| Abstract |
Indonesia, more than any other country, has abundant untapped geothermal resources and the greatest potential for future geothermal development. In addition to its current 1,189 MWe of geothermal generation from seven projects, Indonesia has recently embarked on a program to increase that generation capability to 4,600 MWe by 2016 and then to 9,500 MWe by 2025. The Indonesian government has recognized that achieving this goal will require substantial financial investment, much of which will have to come from the private sector, including foreign developers. In order to encourage such investment, the government has put into place a set of comprehensive regulations, focusing primarily on a new tendering process that will allow both Indonesian and overseas companies to obtain rights to develop a geothermal resource within a predetermined area (termed a Geothermal Working Area). The fundamental component of the tendering process is the offer of guaranteed power sales price to PT Perusahaan Listrik Negara (Persero), the state electric utility. This guaranteed price will form the basis for a negotiated power purchase agreement to be in place prior to commencing the high-cost, high-risk, exploration drilling phase. The lack of a signed power purchase agreement at this stage of development has often been a major economic impediment to developing geothermal prospects around the world. The Indonesian government has also made some significant policy changes to accommodate this new type of geothermal investment. Geothermal Law 27/2003 regulates the upstream business of geothermal and provides the basis for all future geothermal development in Indonesia. Many other legislative actions have also been adopted which address the downstream business and regulatory aspects and which are designed specifically to encourage development. Technical assistance for implementation of this rapid development program has recently come from President Obama’s newly launched U.S.-Indonesia Comprehensive Partnership. The assistance has taken the form of a Geothermal Training Program, sponsored by the U.S. Trade and Development Agency, aimed at regional government officials who have been tasked with overseeing the new tendering process. This is a critical program because, up until now, almost all the regulatory and permitting oversight functions have been completed by the Indonesian central government and regional officials have not typically been participants in the geothermal resource development process. The new government policy now vests the authority for geothermal power development with the appropriate regional officials. This paper discusses the tendering process in detail and outlines the pre-tendering and post-tendering requirements and obligations with which a geothermal developer will need to comply in order to develop resources in Indonesia. Also presented are the requirements for foreign geothermal investment in Indonesia and a discussion of some hurdles that need to be overcome in order to streamline the process and ensure its transparency. |