Indonesian electricity regulation update

Following its amendment in late 2017 through Regulation No. 49 (see our update here), Minister of Energy and Mineral Resources (MEMR) Regulation No. 10 of 2017 on Power Purchase Agreement Principles (PPA Regulation) has now been amended by Regulation No. 10 of 2018, which came into effect on 13 February 2018 (Regulation 10/2018).

Regulation 10/2018 finally removes “changes to laws and regulations” as one of the force majeure events initially regulated under the PPA Regulation. Regulation 10/2018 also removes certain related provisions so that Independent Power Producers (IPPs) and the state-owned electricity company (PLN) can no longer request adjustments to the electricity purchase price in case of an increase or decrease in investment funding required to develop a project due to changes in laws and regulations.

The removal of this force majeure event appears to mitigate the bankability issues initially raised against the PPA Regulation, and relieve IPPs from the burden of any risks arising from changes in the laws and regulations or from government force majeure – the latter risk having already been removed with the issuance of Regulation No. 49. IPPs and PLN should now be free to negotiate an appropriate risk allocation upon either (i) a change to the laws and regulations or (ii) government force majeure.

This regulatory change leaves a natural disaster as the only force majeure event remaining under the PPA Regulation for which IPPs would not be entitled to payment for deemed dispatch.

Two new MEMR regulations took effect on 8 February 2018: (i) Regulation No. 7 of 2018 on Revocation of Regulations of the Minister of Energy and Mineral Resources and Regulations of the Minister of Mining and Energy in relation to Electricity Business Activities (Reg 7/2018), and (ii) Regulation No. 9 of 2018 on the Revocation of Regulations of the Minister of Energy and Mineral Resources in relation to Activities in the New Energy, Renewables and Energy Conservation Sector (Reg 9/2018).

These two regulations revoke several MEMR regulations in an attempt to reduce bureaucracy and provide legal certainty for investment in the energy sector, and particularly the electricity sector.

One regulation which Reg 7/2018 revokes is MEMR Regulation No. 4 of 2012 on the Electricity Purchase Price from PT PLN (Persero) for Small and Medium Scale Renewable Power Plants and Excess Electricity. Revocation of that regulation was long overdue, considering that MEMR Regulation No. 50 of 2017 already regulates the purchase of electricity by PLN from renewable power plants (without distinguishing between small, medium and large scale power plants) – see our previous update on Regulation No. 50 of 2017 here.

Meanwhile, Reg 9/2018 revokes five regulations, three of which are MEMR regulations covering electricity purchased by PLN from renewable power plants:

• Regulation No. 19 of 2015 on Purchase of Electricity by PT PLN (Persero) from Hydropower Plants with a Capacity of Less Than 10 MW;
• Regulation No. 19 of 2016 on the Purchase of Electricity by PT PLN (Persero) from Photovoltaic Solar Power Plants; and
• Regulation No. 21 of 2016 on the Purchase of Electricity by PT PLN (Persero) from Biomass and Biogas Power Plants.

These three regulations were partially revoked by Regulation No. 50 of 2017 insofar as they relate to the purchase of electricity. Since Regulation No. 50 of 2017 also regulates both electricity procurement and the purchase by PLN of electricity generated by these types of power plants, Reg 9/2018 brings legal certainty for investors in Indonesia’s renewables sector.