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Regulation

i The regulators

The main regulator for the energy industry in Indonesia is MEMR. MEMR has, among others, the following duties:

  1. formulation and determination of policies in the field of development, control and supervision of oil and gas, electricity, minerals and coal, new energy, renewable energy, energy conservation and geology; and
  2. implementation of policies in the development, control and supervision of oil and natural gas, electricity, minerals and coal, new energy, renewable energy, energy conservation and geology; and
  3. managing non-tax state revenues from the energy and mineral resources sector in accordance with the provisions of laws and regulations.

The MEMR has several directorate generals, which are responsible for different energy segments:

  1. directorate general of oil and gas;
  2. directorate general of electricity;
  3. directorate general of mineral and coal; and
  4. directorate general of new, renewable energy and energy conservation.

Each directorate general is tasked with carrying out the preparation, implementation, supervision and monitoring of policies and regulations in the relevant energy segment (including monitoring energy companies' compliance with regulations).

The Indonesia's energy market is mainly regulated by the law (Undang-Undang) (UU)), government regulations, presidential regulation and ministerial regulations. In practice, it is also subject to certain ministries' policies that may be relevant in the implementation of Indonesia's energy market, such as the MEMR, the Ministry of Finance, Ministry of Industry, and the Ministry of the Environment and Forestry (MOEF).

ii Regulated activities

Unless otherwise stated, the main licences (especially business licences and operational licences) in the energy industries (i.e., electricity and power, oil and gas, mining, and new and renewable energy) are issued by the MEMR. The application and issuance of licences are conducted through the Online Single Submission (OSS) system. Below are the main activities in each sector of the energy industry that requires licences or approvals.

Electricity

The main regulation that governs the electricity industry in Indonesia is Law No. 30 of 2009 on electricity as lastly amended by Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation to become Law (Electricity Law). The implementation of electricity business is further regulated by several government regulations and MEMR regulations.

The activities in electricity sector and the main licences required under the regulations are as follows.

Electricity supply business

Electricity supply in Indonesia is divided into electricity supply for the public interest and electricity supply for own use. The business activities are divided into the following categories under the regulation:

  1. electricity generation;
  2. electricity transmission;
  3. electricity distribution;
  4. electricity sale; and
  5. integrated activities covering more than one activity set out above.

Supplying electricity in the public interest (e.g., power generation, transmission, distribution and power sales) requires an electricity supply business licence (IUPTL), which is issued by the OSS system on behalf of the MEMR, governor or regent (as applicable). In the case of distribution and sale of electricity, the business undertaking must also obtain the following from the MEMR:

  1. approval of its business area stipulation;
  2. approval of its electricity approval; and
  3. approval of its electricity supply business plan (RUPTL).

The MEMR approves electricity tariffs after obtaining approval from the House of Representatives (DPR). Unlike other licences, approvals of RUPTLs are issued by the MEMR through decrees.

A company that owns a power plant and generates more than 500KW of electricity from a single installation system for its own use is required to hold an electricity supply business Licence for own use (IUPTLS).

In addition to the above approvals and licences, every power plant or electricity generation installation, whether it is for supplying the public or for a company's own use, must obtain worthiness certificate (SLO) before it can be commercially operated or used.

Electricity supporting business

All activities that support electricity generation and supply activities are also regulated and require a specific licences. These activities include:

  1. consultancy;
  2. construction, testing, commissioning, operating and maintaining electricity installations (including transmission lines);
  3. research and development;
  4. certification; and
  5. education and training.

Companies that conduct electricity supporting business activities require the IUJPTL and SBU licences.

Oil and gas

The main regulation that governs the oil and gas industry in Indonesia is Law No. 22 of 2001 on Oil and Gas. It was last amended by Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation to become Law (Oil and Gas Law). Upstream and downstream oil and gas activities are further controlled by government regulations and MEMR regulations.

Upstream business activities (e.g., exploration and exploitation) are carried out by way of production sharing contracts entered into by the business entity and a special agency established by the government under the MEMR called the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas).

Downstream business activities (e.g., processing, transportation, storage, and commerce and trading) are carried out through a licensing mechanism in the form of a business licence that covers the relevant downstream business activities.

Mining

The mining industry in Indonesia is mainly governed by Law No. 4 of 2009 on Mineral and Coal Mining, which was last amended by Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation to become Law (Mining Law). The implementation of mining activities is further regulated by government and MEMR regulations.

To conduct exploration activities (including general surveys and feasibility studies) and production activities (e.g., construction, mining, processing, refining and smelting, development, and utilisation (including hauling and sale), and facilities to control environmental impacts based on the findings of feasibility studies), requires a mining permit (IUP).

If mining activities are conducted under a contract of work scheme, the contract with the government will remain valid until the end of the contract period. In order to continue production operations, a mining company must obtain a Special Mining Permit to Continue Contract/Agreement Operations.

For mining services business activities (e.g, mining construction, hauling, reclamation and post mining activities, general surveys, mining environment and safety, etc.) requires a Mining Services Business License (IUJP). A company engaged in hauling or transportation of mining products, or their sale, must obtain a Hauling and Sale Permit or a Mining Permit for Sale, respectively.

Geothermal

The main regulation on geothermal mining activities is Law No. 21 of 2014, amended by Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation to become Law (Geothermal Law). As with any other energy sector in Indonesia, geothermal business activities are further regulated by government and MEMR regulations.

Prior to the issuance of Geothermal Law, geothermal mining activities, especially for power or electricity generation, fell under the same regime as oil and gas, and so the production and utilisation of geothermal energy were conducted with joint operation contracts with Pertamina. Presidential Decree Number 22 of 1981 (as amended by Presidential Decree Number 45 of 1991) granted this wholly state-owned company the right to explore and exploit geothermal resources or energy for power generation in Indonesia. Pertamina's geothermal mining concession is now held by PT Pertamina Geothermal Energy (PGE).

After the adoption of the first geothermal energy law in 2003, geothermal mining activities no longer fell under a joint operation regime, but are conducted by way of permits (geothermal permits). Nevertheless, joint operation contracts that were signed prior to the issuance of the 2003 and 2022 geothermal laws remain valid until the end of their term.

A geothermal permit is issued by the MEMR after a relevant holder wins a tender for a geothermal working area conducted by MEMR. Such a permit holder can conduct geothermal exploration and exploitation within that working area. Tenders of geothermal working areas are normally for indirect use (i.e., to produce electricity), and in these cases, electricity generation activities are subject to the electricity regulations, permits and approvals set out above.

iii Ownership and market access restrictions

Except for power generation of less than 1MW, which is closed for foreign investment, there are no restrictions on foreign ownership within Indonesia's electricity, oil and gas, and geothermal energy sectors.

Under the current regulations, foreign investors may also acquire up to 100 per cent of shares in Indonesian mining companies, subject to a divestment obligation. Pursuant to Government Regulation No. 96 of 2021 concerning Implementation of Mineral and Coal Mining Business Activities, the holder of a mining permit (an IUP or an IUPK) must divest at least 51 per cent of its shares, in stages during operation production stage, to the central government, regional government, state-owned companies, regional-owned companies or private companies.

iv Transfers of control and assignments Electricity

In electricity sector, any transfer of shares in power generation companies or independent power producers (IPPs) which sells electricity to PT Perusahaan Listrik Negara (Persero) (PLN), Indonesia's state-owned electricity generation and distribution company, under power purchase agreements are subject to restrictions set out under Minister of Energy and Mineral Resources Regulation No. 48 of 2017 concerning the Supervision of Business Activities in Energy and Mineral Resources Sector (MEMR 48/2017). In this regard, MEMR 48/2017 differentiates between transfers of shares for non-geothermal IPP and those of geothermal IPP.

Non-geothermal IPP

For non-geothermal IPP, written approval must be obtained from PLN for to transfer shares prior to the commercial operation date. In any case, such transfers are only allowed to affiliated parties that are at least 90 per cent owned by the IPP shareholder intending to transfer its shares. In other words, the transfer of shares is only permitted to subsidiaries of the transferring shareholder, and transfers to non-affiliated parties are not permitted even with the PLN's approval. The transfer shall be approved by the IPP's shareholders and the Ministry of Law and Human Rights (MOLHR) must be notified no later than 30 days from the date of the notarial deed of general meeting of shareholders approving the transfer. The MEMR must be notified of every share transfer within five business days of the date MOLHR issues a notification receipt with respect to the transfer.

Geothermal IPP

MEMR 48/2017 distinguishes between a public and private sale of shares of geothermal IPP enterprises.

A geothermal IPP may transfer shares in Indonesia's stock exchange once the exploration phase is complete, subject to it receiving the MEMR's approval prior to the initial public offering (IPO) or the transfer of share ownership is recorded in the stock exchange.

The MEMR's approval is required before any secondary offering or rights issue is executed, and prior to a transfer of ownership being recorded in a stock exchange. The MEMR issues its approval or rejection of a share transfer via a public offering within 14 business days of receiving all of the required documentations. It is unclear whether the prohibition on the transfer of shares during the exploration phase applies to private sales. However, it is understood that the current applicable view from the Directorate General of New, Renewable Energy and Energy Conservation of the MEMR is that a geothermal IPP can privately transfer shares during exploration and exploitation phases.

The requirement to notify the MEMR of such transfers within five business days of notifying a stock exchange, and obtaining the MOLHR's approval , also applies to the transfer of shares in geothermal IPPs.

Oil and gas

The transfer of participating interest under a production sharing contract requires prior approval of the MEMR through the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas). If some or all of the participating interest in an oil and gas contractor is transferred to a non-affiliate or another company that is not a partner in the same working area, the MEMR may request that such a contractor to offer the participating interest to a national company.

For indirect transfer of participating interest by way of a transfer of shares of the oil and gas contractor, the MEMR's approval is required if the transfer is related to a majority shareholding, thus resulting in a direct change of control of such contractor. The granting of approval is based on consideration or recommendation provided to MEMR by SKK Migas. If the transfer of shares results in an indirect change of control of the contractor, a report regarding such a transfer must be submitted to the MEMR through SKK Migas. Additionally, the direct and indirect transfer of participating interest and resulting change of control are both subject to taxes imposed in accordance with the regulations.

Mining

Any share transfers in a mining company holding mining permits requires prior approval from the MEMR. The Mining Law expressly prohibits the transfer of shares in holders of mining permits without first securing the approval of MEMR. The MEMR's approval can be granted if the mining permit holder has completed the exploration stage, as evidenced by the availability of data of resources and reserves, and has fulfilled administrative, technical, environmental and financial requirements.

Under the previous regime, the maximum foreign ownership in a mining company was limited to between 49 to 70 per cent, subject to certain conditions. The current regulations no longer stipulate this restriction. Therefore, it can be interpreted that a foreign investor is now permitted to acquire up to 100 per cent of shares in an Indonesian mining company, subject to a divestment obligation. However, since this regulation was issued in 2021, in practice we have not yet seen any approvals from the MEMR on share transfers issued under this regime, especially regarding approving share transfers resulting in foreign shareholders holding more than 49 per cent of shares. The time period for MEMR to issue an approval is difficult to estimate as it varies: it can take months or even years for the MEMR to approve the transfer of shares in a mining company.