INDONESIA Law and Practice Contributed by: Emir Nurmansyah, Serafina Muryanti, Adya Sepasthika and Kenny Poltak, ABNR Counsellors at Law
determined based on the benchmark price of 60% of the purchase price of electricity. 1.2 Principal State-Owned or Investor-Owned Entities The principal SOE in the power industry is PLN, which owns and operates generation, transmission and distribution facilities in Indonesia. PLN acts as the main offtaker of power and electricity generated by investor-owned companies that own and operate generation facilities. PLN also has a mandate from the government to purchase electricity/power gen- erated from geothermal and waste-to-energy power plants. There are also other SOEs that participate in the power industry, such as Pertamina. However, their role and position in the market are the same as those of investor-owned companies. Major investor-owned companies in the power industry include the following: • local and domestic companies that own and oper- ate power generation facilities, such as Adaro, Indi- ka and Medco, in addition to well-known foreign investors that own and operate power generation facilities in Indonesia including Sumitomo, J-Power and KOMIPO, to name a few; and • major local investor-owned companies that sell electricity to end-user consumers, such as PT Cikarang Listrindo and PT Bekasi Power, which supply electricity to industrial estates. 1.3 Foreign Investment Review Process Save for power generation of less than 1 MW (which is closed for foreign investment), there is no foreign investment restriction applicable to the power indus- try, which is open for 100% foreign investment. For- eign investment in the power industry is generally sub- ject to protection, as set out in Law No 25 of 2007 on Investment as amended by 6 of 2023 on the Stipula- tion of Government Regulation in lieu of Law No 2 of 2022 on Job Creation (becoming Law 6/2023) (the “Investment Law”). The Investment Law provides the right to the investor to repatriate (in foreign currencies) capital, profits, dividends, other income, royalties and proceeds of the sale or liquidation of the investment, among other things. With respect to seizure, confiscation and expropria- tion, the Investment Law does not specifically use the
foregoing terms; instead, it refers to nationalisation or taking over the ownership right of the investor. The Investment Law provides that the government shall not implement nationalisation or take over investors’ rights unless the process is based on law, and the government must provide compensation based on market value. The market price should be determined by an independent valuer appointed by the parties and based on a method that is used internationally. The Investment Law also provides that in the case of an investment dispute between the government and a foreign investor, the parties can refer and settle the dispute through international arbitration, if both par- ties agree to it. The Investment Law and the implementing regulations also facilitate investment, including through exemp- tion of import duties for capital goods. Specifically for renewable energy, the government also provides the following fiscal benefits to encourage investment: • income tax benefits, namely a 30% reduction of net income tax for six years, enhanced deprecia- tion and amortisation, and compensation for any loss that occurred over more than five years, but not more than ten years (tax holiday); • exemption from tax (tax holiday) for between five and ten years form the start of the commercial operation of the power plant, and a 50% reduction in outstanding income tax for two years; and • VAT exemption and exemption from import duty for capital goods. 1.4 Sale of Power Industry Assets Restrictions on the sale of power industry assets, and on business and other transactions such as amalga- mations and mergers, are applicable to power pro- jects developed with PLN as the offtaker pursuant to a power purchase agreement (PPA). Pursuant to MEMR Regulation No 48 of 2017 concerning the Supervision of Business Activities in Energy and Mineral Resourc- es Sector (MEMR 48/2017), any transfer of shares in power generation companies that sell electricity to PLN under a PPA are subject to the following restric- tions.
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