The Energy Regulation and Markets Review - Stikeman Elliott

Indonesia
When the Asian financial crisis hit in the late 1990s, large-scale power generation
utilities were affected. Projects were abandoned, and some renegotiated to a much lower
offtake price; overall, investor confidence was significantly lost, but PT PLN was in no
position to independently fund the much-needed additional capacity.
In 2002 the government introduced reforms largely through the enactment of
Law No. 20 of 2002 on Electricity (‘the 2002 Electricity Law’). However, the Indonesian
Constitutional Court deemed the 2002 Electricity Law to be unconstitutional since it
considered electricity a social necessity and thus its delivery should remain exclusively
with the state, through a state-owned agency. As such, the court re-enacted the 1985 Law.
Investment stalled in the electricity sector from the start of the 1997 Asian
financial crisis until 2005, when the government enacted Presidential Regulation No.
67 of 2005, which allowed public-private partnerships. Since the enactment of this
regulation, a list of independent power producer (‘IPP’) projects open for private tender
was made available.
Various regulations were enacted to support and give a legal basis for private
investment confidence, to urge diversification of energy for power generation to non-oil
fuel and to increase private investment in the power generation business.
As a replacement for the 2002 Electricity Law, in September 2009 the Indonesian
government enacted a new electricity law, Electricity Law No. 30 of 2009 (‘the 2009
Electricity Law’) in order to strengthen the regulatory framework and provide a role for
the regional governments to issue licences and determine electricity tariffs.
ii Policy in the oil and gas sector
The 2001 Oil and Gas Law marks the liberalisation of the oil and gas sector in Indonesia.
The state-owned oil and gas company, PT Pertamina, was stripped of its multi-function
role as a regulator, supervisor and manager of oil and gas business activity. PT Pertamina
is now only a market participant, without any supervisory and managerial function for
other upstream oil and gas companies. Based on the 2001 Oil and Gas Law, upstream oil
and gas is controlled by the government through production-sharing contracts between
the executing agent, the Oil and Gas Upstream Regulator and Implementing Agency
(‘BPMigas’), and the business entity. The downstream activity is controlled by the
relevant regulatory agency (‘BPH Migas’).
On the production and opportunity side the trend has now shifted from the
declining production of oil towards gas production, in particular to serve the domestic
power generators. With declining production and increased consumption of oil, Indonesia
became a net importer of oil in 2004. The results of government efforts to open new acreage
and provide incentives are yet to be seen. Recent regulation on cost recovery and tax on
oil and gas production has created investor insecurity and questions on contract sanctity.
iii Policy in the mining sector
Mining and coal is regulated under the Law of Mineral and Coal Mining No. 4 of 2009
(‘the 2009 Mining Law’), which introduced a permit-based concession from the more
favoured agreement-based concession (contracts of work). Major regulatory development
introduced tender process for new acreage, domestic market obligations, mandatory
in‐country processing and restriction on use of mining services by concession holders.
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