New rules for geothermal production bonuses

By Abdul Haris Muhammad Rum and Chandra Karina, Lubis Ganie Surowidjojo
0
75

On 23 March 2017, Indonesia’s Ministry of Energy and Mineral Resources enacted Regulation No. 23 of 2017 on the Procedure for the Reconciliation, Depositing and Reporting of Geothermal Production Bonuses.

Abdul-Haris-Muhammad-Rum
Abdul Haris Muhammad Rum
Partner
Lubis Ganie Surowidjojo

The regulation applies to holders of geothermal business licences (i.e., holders whose concession is granted under the licence-based concession, pursuant to Law No. 21 of 2014 on Geothermal – or geothermal licence holders) as well as holders of geothermal utilization authorizations, geothermal joint utilization contracts, and geothermal utilization licences (i.e., holders whose concession is granted under previous geothermal regimes – or geothermal concession holders). Collectively these are geothermal businesses.

PRODUCTION BONUS

A geothermal production bonus is one of the payment obligations imposed on geothermal businesses, paid to regional governments where geothermal work areas are located.

The production bonus amount is calculated based on the sale of geothermal steam and/or electricity generated from geothermal energy. The applicable rates are as follows:

  1. 1% of gross income from the sale of geothermal steam, calculated by multiplying the sold geothermal steam (calculated in kwh-equivalent) by its sale price; or
  2. 0.5% of gross income generated from the sale of electrical power. The relevant gross income is to be calculated by multiplying the amount of produced electrical power (in kilowatt hours) sold by its sale price.

Payment obligation of a production bonus becomes calculable:

  1. For geothermal licence holders as of the first commercial production see article 3(1) of the regulation; and
  2. For geothermal concession holders see article 3(2): (i) As of 1 January 2015, for holders in commercial operation prior to Law No. 21 of 2014 coming into force; and (ii) As of the commercial production of the first geothermal unit for holders not yet in commercial operation prior to Law No. 21 coming into force.

Under article 2 (1), geothermal businesses are required to submit an annual geothermal production and sales plan, including a production bonus forecast. The forecast production bonus is calculated based on 1% of gross geothermal sales and/or 0.5% of electricity sales, as mentioned above.

Chandra-Karina
Chandra Karina
Senior associate
Lubis Ganie Surowidjojo

REGIONAL CALCULATIONS

In determining the amount of production bonus payable to a geothermal-producing region, the Minister of Energy and Mineral Resources undertakes two reconciliations: (1) on percentage of the region; and (2) of the sales of geothermal steam and/or electricity under article 13(1).

In reconciling the percentage attributable to a producing region, these parameters and weighting must be utilized under article 8(3): (1) the size of working area with a 20% weight rating; (2) production infrastructures with a 30% weight rating; (3) supporting infrastructures with a 20% weight rating; and (4) production realization with a 30% weight rating. In respects of sales reconciliation, under article 11(1), geothermal licence holders must submit the realization of geothermal and/or electricity sales, enclosing invoices for sales of electricity and/or payments for geothermal steam and/or electricity.

Geothermal permit holders are to submit the realization annually, while geothermal licence holders are required to submit once every three months (see article 11(2) and 11(3) of the regulation, respectively). In the event that excess or shortfall in actual sales of geothermal steam or electricity exists, the geothermal business in question must submit the discrepancy and supporting documents under article 11(3). The results of both reconciliations must be drafted into minutes, and will in turn be used to determine the percentage payable to the region in whose jurisdiction the geothermal work area lies.

PAYMENT PROCEDURES

Article 14(1) requires geothermal businesses to deposit the full amount of any production bonus into the relevant regional government’s account no later than 14 business days after the production bonus is determined by the minister.

Geothermal concession holders that had entered commercial production prior to the geothermal law coming into force (thereby obligated to pay a production bonus as of 1 January 2015) are obligated to deposit the production bonus payment no later than one month after the production bonus in question is determined by the minister.

Under article 16, geothermal businesses already in commercial production must deposit the production bonus to the regional government no later than 14 days after the amount has been set by the minister, and is reimbursable from the share of the central government. Any failure to deposit the required amount of production bonus is subject to administrational sanction, which may be in the form of warning letters, temporary suspensions of all exploration, exploitation and utilization activities, or revocation of geothermal business licences.

Abdul Haris Muhammad Rum is a partner at Lubis Ganie Surowidjojo and Chandra Karina is a senior associate at the firm

ablj_lubis_logo

Lubis Ganie Surowidjojo

Menara Imperium, 30th Fl. Jl. H.R. Rasuna Said

Kav. 1 Jakarta 12980, Indonesia

www.lgsonline.com

Contact details:

Tel: (62 21) 831 5005, 831 5025

Email: haris@lgslaw.co.id

Email: chandra@lgslaw.co.id