An Update on Indonesia's Geothermal Activities

Abstract

In late 2014, the Government of Indonesia promulgated a Law Nr. 21/2014 on Geothermal, to replace the Law Nr. 27/2003. The new law addresses the major issues impeding Indonesia's geothermal resources development that included the inappropriate and conflicted regulations that have created uncertainty over its implementation. These include removing geothermal undertaking as mining activities and improved the structure of geothermal transactions. The following article highlights changes of Law Nr. 27/2003 to Law Nr. 21/2014 and Government's efforts to accelerate geothermal development in Indonesia, including but not limited to issuance of geothermal feed-in tariff, streamlining permit and license processes, overcoming land indemnification issue, and government participation in mitigating exploratory risk. The new Law Nr. 21/2014 provides improvements to some of the issues that have hindered geothermal projects in Indonesia, namely distribution of authority of government institutions over direct and indirect use of geothermal resources, licensing procedures and resolving forestry issues in geothermal development. These include improved process and procedure for tender of working areas and direct utilization licenses. Also, the classification of geothermal as "mining activity" allows greater latitude for the geothermal development in the protected and conservation forest. While new geothermal law has indeed made fundamental changes to the processes and procedures related to geothermal development in Indonesia, however, its effectiveness remains to be seen, as the new law will still require implementing regulations for executions in the form of Government, Presidential and Local Government regulations. These regulations will provide the guidelines on the processes and procedures for tender of working areas by the Central Government and direct utilization licenses. Also, the forestry may need to be further amended before the provisions of the new geothermal law related to the conduct of geothermal activities within forest areas can be effectively implemented. Equally important is the bidding process of selecting potential developer, which is to be reviewed diligently. Also, local people's resentment may hamper the development of the geothermal resources; accordingly the plan for geothermal development shall be designed by integrating local people aspects.