| Title | Developing Geothermal Energy in a Changing Regulatory Environment |
|---|---|
| Authors | Alimin Ginting, David Newell, Paul Mustakim, Usman Slamet |
| Year | 2010 |
| Conference | World Geothermal Congress |
| Keywords | Regulatory, changing, uncertainties, economic, resolution capability |
| Abstract | From the beginning of development of Indonesia’s abundant geothermal reserves in the early 1980s, a key success factor for developers has been the ability to cope with a constantly changing regulatory and economic environment. This paper will describe some of the challenges faced by private developers, the impact of those challenges have had on business decisions and strategies for succeeding over the long – term investment periods required for a geothermal project. Prior to 2003, geothermal development was regulated under a series of presidential decrees which provided the legal basis for private developers to enter into contractual arrangement with the state oil company, Pertamina, which had the exclusive rights on development of all geothermal opportunities in Indonesia. Those presidential decrees provided certainty to developers of their contractual rights and obligations and certainty in the fiscal terms applicable to geothermal development. Following the change of government in 1998 and the enactment of a new geothermal law in 2003, a new regulatory structure was created that transferred the development rights for geothermal from Pertamina back to Government. This new law brought also a significant change in which a “business license” is acquired through a competitive tender process instead of a “joint operating contract” (JOC). The new Law explicitly grandfathered the terms and conditions of all geothermal development contracts already in existence, but left many of the details unclear as to how this would be accomplished. In addition, new laws imposing more autonomy to regional and local governments have created a new set of stakeholders with their own expectations. These new stakeholder, whose perceptions government perceptions toward geothermal development located within their areas are increasingly important in sustaining a profitable business, lack an understanding of how the old contracts would be interpreted in the new legal structure. The changes in regulations and stakeholders expectations have introduced a new level of uncertainty to investors under both new law and the prior laws. In the central government, new regulations sometimes have been interpreted differently by various parties. Local stakeholders’ interpretations of their regulatory rights have sometimes led to conflicts with investors’ contractual rights. Several specific examples of these regulation conflicts and their resolutions are elaborated in this paper. |