Update on Indonesia‚Äôs Omnibus Law and Implementing Regulations ‚Äì Power Sector
As a follow-up to the Omnibus Law (Law No. 11 of 2020 on Job Creation) passed in November 2020, the Government of Indonesia has issued several implementing regulations. One of these is Government Regulation No. 25 of 2021 regarding the Administration of the Energy and Mineral Resources Sector (\"GR 25/2021‚Äù), which entered into force on February 2, 2021.
GR 25/2021 regulates not only the power sector, but also the mineral resources and geothermal sectors. In this article, we will highlight a few key points regarding the power sector.
Previously there were two main government regulations governing the power sector in Indonesia, namely Government Regulation No. 14 of 2012 regarding Power Supply Business Activities, as amended by Government Regulation No. 23 of 2014 (\"GR 14/2012‚Äù), and Government Regulation No. 62 of 2012 regarding Power Supporting Services Business (\"GR 62/2012‚Äù). GR 25/2021 does not revoke these regulations; it also provides that the provisions of the implementing regulations of GR 14/2012 and GR 62/2012 will remain in force insofar as they do not contravene GR 25/2021.
The key points worth highlighting in GR 25/2021 in respect to the power sector are as follows:
Clarification of Business Licensing Nomenclature in the Electricity Sector
While the Omnibus Law only refers to a general Business Licensing (Perizinan Berusaha) for the electricity business without further clarification, GR 25/2021 stipulates the following business licenses:
- power supply for the public interest business license (izin usaha penyediaan tenaga listrik untuk kepentingan umum or \"IUPTLU‚Äù), which can be issued by the Minister of Energy and Mineral Resources (\"MEMR‚Äù) or the governor depending on their respective authorities. The IUPTLU is issued for the following business lines:
i. power generation;
ii. power transmission;
iii. power distribution; and/or
iv. power sales.
Similar to the rules prior to the issuance of the Omnibus Law, the above business lines can be combined (in an integrated manner). If power generation, transmission, distribution, and sales are performed in an integrated manner, the power generation and/or transmission can be done outside of the Work Area of the concerned business player.
GR 25/2021 mandates that the MEMR issue a regulation to further implement the power supply for the public interest business.
- power supply for own interest business license (izin usaha penyediaan tenaga listrik untuk kepentingan sendiri or \"IUPTLS‚Äù), which can be issued by the MEMR or the governor depending on their respective authorities. Under the previous rules, this was known as an operational license.
This license is for captive power plant businesses with total capacity exceeding 500 kilowatts and connected within a single power installation system, which is similar to the previous rules. If the capacity is less than 500 kilowatts and the facility is connected within a single power installation system, a one-time report to the MEMR or the relevant provincial governor, depending on their authorities, is required before commencing the power supply activity.
- business license for power supporting services, which is issued for power supporting services.
Further details on the norms regarding these business licenses (such as risk-based licensing approach, the requirements and commitments applicable for the business license holders and the period to fulfil those requirements and commitments) are regulated separately under a different implementing regulation for the Omnibus Law, namely Government Regulation No. 5 of 2021 regarding the Administration of Risk-Based Business Licensing (\"GR 5/2021‚Äù), in particular under Appendix II (Energy and Mineral Resources Sector).
GR 5/2021 further elaborates the implementation of a risk-based business licensing system, a regime where businesses are generally classified into low-risk, medium-risk (which is further sub-classified into lower-medium and higher-medium risk), and high-risk business activities, with the respective licensing requirements increasing along with the level of risk. Appendix II (Energy and Mineral Resources Sector) of GR 5/2021 provides the risk classification for various power supply and power supporting services businesses.
Foreign Representative Office (FRO) for Power Supporting Services
An FRO is an Indonesian representative office formed by foreign business entities or individuals engaging in power supporting business. FROs may only engage in the following power supporting services: (i) consultancy in Power Installation; (ii) construction and installation of Power Installation; and (iii) maintenance of Power Installation.
Power Installation is further described in GR 25/2021 as Power Supply Installation and Power Utilization Installation. Power Supply Installation consists of Power Generation Installation, Power Transmission Installation, and Power Distribution Installation. Power Utilization Installation consists of high-voltage, medium-voltage and low-voltage Power Utilization Installation.
FROs can only perform supporting services work that is high-cost. Specifically, the value of the work must be equal to or exceed the following minimum values:
Consultancy in Power Installation
Rp 10 billion
Construction and installation of Power Installation
Rp 100 billion
Maintenance of Power Installation
Rp 10 billion
There are certain requirements and obligations imposed on FROs. These include (i) to enter into a joint operation (kerja sama operasi) with a local power supporting services entity that is 100% locally owned and is in the form of a limited liability company; (ii) employ more Indonesians than foreign workers; (iii) appoint an Indonesian as the head of the FRO; (iv) prioritize local products; and (v) hold a qualification that is equal to a large qualification (kualifikasi besar) under Indonesian standards.
We understand that at least one official has indicated that licensing/registration for FROs in the eligible power supporting services as stated above will be under the auspices of the Ministry of Energy and Mineral Resources‚Äô Directorate General of Electricity (\"DGE‚Äù) and not the Ministry of Public Works and Housing (\"MPW‚Äù).
We further understand that other officials have indicated that by virtue of the Construction Services Law (Law No. 2 of 2017) and its implementing government regulation, Government Regulation No. 22 of 2020, the construction of power installations is expressly deemed a special construction service that is subject to the regulations in the power sector.
If that is the case, if the scope of work is mechanical/electrical work relating to the power supply and utilization installation, the licensing and certification (known as sertifikasi badan usaha) would be under the auspices of the DGE. Whereas, if the entity\'s scope of work includes not only mechanical/electrical work relating to the power supply and utilization installation, but also civil structure and/or building, the entity must also obtain a certification of business entity (sertifikat badan usaha) in the construction services under the auspices of the MPW, in addition to the licensing and certification for power supporting business under the DGE\'s auspices.
Given that the introduction of FROs in the power supporting services is very new it remains to be seen whether the same requirements would also apply to the FROs (e.g., if the FRO\'s scope of work involves some civil construction work and electrical installation, would it also have to be registered with the MPW, in addition to being registered with the DGE.)
Battery Energy Storage System
The Government of Indonesia has joined the energy storage bandwagon. It recently championed the concept of a state-owned holding company for energy storage businesses and has taken steps to attract more investment to the energy storage sector.
Certain services in respect of battery energy storage systems are now included among recognized power supporting services. Moreover, FROs, which would likely have the requisite technology and knowledge for this line of business, would be able to engage in the consultancy, construction, installation, and maintenance of high-cost battery energy storage systems (see above for the minimum value of projects).
MEMR Discretion to Resolve Issues
Article 59 of GR 25/2021 provides that the MEMR (under the coordination of the minister that administers the coordination, synchronization and control of government administration in economy) will evaluate the implementation of this regulation by taking into account the development and enhancement of the investment ecosystem and businesses to accelerate jobs creation.
Interestingly, Article 60 of GR 25/2021 also expressly provides that if GR 25/2021 does not govern a certain matter, or is incomplete, unclear and/or there is governance stagnancy for a certain matter, the MEMR may exercise their discretion to resolve concrete problems in the administration of the energy and mineral resources sector.
It will be interesting to see how these provisions play out in practice.
For more information, please contact:
Syahdan Z. Aziz, Partner
Miftahul Khairi, Associate
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