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Investing in Indonesia’s
Geothermal EnergyIndustry
An overview of opportunities, capabilities and provisions
European Union Desk at BKPM
© 2014 by Indonesia Investment Coordinating Board (‘BKPM’). All rights reserved
The Investment Coordinating Board of the Republic of Indonesia
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Contents
An introduction 3
Why Indonesia? 4
Market opportunities 5
Existing and future capabilities 13
Government provisions and support 25
Six good reasons to invest in Indonesia’s geothermal sector 34
The Investment Coordinating Board of the Republic of Indonesia
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An introduction
Indonesia offers an abundance of opportunities for investment in its vast and booming
energy industry.
With a growing population of nearly 250 million people, an increasing proportion of which
is living in dense urban areas, Indonesia’s need for new, clean and sustainable sources
of energy has never been greater.
Supporting this market opportunity, Indonesia’s capabilities and activities in geothermal
are growing, as is the level of support being provided by the Indonesian Government and
its supporting authorities to ensure both the country and investors can benefit from the
advantages of geothermal energy.
The Investment Coordinating Board of the Republic of Indonesia
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Why Indonesia?
Put simply, Indonesia’s offering to potential investors in geothermal energy strikes a
crucial balance between a host of market opportunities, the right capabilities and a
supportive regulatory framework with attractive incentives and provisions:
MARKET
OPPORTUNITIES
EXISTING & FUTURE
CAPABILITIES
GOVERNMENT
PROVISIONS & SUPPORT
Possess potential 40% of
global geothermal reserves
299 identified potential
geothermal locations
9% increase in electricity
demand in 2012/13 alone
35% of Indonesians have no
access to main electricity
Established and growing
geothermal energy
specialisation talent pool
Existing cluster of successful
foreign and domestic
geothermal businesses
Competitive labour costs –
lowest of the geothermal
markets in S.E. Asia
USD 39 million Risk
Exploration Fund
National target to generate
9,500MW of geothermal
energy by 2025
Up to 95% foreign capital
ownership in surveying and
drilling projects
5-10 year tax holiday, with
subsequent tax reductionsSources: IEA, PLN, Ministry of Energy and
Mineral Resources Source: Financial TimesSource: Ministry of Energy Decree (2009) and 22/2012, DNI Reg.39 (2014) KBLI 71100
Market opportunities
© 2014 by Indonesian Investment Coordinating Board. All rights reserved
The Investment Coordinating Board of the Republic of Indonesia
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The size of Indonesia’s Potential Geothermal Market
Indonesia’s geothermal energy market potential is unsurpassed anywhere in the world –
with an estimated 28.5 Giga Watt Hour (GWh), Indonesia holds around 40% of global
reserves and is the equivalent to approximately 50 large coal-fired power stations.Based on 2012 findings*, there are currently 299 identified potential geothermal locations
throughout the Indonesian archipelago – the most important sites and their respective
potential in Mega Watts (MW) are presented below:
Potential (MW)
201 – 500
151 – 200
101 – 150
51 – 100
1 – 50
All others
Sources: *BKPM Geothermal Study 2012, Ministry of Energy and Mineral Resources
The Investment Coordinating Board of the Republic of Indonesia
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Meeting Indonesia’s growing energy demands
In spite of Indonesia’s immense resources in geothermal
energy, much of the country’s vast potential remains
untapped. Less than 5%* of Indonesia’s estimated
geothermal potential (or 1,341 MW) is currently utilised
and is only the third largest producer of geothermal energy -
behind the USA and the Philippines.
The International Energy Agency (IEA) estimates that 35%
of Indonesia’s population does not have access to
mains electricity. In the broader South-East Asian
context, this equates to 134 million people.
Indonesia’s demand for energy is set for continued rapid
growth - current electricity capacity for the entire country
stands at 31 GW, with a 9% increase in electricity demand
in 2013, according to Indonesia’s State Electricity Company
(PLN)
Meanwhile, the IEA has predicted that Indonesia’s primary
energy demand will grow from 150 Mtoe** (million tonnes of
oil equivalent) in 2010 to nearly 400 Mtoe by 2035.
Sources: IEA Southeast Asia Energy Outlook (2013) and PLN, *Directorate of Geothermal Energy (Sep 2014)**1 Mtoe = 11,630 GWh (www.unitjuggler.com)
The Investment Coordinating Board of the Republic of Indonesia
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The rise of clean energy
Clean energy will form an increasingly vital part of both Indonesia’s and ASEAN’s energy
mix as industrial outputs from the region’s booming economy continue to rise and global oil
and gas prices remain subject to potential hikes and fluctuations.
By 2035, the IEA estimates that 20% of the region’s electricity generation will come from
renewables, with a predicted 50 TWh coming from geothermal energy.
Source: IEA Southeast Asia Energy Outlook 2013, *Sourceswatch (2009).
The Investment Coordinating Board of the Republic of Indonesia
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Ambitious plans – lucrative potential gains
Major opportunities exist for foreign investors in Indonesia’s geothermal sector, given
national plans to install up to 9,500 MW of geothermal energy by 2025*
The government has set a target of more than doubling the share of geothermal in
the country’s overall energy mix between 2010 and 2025 – as demonstrated in the
two charts below.
Further details on the government’s provisions, initiatives and support for investment in
geothermal energy are provided in the “Government provisions and support” section
Source: BKPM Geothermal Study (2012), *Ministry of Energy and Natural Resources (2012) Vision 25/25, President
Decree No.5/2006 National Energy Policy and Geothermal Energy Development Roadmap (2009 – 2025)
The Investment Coordinating Board of the Republic of Indonesia
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Sample of ongoing investment project:Tampomas Geothermal Power Plant Project,West Java
Located on Sumedang Regency
Area: 152.22 ha
Offered Investment Schemes:
- Build Operation and Transfer and or its
derivatives
- Build Operation and Own and or its
- derivatives
- Turn Key and or its derivatives
- Joint Venture and or its derivatives
- Concessionary Period
Incentives :
- Land provision by the Provincial
Government of West Java
- Pricing Policy (12 – 12.5 cents
USD/kWh)
Estimated Cost : USD 100.48 million
The Investment Coordinating Board of the Republic of Indonesia
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Available investment project opportunities:Hu’u Geothermal Power Plant Project, West Nusa Tenggara
Location: Dompu Regency, 70 km
from Salahuddin Local Airport,
Bima Regency
Prospective area: 10 km2, total of
7 sites
Estimated Cost: USD 400 million
Business opportunity: Local
consumption in Sumbawa Island -
4 Regencies & 1 Municipality with
a total population of 1.33 million
Potential: 69 MW (based on
research by the Ministry of Energy
and Mineral Resources)
Elevation: 90 - 500 Above Sea
Level (ASL)
The Investment Coordinating Board of the Republic of Indonesia
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Available investment project opportunities:Sembalun Geothermal Power Plant Project, West Nusa Tenggara
Location: East Lombok
Regency, 140 km from
Selaparang Local Airport,
Mataram Municipality
Prospective area: 14 Km2, total
of 6 sites
Estimated cost: USD 410
million
Business opportunity: Local
consumption, in Lombok Island
– 4 Regencies & 1 Municipality
with a total population of 3.2
million
Potential: 70 MW
Average Elevation: 1000 ASL
Existing and future capabilities
© 2014 by Indonesian Investment Coordinating Board. All rights reserved
The Investment Coordinating Board of the Republic of Indonesia
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The corporate landscape
Indonesia already hosts a dynamic cluster of foreign and domestic
companies operating in the geothermal sector
The Investment Coordinating Board of the Republic of Indonesia
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What are investors and geothermal sector leaders saying?
“We built our first geothermal power plant in Indonesia
back in 2000. It has been running extremely well since then
in Lahendong, North Sulawesi. .”
Edward Thiessen
President, Alstom Indonesia
“The tenders are out there, they just need the investors to
come in…there is still lots of room for new companies to
come in and develop the resources.”
Paul Brophy
President, EGS, Inc.
“I see geothermal as the future energy and Indonesia
inevitably has to develop its geothermal potential….Within
the next few years, geothermal will be able to compete with
coal on price in Indonesia.”
Sumpramu Santosa
President Director, Supreme Energy
The Investment Coordinating Board of the Republic of Indonesia
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Investor case studies:Chevron Indonesia
Chevron Geothermal has stakes in various geothermal
projects in Indonesia, including:
The Darajat project (Java): supplies geothermal steam,
which generates 259 MW of electricity. All power from the
site is sold directly to the national grid. Chevron holds a
95% operating interest in Darajat.
The Salak project (Java): one of the largest geothermal
operations in the world, with a total operating capacity of
377 MW
The combined output from Chevron’s Darajat and Salak
geothermal operations now produces sufficient renewable
energy to supply approximately 4 million homes in Indonesia.
The Indonesian government recently issued Chevron a
license to explore the area – first steps toward geological and
geophysical assessment have been taken. If successful,
additional development could potentially add about 200 MW
to Chevron's geothermal portfolio.
The Investment Coordinating Board of the Republic of Indonesia
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Investor case studies:Alstom
In 1995, Indonesia’s state electricity company, PLN,
granted Alstom a contract as part of a consortium for the
supply of a 20MW geothermal power plant under the
supervision of the Compagnie Française de Géothermie
(CFG), and financed on French assistant credits.
The technical specifications of PLN’s call for bids were to
build a turnkey geothermal power generation unit, including
the required equipment to regulate the geothermal steam, a
geothermal steam turbine, generator, direct contact
condenser, hotwell pumps, cooling tower, distributed control
center, turbine control, motor control and electrical
equipment rooms, substation, engine room, traveling
derrick; as well as civil works, project management and
commissioning.
The 20 MW unit began its commercial operation in 2001
after an extended construction period following the Asian
financial crisis in 1997.
The Investment Coordinating Board of the Republic of Indonesia
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Investor case studies:Raya Group joint venture with Bakrie Powers
Australia-owned Raya Group, formerly Panxs Geothermal, has
several projects in Indonesia in joint ventures with Indonesian PT
Bakrie Power to explore, develop and generate power from
geothermal resources across Indonesia, including:
The Daira Prima Project
Location: Northern Sumatra, IndonesiaEquity: 51%, Raya as Operator
Key features:• 30 megawatt project• Most advanced geothermal field in the region with established
geothermal reserves and 10 existing production wells• Substantial amount of exploration and study works completed• Electricity provided to PT Dairi Prima Minerals for its proposed lead and
zinc mine• USD150 per megawatt hour for 8 years and USD125 per megawatt hour
thereafter, plus 50% of carbon creditshttp://www.panaxgeothermal.com.au/projects-indonesia.htm
The Investment Coordinating Board of the Republic of Indonesia
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Investor case studies:Foreign-domestic consortium
In early 2013, PT Supreme Energy Muara Laboh (SEML), a
company owned by GDF SUEZ, PT Supreme Energy and
Sumitomo Corporation, completed the drilling of its first
exploration well at Muaralaboh, West Sumatera.
In December 2012, a first test confirmed the existence of a
geothermal system and a well with a conservative estimate
of 20 MW power capacity. The target is to produce a
sufficient amount of steam to supply a 220 MW power
plant, to be built in 2014.
The output of the project has been sold under a 30-year
PPA to PT PLN (Persero), the state-owned utility of
Indonesia.
Other GDF SUEZ geothermal projects in Indonesia include
the Rajabasa project - a partnership between PT Supreme
Energy and Sumitomo Corporation.
The project is situated in South Sumatera.
The Investment Coordinating Board of the Republic of Indonesia
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Associations, institutes and centres of excellence
Organisations supporting Indonesia’s geothermal sector are growing
in prominence, as are academic centres of excellence
The Investment Coordinating Board of the Republic of Indonesia
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Associations, institutes and centres of excellence
The Indonesia Geothermal Association is a scientific, educational and cultural
organization established in 1991 to promote geothermal energy. It’s a non-profit NGO
with the principal aim of encouraging, facilitating and promoting coordination of activities
related to research, development and application of geothermal resources. It currently
has 500 members.
http://inaga.org
The Geothermal Research Centre (GRC) at the University of Gadjah Mada in Yogyakarta
was established in 1995. In addition to teaching and conducting research in geothermal,
the GRC actively promotes geothermal energy development through seminars and
publications to build public awareness independently or jointly with the Indonesian
Geothermal Association. More than 20 academic staff with geothermal credentials are
employed by the centre, while more than 130 geosciences undergraduates and
postgraduates have received qualifications from the university in the past 15 years.
http://geothermal.ft.ugm.ac.id
The Investment Coordinating Board of the Republic of Indonesia
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Associations, institutes and centres of excellence
The Indonesian Institute for Energy Economics was established in
1995 with the primary aim of enhancing energy economics studies
that motivate and support national policies for prudent development
and utilization of energy resources in Indonesia.
http://iiee.or.id
The Magister (Master’s) Program in Geothermal Technology at the
Bandung Institute of Technology in West Java was established in
2008. Approximately 15-20 students are enrolled on the programme
each year.
http://geothermal.itb.ac.id
The Geothermal Research Centre at Diponegoro University in
Semarang, Central Java, has recently been established and is run
by the Faculty of Science and Mathematics to examine potential
geothermal resources in Indonesia.
http://webeng.undip.ac.id/
The Investment Coordinating Board of the Republic of Indonesia
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How do labour costs in renewable energy compare?
The chart below presents the Financial Times’ analysis of the average total annual
labour costs* for a renewable energy technology centre in Indonesia and other emerging
markets in South-East Asia and beyond with geothermal energy production and potential.
Source: fDi Benchmark 2014 (Financial Times)
* Based on a renewable energy technology centre headcount of 30, comprising: 1 chief engineer / technical manager, 3
senior engineers, 10 engineers, 4 assistant engineers, 1 head of R&D, 2 R&D team leaders, 1 senior technical drawer, 2
technical drawers, 3 software development engineers, 2 technology engineering specialists and 1 trainee / apprentice
Labour costs in renewable
energy technology in Indonesia
are either more attractive or on
par with other key markets in
South-East Asia, and significantly
more attractive than other
emerging market geothermal
hotspots such as Mexico.
Average annual labour costs in
Indonesia stand at D615,000
The Investment Coordinating Board of the Republic of Indonesia
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Kenya Indonesia Philippines Thailand Malaysia Mexico
Assistant Engineer 9,300 8,620 8,980 11,950 13,140 19,980
Chief Engineer /
Technical Manager
82,500 82,760 78,700 101,790 93,750 212,600
Engineer 4,575 13,050 12,300 17,840 20,350 30,300
Head of R&D 11,940 87,630 103,480 89,000 107,190 249,200
R&D Team Leader 26,950 28,800 29,500 39,240 41,000 71,800
Senior Engineer 18,200 18,400 17,880 26,650 27,690 43,200
Senior Technical
Drawer
18,200 18,400 17,880 26,650 27,690 43,200
Software Development
Engineer
16,100 17,740 17,100 24,200 25,200 40,100
Technical Drawer 11,900 13,050 12,300 17,840 20,350 30,300
Technology
Engineering Specialist
16,100 17,740 17,100 24,200 25,200 40,100
Trainee / Apprentice 6,130 4,100 5,550 6,940 8,670 10,580
Source: fDi Benchmark 2014 (Financial Times)
Note: the original dataset takes overall labour cost of each job type. These figures were divided by the average number of
employees for each job type (shown on previous slide) to provide an average cost per employee.
Renewable energy labour costs by job type and country (USD)
Government provisions and support
© 2014 by Indonesian Investment Coordinating Board. All rights reserved
The Investment Coordinating Board of the Republic of Indonesia
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Paving the way for a new era of investments in geothermal
The Indonesian Government and other supporting institutions have
established a host of provisions and incentives designed to encourage and
facilitate foreign investment in Indonesia’s geothermal sector, including…
95% foreign
investor ownership
option for geothermal
surveying and drilling
services
USD39 million Risk
Exploration Fund
for geothermal
projects
95% foreign
investor ownership
option for electricity
transmission and
distribution
companies
Power Purchasing
Agreement (PPA)
established to ensure
purchase of
geothermal power
Guaranteed feed-in
tariff up to 18.5
cent USD/kWh
for electricity from
geothermal*Subject to location
The Investment Coordinating Board of the Republic of Indonesia
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Key organisations: Ministry of Energy and Mineral Resources (ESDM)
The Geothermal Directorate sits within the Directorate
General of New Energy, Renewable and Energy
Conservation, which is a part of the Ministry of Energy and
Natural Resources (ESDM)
In 2011, the ministry set up a USD39 million Risk Exploration
Fund for geothermal projects with a view to making
investment in the sector more attractive.
In 2014, ESDM increased the price of geothermal energy from
11 to 12 US cents per kWh, again partly in a bid to attract
more investment in geothermal.
For existing geothermal power plants, price adjustments will
be negotiated with the State Electricity Company (PLN).
http://www.esdm.go.id/index-en.html
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Key organisations (continued):
Ministry of Research and Technology (RISTEK):
RISTEK supports the formulation of national policies and implementing coordination
in the field of research, science and technology. RISTEK’s Energy Programme is
one of the ministry’s six focus programmes. Its objective is to contribute to a
sustainable energy supply through the creation and use of new and renewable
sources energy. http://international.ristek.go.id
Agency For The Assessment & Application Of Technolog (Badan Pengkajian danPenerapan Teknologi or ‘BPPT’):
BPPT was established in early 1974 as a non-departmental government agency under the coordination of RISTEK. It publishes the Indonesia Annual Energy Outlook Book and, following its success in developing piloted Kamojang 5Mw power station, it is currently bidding* for further involvement in operating smaller scale Geothermal projects with a capacity under 20 Mw. http://www.bppt.go.id
State Electricity Company (PLN):
PT. PLN (Persero) is Indonesia’s state-owned Electricity Company and the single
buyer for all power generation projects. In 2011, a Power Purchasing Agreement
(PPA) came into force which obliges PLN to purchase electricity from all future
tenders of geothermal concessions. http://www.pln.co.id
Source: News from Berita Headline (2014)
The Investment Coordinating Board of the Republic of Indonesia
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Key incentives:
Risk Exploration Fund:
In 2011, the Ministry of Energy and Natural Resources established a Risk Exploration Fund
for the geothermal sector. Valued at USD 39 million, the fund was established to
compensate for previous failures in geothermal exploration and with a view to boosting
investments in geothermal projects.
National Innovation System Research Incentive 2014:
Aims to support R&D practitioners in optimising their resources as well as establishing
innovative collaboration with industrial bodies. This incentive is also intended for assisting
industrial entities in strengthening their science and technology (S&T) capacities. For each
approved proposal, the maximum amount of disbursed funds for non-consortium research
shall be Rp. 500 million (USD 50,000).
Tax Holiday:
5-10 year tax holiday is available from the commencement of commercial production for
investments in pioneer industries (including renewables). After the expiration of the tax
holiday, the taxpayer will be entitled to an income tax reduction of 50% for a further 2
years. Minimum capital injection of Rp 5 trillion (or apprx USD 500 million) is required.
The Investment Coordinating Board of the Republic of Indonesia
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Geothermal energy purchase price and tariff
In the United States (US), various findings* concluded that geothermal power plant would cost cheaper than coal plants. As such, prices corresponded as follows: 3.6 cents USD/kWh for geothermal power, versus 5.5 cents USD/kWh for coal.
As part of its carbon strategy, in 2012 the The Ministry of Energy and Natural Resources (MoENR) stipulated a guaranteed feed-in tariff based on locations – see table. – Prices were higher than in the US indicating growing demand in such investment today.
kWh: kilowatt-hourSource: BKPM Geothermal Energy Study (2012 & 2013), IEA Southeast Asia Energy Outlook 2013, *Sourceswatch (2009),
ESDM Decree 22/2012
Province
Geothermal Energy Generator Prices
(cent USD/kWh) (2012)
High Capacity Medium Capacity
Sumatra 10 11.5
Java, Madura, Bali 12 12.5
South Sulawesi, West Sulawesi,
South East Sulawesi13 13.5
North Sulawesi, Central Sulawesi, Gorontalo 14 14.5
West Nusa Tenggara, East Nusa Tenggara 15 16.5
Maluku and Papua 17 18.5
The Investment Coordinating Board of the Republic of Indonesia
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Key legislation:
Law No. 27/2003 on Geothermal Energy:
The law was formulated to regulate the management and development of geothermal resources through
both direct and indirect use. Based on this law, the government participates in risk-sharing in developing
upstream geothermal activities.
Regulation No. 70/2010 - Amendment to Regulation No. 59/2007 on Geothermal Business Activity:
The authorised time limit for geothermal development following the issuance of a permit was extended, in
the event that exploitations have not yet begun. The purpose of this regulation is to provide a conducive, fair
and transparent business climate for geothermal development. It also provides business assurance where
the Government determines the buyer and highest electricity price before development.
Ministry of Energy and Natural Resources Decree No.22 Year 2012 concerning Geothermal Energy
Prices:This decree focuses on energy price, and on the law protection towards the investor for the maximum use of Indonesian geothermal energy. These policies are issued to support to have a total Geothermal Power Plant Installed Capacity of 9,500 MWe by the year 2025. Cost of geothermal energy produced is slightly lower than those generated from fossil fuel such oil and gas, but still un-compete to that generated from coal fire plant. It is slightly higher specially than those from main mouth fire power plant. Thus, the opportunity to develop geothermal power plant in Indonesia is widely open to private.
This slide provides a concise summary of the key legislation governing
investment in Indonesia’s geothermal sector. BKPM can provide you with
further details on specific pieces of legislation.
The Investment Coordinating Board of the Republic of Indonesia
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Areas restricted for foreign direct investment
Certain types of activities are partially restricted when it comes to FDI. Key
areas relevant to the geothermal sector are detailed below. BKPM can
provide further details and answer your questions
Geothermal surveying:
Foreign ownership limited to
max. 95%
Geothermal
drilling:
Foreign ownership limited to
max. 95%
Geothermal
operating and
maintenance services:
Foreign ownership limited to
max. 90%
Electric power generation
<1MW:
100% domestic capital
required
Electric power generation
1-10MW:
Foreign ownership limited to
max. 49%
Power transmission,
distribution and
installation consultancy:
Foreign ownership limited to
max. 95%*
* In the case of power transmission and distribution, foreign ownership can be extended to 100% within the scope ofa Government-Private Cooperation during a concession period
The Investment Coordinating Board of the Republic of Indonesia
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The investment approval and licencing process
The chart below illustrates the core steps in the investment approval and
licencing process. BKPM can provide further details on the process and
specific requirements at each stage
The Investment Coordinating Board of the Republic of Indonesia
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6 good reasons to invest in Indonesia’s Geothermal sector
Strong existing
ecosystem of
geothermal centres of
excellence
Demonstrable
government support
through increased
geothermal price, tax
holidays / relief and
risk exploration fund
Unsurpassed
geothermal
potential: 40% of
global reserves
(Ministry of Energy and Mineral
Resources)
Increasing demand
for clean, sustainable
energy among
Indonesia’s booming
population of 250
million
Proven investment
success stories in
Indonesia’s
geothermal sector
Up to 95% foreign
ownership options
in various geothermal
operations
The Investment Coordinating Board of the Republic of Indonesia
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For further information, contact us at:
EUROPEAN UNION DESK INDONESIA INVESTMENT COORDINATING BOARD (BKPM)Jl. Jend. Gatot Subroto No. 44, Jakarta 12190P.O. Box 3186, IndonesiaMobile : +62 812 1863 1551Email : eudesk.bkpm@euind-tcf.comWebsite : www.euind-tcf.com
This presentation has been developed for BKPM with the support of:
BKPM International Representatives Offices:
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