The newly passed Geothermal Law is expected to provide a greater contribution to the local economy, although the central government will take back authority from local administrations to issue exploration rights to investors.
Under the law, passed by the House of Representatives last week, local administrations will no longer have the authority to issue the rights for the exploration and exploitation of geothermal resources in their areas.
The government is hoping to eliminate the complicated licensing procedures at the provincial level.
Rida Mulyana, director general of renewable energy at the Energy and Mineral Resources Ministry, said that local administrations would receive more money from the development of their geothermal resources even if they will no longer decide the issuance of exploration and exploitation rights to investors.
Under the new law, investors would have to pay a certain percentage of the revenue they receive from the operation of their geothermal power plants to the local administration, Rida said. He added that this so-called production bonus would ensure that local administrations would benefit from the development of geothermal resources in their area.
The regulation detailing the size of the production bonus is under discussion, and is expected to be completed by the end of the year.
The new law stipulates that geothermal operations are no longer categorized as mining operations alongside the exploration and production of oil, gas and mineral products.
This means that the development of geothermal fields located in forest conservation areas is no longer prohibited. Under the Forestry Law, conducting mining activities in forest conservation areas is illegal; this has caused delays to many geothermal projects, most of which are located in protected forests.
“The new law will not only regulate the production bonus for new projects, but also for existing geothermal power plants that are already in operation and which already pay tax,” Rida said, adding that the obligation to pay a production bonus has been communicated to the operators of the existing geothermal power plants.
The production bonus will entail greater benefits for local administrations, as the new Geothermal Law also upholds their right to a part of non-tax revenue such as royalties from the operation of geothermal power plants.
Under the new law, the central government will get 20 percent of non-tax revenue while the local administration will get 80 percent. Of that 80 percent, up to 16 percent will go to the provincial administration, 32 percent to the regency or municipality hosting the operation and the remaining 32 percent will go to other regencies and municipalities in the province.
Abadi Purnomo of the Indonesian Geothermal Association welcomed the new plan. However, he said, the bonus should not amount to a burden for the developers.
“Around 0.5 percent will be enough,” Abadi said.
Chevron Geothermal Indonesia, a major player in the country’s geothermal business, is still waiting clarity on regulation detailing the size of the production bonus.
“It’s too early to tell, we still don’t know the regulation detailing it. We still don’t know how the regulation will be implemented,” Chevron Geothermal’s general manager for policy, government and public affairs Paul Mustakim said.
Indonesia’s abundant geothermal resources are estimated to be able to produce around 29 gigawatts, among the highest in the world. However, only 1,341 megawatts of electricity are currently generated by geothermal resources in the country.
Exploitation of the resource is hampered by licensing problems—particularly the prohibition of geothermal projects in conserved forest areas—protests from local residents over perceived harm to the environment, the vast amounts of capital required and the uneconomical tariff of electricity produced by geothermal plants.