Indonesia’s Omnibus Law Puts Focus On Direct Use Of Geothermal Resources.

2 December 2020

 

(2 December 2020) The Indonesian Government enacted Law No. 11 of 2020 regarding Jobs Creation (the “Omnibus Law”) on November 2, 2020. The stated aim of the Omnibus Law is to bolster investment and create jobs by streamlining regulations and simplifying the licensing process to improve the ease of doing business in Indonesia.
 

The Omnibus Law amends various provisions in laws across numerous sectors, including amending 29 provisions and removing six provisions in Law No. 21 of 2014 regarding Geothermal (the “Geothermal Law”). 
 

Many of the changes to the Geothermal Law concern the direct use of geothermal resources. We look at some of the key changes.
 

Centralizing the Direct Use of Geothermal Resources
 

The authorities of the central government and local governments (provincial, regency and municipal) to oversee and regulate business activities related to the direct use of geothermal resources remain the same as under the Geothermal Law. 
 

However, the Omnibus Law now gives the central government the authority to stipulate norms, standards, procedures and criteria for the direct use geothermal resources. Local governments must then follow these norms, standards, procedures and criteria when exercising their authorities, including when issuing a Business License for the Direct Utilization of geothermal resources, known as a Perizinan Berusaha Terkait Pemanfaatan Langsung or “PBPL”. This direct use license was known as an Izin Pemanfaatan Langsung under the Geothermal Law. 
 

Details regarding the norms, standards, procedures and criteria shall be further regulated under a government regulation, but it is hoped that they will simplify licensing matters, particularly the licensing authority given to local governments.
 

Determining the Price for Direct Use of Geothermal Energy
 

The Omnibus Law removes the provision in the Geothermal Law on the authority of the central government to determine the price of geothermal energy from direct use business activities. Instead, the Omnibus Law stipulates that the price of direct use geothermal energy will be stipulated in a government regulation that is to be issued.
 

We assume that the central government will still have the authority to determine the price of direct use geothermal energy price, but we will have to wait for the implementing government to be certain.
 

Removing the Production Fee for the Direct Use of Geothermal Resources
 

The Omnibus Law removes the requirement for holders of a PBPL to pay production fees (iuran produksi) for direct use geothermal energy. Now PBPL holders are only required to pay local taxes and retributions/levies.
 

It is hoped that removing the production fee will encourage greater investment in Indonesia’s geothermal sector, particularly in business activities related to the direct use of geothermal resources.
 

No Separate License for Indirect Geothermal Use in Water Conservation Areas
 

In keeping with its stated aim of easing the process of doing business in Indonesia, the Omnibus Law removes the provision of the Geothermal Law requiring a separate license from the Minister of Maritime Affairs and Fisheries for business activities related to the indirect utilization of geothermal resources in water conservation areas. It is hoped that removing this additional licensing requirement under the Geothermal Law will spur investment in the sector.
 

Criminal Provisions Under the Omnibus Law
 

The Omnibus Law has added qualifications for certain criminal offenses under the Geothermal Law, meaning that criminal sanctions for these offenses will be imposed only if the offenses have resulted in casualties or have damaged health, safety and/or environment. The affected offenses are as follows:

 

1. conducting direct geothermal activities (i) without a PBPL, (ii) not in the location stipulated in the Business License, and (iii) not in accordance with its purposes;

 

2. conducting indirect geothermal activities without a Business License for Indirect Utilization (Perizinan Berusaha untuk Pemanfaatan Tidak Langsung or “PBPTL”).

 

The Omnibus Law also removes the threat of imprisonment as contained in provisions in the Geothermal Law for the following violations: 

 

1. intentionally conducting exploration, exploitation and/or utilization activities not in the designated work area;

 

2. carrying out indirect geothermal utilization business activity without a PBPTL; and

 

3. intentionally using a PBPTL not in accordance with its purposes.
    

Conclusion

 

The Omnibus Law focuses on business activities related to the direct use of geothermal resources. It gives the central government the power to control the authorities given to local governments. The Omnibus Law also seeks to encourage investment in the direct use geothermal sector by scrapping the production fee for the direct use of geothermal resources. For indirect geothermal activities, the Omnibus Law eliminates the dual licensing regime in water conservation areas. But it will be important to closely monitor further implementing regulations to be issued for Omnibus Law.