Legal UpdatesPublicationsKey Terms in Power Purchase Agreement

The Minister of Energy and Mineral Resources (“MEMR”) sets main provisions that shall be included in the Power Purchase Agreement/Perjanjian Jual Beli Tenaga Listrik (“PPA”) between State Electricity Company/PT Perusahaan Listrik Negara (Persero) (“PT PLN”) as buyer and business entities as seller.

Such main provisions are contained in MEMR Regulation Number 10 of 2017 on Main Provisions for Power Purchase Agreements (“MEMR Reg 10/2017”) as amended by MEMR Regulation Number 49 of 2017 on the Amendment to Ministry of Energy and Mineral Resources Regulation Number 10 of 2017 on Main Provisions for Power Purchase Agreements (“MEMR Reg 49/2017”) and re-amended by MEMR Regulation Number 10 of 2018 on the Second Amendment to Ministry of Energy and Mineral Resources Regulation Number 10 of 2017 on Main Provisions for Power Purchase Agreements (“MEMR Reg 10/2018”), which hereinafter are collectively referred to as the “Regulation”.

The Regulation governs all types of power plant excluding intermittent-based power plants powered by new and/or renewable energy, hydro power plants under 10 MW (ten megawatts), biogas power plants and waste-to-energy power plants. PPA shall at least cover the following provisions:

No.

Provisions

Explanation

 1.

PPA Period

Maximum PPA Period is 30 (thirty) years starting from Commercial Operation Date (“COD”).

PPA is arranged by using Build, Own, Operate and Transfer (BOOT) mechanism.

 2.

Rights and Obligations of the Parties

Business Entities

Business entities have rights as follows:

  • to receive the payment of the electricity dispatched to PT PLN in accordance with the PPA;
  • to get the incentives for acceleration of the COD execution if such acceleration is to fulfill PT PLN demands;
  • to get the deemed dispatch if the PT PLN’s grid is interrupted not for reasons of force majeure

Business entities are obliged to:

  • design, fund, build, own, operate and transfer electricity power plants and may include electricity transmission if needed;
  • provide guarantees in the form of project execution guarantee, and performance guarantees in the form of a penalty;
  • pay penalties due to failure to achieve performance guarantees including penalties for the delay of COD;
  • submit monthly-projected AF plans;
  • sending and selling electricity to PT PLN in accordance with the plan electricity supply (projected AF);
  • take care of all necessary permits;
  • comply with the provisions of domestic component level;
  • maintain the continuity of electricity supply during the PPA period; and
  • pay penalties in accordance with applicable regulations.

PT PLN

PT PLN has rights as follows:

  • to receive  reliable and sustainale distribution of electricity from a power plant;
  • to obtainevery required approval in connection with the PPA.

PT PLN is obliged to:

  • provide incentives for the acceleration of the execution of the COD to business entities if the acceleration is based on the request of PT PLN;
  • absorb and buy electricity generated by business entities in accordance with the PPA;
  • pay deemed dispatch if PT PLN electricity network is not disturbed for reasons of force majeure; and
  • maintain and take care of the reliability of network facilities to receive electricity from business entities

 3.

Risk Allocation

The risks that shall be borne by PT PLN cover:

  • needs of electricity/electricity load;
  • limited transmission capability;
  • force majeure.

The risks that shall be borne by business entities cover:

  • change of policies or regulations (government force majeure);
  • land acquisition problems;
  • licensing including environmental license;
  • availability of fuel;
  • the punctuality of the construction schedule;
  • power plant performance; and
  • force majeure.

 4.

Performance Security

Performance securities consist of 3 (three) stages:

  • First stage
    The securities provided are to guarantee the achievement of the financing date in which they shall be valid starting from the signing of the PPA to the financing date.
  • Second stage
    The securities provided are to guarantee the achievement of the commissioned date in which they shall be valid starting from the signing of the PPA to the commissioned date.
  • Third stage
    The securities provided are to guarantee the achievement of the execution of the COD in which they shall be valid starting from the signing of the PPA to the execution of COD.

 5.

Commissioning and Commercial Operation Date

Business entities may accelerate the execution of the COD that has initially been planned for which they are entitled to get incentives. The incentives shall be agreed upon by both PT PLN and business entities in a business-to-business basis.

If a business entity causes a delay in COD, PT PLN is entitled to charge a liquidated damage penalty.

 6.

Fuel Supply

The fuel supply can be provided either by PT PLN or business entities.

If the fuel supply is provided by PT PLN, the supply shall meet the following terms:

  • Business entities guarantee the consumption of the Specific Fuel Consumption or the Specific Heat Rate in accordance with the PPA.
  • Business entities shall monitor the coal procurement costs in accordance with the contract that reflects the efficiency and the effectivenes of the procurement costs.
  • Suppliers of gas fuel shall guarantee the continuity of the gas fuel supply and shall pay the penalty when failing to achieve what is agreed upon in the contract.

 7.

Transaction

  • If a business entity fails to provide electricity in accordance with the PPA, the business entity shall pay the penalty.
  • If PT PLN fails to absorb the power in accordance with the PPA merely caused by PT PLN, PT PLN shall pay the penalty to the business entity.
  • Transactions shall be carried out in Rupiah unless the business entity obtains approval from Bank Indonesia.
  • In case dollar is used in a transaction, the exchange rate shall refer to Jakarta Interbank Spot Dollar Rate (JISDOR).

 8.

Dispatch Control

The Dispatcher shall prepare a plan and execute a dispatch in order to obtain a reliable electricity supply. Plans and execution of the dispatch shall be conducted by considering the costs and technical operations of the power plant.

Monthly dispatch for every power plants must be declared and reported to the Directorate General of the Electricity, and such report includes the violations of the Grid Code.

 9.

Penalty for Power Plant Performance

Penalties comprises the following:

  • Penalty related to Liquidated damage (LD), the penalty for a delay to achieve COD;
  • Penalty related to AF, CF and outage factor (OF), which is set at the amount that must be incurred by PT PLN due to a lack of the promised energy;
  • Penalty related to heat rate, which is applied specifically for gas-fired power plants whose gas is prepared by PT PLN and the coal-fired power plants.
  • Penalty for failure to maintain the reactive mega volt ampere;
  • Penalty for failure to maintain frequency; and
  • Penalty related to ramp rate.

10.

Termination of PPA

Termination of PPA may occur due to the following reasons:

  • End of PPA period;
  • Termination by one of the parties;
  • Failure to achieve financing;
  • Liquidation on or bancrupty of business entities; or
  • Force majeure.

Termination by one of the parties can be conducted in case, among others:

  1. the licences cannot be issued;
  2. no more funding is available; or
  3. unexpected costs are too large.

The termination of the PPA must be reported to the Directorate General of Electricity.

11.

Transfer of Rights

It is prohibited to transfer the ownership of the buiness entities before the power plant achieves COD unless the transfer of ownership is carried out to an affiliate whose 90% of shares are owned by the business entities.

The transfer of ownership after achieving the COD can be carried out after obtaining a written approval from PT PLN.

Transfer of rights shall be reported to the Directorate General of Electricity. This provision does not apply to geothermal power plants.

12.

Price Adjustment Requirements

The adjustment of the power selling price can be conducted if there is a change in:

  • the regulations related to the power selling price;
  • the taxation regulations;
  • the environment regulations;
  • the regulations related to the energy price; or
  • the technical factors based on the PPA.

13.

Dispute Resolution

Any disputes shall be resolved through either of the folowing mechanisms:

  1. Deliberation to reach consensus between the parties;
  2. Dispute resolutions carried out and decided by experts ;
  3. Dispute resolutions carried out and decided either by Indonesian National Arbitration Agency/Badan Arbitrase Nasional Indonesia (BANI), The United Nations Commission on Internasional Trade Law (UNCITRAL) or other Arbitration Agencies appointed.

The award stipulated by the Arbitration Agency is the final and binding decision.

14.

Force Majeure

The parties are exempted from their obligations in the event of force majeure, which (in this case) is limited to Natural force majeure;

If a natural force majeure causes a delay in COD execution, the COD execution  may be extended in accordance with the duration of the natural force majeure, including the time required to perform any repairments to a project, if this is deemed necessary.

If a natural force majeure causes electriciity to not be transmitted, the PPA may be extended in accordance with the duration of natural force majeure.

Other provisions that have not been included under this Regulation will further be regulated in the business-to-business-based PPA between the Parties.

 


 

For further information, contact us;

Dendi Adisuryo
dendi.adisuryo@adcolaw.com

Praniti Putri Mirza
praniti@adcolaw.com

@2019 ADCO Law. All rights reserved.
This publication has been prepared for general informational purposes only to provide clients with information on recent legal developments and is not intended as legal advice or opinion.

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