Wednesday, May 29, 2024

How-to understand regulation in electricity business sector

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Advisor IBP




The electricity sector is considered vital and strategic. Because of this, the operation of electricity is controlled by the state and carried out by State-Owned Enterprises and Regional-Owned Enterprises, the main one being PT Perusahaan Listrik Negara (PLN). To increase the supply of electricity, the private sector is also allowed to participate in the sector. The government requires the provision of electricity in sufficient quantities, reliable in quality and at reasonable prices or tariffs for the welfare of the people and to achieve sustainable development.

Governing law and regulation 

  • Law No. 30/2007 on Energy
  • Law No. 30/2009 on Electricity (the Electricity Law) as amended by Law No. 11/2020 on Job Creation
  • Law No. 2/2017 concerning Construction Services as amended by Law No. 11/2020 concerning Job Creation
  • Government Regulation (PP) No. 14/2012 on Electricity Supply Business Activity as amended by Government Regulation (PP) No. 23/2014
  • Government Regulation (PP) No. 22/2020 as amended by Government Regulation (PP) No. 14/2021
  • Government Regulation (PP) No. 25/2021 on the Implementation of the Energy and Mineral Resources Sector
  • Government Regulation (PP) No. 79/2014 on the National Energy Policy
  • Government Regulation (PP) No. 5/2021 concerning Implementation of Risk-Based Business Licensing
  • Government Regulation (PP) No. 62/2012 on Electricity Supporting Services
  • Presidential Regulation (Perpres) No. 22/2017 concerning the National Energy Plan
  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) No. 38/2018 on Electricity Procedures and Certification
  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) No. 11/2021 concerning the Implementation of Electricity Business
  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) No. 5/2021 concerning Standards for Business Activities and Products in the Implementation of Risk-Based Business Licensing in the Energy and Mineral Resources Sector
  • Minister of Energy and Mineral Resources Decree (Kepmen ESDM) No. 39 K/20/MEM/2019 on the Ratification of the Electricity Supply Business Plan of the PLN for the period 2019 through 2028

National energy policy

The electricity sector is considered vital and strategic. At the policy level, there is a national electricity blueprint that has been approved by the government, PP No. 79/2014, which outlines the development of the electricity supply system. The blueprint refers to the national energy policy, which is drawn up by the National Energy Council (DEN) and passed by the government after consultation with the House of Representatives. National energy policies include policies on energy supply for national needs, priorities for energy development, utilization of domestic energy resources, and reserves to support domestic energy. In 2014, the national energy policy was passed, establishing a national energy management plan to ensure domestic energy security and support sustainable development.

The National Energy Policy was then implemented through Perpres No. 22/2017. The National Energy Plan contains the government’s policy on national energy development until 2025, which includes, among other things, current energy conditions and future expectations. In accordance with PP No. 25/2021, the national energy policy will be the basis for the Minister of Energy and Mineral Resources to establish a National Electricity Plan which is evaluated annually and redefined every five years. The National Electricity Plan will later become the basis for the determination of the Regional Electricity Plan by the governor and the Electricity Supply Business Plan (RUPTL). The RUPTL is currently implemented through Kepmen ESDM No. 39 K/20/MEM/2019. The RUPTL regulates, among others, general policies regarding the development of electricity and electricity infrastructure, annual updating of electricity grid status, development of new and renewable energy, primary energy supply, investment needs, long-term risk analysis, and possible mitigation actions in the PLN electricity business area.


Based on PP No. 5/2021, the power generation business is classified as a high-risk business that requires a Business Identification Number (NIB), Standard Certificate, and the relevant business license (in this case the Electricity Supply Business Permit (IUPTLU). Since the enactment of PP No. 5/2021, the licensing required for business entities is based on the level of initiative risk of relevant business activities. Licensing will be issued and issued through the Online Single Submission System (OSS) which is operated under the supervision of the Investment Coordinating Board (BKPM). 

The power purchase agreement between the IUPTLU applicant and the buyer (generally PLN) is a prerequisite for obtaining an IUPTLU. In the case of the construction of generating facilities, the IUPTLU holder can subcontract construction to qualified construction service providers through engineering, procurement and construction contracts. Previously, these construction service providers had to comply with the laws and regulations governing construction services in general, but now electrical installations including power generation facilities must comply with electricity regulations. Therefore, currently the provider of construction services for electrical installations is classified as an electricity support service that requires an Electric Power Support Services Business Permit (IUJPTL).

Before starting construction, IUPTLU holders must obtain various licensing requirements from the local or provincial government. Among other things, location permits, building construction permits, which used to be called building construction permits, and environmental permits (now called Environmental Feasibility Decrees) or Statements of Willingness for Environmental Management. The IUPTLU holder must also settle compensation to any party whose assets (land, building, or factory) are directly or indirectly affected before starting construction. Furthermore, based on Permen ESDM No. 38/2018, prior to the operation of the generating facility, the IUPTLU holder must obtain an Operational Eligibility Certificate (SLO) issued by the OSS Agency on behalf of an institution accredited by energy ministry and registered with the Directorate General of Electricity (DGE), with a physical assessment by the agency’s technical team.

Based on PP No. 14/2012 and Permen ESDM No. 11/2021, to conduct a transmission business, an IUPTLU, transmission IUPTLU, or an integrated transmission IUPTLS (permit holder, transmission business entity) are required. To obtain the transmission business license, the applicant must submit an application supported by certain administrative and technical documents in accordance with the procedures stipulated in Permen ESDM No. 11/2021 and Permen ESDM No. 5/2021.

Transmission network authorization

Based on PP No. 5/2021, the authority to issue IUPTLU is now an OSS institution on behalf of the relevant central or provincial government. The OSS Institution on behalf of the energy ministry is authorized to issue IUPTLU to business entities whose business areas are cross-provincial, state-owned enterprises, which sell electricity or lease electricity networks to IUPTLU holders issued by the energy ministry, as well as the holder of an integrated electricity business area. The OSS institution on behalf of the provincial administration is authorized to issue IUPTLU to business entities whose business area is within one province, which sells electricity or leases electricity networks to IUPTLU holders issued by governors and regional business holders except for electricity generation activities.

After the IUPTLU is issued, the applicant must fulfill commitments to obtain a building approval, a location permit and an environmental permit from OSS on behalf of the local administration and must provide compensation to any party, whose assets (land, buildings, or plants) are directly or indirectly affected by the transmission network. Before starting operation, the transmission installation must have an operation-worthy certificate (SLO) issued by an accredited technical inspection body. Private investment in the transmission and distribution of electricity in Indonesia has been very rare until recently, as transmission and distribution were historically monopolized by PLN.

The transmission business entity may lease the transmission network to integrated IUPTLU holders who have certain Electricity Business Areas, generator IUPTLU holders, or IUPTLS holders (transmission tenants). Especially for Independent Power Producers (holders of IUPLTU generation), network access is subject to the PPA with PLN which regulates the provisions for transferring IPP electricity to the PLN transmission network. In addition to the above, network access can also be obtained through a lease agreement between the transmission business entity and the transmission lessee. The rental fee must be approved by the energy ministry or governor, according to their jurisdiction. The IUPTLU holder that produces electricity and owns and operates the transmission network is also entitled to access the transmission and distribution network.

Advisor IBP






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