As financing of infrastructure projects in Indonesia are commonly financed through a project financing in which foreign sponsors usually require limited or non-recourse financing, a project company in the form of Special Purpose Vehicle (SPV) of an Indonesian-established foreign investment limited liability company (PT Penanaman Modal Asing or PT PMA) is commonly used for development of infrastructure projects in Indonesia. However, the use of a separate SPV is less common in other sectors where no project-financing is required.

For development of an infrastructure project where the procurement is usually conducted through a competitive process, the bidders are usually allowed to bid as foreign entities. Once the bidder is determined as a winning bidder, then the winning bidder will need to establish an Indonesian SPV in the form of a PT PMA to develop the project, obtain the necessary licenses, and hold the ownership of the assets of the project. We have seen market practices where the sponsors create layering of its shareholding in the SPV to deal with shares transfer restriction, e.g., (i) for power projects where shares transfer during construction is restricted, and (ii) for a Public-Private Partnership (PPP) project where the cooperation agreement between the project company and the Government Contracting Agency (GCA) provides shares transfer restrictions.

Further, it also becomes more common in Indonesian market for development of infrastructure projects by establishment of a joint venture company between foreign investors and Indonesian state-owned enterprises (or its subsidiaries) – whether the state-owned enterprises hold majority or minority stake in the project company. In that kind of structure, the shareholders agreement must need to include certain governance to deal with conflict-of-interest issues, world bank negative pledge issues, and control mechanism, to enable the project to be funded through a project financing.

Almost all sectors in Indonesia are now open 100% for foreign ownership – except for the limited sectors where foreign ownership are restricted under Presidential Regulation No. 10 of 2021. However, do note that the Indonesian Company Law requires minimum two shareholders and therefore, the PT PMA will need to be owned by minimum two shareholders.

There are also sectors where the regulations allow for foreign entities to operate without establishment of an Indonesian PT PMA, such as in upstream oil and gas and construction sectors.

The establishment of a PT PMA company must follow the Indonesian Company Law and the Investment Law. Other than those two main laws, the development and operation of a project company will be subject to multiple regulations, depending on the types of projects and activities that will be conducted by the project company. These regulations include environmental, safety, employment, book recording, reporting, including the reporting of ultimate beneficial ownership.

BKPM Regulation No. 4 of 2021 categorizes PT PMA as a big scale business and requires PT PMA to comply with: (i) the minimum investment value of more than 10 billion Indonesian Rupiah (IDR) (approx. USD650,000) excluding land and building per line of business per project location, and (ii) minimum issued/paid-up capital of IDR10 billion (approx. USD650,000) except determined otherwise by the prevailing laws.

For development of infrastructure projects in Indonesia, lenders usually still require a limited-recourse financing instead of a non-recourse financing. The credit support from sponsors is usually required to cover cost-overruns and cash deficiency, which is usually required during construction period. Certain credit supports from the sponsors during construction period in Indonesia are usually required due to long and unpredicted land procurement process which leads to delay and cost increase in project development.

While there have been growing trends of local banks participating in project finance deals, local banks in Indonesia continue to require and rely on a Letter of Undertaking (LoU) from the sponsors which covers a more extensive coverage in addition to cost-overrun and cash deficiency, this may include among other things, undertaking to top-up equity for any cash deficiency due to certain breach of financial covenant and/or insufficient or disruption of revenue from the project. In addition to this LoU, we have seen where local banks still require additional security such as corporate guarantee from the ultimate beneficial shareholders or holding company.

For projects developed through a PPP regime, the Indonesian government has established some credit support instruments under the prevailing laws to enhance its bankability, this includes among others: (i) government guarantee from the Indonesian Infrastructure Guarantee Fund, and (ii) viability gap fund. For other non-PPP projects, some limited government guarantee regime has been introduced, for example a business viability guarantee letter for power projects under the second fast-track program.

We also have seen some political risk guarantees provided to projects developed in Indonesia, such as (i) 47MW Rajamandala Hydropower Project that was backed with political risk guarantee up to USD200 million by the World Bank through Multilateral Investment Guarantee Agency (MIGA against the risks of transfer restriction, expropriation, war and civil disturbance, and breach of contract¹, and (ii) 2 x1,000 MW Central Java Coal-Fired Power Plant that was backed with political risk guarantee by the Japan Bank for International Cooperation.²

Footnotes:

¹ https://www.cao-ombudsman.org/cases/indonesia-rajamandala-hepp-01west-java.

² https://www.jbic.go.jp/en/information/press/press-2016/0603-48594.html.

Indonesian-law security interests for a project financing in Indonesia typically includes: (i) Hak Tanggungan (security right over land right) over the project company’s land right over the project site (which include buildings and fixtures that are attached to such land), (ii) fiducia security over tangible/intangible moveable assets (which usually consist of project-related equipment/machineries, insurance proceeds, and receivables from contracts), (iii) fiducia security over building (in case the project company only owns the building that is established on top of a plot of land which cannot be secured by Hak Tanggungan), (iii) pledge over the sponsor’s shares in the project company, and (iv) pledge over project-related bank accounts.

It is also common for a project financing in Indonesia to include contractual security arrangements that do not create a priority interest i.e., (i)  either (a) conditional novation over project agreements that allows the lenders to have a step-in right into certain contracts or (b) assignment for security purposes to assign the project company’s rights under certain contracts to the lenders, and (ii) letters of undertaking from the sponsors covering top-up in the event of cost overrun and/or cash deficiency of the project company.

Hak Tanggungan and fiducia security are perfected upon registration at the public registries. Hak Tanggungan comes into existence on the date it is registered in the Hak Tanggungan land book, as evidenced by a Hak Tanggungan certificate. Meanwhile, fiducia security is perfected once it is registered in the fiducia registration office online, as evidenced by a fiducia security certificate. Hak Tanggungan must be executed before a land deed official, and fiducia security must be executed before a notary both documents must be made only in Bahasa Indonesia.

On the other hand, there is no public registration required to create a pledge. A pledge over the sponsors’ shares is perfected once the pledge is recorded in the shareholder register. A pledge over a bank account is perfected once the account bank is notified of the pledge, as evidenced by an acknowledgement signed by the bank.

Pre-bankruptcy of the project company

In Indonesia, it is possible to enforce Indonesian law-governed security rights with or without any court involvement (i.e., by selling the secured objects through a public auction or through private sales in accordance with the applicable laws). For Hak Tanggungan and fiducia security, private sales mechanisms may only be carried out if, among others, (i) they are agreed upon by the parties and can achieve the highest price that will benefit the parties and (ii) the intended private sale has been notified to parties with interest and announced in newspapers.

Post-bankruptcy of the project company

The Bankruptcy Law allows a secured creditor to execute its rights over secured objects as if there were no bankruptcy declaration rendered against the bankrupt debtor. However, there is a stay period for a maximum of 90 days starting from the date when a bankruptcy declaration is rendered, that would end earlier if the borrower enters into insolvency state pursuant to the law, during which a secured creditor is prevented from enforcing its right over the collateral. The secured creditor may enforce its rights over the collaterals after the stay period or once the bankrupt borrower is in insolvency state. The security enforcement process must be implemented within two months after the commencement of the insolvency. After the 2-month period has passed, the curator must demand the delivery of the collateral for further sale.

Encumbrance of certain land rights or assets requires third-party consent, and land checking will need to be carried out prior to Hak Tanggungan encumbrance. Both processes may take substantial time to complete; therefore, they should be factored in when deciding the project timeline.

Third-party consent

In Indonesia, only Indonesian individuals and certain legal entities are allowed to hold the right of ownership (hak milik), which is the ultimate right over land that has no expiry. Usually, lands held by a project company is either the right to build (hak guna bangunan) or the right to use (hak pakai) over state land that will need to be extended from time to time. In the case of encumbered land, the land right extension needs to be completed prior to its expiration, as expiration will have the effect of Hak Tanggungan termination.

Sometimes a project company’s land rights are granted over right to manage (hak pengelolaan/HPL), which is the right to control from the state whose authority to manage is granted to the owner. In this case, the HPL owner’s prior consent will be required for the project company to be able to encumber Hak Tanggungan over its land rights.

As mentioned above, fiducia security over building(s) may be included as part of the security package if the project company does not own the plot of land upon which the building is established. This is because Indonesian land laws recognize horizontal separation principle (asas pemisahan horizontal), which separates the building from the plot of land. In practice, the lenders will require the project company to provide consent from the landowner prior to the fiducia security encumbrance.

Land checking

Land checking needs to be carried out prior to executing a Hak Tanggungan deed. The land checking certificate issued by the competent land office will show the land’s latest information and status, such as, among others, whether the land is currently encumbered with Hak Tanggungan, blocked, under seizure, and subject to any court proceedings. The lenders would usually require the land to be in a clean and clear status.

We note that the key project risks of project financing in Indonesia do not largely differ from key project risks in other jurisdictions. However, we have seen some key differences on the typical project risks in Indonesia, especially for:

(a) land acquisition risk – risks of delay due to land acquisition usually will cause lenders to require that the entire land for the project to be fully released and acquired before any loan drawdown. We also have seen infrastructure projects where the land is not allowed to be transferred to private institutions and therefore, the financing must be structured without Hak Tanggungan. This unique land issue usually drives the unique financing schemes and security models in financing of infrastructure projects in Indonesia;

(b) government force majeure risk – change in law and government action/inaction may incur additional project costs or affect project’s milestone. The allocation of this risk must be incorporated in the relevant concession agreement with government institutions. However, we have seen trends where such protection is structured to be shared between the government and the project developer – causing the lenders to require certain support from the sponsors to cover such risk-gap;

(c) currency risk – project finance loan provided by international lenders is usually in USD while for many of infrastructure projects in Indonesia, the revenue of the projects is in IDR. It is common in some sectors where the currency risk is shared in the concession agreement/cooperation agreement. However, for some projects where the private takes the currency risks, a certain hedging program must be established as a pre-requisite for the financing; and

(d) Supply/feed-stock risk – feed-stock risk is also a common issue in Indonesia market because there may be certain restriction which prevent to have a long-term supply contract to match the tenor of the debt (e.g., limited time of mining concession and insufficient resources to commit long-term supply). If a long-term supply contract is not possible, we have seen market practices where the lenders will require an alternative supply plan to be approved by lenders as a pre-requisite for the financing.

Government / regulatory consents or filing requirements depend on the type of project and the status of the project company, which will need to be analyzed on a case-by-case basis. In the case of offshore loans in Indonesia, a project company will need to file regular offshore loan reports with Bank Indonesia and the Ministry of Finance. Failure to report will subject the project company to administrative sanction but should not invalidate the financing.

Any specific export restrictions, subsidies, and foreign investment depend on the type of project and the status of the project company, which will need to be analyzed on a case-by-case basis. For example, in the power sector, all payments from PLN (as the offtaker) under the power purchase agreement must be in IDR (unless the project company obtains an exemption from Bank Indonesia to use foreign currency). In general, any foreign currency arising from offshore loans must be received through a bank that is licensed to do foreign exchange activities. In addition, a project company that obtains an offshore loan in foreign currency is subject to prudential principles requirements (i.e., hedging ratio, liquidity ratio, and credit rating requirement), and the implementation of prudential principles needs to be reported to Bank Indonesia.

Environmental, Social and Governance (ESG) constitute three benchmarks that serve as the primary measure for assessing business sustainability. The elements of ESG has been recognized in the Indonesian prevailing laws, this includes among others: (i) the Environmental Law requires businesses and/or activities having significant impacts on the environment to prepare an Environmental Impact Analysis (Analisis Mengenai Dampak Lingkungan Hidup or AMDAL), and (ii) the Manpower Law protects the interest of workers which defines the fundamental rights and responsibilities of workers and employers alike (e.g., compensation for workers who are laid off, prohibition of child labour, and health and safety in the workplace). In addition to that, there are also sector-specific ESG aspects, such as: (i) Indonesian Sustainable Palm Oil (ISPO) as a mandatory certification to ensure palm oil plantation sustainability, and (ii) the Sustainable Forest Management Certificate (Sertifikat Pengelolaan Hutan Lestari or S-PHL) which is given to forestry-related license holders that implement sustainable forest management.

In recent years, regulations specifically addressing ESG, and sustainability have begun to surface, primarily within the financial domain. Although some measures are mandatory (particularly in relation to ESG disclosure in the financial sector), most measures are largely still voluntary. Several requirements are as follows:

(a) Indonesian companies carrying out business activities in the field of and/or related to natural resources are required under Company Law Government Regulation No 47 of 2012 to conduct social and environmental responsibilities where such responsibilities must be conducted by the directors based on an annual work plan and must be reported to the general meeting of shareholders in the company’s annual report – there will be sanctions for companies that do not carry out the social and environmental responsibilities, but it is not clear what form these sanctions will take; and

(b) Financial institutions (Lembaga Jasa Keuangan or LJKs), issuers (emiten), and publicly listed companies are imposed with stricter requirements by the Financial Services Authority (Otoritas Jasa Keuangan or OJK). OJK Regulation 51 of 2017 requires LJKs, issuers, and publicly listed companies are required to implement sustainable finance by (i) specifically for LJKs, submitting their Financial Sustainability Action Plan (Rencana Aksi Keuangan Berkelanjutan) annually to the OJK containing one-year and five-year work plans to implement sustainability finance, and (ii) submitting an annual Sustainability Report (Laporan Keberlanjutan) to the OJK and publishing the report in their websites. LJKs, issuers, and public companies violating these requirements will be subject to administrative sanctions in the form of reprimand or written warning. However, OJK may also grant incentives to LJKs, issuers, and public companies implementing sustainable finance effectively in the form of competency development programs for their human resources, sustainable finance awards, and other forms of incentives.

The Ministry of Finance has also made efforts to integrate ESG in its activities by issuing the ESG Framework and Manual in Government Support and Facility for Infrastructure Financing to implement ESG principles in PPP schemes in Indonesia. The Ministry of Finance intends to focus on the implementation of the ESG Framework and Manual in PPP projects initially and then work its way to non-PPP projects that receive government support by 2025. Both the ESG Framework and Manual provide guidance for all PPP stakeholders in implementing ESG in every business process aimed at providing government support for PPP, including: (i) ESG risk analysis and assessment in the government support’s scope, (ii) taking necessary ESG-related mitigation measures throughout the entire project cycle, and (iii) incorporating ESG elements in the transaction documents and performance indicators.

Indonesia recognizes several methods to develop infrastructure projects, one of the methods is through PPP under Presidential Regulation No. 38 of 2015 and other relevant laws in which the government (i.e., the minister/ head of agency/ head of region as the GCA) may cooperate with the business entity (i.e., state-owned enterprise, regional-owned enterprise, or private business entity) to provide infrastructure projects for public interest with reference to the pre-determined specification by the GCA, partly or fully using the resources of the business entity with particular regards to the allocation of risk between the parties.

There are several economic and social infrastructure projects that can be developed through PPP based on its respective sector, where it may be proposed as a combination of two or more infrastructure sectors, such sector includes transportation, road, water resources and irrigation, water supply, centralized wastewater, localized wastewater, solid waste management, telecommunication and informatics, electricity, oil and gas, renewable energy, energy conservation, urban facilities, zone, tourism, education and research, sports and cultural arts, health, correctional, public housing, and state building.

Foreign judgments are not enforceable in Indonesia, although such judgments could be admissible as non-conclusive evidence in proceedings on the underlying claim in an Indonesian court.

On the other hand, contractual agreements to arbitrate will be upheld, and a foreign arbitration award that meets the requirement in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the requirement under the laws of Indonesia can be recognized and enforced in Indonesia.

Submission to a foreign jurisdiction and waiver of immunity by Indonesian parties in a foreign law governed agreement are generally effective and enforceable. This is because, according to the Indonesian law freedom of contract principle, the parties to an agreement are free to determine the terms and conditions of such agreement, including to choose the law that governs their agreement, provided that the resulting application will not or does not result in acts that are contrary to mandatory provisions under Indonesian laws, public order as determined by Indonesian courts, or good morals and based on the statements of expert witnesses.

In practice, we are not aware of any precedent of the implementation of waiver of immunity before Indonesian courts.

We have seen some of trends in the Indonesian project financing space, this includes among others:

(a) Increased Sharia Financing in Indonesia

Indonesia, home to a sizable Muslim population, sees growing demand for Sharia-compliant finance. Indonesia has established its own Sharia National Board (Dewan Syariah Nasional – Majelis Ulama Indonesia) that provides Sharia principles guidance to be applied in financing transactions. Sharia financing has been applied to various projects, including large-scale infrastructure and renewables financing. One of the most notable examples of successful Sharia financing is the IDR750 billion project financing under the Musyarakah structure provided by PT Bank Syariah Indonesia Tbk to PT Medco Power Indonesia for its renewable energy project. In addition to that, there is an uptrend in using hybrid financing for large-scale infrastructure project as applied in the IDR1 trillion project financing for the Makassar–Parepare Railway project, the first PPP railway project in Indonesia, using conventional financing structures and Musyarakah Mutanaqishah principles.

(b) Increased Involvement of SOEs in Project Financing

Traditionally, the project financing landscape in Indonesia is mainly occupied by private companies, but things are changing. With the growing prominence of renewable energy projects that are implemented through co-operation between private independent power producers with subsidiaries of PT Perusahaan Listrik Negara (Persero), as well as PPP projects, an increased involvement of State-Owned Enterprises (SOE) has been observed in the project finance landscape in Indonesia. This trend resulted in innovative financing structures and new hybrid security models to address concerns related to certain negative pledge clauses requirements which may affect SOEs and SOEs group financing.

(c) Increased Involvement of Local Banks in Project Financing

We have seen local banks are increasingly engaging in project financing for renewable energy and infrastructure initiatives. Two of the most prime examples is PT Sarana Multi Infrastruktur (SMI) and Indonesia Export Financing Institution (Eximbank), special mission vehicles under the Ministry of Finance, which are mandated to accelerate infrastructure development in Indonesia.

SMI has successfully completed the process of obtaining its first-ever USD700 million sustainability-linked loan from a number of banking partners including Indonesia, Singapore, Japan, Hong Kong, Taiwan and South Korea to support sustainable infrastructure projects in Indonesia. In the project financing space, SMI has provided: (i) USD70 million loan for the development of the 35 MW Blawan Ijen Geothermal Power Plant in East Java, Indonesia (this is one of the first project financings of geothermal project in Indonesia by an Indonesian lender), (ii) IDR200 billion loan for the development of 2 x 3 MW Tongar Mini Hydro Poer Plant in West Sumatera, Indonesia (this project received bilateral support from the governments of Indonesia and Japan as a Joint Crediting Mechanism project), and (iii) IDR41 billion loan for the development of 10 Commercial & Industrial Solar Rooftop Projects in several locations in Indonesia (this is one of the first project financings for C&I projects by an Indonesian lender).

Indonesian Eximbank and Bank Central Asia have provided IDR1,05 trillion blended financing for the development of a commercial complex which consist of hotel and marina in Labuan Bajo, Indonesia by PT Indonesia Ferry Properti (a joint venture between two SOEs, PT ASDP Ferry Indonesia (Persero) and PT PP (Persero) Tbk) to support the development of marina and tourism infrastructure in super priority tourism destinations as mandated by MOF Decree No. 272/2022.

Indonesia has introduced some key legislation in dealing with the energy transition, this includes among others:

(a) Coal Phase-Out

Indonesia made a legal breakthrough via the issuance of Presidential Regulation No 112 of 2022 (PR 112/2022), which is the first regulation to mandate the phasing-out of coal-fired power plants and prohibit the development of new coal-fired power plants. PR 112/2022 acts as a legal basis for PLN, as the sole electricity offtaker in Indonesia, to accelerate the early termination of its own Coal-Fired Power Plants (CFPP) and power purchase agreements with CFPPs owned by developers. Such early termination will be supported by various ministries ‒ from the Ministry of Finance (which will provide financing aid) to the Ministry of Energy and Mineral Resources, which is in the process of establishing a list of CFPPs that should be terminated early and developing a roadmap for such early termination of CFPPs.

The Ministry of Finance has issued Minister of Finance Regulation No. 103 of 2023. This regulation is designed to offer various facilities, including loans and facilities for PPP projects, to expedite the early termination of CFPPs and promote the development of renewable energy. Such facilities are channelled through SMI as the Platform Manager, which is mandated to oversee the energy transition platform – a platform that facilitates funding and financing for energy transition within the electricity sector. This regulation serves as a legal basis for the Ministry of Finance to actively participate in accelerating the process of energy transition by providing fiscal support.

(b) Carbon Trading

In 2021, the Indonesian Government finally released the long-awaited Presidential Regulation No 98 of 2021 (PR 98/2021). PR 98/2021 signifies Indonesia’s commitment to achieving its Nationally Determined Contribution (NDC) target and materializing a sustainable, low carbon economy landscape. It introduces carbon pricing as one of the strategies to carry out climate change mitigation and adaptation, which includes carbon trading, result-based payment, and carbon levy.

Within two years, the Indonesian Government issued several other implementing regulations for PR 98/2021, with the aim of accelerating the implementation of carbon trading in Indonesia. Ministry of Environment and Forestry Regulation No 21 of 2022 (MOEF Reg 21/2022) was issued one year after PR 98/2021 and sets out the technical procedures and further requirements for carrying out carbon trading, including:

• the requirement to register carbon trading activities to an integrated governmental platform called Climate Change Control National Registry System (Sistem Registri Nasional Pengendalian Perubahan Iklim or SRN PPI);
• the use of a Greenhouse Gas Emission Reduction Certificate (Sertifikat Pengurangan Emisi Gas Rumah Kaca or SPE-GRK) for carbon trading; and
• the monitoring, reporting, and verification (MRV) requirements.

One of the critical issues that trigger a long debate in MOEF Reg 21/2022 is the restriction to carry out international carbon trading until the NDC target for subsector or sub-subsector is achieved. This restriction has halted international carbon trading in Indonesia ‒ something that contributed significantly to carbon trading implementation in Indonesia prior to PR 98/2021.

The Ministry of Environment and Forestry is currently preparing a detailed procedure for international carbon trading that is expected to address this restriction and continue international carbon trading. The forestry and energy sectors, as the two primary sectors in achieving the NDC target, also have their own regulation for carbon trading, namely: (i) MOEF Regulation No 7 of 2023 (MOEF Reg 7/2023); and (ii) Ministry of Energy and Mineral Resources Regulation No 16 of 2022 (MEMR Reg 16/2022).

One of the notable aspects regulated in MOEF Reg 7/2023 concerns the licences required to carry out carbon trading in different types of forestry area, whereby it is clarified that business actors can use their current forest-related licences (e.g., forest utilisation business licenses, social forestry management approval, or management rights) for carbon trading in certain production and protection forest areas. MOEF Reg 7/2023 also indicates that international carbon trading may be carried out if there are emission reduction results in excess of the sub-subsector NDC target; however, the implementation remains to be seen.

MEMR Reg 16/2022 primarily governs the greenhouse gas emission ceiling for coal-fired power plants and the emission quota for each coal-fired power plant company, as well as the procedure for carrying out emission trading for those plants. Such emission ceiling has been established for coal-fired power plants connected to PLN’s grid in January 2023. The emission ceiling is determined for mine-mouth coal-fired power plants above 100 MW and non-mine-mouth coal-fired power plants with a capacity of 25 MW–100 MW, 100 MW–400 MW, and more than 400 MW. For coal-fired power plants not connected to PLN’s grid and coal-fired power plants for self-use, the emission ceiling will be imposed no later than 31 December 2024. This regulation also indicates that carbon trading for coal-fired power plants can at least commence immediately in 2023, with the full-fledged implementation starting in 2025.

Indonesia is also gearing up to join the international carbon market, with the launch of the first Indonesian carbon exchange (IDXCarbon) on 26 September 2023. IDXCarbon is administered by the Indonesia Stock Exchange (IDX) and is expected to be connected to the international carbon market soon. The development of IDXCarbon is under the auspices of OJK Regulation No 14 of 2023 and several operating regulations of IDX. In essence, the emission reduction certificate (SPE-GRK) and greenhouse gas emission quota (e.g., for coal-fired power plant companies) are the legally recognised carbon units to be traded in four types of market in IDXCarbon ‒ namely, the auction market, the regular market, the negotiation market, and the non-regular market.

(c) Carbon Tax

In parallel with the development of carbon trading, the Indonesian Government has issued Law Number 7 of 2021 (Law 7/2021) mandating the imposition of carbon tax. Carbon tax will be imposed on individuals or entities that purchase goods containing carbon and/or carry out activities that produce carbon emissions. The carbon tax rate is set at higher than or equal to the carbon price in the carbon market; however, Law 7/2021 sets a floor price for carbon tax, which is IDR30 per kilogram of carbon dioxide equivalent (CO2e) or equivalent unit.

Based on Article 17 of Law 7/2021, the carbon tax was initially planned to take effect on 1 April 2022 and would first be imposed on coal-fired power plants at a rate of IDR30 per kilogram of CO2e or equivalent unit. However, the implementation has been postponed until 2025 (CNBC, 2022). Law 7/2021 indicates that carbon tax will be imposed on coal-fired power plants that exceed the greenhouse gas emission quota (cap and tax), but the clear mechanism of such imposition remains to be seen as the Ministry of Finance regulation on carbon tax is still under preparation.

In general, payments to non-residents are imposed with a final withholding tax at a rate of 20%. This is subject to the applicable tax treaties. In addition, the corporate income tax for an Indonesian company is at a rate of 22%.

Note that encumbrance of Hak Tanggungan and fiducia security is subject to non-tax state revenue (pendapatan negara bukan pajak), which may be up to IDR50 million (for Hak Tanggungan) and IDR13.3 million (for fiducia security), depending on the registered secured value per certificate.

The most common funding structure for project financing in Indonesia is the lender(s) providing debt financing and the sponsor(s) providing equity financing (e.g., capital contributions and shareholder loans) to the project company. We have also seen a trend toward combining conventional and Shariah financing for project financing in Indonesia.

Instead of banks or export credit agencies, Indonesia has financing company(ies) that focuses only on infrastructure financing. In 2009, the Ministry of Finance issued Minister of Finance Regulation No. 100/PMK.010/2009 concerning Infrastructure Financing Companies. Subsequently, PT Sarana Multi Infrastruktur (Persero), a financing company solely owned by the Republic of Indonesia and specializing in infrastructure financing was established. Other than SMI, banks in Indonesia also generally act as lenders in project financing and take on supportive roles such as facility agent, security agent, escrow agent, or arranger.

The lenders providing a limited-resource project finance in Indonesia usually require the project company to obtain, among other things: (i) construction all-risk insurance, (ii) marine cargo insurance, (iii) property all-risk insurance, (iv) general liability insurance, (v) automobile liability insurance, (vi) workmen’s compensation insurance, and (vii) business interruption insurance.