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17 November 2014
On August 26 2014 the House of Representatives passed new legislation concerning geothermal energy. The new Geothermal Resources Act is a revised version of the 2003 Geothermal Energy Act, with major changes that are meant to ease development of the country's geothermal energy industry.
The new act clearly distinguishes geothermal energy use as either 'direct use' or 'indirect use'. Direct use refers to the exploitation of geothermal energy for purposes such as tourism, agribusiness and industrial purposes, while indirect use refers specifically to the use of geothermal energy for electricity generation.
The new act makes the central government the sole licensing authority for the use of geothermal energy for electricity generation. The previous licence issued by local governments (the IUP) must be converted to a new licence (the IPB) within six months of the effective date of the new act. The conversion obligation lies with the Ministry of Energy and Mineral Resources.
The price payable by power utilities for use of the state's geothermal energy will now be set by the government, based on "economic cost". The new act also allows mining business permit holders that signed geothermal power purchase agreements before the legislation came into force to renegotiate their agreements.
In a major change from the 2003 act, the new act does not categorise geothermal exploitation as a form of mining activity. This means that geothermal activities can be conducted in forest conservation areas, which cannot be used for mining activities. The new legislation also allows concessions on state lands, registered lands (lands with a title certificate), tribal lands and water areas.
The size of a concession is no longer capped (as it was under the 2003 act), but must take into account the geographical extent of the geothermal system. The new act also provides the government with the leeway to regulate this aspect through regulation.
Benefits are being offered to local governments, as developers of geothermal power plants are required by the new act to pay production bonuses from their gross revenues to the relevant local government. Details on the percentage of this production bonus are still under discussion and will be addressed in a future government regulation.
For further information on this topic please contact Herry Nuryanto Kurniawan at Ali Budiardjo, Nugroho, Reksodiputro by telephone (+62 21 250 5125), fax (+62 21 250 5122) or email (firstname.lastname@example.org). The Ali Budiardo, Nugroho, Reksodiputro website can be accessed at www.abnrlaw.com.
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