Powering Indonesia: How the New Local Content Policy Will Benefit Electricity Infrastructure

The Indonesian government has taken a significant step in promoting domestic participation in the energy sector with the recent enactment of Minister of Energy and Mineral Resources Regulation No. 11 of 2024 on Utilisation of Domestic Products for the Construction of Electrical Infrastructure (“Regulation”). This new Regulation sets the new local content requirements for the energy sector as the previous regulation on local content, Minister of Industry Regulation No. 54 of 2012, has been revoked.

Exemption to the Local Content Requirements

Under the Regulation, power projects may secure an exemption from the local content requirement if they are funded by offshore loans/grants from multilateral or bilateral creditors. This exemption recognises the complexities of international financing and aims to strike a balance between encouraging domestic participation and enabling project viability.

To qualify for the exemption, two key conditions must be met:

1. Offshore loan/grant agreement

   • The agreement must explicitly waive the local content threshold outlined in the Regulation.

   • Alternatively, the agreement may stipulate a specific local content threshold that the project company must comply with.

2. Financing

   • At least 50% of the total project financing must come from multilateral or bilateral creditors (development banks or financial institutions) through:

     • Offshore loans/grants to the government.

     • On lending of offshore loans/grants to the government; or

     • Direct offshore loans/grants to the project company.

The exemption allows internationally funded projects to proceed, while still contributing to Indonesia’s infrastructure development goals. Moreover, it encourages the participation of both local and foreign investment in Indonesia’s power sector.

Relaxation of the Local Content Requirements

The Regulation also introduces a significant relaxation of local content rules specifically for solar power plants. This relaxation, valid until 30 June 2025, aims to accelerate solar energy adoption while fostering domestic manufacturing capabilities.

To qualify for this relaxation, solar power projects must meet the following criteria:

1. Power Purchase Agreement (PPA): The PPAs must be signed by 31 December 2024.

2. Commercial operation: The project must commence commercial operations by 30 June 2026, as outlined in the Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik or RUPTL).

3. Solar module assembly: The solar modules must be either:

   • Assembled domestically; or

   • Imported by a foreign solar module company committed to investing in domestic solar module production and complying with the local content requirements. The production of solar modules must be completed by 31 December 2025.

The Coordinating Minister of Maritime Affairs and Investment will play a crucial role in identifying eligible solar projects through coordination meetings with the relevant stakeholders. Like the exemption, this relaxation provides a chance for solar projects to benefit from both international experience and local growth.

Lower Cumulative Local Content Threshold

The Regulation stipulates that the local content threshold will be decided by the Minister of Energy and Mineral Resources. Accordingly, the Minister has issued Decision No. 191.K/EK.01/MEM.E/2024 on Minimum Local Content Value of Combined Goods and Services in Electricity Infrastructure Development Project (“Decision”). The thresholds are derived from various existing, commercially operational, and verified power plants.

Generally, the minimum local content thresholds under the Decision are lower compared to those stipulated in the 2012 regulation. For ease of reference, the current and previous minimum local content thresholds for each power plant is provided in the table below:

An independent verification agency with an Electricity Support Services License (Izin Usaha Jasa Penunjang Tenaga Listrik or IUJPTL) will assess whether a project meets the local content threshold. This crucial step happens before the project is handed over. The assessment results carry a significant weight, determining whether sanctions will be imposed or awards granted. When sanctions are imposed, it can be in the form of a fine, suspension of the project, or revocation of license.

Key Takeaways

Both the Regulation and Decision represent a pivotal shift in Indonesia’s energy strategy, creating an environment where local industry and infrastructure can thrive together. By strategically balancing local content goals with the practical needs of project implementation, the government has paved the way for a more robust and sustainable energy future. It also sets the stage for local and foreign players to seize the opportunities presented by this new regulatory framework.