MEMR Regulation No. 42 of 2017 on Supervision of Energy and Mineral Resource Business Activities (Regulation 42 – see legal update on our website here) was issued in mid-July but has already been revoked. Regulation 42 has been replaced by MEMR Regulation No. 48 of 2017 on the same topic (Regulation 48). Regulation 48 also revokes certain provisions on transfers of shares found in MEMR Regulation No. 10 of 2017 on Power Purchase Agreement Principles, issued in January 2017.
Regulation 48 was issued after various industry associations objected to Regulation 42, and requested its cancellation. Their concerns centred on new approval requirements for changes in the shareholding composition or management of energy companies which appeared to go against the current drive towards deregulation and de-bureaucratisation by allowing the government to intervene in corporate management affairs.
Regulation 42 had required prior approval from the MEMR for any transfers of shares or management changes in the Board of Directors or Board of Commissioners of the holders of Electricity Supply Business Licenses or Izin Usaha Penyediaan Tenaga Listrik (Independent Power Producers or IPPs) and other energy companies. Both requirements were omitted from the replacement regulation.
Shareholding composition changes
Similar to Regulation 42, Regulation 48 only permits a transfer of shares in an IPP once the power plant has reached its Commercial Operation Date (COD) and after approval is obtained from the buyer – in this case, state electricity company PT Perusahaan Listrik Negara (Persero). An exception to the COD requirement stays in place for a transfer to an affiliate of the project sponsor (i.e. one level below the sponsor) that is more than 90 per cent owned by the sponsor.
Regulation 48 basically replaces the approval requirement for a transfer of shares in an IPP with a requirement for notification to the MEMR’s Directorate General of Electricity (DGE).
Our reading of the new regulation suggests that the notification requirement for a transfer of shares only applies to transfers of shares in IPPs conducted prior to the COD (subject to the above requirement). However, during the MEMR’s dissemination of the new regulation, it has stated that the notification requirement under Regulation 48 applies to any transfer of shares in IPPs, whether conducted before or after the COD. Clarification on this issue may be needed from the MEMR.
The notification and supporting documents must be submitted within five business days after the Minister of Law and Human Rights (MLHR) acknowledges the shareholding change.
Similar to a transfer of shares, any change to the Board of Directors and/or Board of Commissioners of an IPP must also be notified to the DGE. The notification and supporting documents must be submitted within five business days after the MLHR’s acknowledgement of the management change.
Special provisions for new energy and renewables
For IPPs that generate electricity using new energy or renewables other than geothermal, the notification of shareholding composition and management changes to the DGE must also be copied to the Directorate General of New Energy, Renewables and Energy Conservation.
Note that the provisions of Regulation 48 (including the notification requirements) do not apply to IPPs that generate electricity using geothermal resources.
Regulation 48 aims to simplify the supervision and development of the energy sector by relaxing the requirements set out in Regulation 42 but without abandoning the initial purpose of the regulation, namely to simplify energy sector supervision by Indonesian regulators, particularly for electricity.
Regulation 48 is expected to accommodate investors’ aspirations and address the concerns of business associations about the previous regulation. We believe the rapid response from the Indonesian Government reflects its seriousness in addressing their concerns.