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Legal barrier to geothermal development in Indonesia removed

Publication Date : 27-08-2014


Indonesia's House of Representatives passed on Tuesday the new Geothermal Law, eliminating the legal barrier for the development of the country's geothermal resources, which are among the largest in the world.

Energy and Mineral Resources Minister Jero Wacik said the new law heralded a breakthrough in the development of geothermal resources in the country because activities relating to geothermal development were no longer considered mining activities, such as the exploration and production of oil, gas, minerals and coal.

With this change, the development of geothermal fields located in forest conservation areas were no longer prohibited, the minister added. Under the Forestry Law, conducting mining activities in forest conservation areas is prohibited, causing delays in many geothermal projects that are mostly located in protected forests.

 “We have huge potential but development has remained low due to environmental concerns. This has now been changed and we hope it will create a new era in geothermal development,” Jero told legislators in a speech during a House plenary session.

Indonesia is rich in geothermal resources, which estimates suggest could produce 29 gigawatts of electricity. However, current utilisation is no more than 5 per cent of the potential as only 1,341 megawatts (MW) of electricity are produced from existing geothermal plants.

The Energy and Mineral Resources Ministry has offered 58 geothermal working (concession) areas for development, but only nine of them are already in production. The remaining 49 have remained undeveloped, either because they are located in protected forests or due to electricity pricing problems. The lack of finance sources and local people’s resentment has also hampered the development of the geothermal resources.

Stalled projects due to permits related to the use of forests include the 40-MW Kotamobagu project and 55-MW Iyang Argopuro project, according to recent data from the ministry.

Several other working areas are also standing idle because the electricity pricing proposed by project bidders was considered too high
by the government. They include the Sipoholon Ria-Ria working area in North Sumatra, Marana in Central Sulawesi and Bonjol in West Sumatra.

Jero said that with the passing of the new law, the pricing problems would be resolved as the new law also included guidelines for the establishment of an electricity-pricing policy applicable to both investors and the buyer, state-owned electricity company PT PLN.

“The price of electricity from geothermal used to be very low despite the high costs of development. I have issued a ministerial regulation about the pricing,” Jero added.

The ministry recently issued a new regulation regarding the ceiling price for new geothermal projects ranging from 11.8 US cents to 29.6 cents.

The ministry’s director general for renewable energy, Rida Mulyana, said the new Geothermal Law, which replaces previous Law No. 27/2003, would also offer benefits to local people as it required the developers of geothermal power plants to allocate “production bonuses” or part of their revenue to local communities.

Details of the production bonuses would be formulated under a new government regulation, he added.

The new Geothermal Law also stipulates that tenders for geothermal projects will now be issued by the central government. Under the previous mechanism, the central government only determined the geothermal working areas, while the tenders for their development were offered by local administrations.

With the new mechanism, the regulation was also expected to simplify the bureaucratic process required for geothermal development, Abadi Purnomo of the Indonesia Geothermal Association said.

“The old system was sometimes confusing, as developers had to secure permits from both central and local governments,” Abadi said.

Highlights of the new law

* Geothermal activities are no longer considered mining activities so that development of geothermal resources can be carried out in forest conservation areas. Under the Forestry Law, mining operations are prohibited in protected forests.

* Tenders for geothermal projects are called by the central government instead of by local administrations under the current regulations.

* New geothermal projects should be developed under new pricing rules.

* Local administrations will receive a portion of the revenues derived from geothermal resources under the so-called production bonus scheme.

* Government regulations mandated by the law must be issued within two years after the law passes.
* Regarding the direct utilisation of geothermal potential and pricing, early surveys, exploration and the procedure of assignments, tendering procedures, requirements, documents and implementation, the size of working areas, procedures for determining prices, procedures of administrative sanctions, obligations of the holders of geothermal licenses, the amount and procedures of production bonuses, the management and utilisation of geothermal data and information and supervision.


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