Wednesday, May 29, 2024

How-to understand cross-border electricity trade regulation in Indonesia

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Advisor IBP




State-owned electricity company PT PLN and other electricity companies, that want to increase their business by selling electricity overseas, have received a green light from the government on condition that local electricity needs have been met, but it also has to get the permission of the Minister of Energy and Mineral Resources first. However, some time ago, the Minister of Investment and Head of the Indonesian Investment Coordinating Board (BKPM) Bahlil Lahadalia reiterated that Indonesia would not export electricity, especially electricity from the New and Renewable Energy (EBT) abroad. In fact, the decision to ban exports from Lahadalia is in contrast to the decision of energy minister Arifin Tasrif, who some time ago opened up opportunities for other countries, such as Singapore, to import electricity from Indonesia.

Governing law and regulation 

  • Law No. 30/2009 on Electricity as amended by Law No. 11/2020 on Job Creation  
  • Presidential Regulation (Perpres) No. 44/2016 concerning Business Fields that are Closed and Business Fields Open to Investment Requirements (Negative List of Investments)
  • Presidential Regulation (Perpres) No. 77/2008 concerning Ratification of the ASEAN Electricity Network Memorandum of Understanding
  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) No. 38/2018 concerning Procedures for Accreditation and Certification of Electricity
  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) N0. 48/2017 on the Supervision of Business in the Field of Energy and Mineral Resources
  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) No. 5/2021, on Standards of Business Activities and Products on the Administration of Risk-Based Licensing on the Energy and Mineral Resources Sector

Foreign Company Acquisition

Special requirements or restrictions on the acquisition of interests in the electricity sector by foreign companies. In contrast to Perpres No. 44/2016, the current Investment List states that all business fields are open to investment unless declared closed for investment or can only be done by the central government. In addition, there are business fields that are open with certain conditions such as restrictions on foreign ownership, reservations for local investors, or fulfillment of certain permits. Regarding the electricity business, the Investment List currently only provides a limit for the power generation business under 1 megawatt by mentioning that it will be provided for cooperatives and micro, small and medium enterprises.

Previously, in the previous Negative Investment List, power plants from 1 megawatt to 10 megawatts could be done through partnerships with local entities where foreign investors were limited to their share ownership by 49% (67% for geothermal), while for power plants  above 10 megawatts, electricity transmission and distribution, foreign investors can hold up to 95%, or 100% in the context of a public-private partnership during the concession period. Given the current Investment List above, it is assumed that the business is now open to foreign investment without any special restrictions.

Interconnector construction and operation

Law No. 30/2009 recognizes the transmission and distribution network as the only form of interconnection. The transmission and distribution business is subject to the Electricity Supply Business Permit for Public Affairs (IUPTLU) as the main business license. The IUPTLU Area (WIUPTLU) must be secured prior to the IUPTLU application. As previously explained, in one WIUPTLU there can only be one business entity. However, if the business of generating, transmitting, distributing and selling electricity is carried out in an integrated manner, then the generation or transmission or both can be carried out outside the WIUPTLU.

The applicant must also fulfill the commitment to obtain building approval, location permit and environmental approval from the Online Single Submission on behalf of the local administration and must provide compensation to parties whose assets (land, buildings, or plants) are directly or indirectly affected by the transmission or distribution network. Further. Based on the Permen ESDM No. 38/2018, transmission or distribution installations must have an operation-worthy certificate before they can operate.

Access to cross-border interconnectors and power supplies

The provision of cross-border electricity through buying and selling can be carried out by IUPTLU holders with additional permits from the BKPM, including cross-border interconnection permits or network sharing permits. Cross-country electricity sales can be carried out under the following conditions:

  • domestic electricity needs have been met;
  • the selling price of electricity is not subsidized, and
  • cross-border electricity sales must not interfere with the quality and reliability of domestic supply.

Cross-border electricity purchases

Cross-border electricity purchases can be made if:

  • domestic electricity needs have not been met;
  • purchasing supports the fulfillment of domestic demand;
  • the purchase does not harm the interests of the state;
  • purchases improve the quality and reliability of domestic supplies.
  • the purchase does not create dependence on foreign sources; and
  • the purchase does not ignore the development of domestic electricity supply capacity.

Cross-border electricity prices must be linked to the economic value of electric power and must be approved by the Permen ESDM. Cross-border electricity trading activities are also subject to customs regulations. There are no tariffs for cross-border electricity interconnection in Indonesia. Indonesia is open to cross-border electricity supply as reflected in Perpres No. 77/2008.

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