API-INAGA anticipating more incentives for Indonesia geothermal development

API-INAGA anticipating more incentives for Indonesia geothermal development Prijandaru Effendi, Chairman INAGA (source: INAGA)
Carlo Cariaga 10 Oct 2022

The Indonesian Geothermal Association is expecting more incentives to be announced as part of the Presidential Regulation 112 for the development of geothermal projects in Indonesia.

The Indonesian Geothermal Association (INAGA) / Asosiasi Panas Bumi Indonesia (API) is awaiting announcement of further incentives as part of the Presidential Regulation 112/2022 or the “Acceleration of Renewable Energy Development for the Provision of Electricity.”

We reported on the new policy several weeks earlier with details on the new power purchase rates from geothermal power plants. However, the policy also has a provision for derivative incentives for geothermal developers, both fiscal and non-fiscal. These are the incentives that API-INAGA are waiting for as indicated by Head of API Priyandaru Efendi.

Priyandaru clarified that the power purchase rates indicated in the policy were different than those proposed by the API. The highest benchmark price was actually lower than what was proposed by the API under a feed-in-tariff (FIT) mechanism. However, Priyandaru noted that the policy had “sweeteners” in the form of fiscal and non-fiscal incentives.

According to Article 22 of Paragraph 2 of the Presidential Regulation, fiscal incentives can take the form of income tax facilities, exemption from import duties, land and building tax facilities, and support for financial facilities through guarantees assigned by the government. The regulation did not specify which non-fiscal incentives can be granted, except that they will be provided by the central government or the local governments in accordance with statutory provisions.

To this end, the API expects at least two specific incentives:

  • Exemption from the Land and Building Tax (PBB). Priyandaru says that this is quite a significant cost that amounts to about 2% of a project’s revenues. This is on top of other bills that geothermal developers have to pay such as a production bonus (0.5% of gross income) and royalty fees.
  • Value added tax (VAT) incentives for the engagement of local services and purchase of domestic supplies.

The API is also appealing for technical guidelines for the negotiation of electricity purchase prices between geothermal developers and state-owned electricity company PT PLN. Priyandaru suggests that the Government designate an independent consultant as third party for when price negotiations have not been concluded after 6 months.