Independent Power Producers (IPPs) have existed in Indonesia pursuant to Power Purchase Agreements (PPAs) since early 1990s and are classified into three broad generations. IPPs currently account for approx 14% of Indonesia’s total generating capacity. Most IPPs, particularly in recent times, have also operated pursuant to a more general set of Public Private Partnership (PPP) arrangements. (please see PPP).
First Generation of IPP (1992 until the Asian Financial Crisis)
Private participation in Indonesia electricity sector probably started in 1992. Relatively high forecast returns (IRRs often between 20% – 25%) together with the provision of a Government guarantee (via a support letter to cover PLN’s obligations under the PPA) meant that there was initially a high investor uptake during IPP tendering.
However, when the Asian financial crisis struck in late 1997, PLN became financially troubled particularly as a result of the fall in the value of Rupiah. PLN had to put many of its IPP projects on hold. When renegotiations were completed in 2003 most continuing IPP investors agreed to new PPAs which generally included lower tariffs than were initially contemplated.
Nevertheless, this first generation saw generating capacity lifted to 4,262 MW. Landmark projects included the Salak Geothermal Power Plant, the Cikarang Listrindo and Paiton I. Paiton I was the largest IPP project in Indonesia with installed capacity of 2 x 615 MW. A second expansion occurred under the same first generation framework.
During 1999 – 2004 there were no new power projects tendered.
Second Generation (post Asian financial crisis to 2008)
The second generation of IPPs commenced during the period 2005 – 2008. This generation was however not view as particularly attractive to investors as:
- No Government guarantees were provided;
- The risk allocation was not viewed as favorable to investors; and
- The forecast returns were lower (IRRs often between 12% – 14%)
Over 100 project proposals only 18 were awarded. These IPPs included those announced as part of Indonesia’s Infrastructure Summit in 2005 and 2006 under PPP scheme.
Third Generation (2010 onwards)
The third generation of IPPs will operate under the recent revisions to the PPP framework developed by the Policy Committee for the Acceleration of Infrastructure Provision (KKPPI). Third generation of IPPs will be differ from second generation IPPs in that the PPP risk allocation mechanism will be clearer and more supportive of the investor and more government support will be provided. President Regulation No. 13/2010 (issued in January 2010) which amends President Regulation No. 67/2005 on PPP Infrastructure Projects, attempts to streamline the PPP process by offering:
- Revised bidding arrangements including extensive bidder/tender consultations;
- Better-defined risk allocations to help with the bankability of projects;
- Government support and guarantees ; and
- Financial facilities.
Permits required by IPPs
| Type of Permit | Details |
| Sitting Permits | Business Location Permit (Izin Tempat Usaha) by Regent of respective Regency (Bupati Kepala Daerah TK2) |
| Environmental Permits | Approval of the Minister of Mines and Energy on Environment Analysis (Analisa Dampak Lingkungan) including the Environmental Management Plan (Upaya Pengelolaan Lingkungan) and the Environmental Monitoring Plan (Upaya Pemantauan Lingkungan) for the Project conducted by the AMDAL Central Commission of the Ministry of Mines and Energy to be issued to Seller pursuant to Regulation of the Minister of Mines and Energy No. 2 of 1993. |
| Design and Construct Permits | Work permits for foreign personnel employed by Seller issued by the Chairman of the BKPM, based on approved Manpower Plan (Rencana Penggunaan Tenaga Kerja).
Construction licenses required for the contractors to engage in the construction of the Project issued by Governor of respective Province. |
| Other (eg. Commissioning O&M) | Commissioning certificate issued by Director General of Electricity and Energy Development for the Plant following commissioning tests.
Electricity Supply Enterprise Permit for Public Benefit (IUKU permit) issued by the Chairman of the BKPM as an operation license following commissioning of Plant. |
| List of permits required by Agency | |
| Central Government | Investment License under the Foreign Investment Law No. 1 of 1967, in the form of Presidential Approval Notification Letter (the SPPP) or Capital Investment Agreement Letter (the SPPM) on the basis of Domestic Investment Law No. 6 of 1968, as amended from time to time, issued by the Chairman of the BKPM on terms consistent with the material provisions of the PPA and the results of the negotiations between the Sponsors and the GOI.
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Permits and Approvals Required under Indonesian law in relation to Power Plant Projects
I. Company Formation
- Deed of Establishment (Articles of Association) executed before a notary
- Approval of the Deed of Establishment from the Minister of Justice
- Registration of the approved Deed of Establishment at the Local District Court in the domicile of company
- Publication of the Deed of Establishment in the State Gazette (Berita Negara) by the State Printing Office
II.Investment Procedure
- Letter of Preliminary Approval
- Feasibility Study
- Approval from the President as stated in the Letter of Notification of the President Approval (“SPPP”) issued by the Chairman of BKPM
- Registration at the Regency Office of Department of Trade to obtain a Company Registration Number (TDP)
- Issue of the Commission Certificate by the Director General of Electricity and Power Development for the Plant following the Commissioning Test
- Issue of the licence to a private business company in order that it may undertake the business of electric power supply in the interest of the public (the IUKU) by the Chairman of BKPM
- Business Location License (Ijin Tempat Usaha)
- Permanent/Fixed Business Licence (IUT)
- Issue of Final Operation License by Chairman of the BKPM (Izin Usaha Ketenagalistrikan untuk Kepentingan Umum – IUKU) following the commissioning of the plant
III.Financial
- Registration with the Department of Finance, Directorate General of Taxation, to the centralisation of income tax and value added tax administration in the relevant Jakarta tax office
- Registration with the Department of Finance, Directorate General of Taxation, to obtain Value Added Taxpayer Number
- Consent of the Department of Finance, Directorate General of Taxation, to the centralisation of income tax and value added tax administration in the relevant Jakarta tax office
- Approval from the Department of Finance, Directorate General of Taxation for Book-Keeping in English and in US dollar currency
IV. Construction
- Issue of the Advance Building Permit (presentation delegated by Governor to Regency level)
- Issue of the Building Construction Permit (Izin Mendirikan Bangunan – IMB) by the Regent of Jepara Regency, the Province of Central Java (presentation delegated by Governor to Regency level)
- Permit from the Minister of Communication, Director General of Sea Transportation for construction and operation of a temporary jetty for Project Site during the construction and operation period or,
- Permit from the Director General of Sea Transportation, Governor /Head of the Province of Central Java, to utilise sea water for purpose of the project (cooling water & desalination plant)
- Permit from the Minister of Communication, Directorate General of Sea Communication for discharge of waste water into the sea
- Permit from the Central Java Transportation Office for dredging
- Permit from the Director General of Sea Transportation to carry out reclamation with dredged material
V. Environment
- Approval from the Minister of Mines and Energy of the environment Impact analysis (Analisa Dampak Lingkungan) conducted by the AMDAL Central Committee of the Department of Mines and Energy
- Approval from the Minister of Mines and Energy of the Environment Management Plan (Rencana Kelola Lingkungan or RKL)
- Approval from the Minister of Mines and Energy for the Environment Monitoring Plan (Rencana Pemantauan Lingkungan or RPL)
- Permit from the Minister of Health to possess, store and utilise hazardous waste
- Issue of a Nuisance Act Permit
VI. Loan
- Permit from the Team for the Coordination of Offshore Commercial Loans (Tim Koordinasi Pinjaman Komersial Luar Negeri or PKLN) to obtain foreign loan
- Approval from Bank Indonesia of documentation for a foreign loan within the intended investment as set forth in the SPPP
VII. Land
- Issue of the Location Licence by the Regent of Jepara Regency, the Province of Central Java
- Execution of Sale and Purchase/land relinquishment documents relating to land acquisition
- Grant of Hak Guan Bangunan (HGB) title for the Project Site by the Head of the National Land Agency
- Registration of the HGB title
VIII. Tax
- Issue of Limited Importer Registration Number (APIT) from Chairman of the BKPM for importation of goods for project during operational period
- Approval from the Chairman of BKPM of the Master List of imported capital goods (covers import duty and PPN) and issue of decision on tax facilities for such capital goods*
- Application for exemption from income tax on imports (PPh. 22)
- Application for suspension of Value Added Tax (PPn) and /or Value Added Tax on luxury goods (PPnBN)*
- Order 23 Procedure
- Permit from the Department of Finance, Directorate General of Customs and Excise to establish and operate a customs clearance office and bonded area at the Project Site during the period of construction and operation
IX. Employees
- Approval of the Plan on the Employment of Expatriates (‘Manpower Plan’) (RPTKA) from the Chairman of BKPM*
- Issue of Work Permit (IKTA) for individual expatriates by the Chairman of BKPM based on approved RPTKA
Indonesia Power Generation 