FOCUS: House to speed up deliberation on geothermal bill

By: Leo Jegho and Godang Sitompul

Indonesia may early next year have a geothermal law, which aims to provide legal certainty for investors who intend to enter the sector.

?The bill may be passed into law next February or March. This could happen because the bill does not contain elements which can trigger protracted political debates,? Tunggul Sirait, a member of the House of Representatives? (DPR) special team for the drafting of the geothermal power bill, told Petromindo.com. The team is part of the House?s Commission VIII in charge of energy and mineral resources, science and technology and the environment.

The commission plans to hold hearings with the government next January to deliberate the bill, said Tunggul who is a lecturer on energy at the prestigious Bandung Institute of Technology (ITB).

The bill, a copy of which was made available to Petromindo last week, is among the few bills proposed by the House, as most bills have come from the government. The House?s drafting team has held hearings and discussions with different parties including the Indonesian Geothermal Association (API), which submitted its draft geothermal law last December.

House members say Indonesia urgently needs a special law to regulate its abundant geothermal resources, which remain largely untapped.

Some 40 percent of the world's geothermal resources are located in Indonesia, which are equivalent to at least 9 billion barrels of crude oil, the House-proposed bill asserts. The geothermal resources could potentially turn out some 20,000 megawatts (MW) of electricity, government official say.

The bill asserts that since geothermal steam cannot be exported, Indonesia needs to exploit the resources to fulfill the rising domestic demand for energy, thus reducing the country's dependence on oil and gas.

If passed, it will be the first law specially governing the country's geothermal energy.

Previously, Law No 44 of 1960 on Oil and Gas regulated the geothermal sector, but the new Oil and Gas Law, which became effective late in 2001, removes geothermal resources as an area of oil and gas regulation.

As a matter of fact, prior to the implementation of the new oil and gas law, the government had revoked state oil and gas company Pertamina?s decades-long control over the country?s geothermal sector. In May 2000, the government issued a presidential decree to transfer the control to the regional governments.

The House-proposed geothermal bill contains the basic principles of the presidential decree.

The central government and the regional governments (provincial and regency governments) have authority to issue licenses to geothermal energy investors. A regent will issue the license, if the concession is situated in the area under his or her jurisdiction. If the concession covers an area under the jurisdiction of two regents, a governor will issue the license. If the concession covers an area under the jurisdiction of two governors, the license will come from the central government.

The geothermal resources bill stipulates that any contract in the sector is effective for 30 years, and that they can be extended. The contract includes exploration, exploitation and operation.

Unlike the mining bill and the current oil and gas law, the geothermal resources bill obliges the government to conduct surveys to determine geothermal working areas before offering to investors through tenders. The bill says that in case the government cannot carry such surveys, it can ask other parties to do the work for it.

As regards revenue sharing, the geothermal energy bill stipulates that 66 percent of net income generated by power generation projects will go to investors while the remaining 34 percent will be for the government. The 34-percent portion includes taxes and levies. Meanwhile, of the 34-percent share, 70 percent will go to the regional government and 30 percent to the central government.

The geothermal energy bill stipulates the formation of the so-called Supervisory Body whose personnel comprise energy experts and government officials. The body is accountable to the President, appoints and discharges them with House approval.

The agency is assigned to give advices to the central and regional governments over their geothermal policies, their plans to issue licenses. It will also supervise the activities of contractors and approve their budgets.

The bill allows the central government and regional governments to suspend geothermal energy projects. In case contractors violate terms in their licenses or rulings set in the geothermal law, the central and regional governments can also freeze their licenses, but this action must be based on the recommendations from the Supervisory Body. The governments should give the investors one year to correct their mistakes, before moving to revoke their licenses.

However, there is no clause in the bill, which sets out a mechanism for investors to defend themselves or protect their interests in case of disputes with the governments.

Other key points in the bill include:

? In case a geothermal concession covers an area, which belongs to a traditional community, investors have to settle the acquisition of the land with the community in question in accordance with their traditional law.

? Geothermal contractors can be provided with tax incentives in accordance with the existing regulations.

? All previous geothermal contracts are still valid until the end of contract periods. Pertamina is still responsible for the contracts until a new company is established to take over the contract.

A number of geothermal power plant projects were shelved in 1998 shortly after severe economic crisis hit Indonesia. Prior to the crisis, there were 22 geothermal power projects approved by the government, but most of them have been delayed or shelved as part of the government's retrenchment efforts to cope with the economic crisis.

A couple of investors whose projects had been shelved brought their case to international arbitration panels on contract breach charges.

As a matter of fact, the government has planned to regulate the geothermal sector in the mining bill. The draft mining bill, which is yet to be submitted to the House for deliberations, contains several clauses on geothermal resources.

Sukyar, secretary to the directorate general of energy and mineral resources at the Ministry of Energy and Mineral Resources, told Petromindo that the government was ready to revoke the geothermal clauses from the mining bill, should the House insisted on making a special law on geothermal resources. (Hans Bodega and Robert Sihotang contribute to this article.)

Geothermal Power Plant Development Projects
No.	Name of the Project, Location Company / Shareholders	Capacity (MW)	PPA signed Contracted tariff (US$ Cent/KwH)	Investment (US$ Mln)	Status (Completion plan)
1	Patuha(Unit 1, 2,3,4), West Java Patuha Power Ltd. Mid-American	220	12/94 Years 1-15: 7.26 Years 16-22: 3.46	264	Unit 1: Reviewed Units 2,3,4: postponed Project ownership transferred from OPIC to GOI on August 21, 2001.
2	Wayang Windu, West Java Asian Power Ltd PT. Mandala Nusantara	220	12/94 Years 1-14: 8.39 Years 15-22: 6.52 Years 22-30: 5.58	264	Continued 1999 Interim agreement
3	Dieng(Unit 1,2,3,4), Central Java Mid-American Himpurna	150	12/94 Years 1-14: 9.81 Years 15-22: 7.41 Years 22-30: 6.21	192	Commissioned 1998 Not currently operating Project ownership transferred from OPIC to GOI on August 21, 2001.
4	Sarulla (Unit 1,2,3,4,5,6), N. Sumatra Unocal (90%) PT. Prama Geopower-Nusamba? (10%)	330	2/93	396	Postponed 1998-2001 Under re-negotiation
5	Daradjat (Unit 1,2,3,4), West Java PT. Prasarana Nusantara (20%) Amoseas (Chevron/Texaco) (80%)	275	1/96 6.95	330	Postponed 1999/2002 Reached long-term agreement
6	Salak (Unit 4,5,6), West Java Unocal Nusamba	165	11/94 8.47	247.5	Operating (1997) Reached long-term agreement
7	Bedugul (Unit 1,2,3,4), Bali PT. Pandanwangi Sekartaji California Energy Mawatindo	220	11/95 7.15	264	Unit 1,2: Reviewed Unit 3,4: Postponed Claimed termination to Pertamina
8	Karaha Bodas (Unit 1,2,3,4) West Java Karaha Bodas Co. LLC. Caithness (40.5%) Florida Power Light (40.5%) Tomen (9%) Sumarah Daya Sakti (10%)	220	12/94 Years 1-14: 8.46 Years 15-22: 6.58 Years 22-30: 5.64	264	Postponed In process of int. arbitration
9	Sibayak, North Sumatra PT. Dizamatra Powerindo Enserch	120	1/96 7.10	144	Postponed In the re-negotiation process
10	Cibuni, West Java PT. Yala Tekno Geothermal	10	11/95 6.90	12	Postponed In the re-negotiation process
11	Kamojang (Unit 4,5), West Java PT. Latoka Trimas Bina Energy Asia Power	2X30	12/94 7.03	72	Under review In the re-negotiation process
12	Lumut Balai, S. Sumatra Unocal PT. Daya Bumi Lumut Balai	150	N/A	331	Negotiated 2004
13	Ulubelu, Lampung/S. Sumatra PT. Darmasatrya Arthasentosa? Calpine	110	N/A	191	Negotiated 1999/2000
14	Tompaso, North Sulawesi: PT. Wahana Kumunikatama, Kanematsu Corp. Oxbow International Power	60	N/A	197	Negotiated
Source: Geothermal 2002, U.S. Embassy of Indonesia