulatory framework, onerous investment requirements, overlapping legislation, and a lack of qualified human resources.
One issue is that PLN has traditionally been very strict about price escalation, and adopted the stance that it is only permissible counting from the commercial operation date. Although this position has been confirmed by the New Regulation, some solace is provided to would-be geothermal power plant developers by the fact that the farther into the future the planned commercial operation date is, the higher the power purchase price that will be payable. In addition, the New Regulation offers higher purchase prices for projects located on Indonesia’s outer islands and in remote areas, thereby taking cognizance of the country’s geographical realities.

Nuts and Bolts

The New Regulation requires PLN to purchase electricity generated from geothermal power plants operated by independent power producers (“IPP”) holding electricity supply business licenses (“IUPTL”),  and steam for the purpose of generating electricity from the holders of geothermal exploitation licenses (“IUP”).  The purchase price for electricity is negotiable but must not be higher than the relevant ceiling price set out in the New Regulation. The purchase price is dependent on the area where the power plant is located and the commercial operation date (“COD”), subject to approval from the Minister. The mechanism for determining the COD is governed by the Power Purchase Agreement (“PPA”).

Regulation 17/2014 distinguishes between three different regions for the purpose of pricing calculations, namely:

Region I  : Sumatra, Java and Bali;
Region II : Sulawesi, West Nusa Tenggara, East Nusa Tenggara, Halmahera, Molucca, Papua and Kalimantan; and
Region III: Areas in Regions I and II that are isolated and where most electricity is generated from fossil-fuel power plants.

The ceiling price is the based price on the COD, and is exclusive of escalation and transmission line construction costs. Escalation is permitted only after the COD and will be calculated based on the formula agreed in the PPA. This is an important clarification as in the past local governments often issued IUPs on the basis that escalation was permitted from the time of the bid, only for the IPP to find when they got to Jakarta that it was only permissible after the COD. However, with escalation now expressly confined to the post-COD stage, this means that IPPs will have to bear the risk of cost increases prior to the COD should there be any delay in the commencement of commercial operations. As regards the construction of transmission lines, while it is clear that PLN is responsible for performing the construction work, it is not clear who is responsible for paying for it and whether the cost will be included in the price-calculation formula.

Ceiling Prices

The Ceiling Prices prescribed by the New Regulation are as follows:

Year of Commercial Operation Date (COD)

Ceiling Price(US$/KwH)


Region I

Region II

Region III













































For an IPP participating in a tender for a geothermal concession, the power purchase price will be the price stated in the IPP’s bid. It will be fixed and non-negotiable, and must be incorporated in the PPA. Should the Minister view the bid favorably, he or she will then issue a Purchase Instruction to PLN. No later than six months after the date of the Purchase Instruction, PLN and the IPP must sign the PPA. Should a PPA not be signed within this period on grounds attributable to the IPP, then the IPP will be subject to administrative sanctions under the prevailing regulations (it is not clear from the New Regulation what precisely these sanctions might be). If within one year after the issuance of the Purchase Instruction the PPA remains unsigned due to reasons attributable to the IPP, the Purchase Instruction will be automatically revoked by operation of law.

PPA Renewal and Additional Capacity

PLN is also required to purchase power generated as a result of the addition of capacity or in the event of an extension of the PPA, based on the agreement of the parties. In such circumstances, the purchase price will be the price agreed by PLN and the IPP, subject to the relevant ceiling price and the approval of the Minister. An amendment to the PPA to accommodate additional capacity or an extension of the PPA must be signed no later than 12 months after the proposal to add capacity or extend the PPA is received by PLN. Should there be a delay that is due to matters other than the purchase price, then PLN may terminate the process. However, if the delay is the result of a failure to agree on the purchase price, then PLN and the IPP should appoint an independent appraiser/expert to determine the purchase price. The same mechanism applies in the case of price adjustments or price renegotiations involving holders of geothermal exploitation rights, geothermal concessions or geothermal contracts that were signed or acquired prior to the entry into effect of the Geothermal Energy Act.

Transitional Provisions

The transitional rules under the New Regulation are as follows:

  • For an IPP that won a tender for a geothermal concession prior to the issuance of the New Regulation, the power purchase price will continue to be the price stated in the bid and the PPA must be signed by no later than 31 December 2014. The IPP may subsequently submit an application to adjust the purchase price after the exploration and feasibility studies have been completed. This means that the IPP will have to shoulder the expense of exploration work without actually knowing how much it will ultimately get paid for its power.
  • For an IPP that has obtained an IUP but in respect of which a Purchase Instruction has not yet been issued to PLN by the Minister, the Purchase Instruction must be issued promptly. The IPP is then required to obtain an IUPTL and sign the PPA by no later than 31 October 2014, or otherwise surrender its IUP by not later than the same date. If the PPA has not been signed by 31 October 2014, the IPP will be barred from proposing a purchase price adjustment.
  • For an IPP that has secured an IUP and in respect of which a Purchase Instruction has been issued to PLN by the Minister, it must obtain an IUPTL and sign the PPA by no later than 31 August 2014, or otherwise surrender its IUP by not later than the same date. If the PPA has not been signed by 31 August 2014, the IPP will be barred from proposing a purchase price adjustment.
  • For an IPP that has secured an IUP and is in the process of negotiating the purchase price with PLN, it must obtain an IUPTL and sign the PPA by no later than 30 September 2014, or otherwise surrender its IUP by not later than the same date. If the PPA has not been signed by 30 September 2014, the IPP will be barred from proposing a purchase price adjustment.
  • In the case of a concession for which a tender is in progress, the process may continue but the ceiling price and the power purchase mechanism will be governed by the New Regulation

An IPP that surrenders its IUP within the prescribed period may participate in a future tender for the same concession. However, if the IPP fails to surrender its IUP within the prescribed period, it will be subject to administrative sanctions and both it and its shareholders will be prohibited from participating in any future tender for the same concession.


While the New Regulation marks a step forward by clarifying the rules governing escalation and recognizing the problems caused by Indonesia’s physical geography, it is nevertheless rather vague as regards some other essential matters, such as who is responsible for paying for the construction of transmission lines. It has been suggested that such vagueness may in fact be deliberate in order to preserve the ministry’s discretion.

On the legislative front, there continue to be problems resulting from conflicting provisions as between the Geothermal Energy Act and other legislation, particularly the Forestry Act  and Environmental Conservation Act.  In addition, amendments to the Geothermal Act are currently being considered by a House of Representatives special committee, and these could have implications for the way in which the New Regulation is applied, or even whether it can be applied at all.

i  Ministry of Energy and Mineral Resources Regulation Number 17 of 2014 on the Purchase by PT Perusahaan Listrik Negara (Persero) of Electricity Produced by Geothermal Power Plants and Geothermal Steam Used in Geothermal Power Plants.
ii Issued by the Minister of Energy and Mineral Resources.
iii Under the Geothermal Energy Act (No. 27 of 2003), an IUP is issued by the minister, governor or regent/mayor, as the case may be, in accordance with the following divisions of authority:

  • The minister has the authority to issue an IUP for a project that straddles two provinces;
  • The relevant governor has the authority to issue an IUP for a project that straddles two regencies/municipalities in the same province; and
  • The regent/mayor has the authority to issue an IUP for a project located solely within the relevant regency/municipality;

iv Issued by the Minister of Energy and Mineral Resources.
v Issued by the Minister of Energy and Mineral Resources.

vi Issued by the Minister of Energy and Mineral Resources.



AHP Client Alert is a publication of Assegaf Hamzah & Partners. It brings an overview of selected Indonesian laws and regulations to the attention of clients but is not intended to be viewed or relied upon as legal advice. Clients should seek advice of qualified Indonesian legal practitioners with respect to the precise effect of the laws and regulations referred to in AHP Client Alert. Whilst care has been taken in the preparation of  AHP  Client Alert, no warranty is given as to the accuracy of the information it contains and no liability is accepted for any statement, opinion, error or omission.



  • Pic Mgmt

    Capital Markets

    As a full-service firm, we do a broad range of transactions covering the entire spectrum. Many are high profile and cement our position as a top-tier firm, including global equity offerings in reliance on Reg. S/Rule 144A, private placements, rights issues and other share-related offerings, such as convertible and exchangeable bonds. We also frequently advise on foreign offerings by issuers having significant interests in Indonesia, bond issuances under global offering rules, mergers, acquisitions, combinations of acquisitions and IPOs, consent solicitations and exchange offers of debt instruments listed on the Indonesia Stock Exchange or offshore. more »

  • Pic Mgmt

    Banking & Finance

    We are a leading force in the Indonesian banking & finance sector, advising on all manner of structured financing transactions, from simple secured or unsecured bilateral lending to multifaceted and complex credit facilities. We handle syndicated, club and bilateral loan documentation; project finance; property finance; acquisition finance; securitization and structured finance; regulatory and compliance issues; banking documentation and legal due diligence reporting. more »

  • Pic Mgmt

    General Corporate/M&A

    Our General Corporate/M&A practice provides advice on corporate governance, compliance, negotiating and drafting agreements, transaction structure, management and succession, legal due diligence reporting, formation of new entities, preparation of internal corporate documents and approvals, and completion of regulatory filings. With a wealth of experience amassed over the years in a wide variety of industries, we are strategically placed to provide you with everything you need to satisfy your corporate or M&A needs. more »

  • Pic Mgmt

    Debt & Corporate Restructuring

    We offer a full range of services in the debt & corporate restructuring arena, including advice on capital reduction, recapitalization and rescue schemes, financial sector takeovers, global asset recovery measures, mergers, creation of new entities, compromise schemes, demergers, buyouts, preparing documents and agreements, and ensuring statutory and regulatory compliance. As an AHP client, you will benefit from the unparalleled expertise gained by many of our senior lawyers as advisors or counsel to the Indonesian Bank Restructuring Agency (IBRA), which restored the country’s banking sector to health in the wake of the Asian financial crisis of 1997/98. more »

  • Pic Mgmt

    Foreign Direct Investment

    As an Indonesian law firm, we are obviously very much at home in our own jurisdiction, and so are able to make you feel at home as well. We know how things work in Indonesia, and have excellent relations with all the relevant government and regulatory agencies. We advise on the establishment of foreign investment companies, permanent business establishments, subsidiaries and joint ventures under the Indonesian FDI regime, merger & acquisition issues, foreign ownership caps, manpower issues, regulatory and environmental compliance, land acquisition, taxation matters -- in fact, everything you will need to get your venture off the ground and to keep it running smoothly throughout the investment lifecycle. more »

  • Pic Mgmt

    Competition Law

    We are widely recognized as being at the forefront of competition law in Indonesia, a rapidly developing field in which we have been instrumental in securing a number of ground-breaking judicial precedents in recent years. We consistently focus on the practicality and commerciality aspects, and combine legal expertise with in-depth experience across a wide range of industries so as to support the achievement of your strategic goals. more »

  • Pic Mgmt

    Dispute Resolution

    AHP has a very strong litigation team made up of one partner and 15 associates, all of whom are licensed advocates. We regularly represent clients in tort, contract, employment, internal corporate fraud, real estate, trademark and intellectual property disputes, to name but a few, with our primary focus being on commercial disputes. In the arbitration field, we have developed a formidable reputation for expertise and successful outcomes with the result that AHP advocates regularly appear before the Indonesian National Arbitration Board (BANI), as well as overseas arbitration bodies, such as the Singapore International Arbitration Centre. more »

  • Pic Mgmt

    Energy, Oil and Gas

    Our Energy, Oil and Gas practice provides top-quality legal advice and transactional support to domestic and international companies operating in the oil and gas, geothermal and renewable energy sectors. As a relatively compact firm, we are able to offer advice across the entire range of practice areas, thereby allowing us to deliver outstanding legal and commercial results for our clients in a practical and cost effective way. more »

  • Pic Mgmt

    Projects & Natural Resources

    As an Indonesian law firm, we know our country, our regulatory environment and our governmental system. Armed with this knowledge, we have garnered a wealth of experience down the years guiding both domestic and international companies through areas that are often fraught with competing interests and controversy. This experience provides us with the expertise and breadth of vision needed to ensure successful outcomes for your business objectives. In doing so, we offer a comprehensive suite of services, all of which dovetail seamlessly one with the other so as to provide holistic solutions to all your legal needs. more »

  • Pic Mgmt

    Telecommunications & Media

    Indonesia has seen exponential growth over the last decade in both the telecommunications and media sectors -- both areas in which AHP is in the vanguard of legal development. Besides having a professional interest in the two sectors, all of our lawyers in the T&M practice share a genuine passion for what they do and are therefore able to offer a combination of solid technical legal knowhow and an excellent understanding of the industries, the technical aspects, the principal factors at work, and the key players in Indonesia. more »

  • Pic Mgmt

    Real Property

    We offer a full range of real property services, including assisting with purchase and sale agreements, leasing agreements, title searches and registrations, conveyancing, and real property dispositions and bequests,.We also provide effective and reliable advice on the complex rules governing property ownership by non-nationals in Indonesia, an area of the law that is set for liberalization in the near future. more »

  • Pic Mgmt

    Intellectual Property

    Our IP practice offers trademark, copyright, patent and design searches and registration, and regularly mounts successful challenges on behalf of clients against decisions of the trademark authorities. Our IP associates are all members of key associations and are frequently engaged to speak at international events as recognized leaders in the field. Combing cutting-edge expertise and a high level of commercial acumen, we take pride in our results and a high level of customer satisfaction, and do our utmost to help ensure the protection of your rights and your peace of mind. more »

  • Pic Mgmt

    Islamic Finance

    At AHP, we understand Islamic finance and have been in the vanguard of the sector’s rapid expansion and development in Indonesia. With an in-depth understanding of the religious and conventional legal principles that underpin the Shariah sector, we believe we are uniquely well-positioned to offer expert and innovative advice on how to conduct any transaction in a Shariah-compliant manner, and to provide the kind of end-to-end solutions that you need. more »

  • Pic Mgmt

    Shipping & Aviation

    As an archipelagic nation, the shipping and aviation industries are of the utmost importance to the Indonesian economy. To accommodate the needs of ship owners, charterers, and marine insurers, we provide advice on all aspects of shipping law, including ship finance & security, sale and purchase, disputes arising out of charter parties, bills of lading, insurance, and collisions, and all other admiralty matters, while in the aviation sector, we assist with aircraft financing, sale and purchase, statutory obligations related to aviation, aviation safety and the aftermath of aviation accidents. more »

  • Pic Mgmt

    Labor Law

    We have a outstanding record in representing both individuals and corporations in employment matters, and in general advisory work on the complex rules governing the employment of expatriates in Indonesia. On the litigation front, we are frequently called upon to advise in cases involving internal fraud and embezzlement, and on the remedies available to employers. We also offer expert advice on employee compensation and incentive schemes (stock options, benefits, allowances), the employment implications of mergers, acquisitions and amalgamations, and the rights and benefits available to employees upon termination. more »

Assegaf Hamzah & Partners